Krugman is right that after-tax executive pay has risen relative to worker pay. His unstated assumption, however, is that executives were just as productive 50 years ago as they are now. I think that executives worked much less during the 1950s and 1960s than they do now because they were paid less. High taxes might reduce income inequality as Krugman wants, but talented people would be less productive, and everyone would be poorer as a result.
Below are a few quotations from that same Fortune article, referring to the lifestyles of top executives:
...he paces himself carefully. He plays golf and bridge, but really prefers dominoes noontimes at the Pacific Union Club.
On weekends they retire to a small house set in eighteen acres of orchards and wild land, fifty miles from the city, where the only company they have is their Weimaraner dog.
Cotton brokers, planters, merchants, bankers, drift out of their offices for mid-morning coffee, drive home for lunch, and get home again for dinner well before the sun has disappeared behind the levee. Weekends they play golf, fish for bream and channel cat, or stalk the country’s abundant game birds.
He gets home anywhere between four-thirty and six. “Then I take a coupla knocks,” he says, meaning a couple of highballs, “have dinner and fall into bed.”
No executive, twenty-five years ago, could whisk himself and his golf clubs 1,000 miles away just for a weekend. Today a New York executive can play weekend golf regularly all through the winter in Florida or Bermuda, and follow the season north through Georgia and North Carolina.
...those fellows in New York who have two cocktails before lunch and then can’t do anything the rest of the afternoon.These do not sound like descriptions of today's executives. To be fair, the Fortune article also describes some executives taking work home with them, but the overall picture doesn't compare to either the business lifestyle of pre-income tax Scrooge or the 24/7 work schedule enforced by smartphone. Water is now served for business lunches, not martinis. Golf courses at 2:00 are full of retirees, not executives.
Academic evidence on the price elasticity of labor supply for high income people often focusses on the effects of relatively small changes in tax rates over the past 20 years. Researchers find that the effects of tax timing swamp the actual effects of taxes on labor supply, so estimates of labor supply elasticities are imprecise. But when they compare times or countries with large differences in tax rates it is clear that high income people work more when they are paid more. For example,
men in the high-skill household actually increase their hours of work after 1970, whereas men in the low-skill household decrease their hours of work.An important paper by Nobel Prize winning economist Edward Prescott finds that differences in tax rates explain the difference in work hours between Europe and the U.S. It is obvious to everyone except for left-leaning economists, but when smart people are well paid, they work harder.
Krugman doesn't really seem to care about overall economic well being. Instead he is consumed with envy at the rich, who he calls vulgar show-offs. His view is just like that of Piketty, who I believe is more interested in taking down the rich than helping the poor.
Taxes are destructive weapons - people like Krugman and Piketty would love to fire them at the rich people they hate, regardless of the collateral damage.