Business Unusual, October 18, 2002: Interview with Paul Krugman

SYNOPSIS: Click here to read "For Richer"

BERTHA COOMBS: Our first guest tonight says the past 30 years has seen only modest seller gains for most Americans. That is unless you're in the top 20 percent of families indicating that the gap between the haves and the have not is rapidly widening. Growing economic inequality in the United States is the cover story in this weekend's issue of "The New York Times" magazine. Its author is Paul Krugman. He's an economist and op-ed columnist with "The New York Times." Also a professor at Princeton University and joins us now from Princeton. Welcome.


COOMBS: Very provocative article. A lot of folks would have said listen, particularly in the '90s middle class really saw their boats rise right along with the rest of the tide.

KRUGMAN: Well, the middle class has seen some gains. There's no denying that. But I think most people are just not aware of how much of the gains have really been concentrated on a very small number of people. I think I just heard you say top 20 percent. It's the top one percent and in fact, even within the top one percent that the really big gains have come.

COOMBS: Well, certainly when we hear stories of people like Dennis Kozlowski the former CEO of Tyco International, who is accused of buying $15,000 umbrella stands it does make you wonder, you know, that CEO's make so much more than their workers. But there are people who argue that's good. Other people want to make money. Greed is good, as Gordon Gekko put it.

KRUGMAN: Well, a couple of things. The first is to realize that it's not just a few CEOs. You hear a story about Kozlowski and you say, OK there's one guy. It's bigger than that. We're really talking about - basically I would say that roughly eight or 10 percent of national income that formerly went to the middle class now goes to the top one percent of the population. We've had a doubling of their share. We've done remarkably badly in terms of raising the living standards of people near the middle. It's a - one of the things I talked in the piece is how social indicators, things like live expectancy, literacy are not doing as well in the U.S. as most people imagined. And the other thing is, you know, we really are - it's changing the whole feel of our society. We are just not a kind of place where most people share the same condition s of life and the way we were 30 years ago when most of people of my generation were growing up.

COOMBS: Interestingly though you talk about the fact that we are back in a sort of gilded age, back in an age, I guess of robber barons and it's hard to dispute that when we read about some of these CEOs and how much money they do make. But I would bet if you ask most people they would consider that they are middle class and that would cut a wide swatch of people.

KRUGMAN: That's right. In the U.S. people from about $20,000 a year up to about $300,000 a year think that they're middle class. The interesting thing and the thing that most people don't understand is that the big gains have not gone to doctors and lawyers and upper middle class. The big gains have actually gone beyond that. That's a story that's not told. It's a story people don't want to talk about, but really we are back, by the numbers, we're back to the kind of society we were in the days of "The Great Gatsby." And I think politically and in other ways we're moving to that kind of society as well and at the very least we ought to be aware of what's happening.

COOMBS: So, we're moving that way. What can we do to move things back?

KRUGMAN: Well, OK. This is not a policy piece. This is a what's happening to the society piece. I think the first thing to do though is just first to be aware. Not to make excuses, not to say it's not really true, not to say that a rising tide raises all boats because that's not as true as people think. Second, it to look at the ways in which it's happening. A lot of this is not supply and demand. A lot of this is insiders exploiting their advantages. Corporate CEOs being the most extreme example and if you ask why did we have a middle class society. Why in that great generation after World War II when everybody did so well when we had unprecedented prosperity, why did we have a middle class society. It wasn't mostly that market forces were suppressed it was that there were certain norms. There was a certain sense of outrage if corporate insiders made out like bandits while their workers and their stockholders did very badly. What we need to do, I think, is restore some of that outrage.

COOMBS: Well, it seem as though we're on that path of that outrage. Do you think that might bring along some changes? We don't have too much time left.

KRUGMAN: No. I think if you actually look it's amazing how quickly and hoe determinedly the burst of outrage we had during the summer has been diverted. What's actually if you ask me right now I'd say that the new robber barons are winning.

COOMBS: Oh, boy. Well, it's a fascinating piece Mr. Krugman. Thank you so much for joining us and I'm sure folks will have a lot to chew on this weekend.

KRUGMAN: Well, thank you.

Originally broadcast, 10.18.02