The Big Confusion

"If we spent a lot less on a lot of stupid shit the government does, we could probably fund this kind of system of vouchers, wage subsidies, etc. at the optimal level, have an extremely low top marginal rate, higher growth rates, AND inequality that continues to widen. That would be good, not bad."

Sorry to waste bandwidth, but a more succinct of way of making my point is that I agree that this would be good, not bad, and that one of the reasons it would be good is that it means that the optimal level of funding for your system would increase. Inequality would be a variable in determining the optimum level of funding, right? Not the only variable, of course.

Will, thank you for the extremely thoughtful reply--in particular, your point about progressivity vs. size of government is something I'll have to think harder about. Not having read Chait's book (I'm guessing that you're not recommending it as the next book I read) I think I misunderstood some of your review, for which I apologize.

But when you say this: [i]"The issue isn’t really how much we’re spending, it’s what we’re spending it on."[/i] well, it seems like you've got a good argument that we're spending it on the wrong stuff, but spending it on the right stuff doesn't preclude spending more. Indeed, if government programs become more effective and better than they currently are, that almost seems like a reason to spend more, not less. (Compare: if my labor suddenly became twice as effective, would I spend more time working, or less?)

If inequality were zero, minimal welfare statists would be zero welfare statists. We'd all be zero welfare statists. Even for MWSs like yourself, the level of ideal social spending seems to be a non-decreasing function of inequality.

"Most of the inequality problem is a growing gap in human capital."

Really?

I would think it has more to do with the ability of wealthier Americans to shield their incomes from downward foreign pressure.

Unions are easier to break than bloodlines...

Consumatopia,

I didn't think it would be a very good use of my time to wade that very hostile comments section.

If Chait's point was that the tax structure should be more progressive, than I think he might have a decent point. (That's one reason I thought it was pretty shitty of him to stick the regressivity of Soc Sec on Bush when he's the one guy who has tried to change that in decades.) Chait gestures in the progressivity-is-more-important-than-rates direction in his "liberal triumph" point. We got a hugely lower average rate with a more progressive structure. But mostly the narrative pushes the idea that cutting taxes is just stupid and irresponsible. So do you think he would support, say, a 20% top rate as long as the structure became more progressive? I have my doubts.

Like Hayek, Buchanan, Friedman, Lomasky, and others, I am a minimal welfare statist, and am in favor of some redistribution. But this wouldn't even be very expensive, and could be accomplished with lower taxes and lower revenues. I am very wary of badly structured redistribution, but I am in favor of certain kinds of wage subsidies, etc.

Growing inequality doesn't necessarily say anything about the ability of redistribution to do anything. Most of the inequality problem is a growing gap in human capital. I think this could be partly ameliorated by privatizing the entire education system (the apartheid public school system is a chief cause of intergenerational wage immobility), and having the Feds give generous vouchers to those under an income threshold. And it could be partly ameliorated by better-structured wage subsidies (what the EITC is supposed to be) to increase the incentive to work (and therefore the incentive to acquire skills through experience.) And more. The issue isn't really how much we're spending, it's what we're spending it on. If we spent a lot less on a lot of stupid shit the government does, we could probably fund this kind of system of vouchers, wage subsidies, etc. at the optimal level, have an extremely low top marginal rate, higher growth rates, AND inequality that continues to widen. That would be good, not bad.

So, yes... I think the poor could be rather better off with a more progressive system. But the pertinent question is the structure of that system. We could have it with a much lower top rate.

Chait actually calls the 1986 Tax Reform Act a "liberal triumph"? You take it in stride, but I have to say, I've never ever seen that before.

Since my comment over there apparently ranged somewhere in between disheartening and miraculously bad, maybe I'll try again here?

then why exactly does the mathematical ratio between the average income in the top and bottom income brackets count?

Because a high ratio suggests (not proves, but suggests) that redistribution would improve things for the bottom bracket. It's not that the ratio is in and of itself bad (though economic inequality might cause political inequality), it's that the ratio suggests a better world for the worst off is possible.

Everyone agrees that incentives affect income. Not everyone agrees that the disincentives of a slightly more progressive system would be so massive as to result in the bottom bracket being worse off.

Come to think of it, do you even really believe that? You never actually said it, but unless you actually believed that I'm not sure why you would mention Rawls.

Steve, Thanks! Yeah, the thread is not heartening. But, nope. Hillary or Obama will be less bad on most issues I care about than Giuliani or Romney.

Thanks for a very smart and interesting piece. Two comments:

(1) This is particularly good:

"Evidently, Chait does not believe that effects on economic liberty are 'practical' ones. But he both begins and ends his book lamenting America's relatively high level o[f] income inequality. Yet if the rather large, evidently 'practical' difference to citizens between a government that takes one-third of their income instead of two-thirds does not count as a 'practical effect,' then why exactly does the mathematical ratio between the average income in the top and bottom income brackets count?"

Chait's whole "conservative = dogmatist, liberal = pragmatist" schtick is nonsense on stilts, and this is an excellent case in point. It might be worth expanding upon.

(2) Have you read through the comments thread over there?

If so, can you still not "imagine the miracle that would keep [you] from preferring a Democrat in the next presidential election?