The Argument for Preemptive Redistribution

by Will Wilkinson on July 17, 2008

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?

Viewing 16 Comments

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    > a plutocracy that calls for preemptive redistributive action?

    'Redistributive action', meaning the expropriation of some elites for the sake of political elites who -- in the subsequent 'distribute' -- will corrupt the remainder of society as a means of securing the persistence of the always and future exploiter: the state. Worries about a 'capture' are beside the point, which is: have you looked at this thing, recently?
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    "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." WW



    Yes and men of power and excess wealth are pretty good at using it for preemptive wars that.... make them more money. They seem to always get over the bar.


    Again on;
    "You need to be pretty convincing that in the absence of preemptive action, something bad will occur."WW


    I'd call the Great Depression pretty bad. And have you read the Financial Times lately? Did you hear Bernanke speak the other day?

    http://specials.ft.com/vtf_pdf/160708_FRONT1_US...

    This whole trillion dollar credit fiasco is the result of bankers and Wall Street Stockjobbers pulling regulations and fed policy their way and using the backing of the US Treasury to do so. It's been an incredible massive transfer of wealth based solely on policy pushed by the wealthy's lobbyist.
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    Muirgeo,

    How do you continually see the real logic of people like WIll, Boudreaux, Russ Roberts (and me and others on this site) right in front of your face and then continually let it pass right over your head?

    It's almost comical.

    Consider WW in this very posting:

    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.

    ...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...are trying to put other billionaires out of business. Etc....

    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.

    That last bold quote is the bottom line of the causal paradigm...yet you never address it. WHY? (if you respond to this, please answer that question at the very least.)

    The way you say things, this construct seems to totally escape you.

    Look at what you present...the Great Depression, bailouts, Wall St.

    None of these things are really the same thing as what Will is talking about.

    Moreover, as far as those things are concerned, sometimes it's really just a matter of the government provoking bad results from bad policy:

    Cheap credit is double edged sword. And bad Fed policy is not always crafted with the rich in mind. Sometimes, it's just bad and when it is, it can create problems that would never get baseless calls for some kind of generic legislation if the bad policy to didn't provoke dangerous behavior in the first place.
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    <<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?>>

    Why must the general will of the economic plutocracy be determinate? As noted in the post, elites interests are not homogenous, but they undoubtedly lean in to one side on certain policy matters.

    <<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.>>

    Why not? With this you apparently commit yourself a deeper contradiction: people who refuse to pursue their rational self-interest. Homo Economicus is dead? You're also apparently assuming enrichment happens in a vacuum -- the rich could do it if they want to -- without imagining the possibility of an effective counter-balance, one enabled by a more vibrant, engaged democracy.

    It's also mighty curious how decreasing taxes on the rich will "unleash a little more entrepreneurial energy." One of the problems with high rates of inequality is that it threatens meritocracy. I think Buffett compared it to choosing the 2008 Olympic team on the grounds that their ancestors were previously victorious.
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    Rational self-interest has never meant simply maximising material wealth. Homo Economicus is a utility maximiser... not a money maximiser. This is fairly basic economics.
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    Maybe this is just alien to the point you are drawing out above, and would be better mentioned elsewhere and/or exclusively within my head; but . . .

    isn't the real justification for pre-emptive redistribution just the dissolution (actual or pre-emptive) of capture-like power, generally? This is to say, there is a fine line between capture and democratic will in the sense that what people want, whether by a paying minority or a voting majority, isn't necessarily efficient (for the whole). Forget about pre-emptive redistribution blunting the power of the rich to capture tax policy and consider the possibility that pre-emptive redistribution can blunt the power of the not-rich to capture (electorally) tax policy.

    Or, perhaps, we have perfected democracy by empowering the non-democratic minority (the rich) to balance and frustrate the democratic will. The battle of short-term foolishnesses that add up to not much of anything -- that is, a mere space in which the operate.

    But, I digress.
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    I'm not sure inequality is the real problem when it comes to rent-seeking.

    Rent-seeking depends on the possibility of concentrated benefits and diffused costs. It's inequality of benefit not inequality of resources to spend on that benefit that matters. Even in a perfectly wealth egalitarian society, you could see rent-seeking under such conditions. However, since rents are scarce, when there is wealth inequality, then, all things equal, you'd expect the price to be bid up by those with more resources. So, it's true that in unequal societies, the rich capture more rents (and there are other reasons why this is so, such as the rich tend to be educated enough to know how to do this), but that doesn't mean that in equal societies, there won't be rent-seeking.
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    The Redistibutivist's Argument:
    Rich people wield a disproportionate share of the government's power, so let's increase the size and scope of the government, and increase taxes.

    Obviously, the solution to the problem of government capture is to shrink the government, not raise taxes. Raising taxes will just make it harder for those currently not wealthy to become wealthy. Even more perversely, increasing taxes puts more of our money in the hands of those plutocrats who bought the government!
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    Will, how are you quantifying political capture for this argument? Are there widely accepted indices for this kind of thing? If so, is there really no correlation between inequality and capture?
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    metaandmeta, I don't know of any good indices for this kind of thing. Probably indices of corruption would be a decent enought proxy. And the wealthy high-inequality countries, like UK, US, and Singapore, score pretty low (although the Singapore state HAS been captured by elites -- in this case, it has turned out good for average economic well-being.)

    That said, there is SURELY a correlation between inequality and capture, since capture tends to produce inequality. But the direction of causation is what's at issue here. Cross-nationally, inequality is correlated with lots of terrible things, but that's because mechanisms that produce inequality, like political predation, also cause poverty and social instability. So the mechanism is key.
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    "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."

    I'm pretty sure this says the opposite of what you meant.

    Maybe you should add another negative!
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    I think I'll add three more.
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    And, after we eliminate wealth advantages to capture government power, we need to start going after the well-spoken and large cooperative organizations with policy goals. These have unfair advantages and unequal influence as well. It won't be fair until everybody is equally poor, silent and isolated.

    What we can never do is to question the value of the state powers that incentivize the capture. That's crazy talk!
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    It is too bad every other society besides Denmark is heterogeneous. If they were all homogeneous, like Denmark, we might be able to deduce some general principles that would apply to them.
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    <it>more power the government has to pick winners and losers, the more power rich people will have relative to poor people.</it>

    That's a faith-based belief--rooted, I think, in a hermetic theology--not a fact. To the extent that the winners that the government picks are poor people, it's a false belief.

    <it> The incentive to capture is a function of the value of the thing captured, not of the the means to do it.</it>

    The assumption here is that government is a single "thing" there for the capture. Not the case. Defense dollars, for instance, are wildly subject to capture by the rich. EITC and ADC dollars are decidedly not.
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    Who Captures Whom? discusses the capture of private industry by government.

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