Timothy Noah has begun a multi-part series on income inequality in the United States at Slate:
Today, the richest 1 percent account for 24 percent of the nation’s income. What caused this to happen? Over the next two weeks, I’ll try to answer that question by looking at all potential explanations—race, gender, the computer revolution, immigration, trade, government policies, the decline of labor, compensation policies on Wall Street and in executive suites, and education. Then I’ll explain why people who say we don’t need to worry about income inequality (there aren’t many of them) are wrong.
I look forward to reading the series, hoping that I’ll learning something, dreading that I won’t. Put me down as someone who would like to see greater income equality but isn’t convinced that the means that are being proposed to accomplish the objective will actually do so and is concerned that the unforeseen secondary effects of the measures being discussed are likely to overwhelm their primary effects.
So, for example, I don’t see re-distributing income from one group of people making $200,000 or more per year to another group of people making $200,000 or more per year as a great advance in the cause of greater income equality.
My ideal society is one that more closely approximates Jefferson’s yeoman-farmers than it does that of say, Mexico City, but I’m concerned that we’re trending more towards the latter than the former. I’m not sure what the contemporary equivalent of Jefferson’s vision might be nor do I know how it might be accomplished in an age in which labor, capital, information, and goods cross borders with ease.
It seems to me that we have some real potential to end up with a two tier society. I think that we have benefitted from having a middle class that can move up or down based at least partially upon merit. A middle class that makes enough to set aside some savings for retirement.
Steve
I think the point of a strong middle class is an important one. It seems to me that the US political system is alienating the middle class. Maybe the solution is to turn towards a system with more than 2 political parties.
Who wants to admit that they are Republican when the identity of a Republican is so far off to the right? The same with the Democrats. Hard working Americans don’t want the taxes that come out of their paychecks going to Medicaid and programs where many individuals have merely learned how to “ride” the system.
sigh
C’mon steve and Bethie try to come up with something other than “I think its important/we have benefitted from it”. Or do you really want me to believe that if I write, “I think a vastly more market oriented health care will benefit us all,” you’ll think it is a valid argument?
Sorry, was just tired. One of the hallmarks of a lower tier economy is economic stratification. A small group of wealthy people and a large group of poor people. A few middle class in between, often government workers or a successful merchant here and there.
Looking back through history, it certainly seems that when countries have emerged as powers, that has, recently, been associated with a growing middle class. Cause or result? I dont know how to definitively prove that, but I think that there is at least some cause. A middle class has enough physical/financial capital AND personal capital to pass some of it on to its heirs. It provides a group of people who are motivated to work, to take risks, to save, knowing that it can and probably will pay off. The wealthy class may know this, but they are inevitably a small group.
The middle class, OTOH, can be a large group. A large group with most of the essential attributes of the wealthy, especially the human capital. We get this large group of people who are willing to work and take risks at a much lower cost per person than we do from the wealthy class.
If we devolve into a two tiered system, we lose that large group of people who are future innovators. Who are willing to save, and able to save, towards new enterprise. Who are willing to work extra hard for a while knowing that it might pay off. Mind you I am not saying that the poor are unwilling to work, but they are unlikely to put in that extra effort if they have not seen it pay off. They will not likely have the financial capital to make much of an attempt at a new enterprise. That will be limited solely to the wealthy. An economy run by an oligopoly, government or private citizens, seems less likely to succeed.
Mind you I am not saying this is a zero sum game. Economies can create wealth. I am saying they are less likely to do so when wealth creation falls to a smaller group.
Steve
My ideal society is one that more closely approximates Jefferson’s yeoman-farmers than it does that of say, Mexico City, but I’m concerned that we’re trending more towards the latter than the former.
I agree with your prognosis.
I’m not sure what the contemporary equivalent of Jefferson’s vision might be nor do I know how it might be accomplished in an age in which labor, capital, information, and goods cross borders with ease.
That’s an interesting thought experiment. I’d say that modern equivalent would be smaller nations in which people of similar ability and cultural values come together. Diversity is not strength, no matter how much the propaganda says otherwise. When you control for, or minimize, human capital variance, then what you’re left with, in terms of income inequality that results, is luck and personal choice as the causal agents.
Secondly, with human capital variance minimized, the intergenerational mobility should increase in an environment that isn’t rigged with rent-seeking and path dependency, so even if the father fails because of bad luck, the son can climb to higher income quintiles and the reverse for the unlucky or lazy son born to a rich, industrious, father.
Yes! Economies create wealth. Governments do not. Government might set up the institutions by which an economy can more easily create wealth, but the wealth creation process is due to people engaging in voluntary transactions that they see as making each side in the transaction better off. Government rarely does anything using voluntary means. Government is a source of coercion, force and violence. Granted used appropriately one could argue it is good for society (reducing crime, preventing invasions, etc.) but it is not the means for wealth creation.
Ideally, a government should promote competition in the economic arena. In practice government is far more often used to restrict competition–i.e. rent seeking. If we devolve into a “two-tier society” I submit it will be as a result of government policies, not economic competition. Granting even more power to government is a fools solution to the problem, IMO.
“If we devolve into a “two-tier society†I submit it will be as a result of government policies, not economic competition.”
This goes back to a point Dave made before. Is it possible to have a monopoly absent govt interference? I think it might be, but in reality, the wealthy nearly always use their wealth to influence govt. to get and maintain that monopoly. You think it is possible to curtail govt enough so that those with wealth cannot do that (sorry if I misinterpret your views). I believe that we cannot stop the wealthy from controlling govt. I also believe that the more wealth an individual has, the more likely they are able to influence and control govt. Finding some way to reduce inequality will dilute that effect.
Steve
Actually no, no I don’t. I think that such a view is naive and foolish and even dangerous. As I’ve noted elsewhere government is a source of coercion, force and violence. Using one’s wealth to garner some of that power is usually going to result in a detriment to the rest of society. As such, I think we should, at best, extremely wary of government power and should use it as little as possible. Currently we are going precisely the opposite direction giving the government more and more control over how resources are allocated.
Then why do you favor expanding the power of government? Why was the health care reform bill a good thing in your view, whereas in mine I see it as bad. Keep in mind we are starting from a very similar starting premise: the wealthy will use their wealth to influence/control government for their benefit. Given that starting premise and that is looks very much like the health care “reform” bill simply further entrenches the current system (i.e. furthering the interests of those currently benefiting from the current system) how can you see it as a good thing?
First off, how do you do that when the wealthy have a much greater level of influence of the very institution you are going to try and use to reduce that inequality? You seem to be stuck between a rock and a hard place. On the one had the wealthy have more influence over government, but on the other you want to use the very same government you have less influence over to reduce the influence and wealth of those who do have influence. Doesn’t this strike, at best, as an incoherent view point?
Second, have you considered the problem of simultaneity, that is the wealthy use their power and influence over government to further their own narrow self-interests? In the discussion of labor unions I’ve pointed out the negative impacts of monopoly. There is almost nothing good there. In this case, using government power to increase one’s wealth I would argue results in the reduction in wealth for others. Economic rent seeking does not seek to create new wealth but to use the power of government to reallocate the economic pie. If the government, for example, grants a monopoly to any given firm then that firm will not add new value to the economy, even thought it will become more profitable, it will simply shift wealth/money from consumers to their accounts. Further, they will reduce over all economic activity.
My view is not that we need less government so that businesses can run amok, but that we need less government so businesses are less able to run amok.
I think you’ve completely misunderstood my over all philosophical position.