National Data | Increasing Inequality: NY Times` Krugman Misses The Immigration Dimension
December 22, 2006, 04:00 AM
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The New York Times economist Paul Krugman [send him mail] is the latest guru to weigh in on why we're feeling bad in a "good" economy:

"The reason most Americans think the economy is fair to poor is simple: For most Americans, it really is fair to poor. Wages have failed to keep up with rising prices. Even in 2005, a year in which the economy grew quite fast, the income of most non-elderly families lagged behind inflation. The number of Americans in poverty has risen even in the face of an official economic recovery, as has the number of Americans without health insurance. Most Americans are little, if any, better off than they were last year and definitely worse off than they were in 2000."

"…For the first time in our history, so much growth is being siphoned off to a small, wealthy minority that most Americans are failing to gain ground even during a time of economic growth—and they know it." [The Great Wealth Transfer By Paul Krugman Rolling Stone Magazine]

Krugman never mentions immigration or globalization. But his litany of contributing factors—and the mythology that surrounds some of them—is consistent with our own views.

1. Education is not the problem.

Last year, Alan Greenspan testified that the big wage gains were going to highly educated professionals, while the other eighty percent—those with less education—were being replaced by computers or lost to imports. Inequality, Greenspan concluded, is ultimately "an education problem."[Greenspan Testimony, July 20, 2005  PDF]

Krugman's take:

"It's a good story with a comforting conclusion: Education is the answer. But it's all wrong. A closer look at our line of Americans reveals why. The richest twenty percent are those [in the 80th to 100th income percentiles.] But even those [in the 80th to 95th percentiles]—Americans who earn between $80,000 and $120,000 a year—have done only slightly better than everyone to their left. Almost all of the gains over the past thirty years have gone to the [richest 5 percent of people.] Being highly educated won't make you into a winner in today's U.S. economy. At best, it makes you somewhat less of a loser."

VDARE.COM's response: He's right: Even a Ph.D. doesn't guarantee future income gains—especially in fields inundated by foreign students. According to a National Research Council study: [National Research Council, Building a Workforce for the Information Economy, National Academies Press, 2001.]:

  • A Ph.D. in science causes a net loss in lifetime earnings for an American

 

  • Income foregone during a 5-year doctoral program exceeds the additional income received over the course of a native-born graduate's working lifetime

The National Science Foundation explicitly acknowledges the problem, saying that for American students "the effective premium for acquiring a Ph. D. may actually be negative."  Yet NSF regularly warns of a high-tech labor shortage and advocates special programs to increase the number of foreign doctoral students.

2. Inequality is not mainly a problem of poverty.

Krugman notes—correctly—that the poor are not the only ones who've fallen behind. "The real divergence in fortunes is between the great majority of Americans and a very small, extremely wealthy minority at the far right of the line."

VDARE.COM's response: The gap between poor and middle-class incomes has also widened—albeit by not nearly as much as the gap between those groups and the super-rich. A major factor: Increased immigration, coupled with a decline in the relative educational level and economic performance of immigrant workers themselves.

For example: In 1960, the average male immigrant earned about 4 percent more than the average U.S.-born male. By 1998, the average immigrant earned about 23 percent less. George Borjas, in his book Heaven's Door estimates that immigrants  are responsible for about half of the increased wage gap between high school dropouts and educated labor.

3. Declining union membership an effect, not a cause.

Krugman's take:

"At the same time, there has been a concerted attack on the institutions that have helped moderate inequality—in particular, unions."

"Why isn't Wal-Mart unionized? The answer is simple and brutal: Business interests went on the offensive against unions. And we're not talking about gentle persuasion; we're talking about hardball tactics. During the late 1970s and early 1980s, at least one in every twenty workers who voted for a union was illegally fired; some estimates put the number as high as one in eight. And once Ronald Reagan took office, the anti-union campaign was aided and abetted by political support at the highest levels."

VDARE.COM's response: Throughout U.S. history, union membership has ebbed when immigration flowed, and vice-versa.

Source: Vernon Briggs, "Immigration Policy and American Unionism: A Reality Check," Briggs Papers and Speeches, Vol. IV, Cornell University, 2004.

This relationship is not coincidental: numerous studies have documented the adverse impact of immigration on the ability of unions to organize workers and realize economic gains for those already organized. A survey of those experiences published jointly by the Departments of Justice and  Labor in 1999 concluded that "unions have been weakened directly by the use of recent immigrants." [Immigration Policy and American Unionism: A Reality Check, By Vernon Briggs]

Bottom line: Rising inequality is not inevitable—and Krugman knows it:

"America has never been an egalitarian society, but during the New Deal and the Second World War, government policies and organized labor combined to create a broad and solid middle class. The economic historians Claudia Goldin and Robert Margo call what happened between 1933 and 1945 the Great Compression: The rich got dramatically poorer while workers got considerably richer. Americans found themselves sharing broadly similar lifestyles in a way not seen since before the Civil War."

But this "Great Compression" was also a period of restrictive immigration policy–a fact Krugman tellingly ignores.

Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.