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“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

January 18, 2016 Posted by | Economic Inequality, Tax Revenue, Taxes on the Wealthy | , , , , , , , , | Leave a comment

“A Moral Idiot”: Rand Paul Compared Taxation To Slavery And Betrayed The Emptiness Of His Political Philosophy

Rand Paul brought some libertarian philosophy into the Republican presidential primary this week, in the form of the old “taxation is slavery” bumper sticker. He even indexed it to a handy percentage scale! Andrew Kaczynski has the tape: “I’m for paying some taxes. But if we tax you at 100 percent then you’ve got zero percent liberty. If we tax you at 50 percent you are half-slave, half-free.”

Paul is probably getting his argument from Robert Nozick’s Anarchy, State, and Utopia, which famously argued: “Taxation of earnings from labor is on a par with forced labor.” (Note that not even he went so far as to say taxation was literally identical to slavery.) His book was probably the most convincing case that can be made for this stone-cold form of libertarianism, where all “redistributive” policy is morally abhorrent and only the night watchman state is permissible.

Nevertheless, it’s still garbage. Nozick’s book constructs a detailed procedural account of justice, arguing that redistributive taxation is theft because it is a coerced transfer. He was a smart guy, and it’s very hard to get one’s hooks into his argument. The weakness, as with all extremist accounts of property rights, is not with the logic but the premises — particularly when it comes to the very beginning of property.

Go back far enough in history, and there would have been no property of any kind. The moment somebody fences off a piece of land, it necessarily destroys the liberty of everyone else in the world, since they no longer have the right to access that land. Nozick admits this is the case, but still wants to set up initial property rights. So he embraces a concept that he calls the “Lockean proviso.”

This proviso allows appropriation of unowned things, so long as it does not worsen the situation of anyone else. And what about people last in line, so to speak, who can’t appropriate anything because everything is already taken? Well, they will benefit from the general prosperity brought on by market capitalism.

Note what kind of argument this is: It rests on the overall welfare-enhancing consequences of adopting Nozick’s ideas.

The whole point of the “taxation is slavery-ish” argument is that infringing liberty to increase general welfare is morally impermissible. Yet here is Nozick, leaning on a boon to general welfare to justify a violation of liberty so he can get property rights going. This is no different from taxing the rich to provide food stamps, or from the kind of single-payer health insurance system that socialist Bernie Sanders endorses.

The upshot is that the austere libertarianism implied by Paul’s statement is fundamentally unworkable. The horse stumbled right out of the gate, and has to be put down. Neither Milton Friedman nor Friedrich von Hayek went nearly so far. Even Nozick himself apparently abandoned it after a few years.

Let me also comment on Paul’s gruesome tin ear on display here.

What is slavery really? In the U.S. context — and given the reference to Abraham Lincoln’s “House Divided” speech, this is clearly what Paul was getting at — slavery was full property rights in human beings.

It was also incomprehensibly brutal. Owning a person presented a challenge to Southern capitalists, since slave labor has no monetary incentive to work. They solved this problem neatly, with daily violence. Set a steadily increasing daily work quota (pounds of cotton picked, typically), and if it was not achieved, make up the difference with an equal number of stripes with the whip.

In this way, Southern slaves were forced to increase their labor productivity by some 400 percent from 1800 to 1860, achieving a level that was not matched until the development of the mechanical cotton picker. Southern slavery thus robbed both the body and the mind, using systematic torture to force slaves into inventing and spreading techniques of extreme manual dexterity (picking cotton by hand is very difficult).

So if Rand Paul really believes that 1 percent taxation is exactly equal to 1 percent slavery, why doesn’t he sound like an abolitionist? Why not seize one of the federal armories in an attempt to start an all-out war against a monstrous injustice? Indeed, by this measure there would be more slavery today (about 27 percent of GDP taxed) than in in 1860 (1.4 percent taxed, 12.6 percent of the population enslaved).

Only a moral idiot would think to make such an equivalence.

 

By: Ryan Cooper, The Week, July 9, 2015

July 14, 2015 Posted by | Libertarians, Rand Paul, Slavery | , , , , , , | 1 Comment

“How A President Paul Would Remake Society”: Rand Paul Is Building A Bridge — To The Early 1800s

The official launch of Rand Paul’s presidential campaign this week showcased an interesting blend of proposals, with the junior senator from Kentucky agitating against the forthcoming Iran deal, racially unjust incarceration, and NSA surveillance. The bulk of it, however, was dedicated to a libertarian vision of government — one drastically at odds with the last century of American governance and more.

This vision isn’t just contained to his speeches. Paul’s budget proposals provide a blueprint for how a President Paul would remake society, and the result is eyewateringly radical. When it comes to domestic policy, his views are far to the right even of Paul Ryan, whose budgets would decimate the legacy of the New Deal. It’s a vision of government from the age of Thomas Jefferson, and ludicrously unsuited to the 21st century.

And yet Paul, despite fashioning himself as an outsider, will likely be a contender in the Republican primary, which means his ideas deserve close scrutiny.

Dylan Matthews has done a deep dive into the various Paul budgets of the last three years, and the findings are jarring. “The gap between Paul’s budget and Ryan’s,” he writes, “is nearly as big as the gap between Ryan’s and Democrats.”

On one occasion or another, Paul has proposed completely abolishing the Departments of Education, Housing and Urban Development, and Energy; the Bureaus of Reclamation and Indian Affairs; all foreign aid; and the Earned Income Tax Credit and Child Tax Credit. On the tax side, he proposes a flat income tax and scrapping the tax on estates, capital gains, dividends, large gifts, as well as the Alternative Minimum Tax.

As Matt Bruenig concludes, this would amount to a stupendous redistribution of income from poor to rich, likely unprecedented in American history. The poor would see their taxes massively increased, while the rich would enjoy a corresponding decrease.

In Paul’s dream world, other government departments get merely eviscerated. The Interior Department is cut by 78 percent, State by 71 percent, the General Services Administration by 85 percent, and the Transportation and Agriculture departments by a comparatively modest 49 percent cut each. The military was cut by 30 percent in early budgets, though Paul has since reversed himself on that.

But wait, there’s more! Science gets gored by Paul, with 20 percent of funding taken from the National Institutes of Health, 25 percent from NASA, 20 percent from the U.S. Geological Survey, 62 percent from the National Science Foundation, and even 20 percent from the Centers for Disease Control and Prevention (which, you may recall, recently prevented an outbreak of Ebola in the U.S.).

These aggressive cuts to discretionary spending are the simple result of huge tax reductions combined with a balanced budget. But Paul also appears to be groping as far towards the libertarian “night watchman state” — limited to the police, military, and courts — as he dares. Though Paul’s views, tainted by roots in his father’s very long history of bigoted conspiracy nutbaggery, are far from the austere purity of Robert Nozick, it’s clear Paul thinks most of what the government has done since the 1930s is illegitimate.

He’s a supporter of the Lochner doctrine, named after a 1905 Supreme Court case that conveniently discovered an unwritten “liberty of contract” in the 14th Amendment and thus abolished most laws regulating working conditions. He’s a fan of the Supreme Court decisions against the New Deal. His latest budget argues that anything but a flat tax is likely unconstitutional. It seems clear that if he had his druthers, he really would abolish everything but the police, the military, and the courts.

This extreme suspicion of federal government is only matched by his reverence for rich people and businesses; Paul does not touch property law, special legal protections for corporations, or even the wretched mortgage interest deduction. His position would fit reasonably well in the Gilded Age or the pre-World War I era, when “due process” for workers was often non-existent.

But it was Thomas Jefferson who made the most sustained effort to bring the libertarian utopia into being. Fighting against Alexander Hamilton and his allies, Jefferson did about all he could, especially early in his first term, to implement the night watchman state. It didn’t work very well, and he began abandoning the effort by the end of his term — and he was living in an agrarian slave society. Trying it in 2016 is patently preposterous.

 

By: Ryan Cooper, The Week, April 8, 2015

April 10, 2015 Posted by | Domestic Policy, Libertarians, Rand Paul | , , , , , , | Leave a comment

“Minimum-Wage Increases; The Justice Of Redistribution”: To Not Be Victims, Workers Must Be Compensated For Value Of Their Work

As we enter the new year, 3 million low-wage workers in 21 states will gain a small increase in their wages, thanks to increases in state minimum wages. People you know will see a wage increase — your neighbor, your teenage kid, the person who serves you coffee and donuts.

The minimum-wage increase is a good thing because it increases income in a small way to the workers on the low rungs of our economy. A stagnant minimum wage redistributes income from workers to owners and managers and, ultimately, shareholders and customers. As the minimum wage has failed to keep up with inflation and productivity increases, our political economy has redistributed significant income from low-wage workers to owners over the past 40 years. One reason this happened is that workers have no leverage vis-à-vis corporations. They are price takers for their labor.

Minimum-wage increases reverse this redistribution so that workers win back a little bit of what they have lost. Minimum wages should be associated with value added instead of the powerlessness of workers to demand higher wages. But minimum-wage workers are not compensated for the value of their work for their employers. Raising the wage begins to remedy that undercompensation. If the wage goes too high, then employers will not hire workers, because their compensation exceeds the value of their work. But as we have seen, this is not the case with minimum-wage increases, which simply means that for the past decades workers have been paid less than the value of their work for employers.

How does increasing the minimum wage redistribute income? An increase in the wage results in a decrease in the payments to managers and profits for the establishment. That’s redistribution. We can argue that this might not happen because of productivity increases by the worker, but that merely means that the productivity increases (or a portion thereof) that might have gone to the employer instead go to the employee — hence redistribution from owners to workers. Redistribution also can occur between worker and customer. If a restaurant increases prices due to an increase in the minimum wage, in an attempt to avoid a decrease in profits, then the customers pay more. These customers have the disposable income to patronize restaurants. We can make the assumption that the customers have greater incomes than the people who wait on them. Thus, an increase is again redistributive, with the increase coming from increased prices paid by customers. Imagine: In Seattle an Amazon IT person goes out to lunch. (It feels like they all do.) Instead of paying $15 at the Skillet truck, they pay $17. They have lost $2, and the Skillet truck workers will have seen an increase in their wages. Redistribution to minimum-wage workers is good for them and pushes up the floor for the bottom half of all wages.

We too often equate increasing the minimum wage with living standards and poverty levels. This is dangerous for several reasons, including the fact that it sets a precedent for slicing and dicing the minimum wage: Do you have dependents? Do you pay for your own health insurance? How old are you? Are you paying for tuition yourself? All these are important questions, but taken to their logical conclusion, they move the minimum wage into welfare policy, so that an 18-year-old student could get paid less than a 25-year-old who is on her parents’ health insurance, and she might get paid less than a single mom with one kid, who could get paid less than a spouse in a household with three kids, etc. These are life situations best handled by social policy, social insurance and the appropriate provisions of public goods and services. But a focus on the minimum wage as welfare policy debases the fact that we should be raising the minimum wage because we should be insuring that workers are paid the value of their work. That is, such a focus disrespects workers as workers.

A lot of liberals don’t want to call increases in the minimum wage “redistributive.” It brings the reality of class conflict too close to the surface, apparently, and portrays workers as workers, not as victims. But in order for workers to not be victims, they must be compensated for the value of their work. That is not happening now, not in these United States. These state minimum-wage increases begin to reverse the damage, precisely because they are redistributive, from the owners of capital to the workers they employ. That is a good thing — and an excellent beginning for the new year!

 

By: John R. Burbank, Executive Director, Economic Opportunity Institute; The Blog, The Huffington Post, December 31, 2014

January 3, 2015 Posted by | Economic Inequality, Minimum Wage, Workers | , , , , , | 4 Comments

“America’s Rich Hit The Jackpot”: The Year of the Great Redistribution

One of the worst epithets that can be leveled at a politician these days is to call him a “redistributionist.” Yet 2013 marked one of the biggest redistributions in recent American history. It was a redistribution upward, from average working people to the owners of America.

The stock market ended 2013 at an all-time high — giving stockholders their biggest annual gain in almost two decades. Most Americans didn’t share in those gains, however, because most people haven’t been able to save enough to invest in the stock market. More than two-thirds of Americans live from paycheck to paycheck.

Even if you include the value of IRA’s, most shares of stock are owned by the very wealthy. The richest 1 percent of Americans owns 35 percent of the value of American-owned shares. The richest 10 percent owns over 80 percent. So in the bull market of 2013, America’s rich hit the jackpot.

What does this have to do with redistribution? Some might argue the stock market is just a giant casino. Since it’s owned mostly by the wealthy, a rise in stock prices simply reflects a transfer of wealth from some of the rich (who cashed in their shares too early) to others of the rich (who bought shares early enough and held on to them long enough to reap the big gains).

But this neglects the fact that stock prices track corporate profits. The relationship isn’t exact, and price-earnings ratios move up and down in the short term. Yet over the slightly longer term, share prices do correlate with profits. And 2013 was a banner year for profits.

Where did those profits come from? Here’s where redistribution comes in. American corporations didn’t make most of their money from increased sales (although their foreign sales did increase). They made their big bucks mostly by reducing their costs — especially their biggest single cost: wages.

They push wages down because most workers no longer have any bargaining power when it comes to determining pay. The continuing high rate of unemployment — including a record number of long-term jobless, and a large number who have given up looking for work altogether — has allowed employers to set the terms.

For years, the bargaining power of American workers has also been eroding due to ever-more efficient means of outsourcing abroad, new computer software that can replace almost any routine job, and an ongoing shift of full-time to part-time and contract work. And unions have been decimated. In the 1950s, over a third of private-sector workers were members of labor unions. Now, fewer than 7 percent are unionized.

All this helps explain why corporate profits have been increasing throughout this recovery (they grew over 18 percent in 2013 alone) while wages have been dropping. Corporate earnings now represent the largest share of the gross domestic product — and wages the smallest share of GDP — than at any time since records have been kept.

Hence, the Great Redistribution.

Some might say this doesn’t really amount to a “redistribution” as we normally define that term, because government isn’t redistributing anything. By this view, the declining wages, higher profits, and the surging bull market simply reflect the workings of the free market.

But this overlooks the fact that government sets the rules of the game. Federal and state budgets have been cut, for example — thereby reducing overall demand and keeping unemployment higher than otherwise. Congress has repeatedly rejected tax incentives designed to encourage more hiring. States have adopted “right-to-work” laws that undercut unions. And so on.

If all this weren’t enough, the tax system is rigged in favor of the owners of wealth, and against people whose income comes from wages. Wealth is taxed at a lower rate than labor.

Capital gains, dividends, and debt all get favorable treatment in the tax code – which is why Mitt Romney, Warren Buffet, and other billionaires and multimillionaires continue to pay around 12 percent of their income in taxes each year, while most of the rest of us pay at least twice that rate.

Among the biggest winners are top executives and Wall Street traders whose year-end bonuses are tied to the stock market, and hedge-fund and private-equity managers whose special “carried interest” tax loophole allows their income to be treated as capital gains. The wild bull market of 2013 has given them all fabulous after-tax windfalls.

America has been redistributing upward for some time – after all, “trickle-down” economics turned out to be trickle up — but we outdid ourselves in 2013. At a time of record inequality and decreasing mobility, America conducted a Great Redistribution upward.

 

By: Robert Reich, The Robert Reich Blog, January 4, 2014

January 6, 2014 Posted by | Economic Inequality | , , , , , , , | Leave a comment

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