Inequality at WSJ
Andrew Blackman at Wall Street Journal asked several economists for ideas on “what to do about inequality?” As you can imagine, I argued with the question. If there is a question, it is opportunity not inequality.
Don’t kill the golden goose
It’s easy to reduce income inequality: Imprison the billionaires. Burn the evil capitalist businesses that generate their wealth and seduce us with wonders—iPhones, software, electric cars, Amazon, Walmart, miracle drugs, and so on. There, feel better?
Our billionaires kept a fraction of the benefit they generated for us by starting these innovative businesses. Their great wealth remains reinvested in those companies to serve us even better in the future. Just what is the problem?
It is right to worry about people of lesser means. But how does a kid who works at a carwash in Fresno even know how many billionaires there are, or what their net worth is?
We should worry about opportunity. Teachers’ unions destroyed his schools. Construction restrictions make moving to good jobs impossible. Business regulations, taxes, minimum wages and occupational licenses limit his opportunities. Social programs trap him by taking away a dollar of benefits for each dollar of earnings. To provide opportunity, start by getting out of the way.
Many people who worry about inequality hope to improve this kid’s life by taxing the innovators to send him a few more government checks—so long as he stays poor. But there aren’t enough billionaires to make a dent in the government’s ravenous appetite. And what a horrible vision: entrenched misery and idleness, in a stagnant society devoid of innovators, made only a bit better by a dwindling government check and dysfunctional social-service programs.
Others who decry inequality want taxes to reduce the political power of the wealthy. But that hands even more power to the government. Fairly won inequality does not threaten democracy. Confiscatory taxation does. Don’t kill the golden goose.
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Forgive my brevity, there was a severe word count limit on this one. For an older and more comprehensive view, see this essay.
The other contributors were Emanuel Saez: “Tax the billionaires,” (to whom my first sentence is dedicated, with initially more colorful options), Raj Chetty: “Focus on upward mobility” (yes), Heather Boushey “Break monopolies” (Unions, more government spending), and Glenn Hubbard “Retrain workers for an AI-dominated economy” (I like Glenn a lot, but it was only 5 years ago that there was huge enthusiasm for retraining everyone to learn to code.) But you’ll have to go to WSJ for those.
"To provide opportunity, start by getting out of the way"
Imagine a medieval king losing a castle to siege and his first thought is, "Ban beseigers!" Any king that dumb would lose followers in droves. His first thoughts would be, "How did they conquer my castle?" Did they have better siege weapons, was the castle poorly sited, did the castle not have enough supplies on hand, did they not get a messenger out to ask for help?
The first reaction of politicians is invariably "Punish success, steal their money" when it ought to be "What can we do to make more people successful?"
In Asimov's Foundation series of a galactic empire slowly collapsing from inertia and corruption, one general successfully begins reversing losses. The Emperor recalls him for being too successful; there can be only one power center in a dictatorship, and just like Stalin, a strong emperor will fear and destroy successful generals, while a weak emperor will attract strong generals looking to start a new dynasty.
Is that what the US is becoming, an empire whose aspiring rulers can't abide successful innovators who don't need their bureaucracy?
Just the rambling though of an old hermit, I believe in a flat tax. Pick a precentage and apply it to all. The Federal tax should fit on a 3 × 5 index card.