There is a common thread running through the articles I want to comment on today. I’ll try to connect the dots later.
Before I get to the article I’m commenting on, let me set out what I believe and what I’d like to happen. I think that
- The U. S. had much greater income and wealth equality 50 years ago than it does now.
- Increasing income and wealth inequality are corrosive to a free and liberal society.
- We cannot reduce income and wealth inequality via the tax code.
- We should restrain the growth of rent-seeking, particularly among those in the top 10% of income earners, more strenuously than at present.
- We cannot reduce income and wealth inequality without controlling immigration into the U. S.
- We should adopt immigration systems like those of Canada, Australia, and New Zealand, countries with which we have much in common historically, socially, and linguistically>
- We should reduce uncontrolled immigration by addressing both the push and pull factors involved. Of the two reducing the pull factors is much easier and quicker.
Now, onwards to the Washington Post’s editorial on income and wealth inequality:
Over the course of this series, we have made the case that inequality of wealth is a serious problem in the United States. Disparities between the wealthiest 1 percent and the bottom half are far larger in this country than in other democratic capitalist countries, and far larger than can be justified as reward for productive effort. Indeed, to an unhealthy degree, wealth in the United States is being gained through unproductive activity — “rent-seeking†— or simply through inheritance. Well-designed government interventions can reduce inequality from the top down, through more aggressive taxation of capital gains and estates, and from the bottom up, through better-targeted support for homeownership, higher education and retirement savings.
I don’t believe any of those measures can have material impact on income or wealth inequality. They are predicated on false assumptions. The tax code proposals do not take into account something that every seasoned policymaker understands: people change their behavior in response to incentives or, in this case, disincentives. And the “better-targeted support” is cargo cult thinking. It confuses causes with effects.
They go on to challenge the observations in a WSJ editorial on which I commented earlier:
A new study has indeed found that the share of U.S. private wealth held by the top 5 percent of people ages 40 to 59 was 45.4 percent in 2019, including the value of future Social Security benefits and pensions, as opposed to 63.5 percent without them. The study confirmed that, between 1989 and 2019, the top 5 percent’s share of total wealth grew by 10 percentage points factoring in Social Security, as opposed to 15 percent without doing so. A 2020 paper, done by University of Pennsylvania researchers using different methodology, found that, including Social Security, the top 1 percent’s share of wealth remained essentially unchanged between 1989 and 2016.
Even taking pension wealth into account, however, wealth distribution in the United States remains far more skewed toward the top than in peer countries, as the Organization for Economic Cooperation and Development found when it estimated the impact in 2018. Given this context, the fact that a government intervention — Social Security — mitigated wealth inequality would seem to bolster our argument that additional interventions could reduce it even more.
and that’s where I want to focus my attention. What is a “peer country”? That could be assessed in any number of ways, e.g. members of the OECD, countries that are not ethnically homogeneous and are in the top 10 in terms of population, etc. Is any country that does not have a 1,500 mile land border with a country with a per capita income a third or a fifth of our own really a “peer country”?
Among members of the OECD income and wealth inequality is high here, among countries that are in the top 10 in terms of population our income and wealth inequality is low, and there are no other countries with a 1,500 mile land border with a country with a per capita income a third or a fifth of our own.
IMO there is only one straight line way to reduce income and wealth inequality in the U. S. and that is to control immigration into the United States. As I have mentioned I think we need laws like those of Australia, Canada, and New Zealand, a general agreement that they should be enforced, and an agreement that we should not be hinting at easing such laws.
Alternatively, we could accept that our peer countries are actually countries like Mexico, Brazil, and Chile and income and wealth inequality are part of the package.
Note, too, that the period during which Social Security mitigated inequality was one during which immigration into the U. S. neared zero.
The only peer is the EU as a whole. It alone has the size, diversity, economic development, and military power (almost) to match the US.
If that’s your peer, then I suspect that going from Lichtenstein to Moldova you will encounter greater wealth disparity than in the US.
In addition to Dave’s observation about comparing the US to homogeneous countries, and Bob’s oft overlooked observation about comparing different European countries, I’d like to point out another oft overlooked statistical anomaly.
If one looks at IRS statistics, which reflect real flesh and blood people and not cold statistics, one discovers that churn is significant. The same bottom 20% or top 1% are not a static group. The last time I looked every 5 years the bottom 20% are no longer in the bottom 20.
And the top tends to have people fall out. For example, as I withdraw from working I will fall downward.
Income inequality of the magnitude we have may, or may not, be corrosive. But systems that prevent the bottom from clawing out are definately corrosive. That would include the tyrannical communist or other despotic dictatorships of the world.
My recollection is that the rate of “churn” has decreased substantially over the last 30 years. Many explanations have been proposed for it.
Why are we extending eviction moratoriums implemented as a response to covid lockdowns and the accompanying loss of jobs…………………….when employers are currently desperate to hire?
Just wondering.
I’d have to do some research, Dave. It may have declined, and would be interesting to understand why. I wonder how much is due to peoples refusal to move where the jobs are.
The particular study I recall is probably in the 5-7 year old range. It was conducted post 2008-2010 where one of the observations (complaints, really) was that people were afraid to leave their jobs.
But 20% is large anyway you look at it. Even 10-15%. That’s a far healthier economic system than what generally gets proposed as solutions to income inequality, almost always the simple minded tax solution.
Professionals tend to marry other professionals. Also, consolidation tends to reduce the possibilities. Globalization.
Pew documented that income mobility has decreased.
https://www.pewtrusts.org/~/media/legacy/uploadedfiles/wwwpewtrustsorg/reports/economic_mobility/pursuingamericandreampdf.pdf
Would need to see the data showing inequality was worse 50 years ago. Should be base it upon absolute differences (inflation adjusted) or percentages?
Steve
Inequality was less 50 years ago than now. The data supporting that is copious and easy to find. That is true of both wealth and income inequality. Google “income inequality since 1913” or “wealth inequality since 1913”. You’ll get Saez’s paper among other sources.