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.
WCEG — The Equitablog
Putting rents at the center of U.S. income inequality
Nick Bunker
Yes, but ... it's easy for economists to talk about rents, it's not so easy for a policy maker to define rents in such a way that they can be regulated and/or taxed.
ReplyDeleteAs Tom and I have discussed before, it's reasonable to assume that all high income is unearned income. Progressive taxation of all income would take care of that.
Alternatively, anti-trust laws could be enforced. The anti-trust laws are still on the books, they're just not enforced because the 1% have captured the government, and corporations have become more skilled at avoiding taxes and regulation.
Michale Hudson essentially concurs with that, Dan. He is likely correct.
ReplyDeleteHowever the rationale has to be presented in a way that economically correct and politically powerful.
Soak the rich is non-starter in the US.
The objections are:
1. Class warfare based on envy. Enter Marx, Engels, Lenin, Staliin and Mao. Remind everyone how dismal things were under "communism" and "socialism." Bring in Hayek's The Road to Serfdom and assert TINA.
2a. There is no rent in capitalism because competitive markets.
2b. If markets are not perfectly competitive, eliminating rents, its because government. The solution is to eliminate regulation and institute a night watchman government to ensure economic liberalism and spontaneous natural order owing to the operation of "free" market forces.
3. If government raises taxes, it will raise your taxes, too. For sure.
Well, lots of things are political "non-starters" these days. "Soak the rich" worked pretty well for Huey Long.
ReplyDeletePolls have shown that even a majority of Republicans favor taxing the rich. The problem is that the public has no say in the matter, and in any event the public's attention is easily diverted by social issues.
There is a lot of truth to your #3 with Bernie's call to raise the FICA tax being the latest example.
Tom, a lot of the groundwork is layed out here for rent taxation here (warning - out of padagrim? site):
ReplyDeletehttp://kaalvtn.blogspot.co.uk/p/valuations-and-potential-lvt-receipts.html?m=1
It deals with many objections.
Thanks, Random. I'll look It over.
ReplyDeleteI think a land rent tax is the obvious place to start, although financial rents are another. Monopoly rent is probably best addressed through anti-trust and selective legal and regulatory reform to eliminate the more egregious institutionalized rent-seeking.
Dan, I'm afraid that in the US it's going to involve convincing the "rich" that taxing them more is in their interests owing to a bigger pie, more desirable society and less dangerous world.
ReplyDeleteThis is a reason that I think that pushing the concept of living a good life in a good society is a necessary foundation.
This makes everyone better off.
The chief problem today is selection of leadership. Under the present system the selection process prefers psychopaths and doesn't filter out sociopaths.
This is poison for democracy and liberalism as a social and political theory. There's much more at stake than the economic and financial aspects of society. It's the difference between a functional society with a future and a dysfunctional one without a future.
Random, an LVT does not tax income, inheritance (other than land), financial assets, or intellectual property. The LVT was designed for an agricultural economy.
ReplyDeleteBill Gates and Warren Mosler would benefit from an LVT-only. I would not.
Germany does the opposite of an LVT -- rental property is taxed at a lower rate than homeowner property. Yet Germany has less inequality than the U.S.. The German housing market is highly regulated to favor tenants, and their home lending laws require 24% up front, so real estate bubbles just don't happen.
Tom, I am not naive that there is a political way forward in the U.S.. As Bill Mitchell said in his recent blog on inequality, these situations tend to end badly. It's not inconceivable that another Huey Long or FDR could come galloping in on a white horse, but I'm not holding my breath. I don't think Bernie is going to be our savior, he's too compromised and the winds will be blowing against him in 2016. The political outlook is grim. Add climate change and stir.
Random, an LVT does not tax income, inheritance (other than land), financial assets, or intellectual property. The LVT was designed for an agricultural economy.
ReplyDeleteAccording to analysis of PIketty's data, the greatest gains in wealth were from RE. RE is a major asset class for the wealthy and a lot of property in the most desirable and therefore high value areas is owned by foreign nationals. It's a favorite way to launder money, for example. Ordinary homeowners would not bd hit by a LVT.
Germany does the opposite of an LVT -- rental property is taxed at a lower rate than homeowner property. Yet Germany has less inequality than the U.S.. The German housing market is highly regulated to favor tenants, and their home lending laws require 24% up front, so real estate bubbles just don't happen.
Predistribution of income in Germany results in greater disparity than the US. The difference is the tax rate. Germany has a higher progressive tax rate.
Tom, I am not naive that there is a political way forward in the U.S.. As Bill Mitchell said in his recent blog on inequality, these situations tend to end badly. It's not inconceivable that another Huey Long or FDR could come galloping in on a white horse, but I'm not holding my breath. I don't think Bernie is going to be our savior, he's too compromised and the winds will be blowing against him in 2016. The political outlook is grim. Add climate change and stir.
ReplyDeleteI don't think it is going to happen in the US, Dan. The US is headed toward becoming a dysfunctional society.
It's much more likely to happen in places where individualism plays less of a role culturally. The US has become psychopathological, bordering on the sociopathological. Scary place.
Once the labor movement was essentially eradicated from the US, the every man for himself workforce has the individual longing to somehow be the next Bill Gates, money and all. The 99% buys into this clap trap, and thus the soak the rich meme would be a vicariously personal affront to our deluded masses making up the 99%. Workers gladly cut off their collectives noses to spite their collective faces. This won't end well.
ReplyDeleteIt's obvious the US is like the late Roman republic right now. You guys know what is coming is a dictatorship, it may take a few decades but is the most probable outcome.
ReplyDeleteUnless there is a radical change in the collective mindset and power structures fast the world is going to enter a new very worrisome phase of chaos and destruction ala first half of the last century (the problem being that we may have real resource problems in many places right now, environmental disruption and a much larger destructive capacity both with WMD and conventional weapons). Really scary stuff...
I thought things would last until next USA presidential elections but seems things are worsening and playing with the debt ceiling may as well accelerate everything.
+1 to what Ignacio said.
ReplyDeleteI'm not an Iglesias fan but his article about how the D's are in trouble has a lot of truthiness:
"There are also thousands of critically important offices all the way down the ballot. And the vast majority — 70 percent of state legislatures, more than 60 percent of governors, 55 percent of attorneys general and secretaries of state — are in Republicans hands. And, of course, Republicans control both chambers of Congress."
Control of state government is potentially very important because if R's get control of enough states they'll be able to pass constitutional amendments. A balanced budget amendment, repeal the income tax & replace it with a national sales tax, etc.. Oh, it could get very ugly.
Our best hope may be for a modern day Bismark or Nixon, a pragmatic conservative leader who seeks to unite the country by co-oping threats from the left. But even that may be wishful thinking.
The "right" allowed "cultural marxism" to triumph in the 70's and the seed was planted to exchange for full spectrum dominance on economic ideology. Tune in the con-job of stupid 'identity politics' and we got what we got now: a non-existent "left" too fixated on minor identity politics crap and a society driven by radical individualism on economic matters.
ReplyDeleteSocial conservatives will still vote republicans always, but the GOP also captures a big deal of the now neoliberal population after decades of indoctrination. Why vote republican-lite when you can vote the real deal if you don't care about petty identity politics or what 'fredumb'.
The left always loses until there is a break down that forces radicalism and struggle because it's too stupid for it's own good. The left is all hearts and no brains, and the right is evil. This has been the story of humanity since civilization started, only alleviated by technological advances. But when that drive has stopped the regression towards an unfair, crude societies driven by domination has been the norm.
The complacency of the left during the last decades due to forgetting that is all about power struggle and because the soviet union collapse has been one of those tragic moments we will likely remember in the future for triggering a new dark era that won't go away without any fighting.
I don't think it is as much a problem with the left in the US there being no actual left in politics. The real left has left, either expatriated or turned on, tuned in and dropped out. "Turning on" doesn't necessarily related to illegal substances anymore. Lots of people have "turned on" in other ways and awakened to the BS. Most of these folks don't do politics because they see it as a waste of life. Just get together with others who want to change things and do it without asking for permission.
ReplyDeleteThat's what The Matrix is about, for example. The Walking Dead can be viewed as stylized symbolism about psycho and sociopathy in contemporary society. Star Wars and Lord of the Rings are about empire. It's all over the place in culture.
Social liberalism has turned into complete rejection of traditional social norms. The battle that's brewing is not just economic or political. It's basically social.
Oh, and did I forget to mention Philip K. Dick'sPhilip K. Dick's dystopian novels.
ReplyDelete