The spotlight on bankers' bonuses in the past couple of weeks has reminded me to say how much I enjoyed Paul Krugman's latest, The Conscience of a Liberal. I hadn't bothered to read it in hardback last year, partly because I assumed it would be a collection of his newspaper columns and partly because he seemed to have been writing about the same thing all the time whenever I looked. However, the paperback caught my eye in the bookstore and it handily filled a few train journeys.
He argues against the received wisdom that greater income inequality is due mainly to technological change amplified by globalisation, and that the underlying inequality has in turn led to greater political partisanship in the United States. Non-Americans probably didn't ever accept this conventional wisdom in its bald form but nevertheless did see technology and globalisation as key forces against which governments could resist only to a limited extent. My limited work on inequality (with Francois Bourguignon and other CEPR economists), a few years ago, persuaded me that inequality outcomes within countries were so different they must depend very much on political institutions and attitudes, so there was nothing inevitable about more technology/greater globalisation leading to greater inequality. But this wasn't a mainstream view.
Anyway, Krugman presents a very strong and well-evidenced argument that the causality runs from the politics to the economics: that a shift in the power base of the Republican Party and an ideology-driven political agenda led to greater inequality in the United States. I'm sure Republicans will disagree with him, but he sets out a case that requires answering.
The book also makes a powerful plea for healthcare reform in the United States. No other civilised nation can understand how the US can tolerate its unbelievably expensive and unfair healthcare system. As Krugman points out, the US spends twice as much per capita as other leadng economies, and gets lower life expectancy (p218). “We're off the charts in terms of what we pay for care, but only in te middle of the pack in terms of what we actually get for our money.” Presumably the jump in unemployment this year, with its consequences for loss of coverage for so many people, will help keep up the political impetus for reform.
Like many foreign admirers, I'd agree with Krugman that one of the most attractive aspects of the US in our lifetimes was the fact that it was a middle class society, and that a modest version of the American dream could so often become a reality. This used to be a genuine contrast with elitist societies such as Britain and France (despite our European welfare states). The Gilded Age of recent times is irrecoverably tarnished, so the intellectual climate which made extreme inequality tolerable has come to and end. But there's obviously still quite a task for President Obama in recreating that very American sense of fairness and opportunity, not to mention achieving healthcare reform.