Education & Earnings: Yes, James Tobin Was Very Smart
Via Mark Thoma, Paul Krugman challenges Treasury Secretary Paulson:
But he quickly reverted to form, falsely implying that rising inequality is mainly a story about rising wages for the highly educated. And he argued that nothing can be done about this trend
Andrew Samwick counters:
What always puzzles me about Paul Krugman and his claims about inequality is why he doesn’t seem to realize how silly he sounds when he refuses to acknowledge, and take some pride in the fact, that he is part of that top 1 percent. I find it hard to imagine that Paul Krugman’s income in 2004 wasn’t above $277,000, between his income from his university, his speaking engagements, his books, his columns, and his investments.
Mark writes the rebuttal for Dr. Krugman, which included this:
The logic seems to run as follows:
1. Krugman advocates policies that would reduce the income of affluent people.
2. But Krugman is an affluent person.
3. Therefore, Krugman is being dishonest.
Huh? Are you dishonest if you want to reduce poverty, but aren’t poor yourself, and will probably end up paying taxes to support anti-poverty programs?
While Dr. Samwick did not saw Dr. Krugman was being dishonest – given all the (false) allegations of Krugman dishonesty being hurled by the likes of Donald Luskin, I see can where Mark was coming from. Mark’s ghost writing for Dr. Krugman later noted:
I’m sure that I earn a lot more than James Tobin did (I use him as an example because of how modest his lifestyle was), but it’s not because I’m a better economist; it’s the system that has changed.
I will not even pretend I could ghost write for the author of How Dead is Keynes, but the calm and humor of the late James Tobin is surely needed here. I suspect Dr. Tobin would find some funny opening line that would have the room calm down and listen to his usual wisdom. I also suspect that he’d concede Dr. Samwick’s argument that education has something to do with earning – albeit it’s not the only factor. And then he’d likely challenge Paulson’s contention that nothing could be done about “this trend”, which seems to be saying policy cannot address the wide disparity of educational opportunities. After all, wasn’t a central theme in George W. Bush’s 2000 campaign for the White House that we must improve educational standards? OK, President Bush’s actual policies fall woefully short of his promises six years ago.
Update: Mark Thoma treats us to a 1996 interview with James Tobin. Dr. Tobin had some interesting comments about Social Security and minimum wages, and even politics. It is not surprising that much of the interview addressed macroeconomics. Mark and I were particularly drawn to Dr. Tobin’s comments about supply-side economics and other challenges in Keynesian thinking:
I think Keynesian ideas are still what’s going on in practical economics. What guides the Federal Reserve mostly is mainstream Keynesian macroeconomics. I don’t see monetarism being of any practical use these days and I don’t see real business cycle theory being of any practical use any days, even though it occupies an inordinate amount of time of some very gifted people and their students. And supply-side economics, aside from the supply-side economics that is just ordinary microeconomics and growth economics, the supply-side economics that you might call “pop” supply-side economics which, unfortunately, was able to get a certain amount of authenticity in this most recent political campaign for an outrageous proposal by Sen. Dole, I don’t see any of that getting anywhere at all. So, Reaganomics, supply-side economics in that sense, Laffer curves, Jack Kemp stuff, alas the stuff that some very good economists were selling during the recent campaign, that’s nonsense and that’s certainly not getting us anywhere. So after you look at the other entries in the beauty contest, you come back to the natural evolution from 1936 to 1962. And isn’t it interesting that these guys who were so big on pushing all these fantasies, Lucas, Barro, Prescott, they’re not interested in business cycles anymore—not because they solved the problem, but because they didn’t.