Home > News > What is an economic “conspiracy theory”?
160 views 3 min 0 Comment

What is an economic “conspiracy theory”?

- March 27, 2011

Reviewing a research article by Michael Spence and Sandile Hlatshwayo about globalization (a paper with the sobering message that “higher-paying jobs [are] likely to follow low-paying jobs in leaving US,” Tyler Cowen writes:

It is also a useful corrective to the political conspiracy theories of changes in the income distribution. . .

Being not-so-blissfully ignorant of macroeconomics, I can focus on the political question, namely these conspiracy theories.

I’m not quite sure what Cowen is referring to here–he neglects to provide a link to the conspiracy theories–but I’m guessing he’s referring to the famous graph by Piketty and Saez showing how very high-end incomes (top 1% or 0.1%) have, since the 1970s, risen much more dramatically in the U.S. than in other countries, along with claims by Paul Krugman and others that much of this difference can be explained by political changes in the U.S. In particular, top tax rates in the U.S. have declined since the 1970s and the power of labor unions have decreased. The argument that Krugman and others make on the tax rates is both direct (the government takes away money from people with high incomes) and indirect (with higher tax rates, there is less incentive to seek or to pay high levels of compensation). And there’s an even more indirect argument that as the rich get richer, they can use their money in various ways to get more political influence.

Anyway, I’m not sure what the conspiracy is. I mean, whatever Grover Norquist might be doing in a back room somewhere, the move to lower taxes was pretty open. According to Dictionary,com, a conspiracy is “an evil, unlawful, treacherous, or surreptitious plan formulated in secret by two or more persons; plot.”

Hmm . . . I suppose Krugman etc. might in fact argue that there has been some conspiracy going on–for example of employers conspiring to use various illegal means to thwart union drives–but I’d also guess that to him and others on the left or center-left, most of the political drivers of inequality changes have been open, not conspiratorial.

I might be missing something here, though; I’d be interested in hearing more. At this point I’m not sure if Cowen’s saying that these conspiracies don’t exist, or whether they exist (and are possibly accompanied by similar conspiracies on the other side) but have been ineffective. Also I might be completely wrong in assigning Cowen’s allusion to Krugman etc.