Tom Edsall is usually a thoughtful commentator on politics and the economy, but his piece on inequality today really misses the mark. It repeatedly asserts that the huge rise in inequality over the last three decades is a market story. This is very hard to accept when you look at the big winners.
At the top of the list of winners are the Wall Street money boys. Does anyone think they would be as rich if the government taxed the financial sector the same way it taxes every other sector in the economy. Even the International Monetary Fund has called for additional taxes on the financial sector in the range of $40 billion a year to make its contribution to the Treasury comparable to that of other sectors. (My favorite here is a financial speculation tax like the one the U.K. has applied to stock trades for more than three centuries.)
Then we have the Silicon Valley boys. While many of them do produce great breakthroughs that enrich our lives, the skill that produces the big bucks is suckering folks who manage large pools of money. This allowed the folks at Groupon, who came up with the brilliant innovation of selling coupons on the web, to become billionaires. I suspect that if pension fund managers were required to write a 500 word essay justifying their investment decision before putting $100 million into a startup, there would be many fewer Silicon Valley billionaires. The issue here is competent management of public and private pension funds.
Doctors, lawyers, dentists and other professionals who comprise much of the one percent manage to sustain their income through protectionism. (The NYT had a good piece on how doctors beat back foreign competition last month.) If the protectionist crew that dominates trade policy today were replaced by free traders, we could use the forces of globalization to bring down the income of these high earners by 70-80 percent.
And, we have a totally corrupt system of corporate governance in which CEOs select and pay off directors to look the other way as they pilfer the company by taking outlandish pay packages. Governments write the rules of corporate governance, not markets. Our broken rules let CEOs earn compensation that is often an order of magnitude higher than that earned by top executives in companies in Europe and Japan. This is not the market, this is the government.
I could go on, for example markets don't give us copyright and patent monopolies, government do. But the point should be clear (read my free book, if it isn't), we did not get this massive increase in inequality simply by the natural workings of the market. The rise in inequality was driven by government policies that redistributed income upward.
That is why the question posed by Edsall, whether we can do anything about inequality, is silly on its face. Just reverse the policies that gave us inequality -- that won't give us full equality of income (not sure anyone wants that), but it would make the income distribution much more equal than it is today.
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