The Krugman article I blogged just below has elicited this response, from an anonymous economist, on Andrew Sullivan’s letters page. Because this page is not static, here is the salient part:

The importance of incentives to innovate comes up in evaluating Krugman’s comparions between the U.S. and countries like Canada and Sweden. Comparing the bottom decile in America to the bottom decile in Sweden is interesting, but fundamentally it cannot tell us what would happen if public policy in America took a hint from the Scandinavians. That’s because America–more accurately, the existence of an enormous, relatively free marketplace for new products–has been responsible for much of the innovation that has made living standards elsewhere so high. The median Swede might lose some of her wealth and longevity if it weren’t for America’s big-winner system producing new computers, software, pharmeceuticals, and other technology that make an hour of work buy a lot more stuff today than it did, say, in 1970. Even if some of those gains come from the minds of non-Americans, we have to ask how many of them we would have seen if it hadn’t been possible to sell beneficial new products in such a great big market.

I assume what she is trying to say is that if it weren’t for low US taxes the US market wouldn’t be as big as it is today and hence not as big a consumer of Volvos? The corollary of that argument is that Sweden is holding back US growth by taxing its citizens out of being able to afford Cadillacs. And indeed, a US foreign policy objective implies this. From The National Security Strategy of the United States of America comes this tidbit:

We will use our economic engagement with other countries to underscore the benefits of policies that generate higher productivity and sustained economic growth, including:

* pro-growth legal and regulatory policies to encourage business investment, innovation, and entrepreneurial activity;

* tax policies—particularly lower marginal tax rates—that improve incentives for work and investment;

The New Yorker’s Hendrik Hertzberg dismisses this as “your doctor’s names for tax cuts for the rich and environmental laxity”. (Thanks Felix for those FedExed back issues).

So who is being the parasite, then? Sweden, benefitting from American demand created by a huge market wrought through low taxation and income inequality? Or the US, exploiting an underclass for cheap labor while polluting the environment with impunity?

I believe it’s neither. The anonymous economist’s argument is bunk: Yes, the US has been responsible for much of the innovation that has raised global living standards. But so has Sweden. If there were such as thing as a statistic for innovation per capita, I reckon the 8 million swedes would be well ahead of the US–they are punching way above their weight.

Furthermore, it’s one thing to suggest that economies (and their markets) grow faster if tax rates are low. But she mistakes growth for absolute size. The US market is huge through historic accident–because the US states came together in a federation. The EU is huge for the same reason–and is about to leapfrog the US when it welcomes 10 new members in 2004. This did not happen because the EU lowered its taxes.

[Mon, Oct 21 2002 – 16:25] Charles Kenny (www) (email) One possible measure for innovation per capita (many flaws) is patent applications filed by residents per year. In the US its 141,342 as compared to 8,599 for Sweden. Works out at 1/2,000 people in the US, compared to 1/1,000 in Sweden. Suggests you’re right… again, if you look at Science and Technical Journal Articles published in 2000 –166,829 for US, compared to 8,219 for Sweden– or royalty and license fee receipts (36.5bn compared to 1.4bn) Sweden comes out ahead on per capita terms. Yay ray socialists.

[Tue, Oct 22 2002 – 20:08] Matthew (email) U.S. (or U.S.-based ) scientists split the atom, invent microchips, decode the human genome. Swedes invent, um, more types of white liquor than any other nation on earth.

[Tue, Oct 22 2002 – 21:08] Felix (www) (email) The US passes a law banning medical research using stem cells, in response to evangelical pressure groups.

[Wed, Oct 23 2002 – 04:30] Ayse Ilkorur (email) Are you assuming it is a “she” because he / she keeps saying “her”??

[Wed, Oct 23 2002 – 07:43] Stefan (email) I refuse to explain my attempts at irony. They should live or die by their own efforts.

[Wed, Oct 23 2002 – 08:36] Ayse Ilkorur (email) This one has died.

[Wed, Oct 23 2002 – 10:03] eurof (email) ha ha ha ha ha!! well done ayse. i’ve been trying to properly insult people on this site for months, and here you are, one shot, bada bing, spot on, right between the eyes. clinical, economical. poor stefan.

matthew, the swedes also contribute many mobile phone thingummys, saunas, ikea and wax paper cartons. earnest rutherford split the atom, and he wasn’t american (New Zealand-British), and i think imported german jews did most of the work on the bomb (americans did drop the first one). ecumenically, America imported german nazis to work on their delivery by rocket. i don’t think you can say “americans decoded the genome” which was an international effort, much of which was done by people from my university, btw. i might give you microchips, though we brits invented the computer first. and the americans didn’t do. . . the HOVERCRAFT.

[Wed, Oct 23 2002 – 15:17] ben (email) What about giving the Swedes credit for marketing rotting fish in a can to be consumed at holidays? Credit where credit is due.

[Wed, Oct 23 2002 – 16:33] Charles Kenny (www) (email) Swedes also invented pornography, didn’t they? But (to answer your question on the last blog, Eurof) Sweden is not home to the most successful New Economy pornographer, at least according to the Guinness Book of Records, who is one Danni Ashe (see

http://www.billiondownloadwoman.com/quotes.html).

[Wed, Oct 23 2002 – 16:39] Charles Kenny (www) (email) And while we’re on the subject of the view out of Stefan’s window when his Mac is on, there is a date on the picture. It is the view out of his window 2002/10/14 at 16:23:27 pm (if his Mac is on). Now, unless there’s some wierd Schrodinger thing going on, surely Stefan’s Mac was either on at that moment (in which the picture is the view out of his window). Or it was not on (in which case the picture is not the view out of his window). I think we should be told.

[Thu, Oct 24 2002 – 23:13] Matthew (email) what would have happened to the view outside his window at 16:23:27 pm, 2002/10/14 if his mac HADN’T been on?

[Fri, Oct 25 2002 – 19:16] Charles Kenny (www) (email) The view out of his window may well have remained unaltered, perhaps allowing for some backlighting from the Mac. But whatever the picture was, it clearly could not have been the view out of his back window, for it could only have been the view out of his back window if his mac was on. Perhaps it was the view out of some other window. But then the question arises, why was Stefan taking random pictures of the view outside of somebody else’s window? I still think we should be told.

[Sat, Oct 26 2002 – 20:49] Matthew (email) perhaps stefan needs to add a section to the site titled, “view outside my window when my mac isn’t on,” just so we can compare the difference.

[Sat, Oct 26 2002 – 20:51] Matthew (email) which of course, isn’t possible, given that it’s only the mac being on that creates the view. which brings us back to the possibility that there is no view, or perhaps simply that stefan never leaves his apartment.

[Mon, Oct 28 2002 – 09:59] Matthew (www) (email) seeing as it doesn’t look like you’re going to, i thought i’d post a link to michael lewis’s sunday times article which the paper paired with krugman’s class-warfare rant of last week. you might not agree with lewis’s thesis–the 90s boom was, in the main, a good thing and the backlash both inappropriate and dangerous–but it’s infinately more cogently, and less shrilly argued than krugman’s.

[Mon, Oct 28 2002 – 09:59] Matthew (www) (email) http://www.nytimes.com/2002/10/27/magazine/27DEFENSE.html

[Mon, Oct 28 2002 – 10:23] Matthew (www) (email) try this link. still trying to figure out the coding.

[Tue, Oct 29 2002 – 08:52] eurof (email) So Matthew, it was The Krugmeister’s STYLE you were objecting to, after all, not the substance of what he was saying? Perhaps there is hope for you.

I read the article you link to as well, and thought it was very interesting. Though entirely unconnected with what King Krug had to say. Are you suffering from cognitive dissonance?

[Tue, Oct 29 2002 – 09:45] Felix (www) (email) Hey there chaps, if you’re interested in my take on Krugman and Lewis you can find it at felixsalmon.com, or follow this fixed link.

[Tue, Oct 29 2002 – 13:15] Matthew (www) (email) hardly. i think you’re suffering from cognitive not-reading-very-closely.

1. krugman says the 1990s were the pinnacle of some greedy capitalist spasm that created a plutocracy in the u.s. and contributed to the death of the middle class.

2. lewis says the 1990s were a wonderful time where many good things happened and brushes off the crooks by suggesting they’re part of the natural cast of boomtime characters, and also argues that lots of people up and down the social scale got rich.

seems to me they’re pretty much arguing oppisite ends of the same subject: were the 90s GOOD for america or BAD.

[Tue, Oct 29 2002 – 13:15] Matthew (www) (email) pay attention, double-oh-eurof.

[Tue, Oct 29 2002 – 13:23] Matthew (www) (email) here’s a bad rebuttal to lewis’s piece, which, in a twisted form of logic, might suggest that he (lewis) is onto something.

[Tue, Oct 29 2002 – 18:06] Felix (www) (email) God, I interviewed with Peter Eavis once. What an idiot.

As for Krugman, I think you’re wrong, Matthew, in saying that he thinks the middle class is dead. He never says that, and he wouldn’t, since it’s so obviously untrue. He says that the middle-class era is dead, which is something else entirely: now, in his view, is the era of the New Plutocrat, rather than (for lack of a better word) the Old Technocrat.

You’re right in your characterisation of Lewis. But I’m still not sure that he contradicts Krugman: nowhere does Krugman say that the New Plutocrats didn’t come from all over the social scale.

I guess insofar as there’s a contradiction, Lewis has spent too much time among Microsoft millionaires — not the ultra-ultra-rich of Krugman’s article, but working grunts who started work in Redmond early enough to make a nice 8-figure sum when their options vested. Krugman, on the other hand, thinks that those people are statistically not all that numerous, interesting or important.