A lot of left-ish proposals these days, including high marginal tax rates at high incomes and bans on share buybacks, are about increasing the cost to firms of making payouts to rich shareholders, thereby reducing the opportunity cost of other uses of the money. Some of these proposals I think are solid. Some I think half-baked. [1] But the basic logic behind the proposals is missed I think by a lot of smart commentators.Interfluidity
The rise of income inequality in the United States since the late 1970s is a well-documented fact, but the reasons for the rise still aren’t well understood. The possible culprits include skill-biased technological change, globalization, the rise of the robots, and an increasingly popular reason: increased “rents” in the U.S. economy.
Rents, in economics parlance, are extra returns above and beyond what we’d expect in a competitive market. A new paper by Jason Furman, chair of the President’s Council of Economic Advisers, and Peter Orszag, former director of the Office of Management and Budget and a current Vice Chairman at Citigroup Inc., presents some evidence that not only have rents increased, but they provide a fundamentally important explanation for rising inequality.…Economic rents predistribute income upward and this accumulates as wealth. The playing field is tilted so that gains flow upward unnaturally and not owing to the invisible working of "natural forces" to generate optimal order spontaneously, as the story goes.
To reiterate: when two sets of countries have the same market income inequality, but one set has much lower disposable income inequality, that's a good indication that simple changes in distributive institutions could do wonders for the more unequal country. When it comes to the US and the Nordics (which Winship notes are doing the best in this regard), adopting tax and transfer institutions that are similar in form to what the Nordics have should significantly improve the standard of living of those at the middle and especially those at the bottom. The further fact that economies in the Nordic countries grow at about the same rate as the US economy throws even more fuel on that fire because it indicates that, at least when they do it, there is no obvious efficiency/equality trade off involved.
The concern about inequality has very little to do with the market distribution itself (the market is, after all, just a creature of policy, a government program like any other). Rather, the concern is that high and rising inequality signals that we are throwing away opportunities to relieve the want and humiliation of the bottom (and to a lesser extent, the middle), and are opting instead to shovel more and more of the national income to the rich for no good reason.Demos Policy Shop
I fear the American left’s recent move to put income inequality reduction front and centre might be harmful rather than helpful. It may foster a conviction that the key to addressing America’s social, economic and political problems is to reduce the top 1 per cent’s share or the Gini coefficient. That could distract attention from more direct and effective efforts to address those problems.
Such efforts include fully universal health insurance; improvements in eligibility, duration and benefit level for various social-insurance and social-assistance programmes; wage insurance; early education; enhanced financial support for college; a minimum wage indexed to prices; an expanded earned-income tax credit indexed to average compensation; and monetary policy less tilted towards inflation avoidance.
Policy changes like these would go a long way towards improving economic security, enhancing opportunity (and mobility) and ensuring shared prosperity in the US. Inequality of political influence could be lessened via direct reforms, such as reversal of the Citizens United decision, introduction of a strong transparency rule and public funding for congressional election campaigns.Asymptosis
As put forward in capitalist theories of ‘natural’ distribution redistribution allocates income and wealth away from their most economically ‘productive’ uses, from their ‘natural’ homes. Economic dynamism may produce ‘winners’ and ‘losers’ but so what? Capitalist theory, a/k/a Western economics, is the science of Social Darwinism. If aggregated abundance— the ‘most’ that ‘a society’ can produce, is the goal and redistribution reduces this theoretical abundance through the inefficient allocation of economic resources then it is antithetical to the primary social goal of Western political economy.
However, implied in these redistribution schemes is that there exist social virtues other than producing ‘the most’ regardless of its distribution. The problem again is that once the premise is granted that capitalism produces / has produced Western abundance and that this abundance is the rationale for Western political economy then redistribution simply buggers ‘the system.’
Of course the whole package is nonsense—Western political economy was ‘founded’ by genocidal plutocrats whose fortunes derived from the expropriated labor of slaves and from the expropriated lands of indigenous peoples. Western industry has been wholly dependent on standing armies, on imperial foreign policies to ‘secure’ industrial resources and on the ability to force its costs in terms of social and environmental dysfunction onto others.
As far as theories of ‘natural’ distribution go, the only way any working person in the West ever got a paycheck was through free-riding on the unionists who got their heads kicked in by Pinkertons and through credible threats of socialist / communist revolution as was seen in the 1930s. The ‘pragmatic’ concessions of the New Deal such as social guarantees were to prevent wholesale revolution.
Without New Deal programs capitalist distribution is landing exactly where it is intended to land— in the coffers of the already wealthy. By different measures the capitalist U.S. has much less social mobility than the European nations that have retained social guarantees.
Liberal and progressive politicians and their constituents who support both the corporatist policies of capitalist democracy and programs of economic redistribution are more than simply theoretically muddled, they support the very political economy that creates the need for economic redistribution....
