Krugman Watch: Paul Thinks It’s Envy. (What is it with these people?)

Paul Krugman argues that envy and inequality pop the bubble. He asks “Correlation or Coincidence?” To which I reply:

…. or completely unrelated causality.

I don’t think you’re making any argument and I think you’re inventing a correlation, and hoping it sticks via the contrivance of sentimental association rather than reason.

The cause isn’t income difference. It’s distortion of pricing and demand by irrational access to, and consumption of credit. And no small part of it is the recursive distortion of credit once it enters the system. Then, when Mom and Dad’s seven-eleven clerk talks about real estate investment, the average person starts to see irrational feedback and develops cautious sentiments. This effect undermines confidence, and after enough feedback from their network, mom and dad start retrenching. Shocks, like the spring oil crisis, confirm their sentiments, and the process accelerates.

How about another feedback loop: once enough credit has been available that individuals exhaust their inventory of readily comprehensible wants (as determined by their class and peers), they must stop acting to consume until they can identify new status consumables. Something which means expanding beyond the familiar. This is a marginal illustration but an important one. There is a lot of saturation of the middle class’s consumption. They know it. This provides additional feedback on top of the dissociative feedback of the gas-pumping proletariat investor.

Instead of this rational behavior due to the presence of overwhelmingly obvious-to-the-consumer information, you are arguing that **envy** by the lowest classes has a greater impact on confidence than does uncertainty due to omnipresent, obvious, sometimes absurd, irrational feedback. And for the lower proletariat, that sentiment is undoubtably persistent, doctrinal, and inherited. But everyone is just demonstrating observation and rational behavior.

Or are you arguing that we can tell that there is a distortion of pricing in the economy because the differences between class consumption simply indicate that credit is out of hand?

The question is instead, how much of this distortion remains after the bubbles burst? (Some, but losses are disproportionately allocated to those with paper wealth, and unemployment disproportionately allocated to those in least productive industries.)

And the problem is, that the proletariat now foots the bill, with long term interest, for the expansionary credit, unless it is recovered through inflation. This is the damning critique, not that of inequality.

The cause is not disparity or inequality. It is not envy. It is simple feedback from observations of irrational information. And that feedback occurs because the state has used credit and fostered consumption in lieu of investment that obtains increases in productivity, and the differences in instability are between thse resulting consumer and producer economies, and the rapidity with which they react to shocks. (Consumption is NOT STICKY when compared to production.)

Furthemore, your efforts seem to think that there is an endless supply of entrepreneurial innovation availalbe that can yield increases in production. And that isn’t true.

It is clear that you wish to ignore the reality of inequality, the reality of the unwillingness for people to redistribute to others who they feel disagree with or undermine their value system, and the reality of social status as a permanent, and *epistemically necessary* component of the system of human cooperation and coordination. Let alone the mating ritual.

Envy isn’t the problem. General liquidity used for consumption rather than productivity is the problem. People have cognitive biases. Plenty of them. But they also are not oblivious to social economic and status signals that are irrational, and tell them ‘something just isn’t right here’.

The shift to Friedman was the only one available to the conservatives who wished to reverse what they saw (accurately) as a decline in their civilization due to prior policies. That Friedman was partly wrong, as was Keynes partly wrong, is immaterial. Our problem is that we do not know the answer. The philosophers of the thirties failed. And so has everyone else since then. And they have failed largely due to the myth of equality. People simply do not, and will not act that way in a heterogeneous society. They do the opposite.

The status economy with its class status demands, and its racial status preferences, and its group persistence preferences will not permit the purely economic homogenous model you fancy. In fact, research shows that people will gladly undergo hardship in order to ‘fund’ their social preferences, and in particular to preserve their status. And so you will never create the levers that you seek to manipulate.

We are instead headed toward the south american model of geographically separated classes, and likely races, forming permanent classes in rings around urban centers, and systemic corruption necessary to preserve group solidarity. This demographic movement is already suggested in moving patterns.

Be careful what you ask for.

(PS: I swear. Left-Jewish egoism is a cultural if not genetic cognitive bias. Unbelievable. Krugman is just as out there as his conservative mirror image Paul Gottfried. )

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