Saturday, January 07, 2017

Redistribution and Its Discontents

I thank God for the opportunity to listen to conservative talk radio, read the Drudge Report, and even, occasionally, watch Fox News.  I need to know what “the other” is thinking.  More importantly, I need to remind myself that when it comes to any argument worth thinking about I may be wrong and my opponent may be right.

Apparently, I’m not the only one who has that perspective.   This past fall at my college reunion, I was approached by a dear friend with whom I rarely if ever agree unless we’re talking about football.  Not only was he fervently supporting Trump in the general election, but he had been all-in on the Donald in the Republican Primary.  He is fed up with “Redistributionists” who think they know better than the free market how to allocate resources and think nothing of soaking our job-creators and over-regulating their businesses.  He himself owns a small business and spends his days primarily with blue collar workers, many of whom surely love Trump as much as he does.  

And yet, my friend isn’t afraid to open his eyes and ears to progressive teachings.  In fact, he showed up at our reunion with a present for me – a 577-page, hard-bound book by a progressive French economist named Thomas Piketty.  You may have heard of this tome: Capital in the Twenty-First Century.  It’s a wonderful, data-packed treatise on the topic of economic inequality and why it’s likely to get worse, not better, in the upcoming decades.  Somehow, my old friend can read this book and retain his political views.   Personally, though, I found that Piketty’s data provides a compelling case in support of the “Redistributionism” that my friend so despises. 

I would be hard pressed to convey in a blog post the full thrust of Piketty’s argument, so I won’t try.  May it suffice, then, to present just a few of his salient points:   

Whereas early in the last century, America was more economically egalitarian than Western Europe, we’re now less so – far less so.  

America is indeed comparable to a third world nation when it comes to the share of total income enjoyed by the top percentile of the economy.  As far as the top decile in national income, their share bottomed out during the period from the end of World War Two until the late 1970s, and it has gone crazy high ever since – so high, in fact, that it is competitive with the state of the economy during the latter part of the Gilded Age.  

Regarding wealth (as opposed to income), America is less equal today than it was in the early 1800s, at least when you consider the share owned by the top decile.  In 2010, that group owned more than 70 percent of wealth in the United States (the highest figure since the early 1930s).  

The bottom five deciles – in other words, half of the American population – comprises the group that Piketty simply refers to as “the poor” because they own little, if any, wealth.  Many of them might choose to call themselves “middle class” for psychological reasons, but Piketty begs to differ, and his data is difficult to argue with on that point.

My friend and I were both products of the Stanford Economics Department, which is hardly a bastion of socialist thinking.  As an undergraduate in that department, I came to appreciate the value of free markets in deciding what goods are produced and what services are valued – including the value of the labor power that goes into producing both.  I similarly learned to appreciate that while a nation’s output is primarily a product of hard-working people toiling together, it is also a function of insightful individuals thinking alone.  Accordingly, we need to reward individual initiative and inspiration just as we need to reward hard work.  Stated simply, some of us need to be paid a whole lot more than others if we want to incentivize high-quality work and grow the size of the overall pie.  

But by the same token, the invisible hand touted by laissez-faire economists can be capable of choking the national neck.  Ever since the 1980s, our economy has been fueled by a Congress that had tired of progressive taxation.  In more recent decades, corporate boards have decided, often for highly arbitrary reasons, to remunerate the top of the wage scale to the point where the sky is the limit.  Hundreds of thousands of dollars a year?  Millions?  Tens of millions?  Why not quadrillions?   I’ll tell you why not – because it is creating a broken nation. While the Dow Jones breaks records, Main Street stagnates.   Home ownership becomes unaffordable.   Once-proud family matriarchs and patriarchs die as penniless, Medicaid recipients.  And yet, however “the poor” is defined, the members of that group seem to be able to afford a television, through which they can watch “beautiful” people frolic in mansions, board private jets, and vacation overseas.  

As I write these sobering words, we are about to enter the next phase of the American experiment, one that is likely to be known as “Trumpism.”  Neither my conservative friend nor I can know for sure what principles Trumpism will trumpet, but we can make a pretty good guess that “Redistributionism” won’t be among them.   Trump’s party wouldn’t let that happen even if he personally bought into Piketty’s analysis.  

So be it.  The real tragedy of contemporary America is not that Republicans govern as conservative Republicans.  It’s that Democrats govern as moderate Republicans.  More specifically, they tinker a bit around the edges to make the tax system a micron more progressive until they are replaced by those “across the aisle” who take aim at progressive taxation as if it’s a big fat piñata.  You don’t have to be Thomas Piketty to do the math – the top marginal tax rates take one step forward and then five steps back.  Honestly, can they go any lower?  I guess time will tell.  My guess is, though, that yes they can.   

As Piketty explains, the roots of our inequality problems aren’t simply a function of tax policy.  Even more fundamental factors are in play, including such measures as the overall rates of productivity growth, capital/income ratios, and returns on capital.  If you want to understand how these factors affect economic equality and why Piketty thinks inequality is poised to get worse, read the book and decide for yourself.  It’s not a particularly uplifting book, nor is it a page turner (too much data will slow you down).  But it’s lucidly written and ultimately compelling.  To pick up this tome without finishing it would feel like you’re turning your back on the poor.  And to fail to pick up this tome despite knowing about it should make you feel like you didn’t have time for the poor in the first place.

The poor will always be with us.  But do they really have to represent half of our population?

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