“Inequality Perpetuates Inequality”: Conservatives Defend Inequality Out Of Self-Interest, Nothing More
Conservatives have justified inequality for decades, arguing that it is an inevitable byproduct of capitalism and broadly beneficial. This intellectual edifice has begun to collapse.
Supply-side economics rest on the assumption that the wealthy drive economic growth, and that by reducing taxes on them, we can unleash latent economic potential. In fact, however, investment is driven by demand, not supply (a point acknowledged by the relatively conservative Martin Feldstein). If there are viable investments, they will be made regardless of tax rates, and if there are no investments, cutting taxes is merely pushing on a string. Thomas Piketty and Emmanuel Saez, two top economists on inequality, find no correlation between marginal tax rates and economic growth.
Recently, two IMF papers confirmed what Keynesians like Joseph Stiglitz have long argued: Inequality reduces the incomes of the middle class, and therefore demand. This stunted demand means fewer opportunities for investment, stunting growth.
Add to this growing body of research the fact that a robust defense of inequality is increasingly difficult to muster when every other OECD country has far lower levels of inequality than the United States. Greg Mankiw’s defense of the 1 percent was widely decried, because a large swath of research shows that the rise of the 1 percent did not come from natural economic forces, but rather rent-seeking.
The evidence is clear: The economic benefits of inequality have been massively oversold. Inequality is, in fact, a detriment to growth. So why has the right not conceded the argument?
The answer is class interest.
“Class interest” does not mean that the wealthy are nefarious schemers. Instead, it means there are various cognitive biases that lead them to justify and perpetuate inequality. For instance, Kris-Stella Trump conducted experiments in which participants were asked to solve anagrams in a high inequality scenario (the winner received $9 and the loser $1) and a low inequality scenario (the winner got $6 and the loser $4). When asked what a fair distribution would look like, the high inequality group preferred an inequality of $5.54 ($7.77-$2.23) while the low inequality group preferred inequality of $2.30 ($6.15-$3.85). She concludes: “Public ideas of what constitutes fair income inequality are influenced by actual inequality.” Inequality perpetuates inequality.
Paul Piff finds that the wealthy feel more entitled to their earnings and are more likely to show personality traits typically associated with narcissism. Recent research by Andrew J. Oswald and Natavudh Powdthavee finds that lottery winners in the UK are more likely to switch their political affiliation to the right, and also more likely to believe that current distributions of wealth are fair. As people get richer, they think that tax policies favoring the rich are fair — not because of the macro-economic benefits, but because of how they benefit me.
These cognitive biases, rooted in class distinctions, have deep implications. As a young economist argued in 1846, “The ruling ideas are nothing more than the ideal expression of the dominant material relationships.” Benjamin I. Page, Larry M. Bartels, and Jason Seawright examined the policy preferences of the very wealthy and found that they generally fall in line with their class interests. The wealthy were far less likely than the general public to believe that “government must see that no one is without food, clothing, or shelter,” or that minimum wage must be “high enough so that no family with a full-time worker falls below official poverty line,” or that “the government in Washington ought to see to it that everyone who wants to work can find a job.”
This is not meant to demean the policy preferences of the wealthy — only to examine the motives. For too long, the wealthy have couched their economic ideas as being broadly good for the country, but in fact, de-unionization, capital market liberalization, and austerity benefit them while leaving the rest of us far worse off. It’s time that we were all honest about why we support the policies we support.
Now of course, not everyone who supports conservative economic policy is wealthy. Indeed, there is a large literature devoted to the question why the working class supports policies against their own interests. Engles calls this phenomenon “false consciousness,” writing to Franz Mehring, “the real motive forces impelling him remain unknown to him; otherwise it simply would not be an ideological process.” Thomas Frank proposes that working-class conservatives are swayed by social issues. Ian Haney Lopez argues that racial animus still plays a role. Rick Perlstein notes the power of identity politics. The American ethos of upward mobility certainly plays a role; truck drivers in Tallahassee vote for tax breaks on Wall Street believing that they may someday posses enough wealth that an estate tax might affect them. John Steinbeck noted the power of aspiration, writing, “Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.”
But when it comes to wealthy conservatives who favor economic policies that hurt many Americans: Bartels’ previous investigation of economic and political power finds, unsurprisingly, that those with a higher socioeconomic status have more influence on legislative outcomes. Martin Gilens, Dorian Warren, Jacob Hacker, Paul Pierson, and Kay Lehman Schlozman have all recorded similar findings. It seems obvious, but it is important to connect these dots: Not only do the wealthy have interests divorced from the broader interests of society, but they also have the political heft to turn those interests into policy.
It is considered rather gauche to discuss class today, and the inequality debate is therefore situated in a purely theoretical realm. Liberals are constantly confused and aggravated about why the preponderance of evidence that austerity doesn’t work (while stimulus does) and that inequality harms society is lost on a large portion of conservatives.
Well, let’s face it: Those who support austerity and inequality are not really about “trickle-down” economics or “efficiency and equity.” They are protecting the interests of the upper class.
As Jonathan Swift warned, “It is useless to attempt to reason a man out of a thing he was never reasoned into.”
By: Sean McElwee, The Week, March 18, 2014
“Just Desert Adherents”: Why The Conservative Defense Of Inequality Makes No Sense
Harvard economist Greg Mankiw is notorious for trying to justify the income of the very rich on the grounds that it’s what they deserve. In this column, for example, he uses the example of Steve Jobs as a person who deserves his wealth, having been in charge of a company that built some hugely popular electronic devices. The idea is plausible at first blush: Jobs’ products are indeed very popular.
But it quickly runs into enormous problems. This “just deserts” way of looking at the world is perennially tempting for conservatives — the flip side being that poorer people also deserve what they get — but they will have to do better than this to justify and valorize the existing social structure.
Consider the case of economic growth. As Matt Bruenig points out, the mysterious “Solow residual” — the source of productivity that can’t be directly attributed to capital, labor, or land — almost certainly consists at least in part of knowledge, which has been piling up for centuries:
If we are being good “just desert” adherents, then we need to divorce out the massive chunk of the total output that constitutes the Solow residual and ensure it makes it to its rightful contributor. All of our national product attributable to the world’s accumulated knowledge of algebra — which includes much of Mankiw’s work it should be noted — rightfully belongs to ancient Babylonians, ancient Greeks, and a whole host of other long-dead historical figures. All of our national product attributable to electricity technology rightly belongs, not to anyone living, but to people like Nikola Tesla and and Thomas Edison. In short, the view that individuals should receive only their marginal product actually generates the conclusion that the substantial part of our national product resulting from inherited technology and knowledge belongs to no living person, or more reasonably to everyone in general. [Demos]
Even that isn’t going far enough! As Thomas Kuhn demonstrated in the Structure of Scientific Revolutions, nearly all major scientific breakthroughs were made by multiple people simultaneously and independently, and were critically dependent on certain background conditions in society. In other words, if we could somehow figure out how much of economic output stems from the discovery of calculus, even Newton would not deserve full credit for it.
We can take it even further: what about the English language itself? That is to say, practically every single economic activity depends on a foundation of literacy that has been built into society. No business today can operate without a functional language as a bedrock condition. That is quite obviously the result of thousands of years of communal creation and evolution. Today’s Job Creators can’t possibly claim to have “built that,” and the very idea of trying to single out individuals in the creation of English is ridiculous on its face, with the possible exceptions of Shakespeare or William Tyndale.
Finally, merest existence means being ensnared in a web of obligation that it would be futile to map out. Every person alive is built at great effort and pain from the flesh and blood of another person: your mother. How could one possibly begin to even “repay” such a debt? Presumably, she deserves all of your income less what it takes to keep you alive, since she is literally responsible for your creation. But that’s not even the end — before your mother, there was her mother, and so on, in an unbroken chain of life creating life stretching 3.6 billion years back to the primordial sea. Remove just one of the links, and you wouldn’t exist.
Anyway, one could continue in this vein, but I’ll leave it there. In my view, the sheer impossibility of ever allocating desert in any sort of systematic or consistent way means we should guarantee a minimum of safety and security for every person. But at a minimum, Mankiw and his fellow 1 percent apologists would do well to abandon this line of reasoning.
By: Ryan Cooper, The Week, March 14, 2014
“In Shocker, GOP Proposes Cutting Taxes For The Wealthy”: Don’t Believe The Baloney About Tax Simplification
For some time, I’ve been saying, perhaps naively, that we ought to have a real debate about tax reform, and maybe actually accompish something. Sure, Democrats and Republicans have different goals when it comes to this issue—Democrats would like to see the elimination of loopholes and greater revenue, while Republicans want to reduce taxes on the wealthy—but there may be a few things they could agree on somewhere in there. You never know.
So today, Representative Dave Camp, the chair of the House Ways and Means Committee, is releasing the latest incarnation of Republican tax reform. And it’s…exactly what you’d expect. Unfortunately.
In fact, though we’re waiting for details, it looks almost exactly like the plan Republicans released two years ago. The centerpiece is an elimination of most tax brackets, leaving only two, at 10 percent and 25 percent. In a total shocker, that means a huge tax break for the wealthy! I know—I too am amazed that Republicans would propose such a thing.
But they’ll make up the revenue, they protest. How? Well as always, Republicans say they’ll eliminate loopholes, but won’t say which ones. The reason for that is simple: everyone hates loopholes that other people benefit from, but everyone wants to keep their own loopholes. As long as you never say which loopholes you’d eliminate, nobody has reason to fight against your plan, since they don’t know whether the ox being gored is theirs or someone else’s. Furthermore, the really big loopholes are ones that lots of people love, like the mortgage interest deduction, a largely middle- and upper-class entitlement that cost the Treasury $82 billion in 2012, or the deduction for employer-provided health insurance, the largest tax expenditure at a whopping $184 billion. Think anyone’s going to eliminate those? Not on your life. But that’s where the real money is.
There is one new thing in this Republican proposal, a surtax on certain incomes over $400,000 a year, which would assumedly recover some of the money we’re losing by cutting those people’s taxes. But there are some devilish details. First, some kinds of high earners, like those in manufacturing, are excluded. And most importantly, it would only apply to wages over $400,000, and not investment income. In other words, as is usually the case with Republican proposals, they reflect a particular value: that work should be taxed at a higher rate than investments. And of course, the higher you go up the income scale, the greater the proportion of their income the wealthy get from their investments.
One final note on this. The part of the plan that will get the most attention is reducing the number of tax brackets to two. This is always offered in the name of “tax simplification,” but the truth is that the number of brackets is just about the least complicated thing about the tax code. Kevin Drum has it right:
I’m not encouraged by the fact that reducing the number of tax brackets is apparently a key feature of this “simplification” plan. That doesn’t simplify things by even an iota. The hard part of calculating your taxes, after all, is figuring out your taxable income. That takes about 99.9 percent of your time. Once that’s all done, the final step is to look up your tax rate and then multiply the rate by your taxable income. That part takes about 30 seconds.
In fact, we ought to have more tax brackets, not fewer, particularly at the high end. There’s no reason that someone making $400,000 a year should pay the same marginal rate as someone making $400 million a year.
Anyhow, the most consequential feature of this Republican tax plan, like those that came before it, is its attempt to relieve the nation’s wealthy of their burden of taxes, so terribly weighed down as they are. Maybe I’m forgetting something, but I can’t recall there ever being a Republican tax plan that didn’t propose precisely that. Ever. And they wonder why Democrats have so much success characterizing them as the party of the rich.
By: Paul Waldman, Contributing Editor, The American Prospect, February 26, 2014
“We’ve Got A Good Thing Going”: Why Can’t You Miserable Commoners Be Happier With Your Lot?
Venture capital billionaire Tom Perkins may be new to the trolling game, but he made an absolutely spectacular debut when he wrote to the Wall Street Journal a few weeks back warning that resentment toward the super-rich in American society reminded him a lot of the Nazi campaign against the Jews. Then last weekend, he followed that bit of wisdom by proposing that the wealthy ought to get more votes than the unwashed masses, since they pay more in taxes. “The Tom Perkins system is: You don’t get to vote unless you pay a dollar of taxes,” he said in a speech. “But what I really think is, it should be like a corporation. You pay a million dollars in taxes, you get a million votes. How’s that?”
That, you’re probably saying, is abominable. Why not just let the richest one person choose the president? He’s got the most money, so he’s obviously the wisest and has the greatest interest in government, right? Although Perkins might not be too pleased with that outcome, since the richest person in America is Bill Gates, who seems pretty liberal, what with his efforts to improve global health and fight poverty rather than letting the sick and destitute contemplate their well-deserved fate while they gaze up in admiration at their betters.
Okay, so Tom Perkins is kind of a lunatic. But is he a representative lunatic? Do his peers up in the penthouse suite and down at the yacht club think the same things he does, or is he an outlier?
This is actually a difficult question to answer, because while most good surveys ask about people’s income, their scales usually stop at a pretty modest level. Often the final option is “$100,00 per year or more,” which doesn’t allow you to separate the wealthy from the upper-middle-class. Nevertheless, the higher you go up the income scale, the more Republican people tend to be. Take, for instance, the 2012 election results:
Even if those with incomes over $100,000 tilt Republican, there are still plenty of Democrats there. But that’s not really the people Perkins is talking about. The people who arouse his concern are those earning seven, eight, or nine figures a year, and being Republican is only the start (I’m sure there are plenty of Republicans who think Perkins takes his advocacy for the upmarket downtrodden quite a ways too far). I’ve only come across one study that attempted to assess these people’s opinions quantitatively. It’s this one from Benjamin Page, Larry Bartels, and Jason Seawright. The sample of ultra-wealthy people they managed to assemble is pretty small, so we shouldn’t make too many sweeping judgments from it, but the differences with the general public they found are pretty striking:
The days of noblesse oblige are obviously long gone. Fortunately for these folks, it isn’t really necessary for them to get votes proportional to their net worth; the government already works hard for them. Even in the administration of that socialist Barack Obama, the Dow has hit record levels and the wealth of the wealthiest has gone nowhere but up. So things are working out pretty well. Which is why, I’m guessing, most of them would like Tom Perkins to keep his mouth shut. Sure, there may be a few who actually agree with him that the wealthy deserve more votes. But why admit that in public? After all, they’ve got a good thing going.
By: Paul Waldman, Contributing Editor, The American Prospect, February 19, 2014
“An Epidemic Of Plutocrat Self-Pity”: Filthy Rich But Secretly Terrified, Inside The 1 Percent’s Sore-Winner Backlash
What explains the toxic mélange of entitlement and shame that’s driving the raging 1 percent sore-winner backlash? From Tom Perkins comparing the ultra-rich to Jews during “Kristallnacht,” to tycoon and newspaper-destroyer Sam Zell insisting “the top 1 percent work harder,” to investment banker Wilbur Ross proclaiming that “the 1 percent is being picked on for political reasons,” there’s an epidemic of plutocrat self-pity afoot. Just last week ex-CEO of Morgan Stanley John Mack told the media to “stop beating up on” CEOs Jamie Dimon and Lloyd Blankfein after they got obscene raises from JPMorgan Chase and Goldman Sachs.
The sore winner backlash is odd timing. There’s no longer any real movement to hike taxes on their income or their wealth, both of which are at all-time highs. President Obama has said an increase in tax rates is “off the table.” There’s no more discussion of the “Buffett Rule,” named for the Berkshire-Hathaway oracle who famously suggested his secretary should no longer pay higher rates than her boss.
Almost nobody talks about ending the “carried interest” loophole that lets hedge fund managers pay a shamefully low rate on much of what should be considered income; instead there’s a “boom in trusts passing carried interest to heirs,” the Wall Street Journal reports. Yes, they’ve figured out a way to pass that unfair advantage onto their heirs through new estate-tax dodges. Sadly, Occupy Wall Street has fizzled, so they can even enjoy Zuccotti Park unaccosted.
So why all the whining now? I read Kevin Roose’s buzzy “I crashed a secret Wall Street society” piece Monday morning looking for insight. You should read it if you haven’t. It’s a fun hate-read. You’ll come away thinking, if you don’t already, that a lot of these people are monsters.
Apparently the secret fraternity Kappa Beta Phi gathers the titans of Wall Street at the St. Regis once a year for a gala that celebrates their wealth and power and mocks the rest of us. New inductees to the fraternity are charged with putting on a variety show to entertain the long-tenured. The evening features all the standard bad behavior common to male societies, from sports teams to military units to the boys of the Bohemian Grove. Cross dressing? Check.
After cocktail hour, the new inductees – all of whom were required to dress in leotards and gold-sequined skirts, with costume wigs – began their variety-show acts.
Misogyny and homophobia? Check.
The jokes ranged from unfunny and sexist (Q: “What’s the biggest difference between Hillary Clinton and a catfish?” A: “One has whiskers and stinks, and the other is a fish”) to unfunny and homophobic (Q: “What’s the biggest difference between Barney Frank and a Fenway Frank?” A: “Barney Frank comes in different-size buns”).
Mocking the loser-outsiders, who paradoxically make their great wealth possible? Check.
One of the last skits of the night was a self-congratulatory parody of ABBA’s “Dancing Queen,” called “Bailout King.”
When Roose was discovered, he was ejected from the ballroom, and the story wound up in his new book, “Young Money,” a portrait of eight entry-level Wall Street traders, which came out today. The Kappa Beta Phi story was excerpted in New York magazine.
What the excerpt captured was the insularity and paranoia of plutocrats who band together to protect themselves from mostly imagined social approbation and self-doubt. As Paul Krugman has argued, they aren’t like the titans of yore who made things; they “push money around and get rich by skimming some off the top as it sloshes by.” They’ve gotten insanely wealthy mainly by rigging the rules of the game to privilege the world of finance, and it’s no wonder they’re worried the rest of us will someday figure that out.
The good news from Roose’s work? Among younger Wall Streeters, there’s more doubt than you might expect. The percentage of Ivy Leaguers going into investment banking straight out of college is dropping. Before it faded, Occupy Wall Street had an impact on some of his young subjects, Roose reveals. The bad news is, the people who have doubts about the morality of their enterprise, and about their own privilege, tend to leave, so that those who remain are particularly entitled and/or deluded.
Still, that nagging doubt helps explain the backlash. They project in order to protect themselves. Their self-defense gets ever louder.
Last week Tom Perkins doubled down on his plutocrat paranoia at the Commonwealth Club, insisting the more money you have, the more votes you should get. He later “clarified” his remarks by saying he was only warning about the dangers of the 50 percent of the country that doesn’t pay taxes nonetheless having the right to vote. It was an uglier version of Mitt Romney’s 47 percent remark. Neither Romney nor Perkins nor their many defenders seem to realize that the people who pay no taxes are either retirees, or low-wage workers who are paid so little they’re not taxed.
These men who rigged the rules of the game to make themselves obscenely wealthy are trying to convince themselves, and us, that they’re entitled to those rewards. If only there were a genuine political movement triggering their paranoia. Instead, it’s preemptive, a product of their buried guilt and practiced entitlement.
By: Joan Walsh, Editor at Large, Salon, February 18, 2014
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