[Marxism] Today’s Inequality Could Easily Become Tomorrow’s Catastrophe

Louis Proyect lnp3 at panix.com
Sun Aug 28 09:57:47 MDT 2016


(Schiller is the author of 'Irrational Exuberance")

NY Times, August 28 2016
Today’s Inequality Could Easily Become Tomorrow’s Catastrophe
Economic View
By ROBERT J. SHILLER

Economic inequality is already a concern, but it could become a 
nightmare in the decades ahead, and I fear that we are not well equipped 
to deal with it.

Truly extreme gaps in income and wealth could arise from many causes. 
Consider just a few: Innovations in robotics and artificial 
intelligence, which are already making many jobs uncompetitive, could 
lead us into a world in which basic work with decent pay becomes 
impossible to find. An environmental disaster like global warming, 
pollution or disease could sharply reduce the ability of people of 
ordinary means to live in specific regions or entire countries.

Future wars using ever more highly destructive technology, including 
chemical, biological, radiological or nuclear weapons, could devastate 
vast populations. And it’s not out of the question that dire political 
changes, like the rise of racist or otherwise exclusionary social 
structures, could have terribly damaging consequences for less 
privileged people.

Of course, I dearly hope none of these things ever happen. But even if 
they are unlikely, as part of our progress to a better world, we should 
be thinking now of how we might address them.

The current presidential campaigns in the United States have not really 
touched on long-range issues like these. The campaigns have instead been 
focused primarily on short-term concerns, and on issues facing people of 
middle income instead of those in extreme poverty.

The private sector isn’t helping much, either. It has not gone very far 
in developing insurance or hedging markets to protect against these 
risks. That raises an important question: Can we depend on the 
benevolence of society to compensate and care for those who would lose 
out if dire events actually happened?

One way to judge the likely outcome is to look at what has happened in 
the past. In their new book “Taxing the Rich: A History of Fiscal 
Fairness in the United States and Europe” (Princeton 2016), Kenneth 
Scheve of Stanford and David Stasavage of New York University looked at 
20 countries over two centuries to see how societies have responded to 
the less fortunate. Their primary finding may seem disheartening: Taxes 
on the rich generally have not gone up when inequality and economic 
hardship have increased.

Instead, they found that taxes tend to rise when warfare increases, 
largely “because war mobilization changed beliefs about tax fairness.” 
These tax changes were generally aimed at ensuring national survival, 
not correcting economic inequalities.

Professor Scheve and Professor Stasavage found that democratic countries 
have not consistently embraced more redistributive tax policies, and 
most people do not vote strictly in their narrow self-interest. As the 
right to vote broadened through the centuries, for example, and people 
without property began to vote, they did not consistently act to tax the 
rich. These findings run counter to a popular narrative. Recall that in 
2012, Mitt Romney said that in a democracy, a candidate who offers tax 
breaks to the less well-off at the expense of the rich will win mass 
support “no matter what.” That claim does not appear to be supported by 
the historical record.

Instead, it appears that, for better or for worse, the majority of 
people share simple notions of entitlement and fairness. Professor 
Scheve, Professor Stasavage and their colleagues found that in 2014, 
when people in the United States were asked what marginal tax rates they 
would “most like to see” on family incomes of $375,000, the median 
answer was 30 percent, with the bulk of answers ranging from 20 percent 
to 40 percent. (The federal marginal tax rate for that income is 33 
percent.)

This is consistent with my own survey results, which focused on 
inheritance taxes. In 1990, Maxim Boycko, then with a Moscow think tank, 
the Institute of World Economy and International Relations, and I asked 
both New Yorkers and Muscovites: “In your opinion, what inheritance tax 
rate for really wealthy people do you think we should have?” The average 
answers in the two cities were virtually identical: 37 percent in New 
York, 39 percent in Moscow. Taxing around a third of wealth, more or 
less, seemed fair to people. And perhaps it is reasonable, in the 
abstract, yet what will we do in the future if this degree of taxation 
won’t produce enough revenue to meaningfully help the very poor as well 
as the sagging middle class?

Along with nine other economists, I contributed to a project that 
engaged in really long-term forecasting. The results appeared in a book 
edited by Ignacio Palacios-Huerta of the London School of Economics: “In 
100 Years: Leading Economists Predict the Future,” (M.I.T., 2013). None 
of us expressed optimism that inequality would be corrected in the 
future, and none of us ventured that any major economic policy was 
likely to counteract recent trends.

For example, Angus Deaton of Princeton, commenting on what he called the 
“grotesque expansions in inequality of the past 30 years,” gave a 
pessimistic prediction: “Those who are doing well will organize to 
protect what they have, including in ways that benefit them at the 
expense of the majority. ” And Robert M. Solow of M.I.T. said, “We are 
not good at large-scale redistribution of income.” Both Professor Deaton 
and Professor Solow are fellow Nobel laureates.

No one seems to have an effective plan to deal with the possibility of 
much more severe inequality, should it develop. In the disturbing book 
“Poverty and Famines: An Essay on Entitlement and Deprivation,” (Oxford, 
1983) Amartya Sen, a Harvard professor, documented an extraordinary 
thing: In each of four devastating famines in different parts of the 
world, there was enough food to keep everyone alive. The problem in each 
case was that the food was not shared adequately. Systems of privilege 
and entitlement permitted hoarding of food by people of status whose 
lives went on much as usual, except that they had to brush off starving 
beggars and would occasionally see dead bodies on the street.

Satyajit Ray’s 1973 movie “Distant Thunder” depicted one of those 
terrible episodes, the Bengal famine of 1942-43. Millions died, almost 
all from the lower echelons of society. Among the privileged classes, 
only the most moral seemed to find the situation troubling enough to 
help in a significant way.

Despite past failures, we should not lose hope in our ability to improve 
the world. In a recent column, I described ways in which society might 
change a deep-rooted sense of entitlement by radically broadening wage 
and job insurance. Such a program would be a start in getting us 
prepared to deal with some of the immense challenges that may lie ahead.

Robert J. Shiller is Sterling Professor of Economics at Yale.





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