Tuesday, 5 March 2013

INEQUALITY AND GROWTH, A SEQUEL

This a quick post following my linking of a Boston Review article on Inequality on Facebook.


 

Last month, U.C. Berkeley economist Emmanuel Saez spoke [See video below] to the Center for Ethics in Society at Stanford University about his pioneering research into global income inequality. A critical question his work raises is whether high taxes on the wealthy can curb inequality. Before his talk, Saez sat down with Stanford sociologist David Grusky to discuss further why taxation, though a blunt instrument, might be the best available solution.


One of my friend, whom I will just call J, decided to engage in a bit of Facebook banter with me on the topic. Since I think it raised interesting points, here is a transcript  

J: I think very few people believe that it's always 100% deserved. The issue is whether attempting to fix it actually makes it worse...

Me:  'Taxation is a blunt instrument but it works'... I mean, I'd prefer salary negotiations leading to salary increases rather than state ordered redistribution but what can you do when the market is broken? 

J: Well, it depends how broad your definition of "works" is...

Me: Okay. Let's play counter-factual. What would happen if taxes were raised on the top 0.1% or above? 

J: There'd be less time and energy to devote to more effective policy measures. 

Me: Really? That's what you're going with? Okay. What 'more effective policy measures' are presently under consideration and not being delayed by our time wasting increased tax rates? 

J: I don't think tinkering is the solution. Overhaul and simplify the whole lot. Claiming an extra few percent that the super-rich won't pay won't do much beyond making the left feel good. As a result of my preferred modifications the rich probably actually would end up paying more, but it has to be in the context of system-wide change. 

Me: Yeah but that's arguing about the nitty gritty, not contesting the point. I am personally in favor of closing loopholes as a first measure and see where it gets us. But that's not exactly the point here. The point is to know whether we thing inequality has grown too wide, to the detriment of society or whether it's all just fine as it is. 

J: I don't think there's one point where you can say "Oh, that's too much. Below would be fine." It depends on the attitude to inequality in a given society. Some people see it as an incentive to succeed. 

Me: And that would be fine if it did work like that. Except it doesn't and that's where articles/research like that is important - it kills that kind of belief. 

 http://andrewleigh.org/pdf/InequalityMobility.pdf - another take, this one showing the correlation between high inequality and lack of inter-generational mobility... Seems the incentive to succeed is not working out...

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Basically, my central point is that, contrary to what J is saying, there is a point, fuzzy as it might be, a zone would be a more accurate description, above which wealth inequality is detrimental to society via a variety of transmission channels such as excessive political weight for the minority at the top, destruction of sustainable aggregated demand for the vast majority and, eventually, nepotism and/or class reproduction severely limiting inter-generational mobility...