Wednesday, November 5, 2008

Liberal Conscience

Just read Krugman's 'The Conscience of a Liberal'.
Bit of a shame about the title which suggests a partisan tract, when in fact it is a thoughtful piece of analysis about the relationship between economic inequality and democratic politics in the US over the last half-century or so.
The key thing to take away from this book is its analysis of how US politicians - mainly Republican ones - have got away with following redistributive policies which ultimately favour such a tiny minority of already privileged people. In a democracy, the poor outnumber the rich, so parties proposing redistribution in the other direction should win more votes, and the more unequal the distribution of income, the more voters would benefit from redistribution (Meltzer and Richard (1981) provide a formal model demonstrating this logic). 
Except that very often it doesn't work out that way, and particularly in the US, where income inequality is much higher than in most of the rest of the advanced economies. Why?
Krugman dismisses the 'guns and religion' argument (espoused by Obama in an unguarded moment about rural Pennsylvania) and instead focuses on race - the white working class in the South vote Republican, even though they will lose out economically, because the Republicans will defend them from the threat of 'black power' and maintain their relative advantage viz African Americans.
Two points on this:
First, if he's right, than Obama's election should be a step towards that coalition breaking down (Krugman argues it already is collapsing).
Second, this argument may work for the US, but what about European countries, such as the UK and Italy, where inequality has grown fast in the same period, but there is no significant race issue on which to mobilize white voters to support anti-redistribution policies?