Friday, August 14, 2009

Further results on income inequality

Now, is it really plausible that the top 0.01 percent got that much more productive in recent decades?  Or the top 1.0 percent?  Or could it have something to do with a clubby sort of atmosphere at the top in which one scratches another’s back in return for board seats, the right CEO job at the right time, and oh, don’t you know, it’s a small world up there and we are all very true to our class.  See Income inequality, debt, crisis and depressions for a sketch of the larger picture of how income inequality effects other social changes, especially the distribution of debt, and On the coming neo-feudalism for a rant I wrote in a bad mood about where the country might be going, a concern that Emmanual Saez, who is still in academia, shares while expressing himself in the sedate academic manner.  This a must read.  Hat tip Financial Armageddon.

How to change this?  Let’s start by raising tax rates on tippy-top incomes.  These people have taken enough.  There is no economic rationale for this kind of pay that is not laughable.  Saez addresses the issue of extreme income inequality creating great wealth inequality that is the essence of feudalism as America saw in the Gilded Age just over a hundred years ago.  We raise marginal tax rates on the super-rich not to raise revenue, because that hole is much too deep to fill that way, but to bring these high-rollers down to earth.  Look at the arrogance of Goldman Sachs and the other financial oligarchs paying themselves some of the biggest bonuses ever on the taxpayers’ tab—letting the Fed guarantee their debt! 

And the American people need to tell their politicians that they’ll see the “death tax” done away with over their dead bodies.  Little else stands between today’s extreme income inequality and a Gilded Age tomorrow.  An exclusion (non-taxable portion) of, say, $5 million in today’s dollars of any estate would enable a wealthy family to pass on a large amount to support to following generations.  A few fortunes of hundreds of millions or billion or more allowed to pass untaxed might pass a tipping point of wealth concentration, supporting untold generations of trust fund waste products, and depriving everyone else of income.

saez-UStopincomes-2007 -


  1. You should read some Ludwig von Mises books to get a different perspective on income inequality.
    It's not an important issue and Govt. policy should not be made to "level the playing field"...IMHO

    "In talking about equality and asking vehemently for its realization, nobody advocates a curtailment of his own present income."
    Ludwig Von Mises

    "It’s true: greed has had a very bad press. I frankly don’t see anything wrong with greed. I think that the people who are always attacking greed would be more consistent with their position if they refused their next salary increase. I don’t see even the most Left-Wing scholar in this country scornfully burning his salary check. In other words, "greed" simply means that you are trying to relieve the nature given scarcity that man was born with. Greed will continue until the Garden of Eden arrives, when everything is superabundant, and we don’t have to worry about economics at all. We haven’t of course reached that point yet; we haven’t reached the point where everybody is burning his salary increases, or salary checks in general."
    Murray N. Rothbard

    "Inequality of wealth and incomes is an essential feature of the market economy. It is the implement that makes the consumers supreme in giving them the power to force all those engaged in production to comply with their orders. It forces all those engaged in production to the utmost exertion in the service of the consumers. It makes competition work. He who best serves the consumers profits most and accumulates riches."
    Ludwig Von Mises

  2. I agree that it would better if government did not get involved in redistributive policy. However, that belief stems from my belief that the distribution of income results from a much deeper social contract based in the values of a society. Further, I believe, and there is support for this in the behavioral economics literature (sorry I don't have the reference handy), that there is an "optimal" degree of income inequality in that it produces the greatest efficiency, cooperativeness, and social welfare--that we have plainly exceeded.

    So I find arguments against any redistributive policy by government at this juncture extremely distasteful. I put the Austrians on the side of the status quo in this regard, while crediting their analysis of the credit boom as correct. Without redistribution, we very well may enter a self-perpetuating neo-feudalism that represents a virtually inescapable sub-optimal equilibrium that could go on for generations.

    Thanks for your comment.

  3. Yeah. I think there probably is an "optimal" (equilibruim?) level of income inequality. It's really hard for people to fathom that there are some "good" things about income inequality. I think it is a crucial part of capitalism.

    I would really like to see graph of real per capita personal disposable income vs. the Gini Coefficient. That would answer a lot of questions I have about income inequality.

    Do you have a formal education in Economics? Just curious. You seem like you know your stuff!!

    Your Animal Spirits hypothesis is interesting. I dig the graphs!! Then again, I love all graphs. I'm kind of weird that way........hehehehhe