Krugman's Keynesian "Trickle-Down" Economics: Washington, D.C., as an Experiment

According to Paul Krugman and other Keynesians (not to mention almost all so-called political Progressives), endorsing a relatively free economy in which governments do not set or regulate prices and permit owners of factors of production to bargain in free markets is also to endorse what they call “Trickle-Down Economics.” This “theory,” according to the Progressives, operates like this: If we “help” the “rich,” (that is, do not confiscate all or nearly all of their wealth), then by so doing, the spending of the rich will “trickle down” benefits to everyone beneath.

Obviously, this is presented with the belief that the “theory” is false on its face, or at least the results of the “theory.” The rich, as Krugman and others will tell you, don’t spend all of their income, which means that not everyone beneath them will receive enough income to survive. The better way to do things, according to the Krugmanites, is for the government to confiscate most of the earnings and wealth of the rich and distribute them to everyone else. This will result in equal incomes, which then assure enough spending to keep the Big Circle of the Economy moving and result in economic Nirvana.

For the past four years, we have had a major Keynesian experiment in Washington, D.C., as huge amounts of money have been transferred from elsewhere in the USA to the D.C. area, and especially the nation’s capital itself. The outlying counties have become considerably wealthier, and especially wealthier relative to the rest of the USA. But what about Washington, itself? If the Keynesian theory is correct, then the wealth absorbed by government should have “trickled down” to the other residents of D.C. who are not directly connected to high-paying government jobs, political office, or lobbying firms or companies that have major government contracts.

Certainly the economy of D.C. has received enough new money to have gained “traction” (as Krugman likes to call it) to be engaged in a boom. Well, it turns out that unless one is well-connected politically, the Keynesian “stimulus” just might not have as much staying power as Krugman claims.

It turns out that income and living inequality in the District are worse than ever, according to recent reports:

Two decades of record federal spending and expanding regulation have
fostered a growing upper class of federal contractors, lobbyists and lawyers in the District of Columbia area. The federal government funneled $83.5 billion their way in defense and other work in 2010 – an increase of more than 300 percent since 1989, even after adjusting for inflation. Private industry poured more than $3 billion into lobbying toinfluence the government, nearly double what it spent a decade ago.

Like spokes on a wheel, the high-rise offices of this elite radiate out from Capitol Hill along major arteries deep into suburban Maryland and Virginia. The latest Census figures placed 10 of the capital’s surrounding counties in the top 20 nationwide for median household income – up from six in 1990.

The article lays out the rise of Lani Hay from military officer to out-and-out Washington tycoon whose wealth has come about solely from the income transfers from private individuals and businesses to the government. And her $120 million in government-awarded income pales next to the income that others gain at the government troughs.

Yet, at the same time, the regular people in Washington are not taking part in this orgy of new governmental wealth. This article lays out what the “other” people experience, as the blogger Glenn Reynolds received this from a D.C. council member:

“I really think you should reconsider your article about how Washington,
DC was not affected by the recession and is doing so much better than
the rest of the country. . . . I am not sure if you have ever been to
the DC area, but I live here and there is a lot of poverty. The capital
area might be doing great and the 2 wards where congresspeople live
might be doing well, but the rest of the city is affected by poverty.
Wards 7 and 8 have an average income of less than $30,000 and there are
boarded up stores all over the city, just not in the 2 mile radius that
tourists and outsiders see. . . . Maybe your next article could be
about how DC has the largest income margin in the nation? About how the
congresspeople and lobbyists make over $100,000 a year and the rest of
city is living in poverty?”

 That is not all. The Reuters article lays out a few gems that would contradict the Keynesian Gospel:

And then there is this: 

Massachusetts boasts the country’s finest public education system, but
that has failed to slow a sharp increase in the income divide. Indiana
has revamped the state’s welfare system, but the number of people in
poverty has soared. And in the District of Columbia, the federal
government’s hand in rising inequality is visible locally and
nationwide.

This is not possible under Krugman’s Keynesian Trickle-Down Theory. More money for public education means inequality disappears. The New England states vote heavily Democratic, and very liberal Democrats at that (no Republican holds statewide office in New England), so there can be no question that the policies that govern these states are correct, according to Krugman’s views. Furthermore, there is no more Democratic political entity in the country than Washington, D.C., so there can be no doubt that the city is following “proper” political and economic policies.

So, if all of the claims that Krugman has been making the past several years are true, then there is little or no economic inequality in Massachusetts and in Washington, D.C., and they are the two most “liberal” political entities in the country. Inequality cannot be happening there because Paul Krugman always is correct.