Let’s Clarify the Need for Redistribution

November 9, 2013

First, we need to demonstrate the need for redistribution, then discuss the wide variety of ways in which it can be accomplished.

Can there be any question that there has been significant divergence of incomes between countries and within most countries, since about 1980? In fact, if India and China are excluded, there has been little reduction in poverty worldwide, and significant increase in inequality. Inequality has increased, not only between countries, but within countries.  While the US and China were both egalitarian in 1950, in 2013 both are recording record levels of inequality.  Some fear we could be exposed to the possibility of revolution.  There does not yet seem to be sufficient evidence to suggest that risk in the immediate future–at least not in China, and not in the US, but there have been rumblings in Brazil, in Egypt and other countries.

While China does not seem likely to suffer a significant reduction in growth rate, if such were to happen for an extended period of time, the danger of such would rise significantly there. There are still more than 300 million people in China living below the poverty line of $1.25 per day.  Hirschman’s “tunnel effect” states that if you are in the slow lane in the tunnel, you are not disturbed for a while–thinking that you will also experience the improvement soon. But, if your lane doesn’t move for a considerable period of time, you become increasingly discontent.

It does appear that in both China and the US, Hirschman’s tunnel effect is still in the first of two stages: there is an abundance of citizens, while not enjoying much in the way of benefits, who don’t yet want to overthrow the system because they expect to be able to capitalize soon, like those in the fast lane. In fact, it’s perplexing, particularly in the US, to consider that there are many in our blue collar population who continue to support the ideology of the Republican right and even the Tea Party, while those are just the principles which assure that few of those will enjoy the benefits of the privileged.  More and more, in order to get onto that train, one needs private high schools and expensive prestigious universities. Real wages of America’s blue collar workers have hardly moved across the last 30 years, while the share of GDP to the to 10 percent has risen dramatically, as have CEO salaries, the cost of higher education, the cost of health care, etc.  The Right has done an amazing job of brainwashing America’s underprivileged.

The methodology of such persuasion takes the form of arguing that those without jobs are lazy, on drugs, and only want government handouts. Further argument goes that economic growth depends on the wealthy to garner the profits and invest them in productive capacity, creating jobs.  And who can argue that those who work harder or are smarter should not reap the benefits of their superior contribution?

It turns out that most of those without jobs are anxious to work, and the liberals do not want to cavalierly bestow benefits on the small few who do not want to try. It also turns out that much of the wealth garnered by the owners of capital is simply invested in financial assets and not in productive capacity, thus not creating jobs for others.  And, if the opportunity to succeed is unfairly limited to children of wealthy, is it really fair to say none of that should be shared to better balance the equation?

Finally, the mention of “redistribution” has been tortured by the right to suggest that we would take land and property from the wealthy and give it to the poor. In fact, there are many ways to try to achieve better balance without doing that. A gradual and modest adjustment in a wide variety of types of taxes can enable significant adjustment over a period of say 10 years.  Assuring improvement in access to equivalent high quality education can enable significant adjustment across a generation. There are many other levers.

If we don’t address the dramatic increase in inequality, we face a world of increasing conflict, and that conflict will certainly come to our gated communities. Revolution will become a real risk, in time. Furthermore, if we enable the poor to improve their lot, they will become the great consumers of the future and economic growth will be enhanced. There are many prominent economists who hold the proposition that increased inequality slows growth, improved inequality improves growth–and this is a promise of improved wealth for the wealthy–with improved life for all.

I welcome your comments

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s