Does Writing Checks Improve Lives?

~ Laura

Megan McArdle tackles the central thesis of Thomas Piketty’s new book, “Capital in the Twenty-First Century.” Piketty says that the biggest problem facing the world economy is income inequality. To solve that problem, Piketty suggests a huge tax on the wealthiest group of Americans, which would be then redistributed to the poor. Would this solve problems? Megan thinks no. What do you think? (I’m still mulling over my response. And feeling like I should read the book first.)

Published by Laura

14 thoughts on “Does Writing Checks Improve Lives?”

  3. I think we’re going to have to figure out something, ’cause I think that gilded age style income distributions are incompatible with democracy.

    I also think there are real (as opposed to political) trends in the economy that are likely to diminish out the value of middle-value expertise jobs. Did anyone else see the article on scanning/milking robots in the NY Times? The robots scan cows udders, looking to see when they are ready to be liked, and then milk them. Milking used to be a specialist skill — and even in the era of milking machines there was skill involved in using them. As we automate more tasks, those jobs that required a middle level of expertise are disappearing.

    Milking is a semi-manual skill, but take the curating/indexing work librarians (many more of them than there are now) used to do. I remember folks who used to right indexes, reading material, finding the appropriate index words; people who used to write abstracts (chem abstracts, for example). Now, we rely heavily on automated search, and it works, on the whole. When you can quickly search for the word you want to search for, having an index isn’t nearly as meaningful, and not worth paying much for.

    In this world, the people inventing the algorithms and machines capture (and create) a lot of value. But, if they also capture all the profit (and, sometimes, it is all, and not just a lot or most), then there’s no one else to participate in the economy.

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  4. I´m a mexican social scientist and work in one of Mexico´s major public universities -in the state that Rosenberg visited and mentioned in the article, Puebla. I can tell you this: those conditional programs such as “Oportunidades”/Opportunities are not the worst public experiments -for example, they have not been politically conditioned by the federal governments, during and after the transition from authoritarian rule; a very important and relevant thing because of the mexican political history and its economic implications- but they really are a socioeconomic failure; the results are far from being deep, wide and lasting positive effects. The “go and stay in school” point (one of the conditions) sounds good, it seems plausible, but… what about quality? Bad schools, even terrible schools… The conditions are restrictions in some other senses; some are or relate to other structural problems. Bad contextual design… People don´t get lazy and/or poorer, but the families generally don´t-can´t-won´t get out of poverty either. The mind behind the “Oportunidades” program born as “Progresa”, Santiago Levy Algazi, a well known and respected economist within Ivy League, now favors our alternative: universal unconditional (and periodical and permanent) cash transfers (above the poverty line) as a State system, based on progressive tax reform… At least something like “basic income”. And universal public health system… Levy is correctly abandoning his “tropicalized” version of neoliberalism! Which doesn´t mean he is becoming a commie or a totalitarian! So, what Piketty said. Yes. Tax the really, truly rich, Fiscal redistribution on a justice and democracy basis. By democracy and for democracy.

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  5. McMegan the shallow libertarian doesn’t think that taxes and income redistribution will solve anything? Has there ever been a more predictable column?

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  6. I liked Freddie’s review of Megan’s review,

    http://fredrikdeboer.com/2014/04/23/my-review-of-megan-mcardles-review-of-capital-in-the-21st-century/

    Inequality kills,
    High Inequality Results in More US Deaths than Tobacco, Car Crashes and Guns Combined
    http://billmoyers.com/2014/04/19/high-inequality-results-in-more-us-deaths-than-tobacco-car-crashes-and-guns-combined

    Writing checks is a start. The solution for poverty is more money.. this is well established.
    There’s a great deal more than can be done that doesn’t involve writing checks directly to the poor, but it does all start with taxes.

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  7. Five more things:

    1) Don´t forget that “Mexico has” the great honour and pleasure of being home and headquarters (and, sometimes, playground and toystore) of Carlos Slim, one of the richest MEN in the world since the end of the nineties -some years, the richest. Forbes and a certain small group of mexicans are very close friends. So, Viva Piketty!

    2) I mean liberal democracy. Real and realistic democracy. I´m a dahlian-liberal, etc., not a populist-“chavista”, communist, etc., nor a neoliberal, libertarian, anarchocapitalist, etc. Proposals like Piketty´s would at least contribute to save and improve the quality of actual democracies, of all (sub)kinds.

    3) It´s impossible to destroy poverty and reduce this socioeconomic inequality without the State and its money, i.e. our money. Non-totalitarian State intervention is needed and urgent, it´s a necessary condition -and may be sufficient.

    4) In the US context, could “conditional cash transfer” programs work better than in Mexico? Maybe. It´s possible. But still… “BASIC INCOME”.

    5) You, Laura, are smarter -more intelligent- than McArdle.

    Best regards.

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  8. Wealth taxes and high tax rates don’t raise that much revenue. As Michael B points out, the U.S. get a lot more revenue out of its rich people than do European countries. Europe funds its social programs out of middle-class (specially social security withholding taxes) taxes and VAT. So does Japan and everyone else. And that’s really how you want to do it. Upper-income taxes are wildly variable and you don’t want your revenue to go down sharply when your social spending goes up, as it would during a recession. That would raise your borrowing costs and undermine your capacity for spending your way out of the downturn.

    The U.S. can implement a redistributionist policy if it wants, and the wind certainly seems to be pointing that way. It may even try to fund it from taxes on the wealthy, but it will not work. The revenue will have to be raised via higher middle class taxes and (most probably) a federal VAT tax. Nothing wrong with those, most countries have them. We just have to keep in mind that “the rich” won’t be paying for the extra spending.

    My personal pet peeve is when people point to high tax rates in the Netherlands and Sweden. Nobody pays those. All the high earners have personal corporate vehicles to shelter their income. The truly rich, like the IKEA family, have faux charity trusts and Cayman Islands companies. Same with the high tax rates in the U.S. during the 1950s. The 50s were known as the “Golden Age” of tax planning” in the U.S. and the stuff that went on was pretty impressive. No one paid those rates.

    If the U.S. enacts a big redistributionist program, I would expect a federal VAT tax within 5 years. A wealth tax/confiscatory tax will simply not raise sufficient revenue. A broad, stable tax base is the way to go.

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  9. I think the goal of having individuals save individually for health care, retirement, and education is non-workable in our current economy. People, in general, don’t earn enough to make the voluntary sacrifices required to pre-fund those expenses, for themselves and their families, without feeling significantly deprived. This is a particular issue when the deprivation is voluntary, so that others who don’t make the voluntary sacrifice, are the comparison pool. I think we delude ourselves periodically that such savings might be plausible when stock market & housing bubbles allow people to save painlessly. And, the risks, both of investment, and of health/education/retirement expenses are significant, pre-saving isn’t an option in many cases, since reasonable estimates of health spending, for example, might be badly off. The same can be true of education, when you don’t know what expenditures your children may need, want, or deserve.

    So, I’m fully comfortable with the idea that we have to require investments in basic needs (as well as infrastructure and defense) by taxing people’s current earnings to fund future expenses.

    Looking at the tax structure in the Denmark, say, suggests that’s what they do there.

    I also think that the invasiveness of our security apparatus and the breadth of information sharing is going to make it more difficult for people to set up the kinds of tax shelters that were common, without significant risks. People want their money to be safe, as well as paying as little taxes as possible.

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  10. I find it interesting to imagine the value judgements borne by the the wording of the title “Does writing checks improve lives?” A knee-jerk reaction is “why do THEY get it and I don’t?” It feeds directly into that myth that we really SHOULD all pay our own way and if you can’t, then something is wrong with “you”.

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