Letters.

Taxing Arguments

Professor Paul Krugman has been irritating conservatives for years with his assertions about the rich getting richer and the poor getting poorer. On that score, his October screed ("What the Public Doesn't Know Can't Hurt Us") celebrates the new book by Edward N. Wolff and trashes that by House Majority Leader Dick Armey, both Ph.D. economists. He charges that Armey is "lying" about the "facts." It has become clear that Krugman is simply examining snapshots of the economy taken over time via the National Income Accounts, designed by his fellow Keynesians. There he discovers a divergence of both income and wealth at the statistical extremities. Alas, the snapshots never reveal who these people are who are getting richer and poorer, how many rich have gone bankrupt between snapshots, how many paupers have hit the lottery. These static photos do not reveal how many people with no incomes have come into the job market to earn low incomes, thereby increasing the number of statistical poor.

This time around at least Krugman reveals his basic political assumptions. In an economy where people catch fish, he says, incomes can remain within a range he considers reasonable, with taxes only needed to support invalids, widows, and orphans. In an economy of gold prospectors, where some strike it rich and some strike out, Krugman finds it "easy to imagine a broad public demand that those who have been lucky enough to find gold be required to share a significant fraction of their winnings with those who have not."

Here is the weakness in his demand-side model, which invites a benign, democratic socialism that can only stagnate. This is because a dynamic capitalistic system can function with taxation of income or wealth, but it cannot survive the taxation of success.

All growth is the result of risk-taking, a purely supply-side concept that is not active in Krugman's analytical framework (as far as I can see). For a society to tax those of its risk-takers who are by-passing the easy fish to go for the gold will per force reduce the number of prospectors. This lowers the discovery of gold that can be taxed as income, when it is mined, and reduces the mining of ore that can be taxed as wealth, when it is spent.

The statistics that bother Dr. Krugman have no positive utility. They only nudge Democratic politicians toward perverse policy actions, which cause them to lose elections. The funk in American society today results from the significant...