Thursday, December 02, 2010

Income Inequality Revisited

The New York Times has an interesting series on economics. Honest. A recent article is by James Galbraith:

The premature and excessive deficit-cutting plans now being framed will almost surely hurt working and retired Americans: they will increase unemployment, decrease hours and overtime, place downward pressure on wages, and in all these ways make low-income workers worse off.

Their effect on the stock market is less clear. The plutocrats behind these plans apparently think that stocks will go up, increasing inequality (in their favor). They may be right but I'm not sure; Japan has discovered it can be hard to have a stock boom in a depression.

When you examine the specifics, ambiguity disappears. While there are progressive variations with better results, the main Bowles-Simpson proposal is an assault on the middle class, the working class and the poor.

Cuts in Social Security will gradually increase poverty and early death among the old. Cuts in the mortgage interest deduction will further drive down home values while hardly affecting those rich enough to pay cash. Killing the Earned Income Tax Credit will reverse a highly effective anti-poverty program for working people. Meanwhile Bowles and Simpson hold the line on the top rate in the income tax, and they say nothing about a financial transactions tax. This is most revealing.

Budget-balancing is crackpot economics, yet these proposals illustrate clearly the true underlying goal. Increasing inequality, it would appear, is the point.
Interesting, right? I immediately looked around to see what the conservative economists say about this and was richly rewarded:

The most important inequality is inequality of happiness or well-being, not inequality of income. Fortunately, most Americans have a reasonably high level of personal satisfaction in their lives, and if they don't, economic policy is not always the problem.

When it comes to fiscal policy, we would be ill-advised to focus too much on the inequality issue.

In modern society, inequality of happiness varies much less than inequality of income. It is quite plausible, for instance, that I am happier than Bill Gates or any number of other billionaires. We should improve the lot of the poorest Americans, but we have the luxury of not having to worry too much about across-the-board inequality.
So inequality doesn't matter because even quite poor people are happy? That logically means that redistributing income from the rich shouldn't matter, either. After all, the formerly rich can then be quite happy poor people.

Increasing income inequality matters for all sorts of ethical, moral and economic reasons. If conservatives don't care about any of these, there's always the obvious selfish reason to oppose ever-increasing income inequality: Societies like that are dangerous places to live for all.