Tuesday, March 18, 2014

Lawrence Summers On Envy. Or Why We Should Not Tax The Rich More.

Our Larry has cropped up again with interesting comments, this time about income and wealth inequality in the US:

“Reducing inequality is good, but it’s 50 times better to do it by lifting those up who are low than by tearing those down who are high,” said Larry Summers, the former treasury secretary whose bid to become Fed chair got derailed by the more liberal wing of the Democratic Party. “The politics of envy are the wrong politics in America. The better politics are the politics of inclusion where everyone shares in economic growth.”

OK.  Let's see what this would amount to:  Don't tear down those who are high would mean not taxing the wealthier more than they are being taxed now. Everyone shearing in economic growth would mean that the poor, the middle class and the rich would all get wealthier as the economy grows.

This is so beautiful.  It also dispenses with the accusation that concern with income and wealth inequality is based on nothing but that deadly sin of envy.

But imagine, for a moment, a society in which 99% of people are just barely surviving and where 1% of people own almost everything, living in guarded enclaves where the faucets and toilet seats are gold-plated.  There's nothing about such a society that would preclude the winning 1% from using the envy argument.  In that sense it is an empty argument, one which cannot be disproved and one which doesn't even have to be false, in the sense that of course the suffering poor would be envious of those who have their bellies full of food.

What Summers' statement hides is that there are other arguments we can make about income and wealth inequality being bad for all of us, even ultimately for the very rich.  How about the possible collapse of extreme unequal societies?  How about the unpleasantness of living in a society where the haves must hire private guards to protect themselves against the have-nots?  How about the damage inequality causes for the proper functioning of democracy?

To wipe all that under the "envy-mat" could come back to haunt us later, Larry.

Then there's the problem that economic growth benefiting everyone would still have to benefit the poor and the middle-income people more than it benefits the rich if growth is to be the major policy to be used in reducing income and wealth inequality.  But once we redefine the cake-division as applying not to the existing cake but to the growth in that cake, the envy argument can slip back in.  Who are the critics to argue that the wealthier don't deserve larger chunks of any cake growth?

I get that the linked article is about money in the US politics, that the Democratic Party doesn't want to frighten away its rich donors and so on. But think about the need for such articles in the first place.  They are necessary because the political system is already geared towards the desires of the wealthier among us.