Tuesday, July 20, 2010

And Every Stinking Bum Should Wear A Crown

Why so much inequality in the United States? I have been reading Hacker and Pierson (2010). (I haven't yet read the commentaries, available for the moment.) I think I have previously made many of their points, as shown below. Hacker and Pierson present some striking graphs taken from work by Piketty and Saez. I reproduce two.
Figure 1: Richest 1 Percent's Share of National Pretax Income (Excluding Capital Gains) (Based on Piketty and Saez)

Figure 2: Average Actual Tax Incidence for Top Incomes (Based on Piketty and Saez (2007))

Anybody who still thinks the mainstream story of skills-biased technical change is a reasonable hypothesis is a feckless fop.

Given contract law and property law, government cannot leave the economy to itself. Policy has been driving increased inequality.

Another driver of increased inequality is a change in ideas and social norms. These include faulty ideas on corporate governance, incorrect theories of factor markets, and performative models of finance.

How did ideas that never had sound empirical and theoretical backing become dominant? Part of the explanation must be a propaganda campaign by vile reactionaries, including the suppression of progress in explaining actually existing capitalist economies.

There is an aspect of cumulative causation here. A smaller government is associated with more inequality. And more inequality is associated with the rich and powerful promoting an exploded and evil ideology.

Increased inequality also leads to failures in aggregate demand. A steadily growing economy needs a certain balance to be maintained. The consequences of the failure to maintain such a balance since the end of the post war golden age are all around us.


Jacob S. Hacker and Paul Pierson, "Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States", Politics & Society, V. 38 N. 2 (2010): pp. 152-204


dan said...

You seem to prefer theoretical posts, but I was wondering if you were emperor for a day, what policies would you implement? More precisely, what do sraffian policies look like?

For example what does the presence of reswitching tell us about the minimum wage? I assume it would be higher but how would we determine the optimal level?

Also what about monetary policy?

Robert Vienneau said...

Sraffians have written on "applied and policy oriented work, including such topics as effective demand and economic growth, taxation, the pension system, fiscal retrenchment, monetary policy, the economics of disarmament, employment policy, health care, environment policy, the economics of waste management, the situation of Indian agriculture, etc." (Kurz and Salvadori 2010).

My preferences for immediate implementation in the USA would be incremental and influenced by what currently should be on the table: extend unemployment insurance; block grants to the states; carbon taxes; remove the cap on taxes on wages for social security; tax income to hedge fund managers as income (not capital gains); estate taxes; tax capital gains and dividends at same rate as wages; increased income taxes on newly created top brackets; more generous funding for programs like head start, etc.; moderately increased Federal minimum wages indexed to the CPI; allow unions to be closed shop throughout the USA; card-check; change laws on benefits to redefine full-time work as, say, 32 hours per week; maybe a few more vacations; rebuilding parks, bridges, etc.; more support for arts, PBS, NPR. The point would be to allow the vast majority to organize to obtain income (including leisure) from increased productivity and to generate aggregate demand from income (not borrowing) towards the bottom and middle of the income distribution. I have one item up there to partially begin to address global warming. But that's only one of a number of issues that need more than thought than I can give in a comment. Increased taxes right now should be accompanied by increased spending on social services. I think my stand on taxes would subsume dropping the Bush tax cuts.

I would not pretend that these preferences, although informed by political economy, are direct inferences from economic science. I'm for Karl Popper's piecemeal social engineering. If my program was implemented, it would be part of, as well as a sign, that the question "Who, Whom?" was being answered towards the benefit of the vast majority of the country. With a functioning democracy, perhaps better proposals for many problems would be created.

The point of many of my theoretical arguments is to get one to junk intro and intermediate mainstream economic textbooks. This would include, for example, Krugman and Wells (which I haven't read).