How do you study spatial economics and miss land rent?
Krugman’s 2008 Economics Nobel Prize
by Fred E. Foldvary, Senior Editor, OctoberThe 2008 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was awarded to Paul Krugman, professor at Princeton University, for his analysis of economies of scale in international trade and for his work in economic geography. Krugman also writes a widely read column for the New York Times.
Krugman is essentially a status-quo economist, and his prize illustrates the problem with conventional economic thought. In 1994, Krugman wrote the book, The Age of Diminished Expectations: US Economic Policy in the 1990's. Instead of the decline in productivity he predicted, the US had an economic surge with the technology boom and the rise of the Internet. Why did this expert in international trade not understand the great increase in global expectations that would burst forth with the rapidly rising economies of Asia and Eastern Europe?
Economist Daniel Klein and Ph.D. student Harika Anna Barlett wrote a critique of Krugman’s columns in the January 2008 issue of Econ Journal Watch . They note that Krugman “has written or edited more than 25 books, 40 scholarly articles, and 750 columns at the New York Times. They analyzed Krugman’s columns because his “eminence as a public-intellectual economist in the United States today is unsurpassed." The authors provide a large appendix on the topics of the column.
Unfortunately, Krugman has used his forum to promote the status-quo big-government welfare-state programs that have been the problem rather than the solution. Klein and Barlett argue that Krugman’s “pattern of policy positions and arguments do not square with his purported concern for general prosperity and the interests of the poor." “Krugman has almost never come out against extant government interventions, even ones that expert economists seem to agree are bad, and especially so for the poor."
The authors write, “Krugman’s 654 columns quite regularly advocate or at least vaguely support government intervention. Examples relate to the following policy areas: immigration, the minimum wage, unions, health care provision, health insurance, Sarbanes-Oxley, financial markets, telecommunications regulation, media ownership, energy conservation and fuel efficiency, disaster insurance, disaster response, electricity provision, foreign aid, global warming, and of course taxation and the ‘social safety net’ programs."
In their appendix 2 of Taking Stock of Paul Krugman’s 654 New York Times Columns, 1997 through 2006, the authors state that “Krugman strongly endorses redistribution through taxation." “A strongly progressive tax system, he says, helps limit economic inequality." “Krugman regards taxation to be a natural obligation of citizens." However, to his credit, he “recommended an across-the-board carbon tax, which could and should be offset by tax cuts elsewhere."
Given Krugman’s work on economic geography and spatial economics, one would think that Krugman would have analyzed the taxation of land value or rent. But Krugman seems to have ignored the topic, despite its equity as well as efficiency, despite its being the best for the poor.
It is well known in public finance theory, and taught in economics courses, that taxing a resource with a fixed supply avoids the excess burden of taxation. Taxing land value would not only avoid the deadweight losses imposed by taxing productive activity, but would also increase equality, since the unequal ownership of land value is a prime cause of economic inequality. Taxing land value or land’s “geo-rent," its rent capacity, also returns to government the site values generated by its services. (See my article, Geo-Rent: A Plea to Public Economists in Econ Journal Watch.)
In all his columns and books, Krugman is silent on public revenue from land rent. Surely he knows about it, but the potential impact of a shift to efficient and equitable taxation has evidently not sunk in. Instead of tapping the site rents, Krugman favors a redistribution which reduces output and growth and thus reduces the wages of workers, including the poor.
The word “krug" comes from the German and Yiddish name for a maker of drinking vessels. The public has been drinking artificially-flavored soda pop economics from the op-ed columns that are Krugman’s vessels. Let us hope that with his Nobel prize, he will have to answer why he has ignored the plea to public economists to recognize the virtues of geo-rent for public finance. Maybe then, confronted by his contradictions, Krugman will become a vessel man for a deeper and more humane economics that recognizes the harmony between liberty and prosperity for all.
-- Fred Foldvary
Copyright 2008 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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