Krugman vs. Krugman
from Las Syll
What we’re seeing isn’t the rise of a fairly broad class of knowledge workers. Instead, we’re seeing the rise of a narrow oligarchy: income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite.
Paul Krugman The Conscience of a Liberal (2011)
The factor market most of us know best is the labor market, in which workers are paid for their time. Besides labor, we can think of households as owning and selling the other factors of production to firms. For example, when a corporation pays dividends to its stockholders, who are members of households, it is in effect paying them for the use of the machines and buildings that ultimately belong to those investors. In this case, the transactions are occurring in the capital market, the market in which capital is bought and sold. As we’ll examine in detail later, factor markets ultimately determine an economy’s income distribution, how the total income created in an economy is allocated between less skilled workers, highly skilled workers, and the owners of capital and land [emphasis added].
Paul Krugman Essentials of Economics (2014)
Sounds a little schizophrenic, doesn’t it? Who are we to believe? Krugman the blogger or Krugman the textbook gadget modeler? Well as yours truly told you yesterday, I’m not the least impressed by Krugman’s gadget interpretation of economics, so I go for the first altenative. The rising inequality we have seen for the last 30 years in both the US and elsewhere in Western societies has very little to do with neoclassical gadgets such as aggregate production functions and marginal productivity theory.
[h/t Matias Vernengo]
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Real-World Economics Review Blog 
Krugman is just managing his own “Brand” and remains just a liberal hypocrite with a conscience in the total compromising balance of things micro-macro; personal, private and public. It seems like slick gamesmanship that attempts to please everyone but manages to confuse most, …a whisper away from Obama’s compromising antics in politics.
When compensation committees in medium sized and large sized firms are left out of models because markets are fetishized, nothing but errors can occur, no matter how elegant the algebra. Wages are to a not insignificant extent, administered prices. Just look at the lawsuit against Apple, Google etc. Lord knows how wages are set in Pakistan, Indonesia and Nigeria……
It all has to do with how the constitution of firms provides for firm governance. If compensation committees give a voice to employees in setting wages in the firm, then the fetishized markets of economists can be set aside and the distribution of pay upward to the most wealthy reversed. The way firm governance is established is a legal not an economic question.
I’m really not seeing the contradiction here.
1) the wealthy are taking a larger share of the pie
2) the pie is created in such and such a manner
how are those two statements contradictory ?
I might add some good advice, from either J K Galbraith, Norman Mailer, or Sozhenitsyn (sic spp): never argue in print with someone who is a better writer then you; it won’t end well
So, first of all, I consider Krugman to be a liberal human who has partially escaped from being a conservative economist, but I think this post goes to far. I will second Ezra’s comment and would consider a more effective point of attack to focus on just what is missing from the textbook models, like bargaining unity and leverage as alluded to in other comments.
I for one am a big believer in the idea that the labor market that exists between sellers of labor and buyers of labor is a huge, if not the primary factor in national wage levels and if I read Krugman V2 right, he is simply calling this labor market an example of a factor market because labor is an important factor of production.