“Is Vast Inequality Necessary?”: Inequality Is Inevitable; The Vast Inequality Of America Today Isn’t
How rich do we need the rich to be?
That’s not an idle question. It is, arguably, what U.S. politics are substantively about. Liberals want to raise taxes on high incomes and use the proceeds to strengthen the social safety net; conservatives want to do the reverse, claiming that tax-the-rich policies hurt everyone by reducing the incentives to create wealth.
Now, recent experience has not been kind to the conservative position. President Obama pushed through a substantial rise in top tax rates, and his health care reform was the biggest expansion of the welfare state since L.B.J. Conservatives confidently predicted disaster, just as they did when Bill Clinton raised taxes on the top 1 percent. Instead, Mr. Obama has ended up presiding over the best job growth since the 1990s. Is there, however, a longer-term case in favor of vast inequality?
It won’t surprise you to hear that many members of the economic elite believe that there is. It also won’t surprise you to learn that I disagree, that I believe that the economy can flourish with much less concentration of income and wealth at the very top. But why do I believe that?
I find it helpful to think in terms of three stylized models of where extreme inequality might come from, with the real economy involving elements from all three.
First, we could have huge inequality because individuals vary hugely in their productivity: Some people are just capable of making a contribution hundreds or thousands of times greater than average. This is the view expressed in a widely quoted recent essay by the venture capitalist Paul Graham, and it’s popular in Silicon Valley — that is, among people who are paid hundreds or thousands of times as much as ordinary workers.
Second, we could have huge inequality based largely on luck. In the classic old movie “The Treasure of the Sierra Madre,” an old prospector explains that gold is worth so much — and those who find it become rich — thanks to the labor of all the people who went looking for gold but didn’t find it. Similarly, we might have an economy in which those who hit the jackpot aren’t necessarily any smarter or harder working than those who don’t, but just happen to be in the right place at the right time.
Third, we could have huge inequality based on power: executives at large corporations who get to set their own compensation, financial wheeler-dealers who get rich on inside information or by collecting undeserved fees from naïve investors.
As I said, the real economy contains elements of all three stories. It would be foolish to deny that some people are, in fact, a lot more productive than average. It would be equally foolish, however, to deny that great success in business (or, actually, anything else) has a strong element of luck — not just the luck of being the first to stumble on a highly profitable idea or strategy, but also the luck of being born to the right parents.
And power is surely a big factor, too. Reading someone like Mr. Graham, you might imagine that America’s wealthy are mainly entrepreneurs. In fact, the top 0.1 percent consists mainly of business executives, and while some of these executives may have made their fortunes by being associated with risky start-ups, most probably got where they are by climbing well-established corporate ladders. And the rise in incomes at the top largely reflects the soaring pay of top executives, not the rewards to innovation.
Don’t say that redistribution is inherently wrong. Even if high incomes perfectly reflected productivity, market outcomes aren’t the same as moral justification. And given the reality that wealth often reflects either luck or power, there’s a strong case to be made for collecting some of that wealth in taxes and using it to make society as a whole stronger, as long as it doesn’t destroy the incentive to keep creating more wealth.
And there’s no reason to believe that it would. Historically, America achieved its most rapid growth and technological progress ever during the 1950s and 1960s, despite much higher top tax rates and much lower inequality than it has today.
In today’s world, high-tax, low-inequality countries like Sweden are also both highly innovative and home to many business start-ups. This may in part be because a strong safety net encourages risk-taking: People may be willing to prospect for gold, even if a successful foray won’t make them quite as rich as before, if they know they won’t starve if they come up empty.
So coming back to my original question, no, the rich don’t have to be as rich as they are. Inequality is inevitable; the vast inequality of America today isn’t.
By: Paul Krugman, Op-Ed Columnist, The New York Times, January 15, 2016
“A Truly Extraordinary Record Of Being Wrong”: In-Demand GOP Economist Says Kansas ‘Is Doing Fine’
The first big hint that Kansas Gov. Sam Brownback (R) was pursuing a dangerous economic course was when he hired economist Arthur Laffer to help shape the plan. Laffer, of course, rose to GOP prominence in the 1980s pushing the celebrated-but-wrong idea that tax cuts can pay for themselves.
The Washington Post profiles the conservative economist today and notes that his influence has not waned, despite the real-world effects of his policies. In fact, Laffer is evidently a go-to source for many of this year’s Republican presidential candidates.
No one has influenced Republican candidates’ thinking on the economy for the past four decades as much as Laffer, who is now 75. Laffer says he believes that limiting government and cutting tax rates, especially the rate levied on top earners, will unleash faster economic growth. Since he sold then-candidate Ronald Reagan on that prescription, every Republican presidential nominee has run on a Laffer-inspired economic platform.
As the 2016 GOP primary season takes off, Laffer is more in demand than ever before, with Republican candidates embracing tax-cut-for-the-rich policies even as they bemoan economic inequality. Candidates have been meeting with him in recent weeks, and on Friday in Nashville, he says, his schedule includes Rick Perry at 10 a.m., Ben Carson at noon, Jeb Bush at 1:15 p.m. and Bobby Jindal at 5. Dinner is scheduled with Ted Cruz. He has already met at least once with Wisconsin Gov. Scott Walker.
And this does not include the meeting Laffer has already had with Rand Paul, who asked him to look over a tax-cut plan the Kentucky Republican likes.
The conversation turned to Brownback’s radical experiment, and the Post’s article added this gem: “ ‘Kansas,’ Laffer declared over a five-hour lunch interview in Washington, ‘is doing fine.’”
“Fine,” I suppose, is a relative term. For those of us who care about the details, the economic plan Laffer created for Kansas has resulted in debt downgrades, weak growth, and state finances in shambles. It’s reached the point in which two Kansas public school districts are wrapping up the school year early because they don’t have the money needed to finish a full school year.
“Fine” probably isn’t the first word that comes to mind.
Paul Krugman added some helpful context to Laffer’s record.
Since the 1970s there have been four big changes in the effective tax rate on the top 1 percent: the Reagan cut, the Clinton hike, the Bush cut, and the Obama hike. Republicans are fixated on the boom that followed the 1981 tax cut (which had much more to do with monetary policy, but never mind). But they predicted dire effects from the Clinton hike; instead we had a boom that eclipsed Reagan’s. They predicted wonderful things from the Bush tax cuts; instead we got an unimpressive expansion followed by a devastating crash. And they predicted terrible things from the tax rise after Obama’s reelection; instead we got the best job growth since 1999.
And when I say “they predicted”, I especially mean Laffer himself, who has a truly extraordinary record of being wrong at crucial turning points. As Bruce Bartlett pointed out a few years ago, Laffer was even wrong during the Reagan years: he predicted that the Reagan tax hikes of 1982, which partially reversed earlier cuts, would cripple the economy; “morning in America” promptly followed. Oh, and let’s not forget his 2009 warnings about soaring interest rates and inflation.
Looking ahead, Krugman added the broader question is “why this always-wrong economic doctrine now has a stronger grip on the GOP than ever before.” That need not be a rhetorical question. Indeed, it should matter quite a bit to the voting public given that so many Republican presidential hopefuls – including the entire current top tier – are eager to bring their economic plans in line with Laffer’s discredited thinking.
Or put another way, a wide variety of national GOP candidates are looking at recent developments in Kansas and thinking, “How can I impose this model on the entire United States?”
It’s a bit like turning to discredited neoconservatives for guidance on foreign policy and national security. Oh wait….
By: Steve Benen, The Maddow Blog, April 10, 2015
“Cruz Tells Small Child, ‘Your World Is On Fire'”: Scare Them While They’re Young And You’ll Have Them For Life
For politicians like Sen. Ted Cruz (R-Texas), fear is an important motivating tool. Listen to the far-right Texan deliver a typical stump speech and you’ll hear quite a few dire assessments from Cruz about nearly everything.
But as a rule, when politicians address small children, they dial it down a notch. It made a Cruz event in New Hampshire the other day that much more noteworthy.
[Cruz said,] “The Obama economy is a disaster. Obamacare is a train wreck. And the Obama-Clinton foreign policy of leading from behind – the whole world’s on fire!”
Julie Trant, a child in the audience, took this literally. “The world’s on fire?” she asked.
“The world is on fire, yes,” said Cruz, not missing a beat as the crowd chuckled. “Your world is on fire.”
Let’s note that the child in this story is just three years old. During the event, she was sitting on her mother’s lap.
Cruz quickly added, however, “But you know what? Your mommy’s here, and everyone’s here to make sure that the world you grow up in is even better.”
Let’s unpack this one:
- The “Obama economy,” in reality, is not a disaster. On the contrary, the president’s economic agenda ended the Great Recession, turned the economy around, and created the strongest job growth since the 1990s.
- The Affordable Care Act is not “a train wreck.” On the contrary, the ACA is actually succeeding beautifully, exceeding the expectations of many optimists.
- The whole world is not “on fire,” at least not any more than usual.
- Telling a three-year-old child, “Your world is on fire” is probably inappropriate at any time, but it’s especially unsettling when it’s wrong.
- Telling that same child that Republicans are going to “make sure that the world you grow up in is even better” is odd phrasing. “Even better” usually follows “things are good,” not “things are horrible.”
The child’s mother, for what it’s worth, describes herself as “a huge Ted Cruz supporter” and said during a radio interview this morning that she describes the senator as “Uncle Cruz” to her daughter.
By: Steve Benen, The Madow Blog, March 16, 2015
“It’s Not My Job”: Scott Brown, “I Am Not Going To Create One Job”
Former Sen. Scott Brown (R-Mass.), on the campaign trail in New Hampshire, appeared on a local radio show this week and caused a bit of a stir. Specifically, he suggested his supporters in neighboring states should come to the Granite State, take advantage of same-day registration, and vote for him, in effect calling for voter fraud on a massive scale.
The problem, of course, was that Brown was kidding. If you listen to the audio, it seems he probably wasn’t serious about the scheme, though given his personal circumstances, this is an odd thing for Brown to joke about.
But a day later, the former senator was entirely serious when he made these comments to a group of voters:
“Here’s the thing. People say, ‘What are you going to do to create jobs?’ I am not going to create one job, it is not my job to create jobs. It’s yours. My job is to make sure that government stays out of your way so that you can actually grow and expand. Obamacare’s a great example. The number one job inhibitor right now is Obamacare…. We have to repeal it.”
As is too often the case, Brown seems a little confused about public policy. On health care, there’s literally nothing to suggest the Affordable Care Act is undermining job growth, just as there’s literally nothing to suggest unemployment will improve if Scott Brown takes health care benefits away from millions of Americans. The very idea is bizarre.
But that, of course, is secondary to the Republican’s boast that he is “not going to create one job.” This is so misguided, it’s the kind of comment that’s likely to linger for a while.
Note, for example, Brown is simply wrong on the basics of economic policy. The public sector creates jobs all the time. How a former U.S. senator can fail to understand this is a bit of a mystery.
Also, when he was in Massachusetts, Brown used to say that he could, in fact, create jobs through government policymaking. What caused the former GOP lawmaker to change his mind when he changed states? Why did he think he could create jobs in Massachusetts, but not in New Hampshire?
For that matter, just as a matter of rudimentary political competence, what kind of candidate tells voters, “I am not going to create one job”?
By: Steve Benen, The Maddow Blog, September 4, 2014
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