Recently, the liberal magazine Mother Jones published a collection of infographics under the headline It’s the Inequality, Stupid, which was connected to Kevin Drum’s article on the standoff in Wisconsin, which had the subtitle “How screwing unions screws the entire middle class.”. Here are two of the infographics and their associated captions:
WINNERS TAKE ALL
The superrich have grabbed the bulk of the past three decades’ gains.
OUT OF BALANCE
A Harvard business prof and a behavioral economist recently asked more than 5,000 Americans how they thought wealth is distributed in the United States. Most thought that it’s more balanced than it actually is. Asked to choose their ideal distribution of wealth, 92% picked one that was even more equitable.
As a further supplement here’s a pie chart by Alex Knapp showing financial wealth distribution:
I’m not sure that I’m fond of the methods of presentation on technical aspects. For instance, in the first graph would probably be a bit more informative if the scale were logarithmic and though I don’t have the figures in front of me at the moment, I suspect that some of the lowest income groups have negative financial wealth (net debt), making a pie chart a poor representation of wealth distribution. Regardless, it’s clear from that theres a significant degree of inequality in this country, which has increased dramatically over the course of the past 30 years.
What does it imply that most Americans think the distribution of wealth is much more even than it really is, and would like it to be more even still? By itself, nothing at all. These are just data — descriptions of the world — and science doesn’t imply morality. The data are just useful to keep in mind when we do think about how a just society should be ordered, and what strategies (“share the pain!”) might be most appropriate when thinking about how to recover from our recent economic pratfall.
The message of Kevin Drum, in contrast, was one recounting the political history of the past few decades as labor declined in its hold on the Democratic Party and the Chamber of Commerce rose in prominence, which Drum believes led to the concentration of wealth at the top of the distribution as shown by the charts above.
Inequality is not nearly as important to me as it is to the like of Kevin Drum and the Mother Jones staff. In fact what matters more to me is the overall wellbeing of Americans and as Tino Sanandaji points out in a recent post, the standards of living for ordinary Americans have been increasing over the course of the past 30 years, despite the increasing inequality.
While I don’t think inequality is a problem in and of itself, it may nonetheless serve as an indicator of underlying inefficiencies in our economic system. The income tax, which is progressive in nature, is a rather blunt instrument at attempting to redistribute the wealth within our economy and that shows in another graph from Alex Knapp:
To be fair, this is under Bush-era income tax brackets and many on the left seek to raise the rate of the top bracket to Clinton-era levels. However, this doesn’t seem like a particularly effectual way to redistribute income or wealth and even if raising the rate had little effect on the level of tax evasion through loop-holes in the top bracket, a 4% (32.4% to 36.4%) rate hike hardly seems like a massive shift.
A rather interesting graph that Mother Jones included in its collection of infographics was the following, which shows a relatively even share of federal revenue coming from income tax as well as roughly mirror image trends of payroll tax and corporate taxes:
The reduction in corporate taxes over time has been part of a global arms race to lower corporate taxes as a means to encourage the establishment of businesses within a country and to discourage the camouflaging of revenues and profits by distributing corporate income between multiple national centers to minimize taxation, a tactic that’s quite common in today’s age of globalization and transnational corporations. At the moment, our country has one of the highest corporate tax rates in the developed world as a result of this race to the bottom, as other countries have steadily lowered their rates over time.
All of this suggests a problem for those seeking to achieve a more equitable distribution of wealth and income. Not only is the political playing field different than it was at the end of the 70s, so is the economic playing field and the increase in the connectedness of the global economy may be one of the reasons that incomes levels have diverged in this country. Do I think that globalization should then be reversed? No. As I said before, income inequality is not a major concern for me and it seems likely that though many of its benefits appear to have accrued to the top, the standard of living for ordinary Americans has also improved, likely in part due to the efficiencies brought on by globalization.
It should also be noted that the loss of revenue from corporate taxes seems to have been offset mainly by increasing revenues from the payroll tax, the regressive tax that funds the Social Security system. It’s easy to see how one could frame this trend as a move of taxes from the backs of corporations to the backs of workers, though for the most part, both represent a tax on economic production and while the proximate bearers of the tax burden are different, the result is probably pretty similar.
Ultimately, Drum’s argument that unions represent a counterbalancing force to the political power of plutocrats as an argument in favor of the public sector unions protesting their imminent loss of power in Madison is unpersuasive. As pointed out in my last post, public sector unions represent a political bloc allied against taxpayers and beneficiaries of government services with greater power in the overall process than those in the private sector. As long as those on the Left do not acknowledge or show realization of this fact, their arguments in favor of the protesters will look pretty weak.