I claim it's destructive to advocate new programs paid for by a minority. It encourages the majority to think that the program is free. A new program may be worth its cost, but it should not be evaluated by most voters as if it were free. Even if you believe that a particular program can be paid for by the wealthy and that that's a moral way to fund it, it displaces some other worthy program that could have been paid for by soaking the rich.

-dk

I claim it's destructive to advocate new programs paid for by a minority. It encourages the majority to think that the program is free. A new program may be worth its cost, but it should not be evaluated by most voters as if it were free. Even if you believe that a particular program can be paid for by the wealthy and that that's a moral way to fund it, it displaces some other worthy program that could have been paid for by soaking the rich.

-dk

It would seem that lower taxes on investment income does stimulate investment, just not the sort of investment that boosts productivity or creates jobs.

And then there is the record of actual GDP/worker growth, which over the 1937-81 period was 50% faster than in either the post-1981 period or the 1860-1937 period. (Dates chosen are business cycle peaks, so as to assess trend rates without influence of partial business cycles.)

As for the effect of taxes on worker effectiveness we are talking about the highest paid employees. A good example to consider is corporate CEOs. Like a sports team, a CEO's job is to beat the competition. And like a sports team, the median CEO is going to always have the exact same performance, they beat the competition 50% of the time and lose 50% of the time.

This means that the effectiveness of the average CEO is constant over time. CEOs should be paid the same relative to other workers today as they were in the past, if pay has any relation to performance. In fact, since tax rates are lower today, CEO pay should be somewhat lower today than 40-60 years ago. Yet this is not the case.

Now I haven't considered the possibility that the *absolute* performance of American business today is much better than it was 40-60 years ago. If GDP were growing today at much faster rates than was in the decades after the New Deal, then higher incomes for CEOs as a group might be part of the explanation. But this fast growth is not happening, growth is actually slower.

The data suggests that CEO incomes could be slashed by 80% and there would be no impact on the results obtained from their labor.

Manzi wants to eat and keep his cake if he wants to minimise inequality without redistributive taxes.

The answer to the original question is that policies that favour the middle without significant tax and spend are still good and saleable policies. The middle class understands that ultimately people need to rely on and do it for themselves and their families.

By *definition* inequality means that the pool of investable money grows relative to consumer income, that is relative to the pool of good investments. Both money and investments are growing, its just that the former grows faster.

It's simply a mass balance argument.

When inequality was high prior to the New Deal, bubbles, panics and the depressions that followed them happened regularly. After inequality plummeted during WW II, bubbles and panics became a thing of the past, until the return of high levels of inequality at the end of the 20th century.

The tax structures around the world followed the Anglo-American model adopted in 1981. The money driving our bubble does indirectly reflect US policy. Were taxes to go up here, it is likely other countries would eventually pick up on that. I don't think the Chinese government is all that solvent, couldn't they use the revenue higher taxes would bring? I know the Japanese have a national debt that dwarfs ours.

My business (I'm an upper-tier employee on the engineering side) ultimately depends on how many widgets people buy. My widgets are discretionary items, and people can't reasonably use more than one or two of them. Increasing inequality means fewer people who can afford widgets. And while I'm quite comfortable with my abilities and capacity to produce a competitive widget, lower demand is bad for my business.

It seems to me that increasing equality will stabilize my income growth, and solidify my wealth.

It further seems to me that the only people who are indifferent to inequality, and who resist policies that try to 'spread the wealth', are people who know they are personally uncompetitive.

1. I agree wholeheartedly with Muirgeo that this discussion is depressingly on the wrong topic. “Does greater inequality make it politically more difficult for Republicans to implement policies that result in greater inequality?” Uh…yes…. Does that seem to be Republicans'/Libertarians' only concern regarding inequality? For many, yes…

2. Both Will and Jim are using (or surmising) numbers in very weird ways. More-unequal states seem to elect Democrats more. Ergo, the Democratic electorate is more unequal? Sorry, that simply doesn't follow. Even if it is true, it doesn't support the barely-hidden implication: that Democrats are hypocrites who rant about equality but don't practice it. It just speaks to the constituents of the Democratic coalition: poorer people, and very rich people.

3. Re: The idea that rich Democrats are voting against their own self-interests. Equally likely: they realize that this is true in the short term, but that in the longer term their interests (and everyone else's) are best served by pro-growth progressive policies.

Since I haven't found any studies directly addressing it, I took a cross-country look (for developed countries) at wealth equality vis-a-vis growth in gdp per capita, using the best wealth data sets currently available.

http://trueconservative.typepad.com/trueconserv…

Short story, wealth inequality seems to correlate with short-term growth. But wealth *equality* correlates with long-term growth. For growth periods >25 years, correlation with growth is a profound R of .58-.67.

This is a simple, single-variable correlation; it doesn't correct for any other variables (for instance the most obvious, starting gdp/cap, a.k.a. the “catch-up” effect). Given the limited data sets, though, it would be difficult to achieve robust results with too many independent variables included.

You've got an interesting point, but I've got a few issues with it. First, as I posted earlier, as long as people earn “enough” and have hope that the future will be bright, inequality won't be a driving political issue. Second, the extra savings that funded this latest bubble came predominantly from abroad so your redistribution would have to be scoped globally to blunt it. Finally, I'd submit that your premise of a fixed supply of investment opportunities is flawed.

Each society allocates its income to some combination of current consumption and future consumption (investment). In the short run, investment demand can get ahead of the supply of good opportunities and manias can ensue (Internet bubble, credit bubble). However, a significant cultural and structural asset of US society is its enormous capacity to successfully absorb investment and turn it into innovation that results in higher living standards.

Perhaps I'm too much of an optimist (and maybe nationalist), but I still believe that the US economy has a structural advantage in this regard.

This means that the market valuation of assets must rise as inequality rises. Such a process will eventually lead to a financial bubble whose collapses produces a financial crisis. The spacing of major crises in the pre-New Deal era (1819, 1837, 1857, 1873, 1893, 1907, 1932-3) suggests it takes a couple of decades to build up enough of a bubble to get a full-scale crisis. The first big bubble in the post-New Deal era was the stock market bubble of 2000, which happened 19 years after the start of Reaganomics, right on schedule.

Anyways, as long as high levels of inequality remain, we will get bubbles and crises. And since the authorities are doing everything possible to prevent the depression that normally follows a crisis, it is likely that the “recharge rate” will be a lot less than 20 years. That is, if the authorities are successful in staving off disaster (as I think they will be) we will be right back in this situation within a decade.

Frequent crises will pose a political problem for whichever party is most opposed to redistribution. Sooner of later somebody will implement redistributive policies and the economic results will make it difficult for anti-redistributive policy to make a comeback.

One: the minimum wage increases more under Democrats than under Republicans. Card and Krueger aside, See: http://www.house.gov/jec/cost-gov/regs/minimum/…

I believe those who are left jobless whouldn't even be included on a graph of income percentiles. When we take into account structural unemployment, is the effect as great?

Second: Bartels states that inflation is a concern under Republican presidents. Keeping inflation in check prevents wealth from eroding. Bartels's graph looks at income. Wealth is accumulated income. It may be that the effect of Republicans on wealth, rather than income, is significantly improved relative to Democrats.

Any thoughts?

I think the answer here is that these “rich Democrats” have yet to see the impact on their wealth by the redistributionist policies that will shortly be adopted. Many will then have the experience of actually having voted against their own interests rather than merely living the concept. To use an overused phrase that is all to apt, Reality Bites.

IMO, the hopefulness factor is a really important one. Among low-income earners with libertarian or fiscally conservative sensibilities, higher levels of income inequality don't usually mean more pressure for redistribution. Low income workers who feel empowered and expect to move up don't want or need handouts.

OTOH, as economic uncertainty increases, I'm with Manzi in his warning that “Hordes of violent men are always outside the city gates ready to sack it, and those inside always threaten to turn into a mob and destroy it from within.”

Secondarily, inequality of means can be destructive to a democracy. I have never heard the words the poor and powerful used together while I have certainly heard rich and powerful. In some sense being rich means being powerful! Democracy however, is about the equality of power if not the equality of resources. At many points in human society