The author of the Economics of Contempt has published a thoughtful and stimulating post about some of my views about inequality. He concludes this:
Wilkinson seems to be of the opinion that unless U.S. income inequality is benign unless it was produced by some inefficient or unfair mechanism. He also seems to think that absent evidence of an inefficient or unfair causal mechanism, no policies should dare attempt to reduce U.S. income inequality. This is also wrong, for the very same reason: if income inequality is high enough to permit government capture by the wealthy at the expense of the rest of society, the high level of income inequality is inefficient, regardless of the mechanism that produced the income inequality.
I’ve thought a lot about this. My conclusion so far is that questions about the justice of the mechanisms that lead to observed economic patterns really does exhaust the field of questions about distributive justice. There is no independent worry about patterns themselves having bad effects, because the bad effects Economics of Contempt and many others have in mind just are mechanisms or exploitation enabled by government capture. The argument on offer here is an argument for preemptive redistribution. We have to redistribute so that injustice doesn’t occur. But this kind of argument, like arguments for preemptive war, face a high bar. You need to be pretty convincing that in the absence of preemptive action, something bad will occur. I think egalitarians almost never get over that bar.
I emphatically agree that political predation is unjust. Indeed, it is a (perhaps the) chief cause of inequality in many of the world’s most economically unequal countries. But, obviously, it doesn’t follow that because state capture and political predation generally cause high levels of income inequality that high levels of income inequality cause state capture and political predation. To make that inference requires a lot of supporting assumptions, most which strike me as false.
First of all, the level of income inequality in Denmark, which has the lowest Gini coefficient in the world, is high enough to permit government capture by the wealthy were the wealthy to effectively coordinate. The question is whether they want to. They don’t. Suppose Denmark cut taxes at the top, to unleash a little more entrepreneurial energy, and cut the generosity of some welfare benefits, in order to, say, keep some people from fraudulently collecting disability checks or staying in college forever, or whatever problem they may be facing in the design of their scheme of social benefits. And suppose these changes increase income inequality directly and also indirectly by increasing growth, the benefits of which disproportionately effect incomes at the top. Is the hypothesis that Denmark’s odds of government capture by the wealthy has just gone up?
Likewise, were we fiscally to lop off the heads of the tall poppies in the U.S., the Gini would drop, but it seems the effect of this on the odds of class-based government capture are basically nil. If all the now slightly less rich people wanted to band together and capture the government, they could still do it. The conspiracy would not be demoralized by a Gini of 30 instead of 40. What’s the evidence that preemptive redistribution would preempt anything? Why not suppose instead that when taxes on the wealthy rise, the wealthy become more interested in controlling the government?
None of this not to say that various individuals and corporate interests do not try their damndest to use the government to enrich themselves; they most certainly do. But rent-seeking is a largely a zero-sum game that puts some rich people at odds with other rich people (and the rest of us). The billionaires investing in green technology companies while lobbying madly for regulations to mandate their products are trying to put other billionaires out of business. Etc. The rich do not uniformly see their interests in terms of being rich, and the political preferences of the superrich are far from homogenous. Anyway, even if the rich do not act as a class, it’s true that rich individuals can do a lot more to rig government policy in their favor than can poor individuals. The straightforward implication is that the more power the government has to pick winners and losers, the more power rich people will have relative to poor people. The incentive to capture is a function of the value of the thing captured, not of the the means to do it.
EoC’s suggestion that the Bush tax cuts are evidence of government capture strikes me as silly. The tax cuts are evidence of the fact that Republicans like tax cuts — evidence of the fact that most Republican voters think tax cuts are morally required and are good for the economy, and that Republican politicians think tax cuts are good politics.
Of course, if the Bush tax cuts increased final income inequality, which they probably did, and income inequality gives the wealthy a firmer grip on government, then you’d expect this sort of thing to be a one-way ratchet. But Barack Obama is probably going to get elected and raise taxes considerably anyway. If it is possible for Obama and a Democratic Congress to become elected under historically high levels of income inequality, and to raise taxes and increase transfers, is this evidence for or against the imminence of a plutocracy that calls for preemptive redistributive action?