Later On

A blog written for those whose interests more or less match mine.

Is economic inequality really a big problem?

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Paul Krugman thinks so:

It has taken an amazingly long time, but inequality is finally surfacing as a significant unifying issue for progressives — including the president. And there is, inevitably, a backlash, or actually a couple of backlashes.

One comes from groups like Third Way; Josh Marshall, I think, characterized that kind of position best:

That captures a lot of what the ‘Third Way’ is about: a sort of fossilized throwback to a period in the late 20th century when there was a market for groups trying to pull the Democrats ‘back to the center and away from the ideological extreme’ in an era when Democrats are the fairly non-ideological party and have a pretty decent record of winning elections in which most people vote.

But there’s also an intellectual backlash, with people like Ezra Klein arguing that inequality, while an issue, doesn’t rate being described as “the defining challenge of our time”. This in turn infuriates others, with Steve Randy Waldman going medieval on Klein.

Well, I’m not infuriated, but I would argue that Ezra has gotten this one wrong. And yes, I’ve expressed skepticism about the simple argument that inequality accounts for our slow recovery; the evidence surveyed in Jared Bernstein’s excellent new paper on the subject eases my skepticism somewhat, but it’s not entirely gone.

The key point, however, is that the case for regarding inequality as a major, indeed defining challenge — and as something that should be at the center of progressive concerns — rests on multiple pillars. Taken together, the reasons to focus on inequality are overwhelmingly convincing, even if you can be skeptical about particular arguments.

Let me make four points.

First, in sheer quantitative terms, rising inequality is what Joe Biden would call a Big Something Deal. Take the Piketty-Saez data on income shares; these show that the share of the bottom 90 percent in income excluding capital gains fell from 54.7 percent in 2000 to 50.4 percent in 2012. This means that the income of the bottom 90 is about 8 percent lower than it would have been if inequality had remained stable. Meanwhile, estimates of the output gap — the extent to which our economy is operating below capacity — are generally less than 6 percent. So in raw numerical terms, rising inequality has done more than the slump to depress middle-class incomes.

You can argue that the damage done by unemployment is greater than the mere income loss, and I’d agree. Still, it’s hard to look at this kind of calculation and dismiss inequality as a secondary issue.

Second, there is a reasonable case for assigning at least partial blame for the economic crisis to rising inequality. The best story involves something like this: high saving by the 1 percent, with demand sustained only by rapidly rising debt further down the scale — and with this borrowing itself partly driven by inequality, which leads to expenditure cascades and so on. Is this a slam-dunk case? No — but it’s serious, and reinforces the rest of the argument.

Third, . . .

Continue reading.

One of the comments on the column:

From Sam Kia:

A series of mandatory cadillac taxes would not only help this problem but would be very politically difficult to block. An earlier commenter suggested additional income taxes on salaries (has to be combined total income) greater than 20x the minimum wage. An excellent start.

Expand that to education: any education which costs >2x the public average (price per student in the relevant public institution) loses all tax exemption and is actively taxed. You can give institutional exemptions for any private institution whose average out of pocket is at parity with public schools (thereby causing them to be incented to provide more scholarships.)

Any home over 2x the average selling price.

Any car over 2x, etc.

Basically, greatly expand the existing luxury taxes.

Written by LeisureGuy

14 December 2013 at 1:34 pm

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