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