[rayiner]

Krugman is using the term "income from labor" and "income from capital" in a tax sense, in the context of payroll taxes, because in the tax code we distinguish between "income from labor" and "income from capital gains." But of course we still live in a world where all income ultimately derives from labor applied to capital. E.g. when Google throws off a fat dividend, that's counted as "income from capital" for tax purposes, and Krugman is saying we should tax that to fund the retirement system. But Google, of course, makes it's money from engineers. If Google didn't have engineers, it wouldn't have any money. If they don't have enough engineers, they make less money than if they do.

Now, we could have a future where capital really does generate production by itself (everything is automated by robots). We're not anywhere near that point yet. For the foreseeable future, even to the extent that profits from Google, Facebook, etc, are counted as "income from capital" for tax purposes, it still depends fundamentally on human labor.