Does Redistributing Income from Rich to Poor Increase or Reduce Economic Growth or Welfare? Posner

The United States spends heavily on redistributing income by taxing the affluent and using the revenues from taxation to support a variety of federal and state means-tested welfare programs, such as food stamps, Medicaid, social security disability benefits, and the Earned Income Tax Credit. And a number of other programs, such as social security retirement benefits, unemployment benefits, the minimum wage, Medicare, and subsidies for education, have a large redistributive component, though they are not means-tested. The aggregate annual amount of redistributive transfers is in the trillions of dollars. 

Conservatives want to cut expenditures on such programs in order to limit taxation and the national debt and also to encourage work. Some of them agree with Mitt Romney, who famously in his unsuccessful 2012 presidential campaign described the lower half of the income distribution in the United States as composed of persons unwilling to take responsibility for their lives. (He issued a retraction.) 

Despite redistribution, economic inequality in the United  States has risen in recent decades. In 1982, the top 1 percent of American earners received 13 percent of total income; by 1997, this had increased to 17 percent; today the figure is 22 percent. The poorest 20 percent of U.S. households have only 5 percent of the nation’s total personal income and the richest 20 percent have 50 percent. Between 1997 and 2008, median U.S. household income fell by 4 percent after adjustment for inflation, and between 2007 and 2011 it fell by 8.9 percent. A median is not an average; average income rose because the incomes of high earners rose--and so the effect was actually to increase inequality of income. 

The trend of rising inequality appears to be attributable mainly to increasing returns to well-educated people as a consequence of a shift in the economy to methods of production and distribution that require application of knowledge and intelligence—in other words, the dramatic increase in automation as a result of the computer revolution—rather than strength or stamina, but to other factors as well, such as falling marginal income tax rates. The growth in automation is unlikely to stop or slow—in fact it seems likely to speed up—and so without substantial social intervention the trend of rising inequality is likely to continue. (The Affordable Care Act will have some redistributive effect, but how great a one cannot as yet be predicted.) 

Rising inequality of income and wealth creates anxieties that can have dire economic consequences by increasing the demand for trade protection, restrictions on immigration, union protections, other anticompetitive measures, and government subsidies; it can also create class resentment, and thus lead to inefficient regulatory measures. The economist Raghuram Rajan speculates that increased inequality was an indirect cause of the financial meltdown of 2008 and the ensuing economic crisis. 

Measures to reduce income inequality, especially measures that raise the median household income (as distinct from reducing inequality by leveling down the incomes of the well off, which could have serious disincentive effects), could increase economic efficiency by reducing political pressures for inefficient policies. That was the rationale for the adoption by capitalist nations of “socialist measures,” beginning with Bismarck’s programs of government health, accident and disability insurance, and old-age pensions—all designed to secure capitalism against communism and other radical political ideologies. 

So let me consider the costs of increased redistribution from the top of the income distribution ladder to the bottom. I’ll assume that the redistribution is financed by taxation, with higher tax revenues generated either by higher marginal rates or by reducing deductions and exemptions. So the national debt would not be increased. The social cost of the redistribution would be limited to reduced work effort. 

But this involves a paradox: redistribution is challenged on the ground that it undermines the work ethic of both the rich and the poor—the reduction in the (after-tax) income of the rich, brought about by redistribution, causes them to work less but so, it is argued, does the increase in the income of the poor. Both groups, the argument goes, are incentivized to substitute leisure for work. Besides being contradictory, neither point seems powerful. It is not surprising that there is very little evidence that increasing marginal income tax rates reduces work effort. A person who responds to a fall in his (after-tax) income by working less compounds his loss of income. Leisure is unlikely to be a good substitute. High-income people who work hard tend to like both working hard and making money, and they are likely to be highly competitive, and want to keep abreast or ahead of their peers in money making. Furthermore, most high earners are employees rather than being self-employed, and few employees, even among the highly paid, have any job security. If they respond to a higher marginal tax rate by working less hard, they not only further reduce their net income and jeopardize their chances for generous bonuses and rapid advancement; they may well jeopardize their employment. Suppose a person who earns $250,000 before federal income tax pays $50,000 in tax, and now his tax bill is increased by 20 percent, to $60,000. Will he work less hard? That seems unlikely to me. I think if anything he’s likely to work harder. 

The more serious effect of higher marginal tax rates than the effect on the work ethic is the effect in inciting a search for loopholes, creating pressure for new loopholes as well and also shifting effort to activities that involve big tax breaks, including foreign investment. A better way to increase tax revenues than raising tax rates is tax reform that broadens the tax base by eliminating deductions and exemptions that serve no economic or other social purpose. The important thing from the standpoint of income redistribution is to increase tax revenues by one means or another. 

At the bottom of the income distribution, there is a real reason for concern about the effects of redistribution on the work ethic: the incremental income from working may be negligible if the increment carries the recipient of benefits over the benefits threshold: he may lose in benefits all of or even more than his income increment from working. This effect is recognized, however, and can be eliminated or at least reduced by a graduated reduction in benefits, to assure that benefits fall by significantly less than the recipient’s increased working income. 

There is evidence that increasing the length of entitlement to unemployment benefits elongates job search by the unemployed. This is not necessarily a bad thing, because a longer search may result in a better job. Offsetting this is the risk that employers will worry that a job applicant who has not worked for many months will have lost skill and motivation—but knowing this, the unemployed will be reluctant to protract their period of unemployment by not looking for work vigorously. Notice too that curtailing unemployment benefits will push more unemployed workers to seek social security disability benefits, upping the cost to the taxpayer. 

If, as I suspect, a modest increase in marginal tax rates (or diminished deductions or exemptions), with the revenues generated by the increase used to increase welfare benefits, would have few adverse effects on economic output, the reduction in economic inequality that would result would be cost-justified by the effect on the adverse socio-economic costs, listed earlier, of the current high level of income inequality in the United States.

Comments

[Mattnotda]

Higher marginal tax rates may not have much impact on the work performed by high income employees, but I believe that it will have a substantial effect on high earning small business owners. Business formation and expansion entail risk. Increasing marginal tax rates reduces return on investment, while arguably increasing risk simultaneously. This is a disincentive to job creation. The impact of raising tax rates on these small employers is disproportionately large compared to the fraction of high earners they represent.

[Jack]

Posner gets much of this right and seems among the few to challenge the mythology of relatively small increases in marginal tax rates "sapping" the initiative of both high earning employees or small biz owners.

For employees in relatively high paid positions Posner is surely right as most folks, if they have to be there anyway, strive to do their best, be good team members, and look forward to trying their wings with higher responsibilities etc.

I can speak for small biz folk. In addition to having been in that segment most of my life, I've observed many others. Here's the deal; FEW small biz folk are ever certain of how the year or next five years will turn out.

Consider for example those of high earnings in R/E or about any other sales dependent positions. Any number of profitable sales or contracts "might" come in, or a high percentage fall apart for one reason or another. What's the rational response? Push hard and hope for a good year to make up for the inevitable poor years.

What about several notches higher on the wide spectrum of "small biz?" Say, and individual or family who owns a number of profitable restaurants or franchises. With "plenty of income" and the specter of say, a 5% increase in his marginal tax rate coming, does he opt not to bother with developing that next promising location? Stand back and let the other guy take it? Likely not; if he has an organization of several hundred or more people there are people in place to do most of the day to day work, and most biz guys would want to continue to build the operation if only to give more opp for growth to those who worked hard to build the company.

My conclusion is that "working less hard" or less effectively? due to "the next tax bracket" is no more than a long history of kvetching and venting.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

But let's take a closer look at the theory of "downward re-distribution" or Ha! in street terms the half century of waiting for some sign of "trickle down".

Does "redistribution" (in the downward sense) begin only after the gross income and wealth figures have been established? As Posner correctly points out, despite token efforts of redistribution the GINI ratio continues to climb. Sharply. And since the meltdown it's been the upper few percent who've taken all of the gains.

What gives? Surely it is not "larger disparities in education" nor simple market forces that have lowered the min and lowest wages while, say, a H/C CEO doing little that is different from his predecessor of decades ago has seen his "compensation" increase several fold.

What's the deal with many companies like Walmart where the fantastic and highly profitable improvements in marketing and distribution are not "trickling down" to their hardworking and increasingly skilled "associates?" With many paid so poorly that tax payers have to chip in over a billion a year in Walmart's case.

If, for whatever reason, "WE?" have created a form of capitalism that largely rewards capital over labor what ARE we to do about it?

In general I'm not a fan of government redistribution efforts for all the reasons most economists would not be fans either. First on the list is that of distorting the natural power of capitalism. The more that retail, service, or fast food businesses can rely on Unc Sam to flesh out their payroll the more probable it is that we'll be over-retailed, serviced and fast fooded.

Next, of course, is the cost to us all of a hodge-podge of well meaning redistribution bureaucracies, and despite their best efforts, real or imagined inequities replete with suspicions of "wealthy welfare queens".

Nope... the far better solution (if we could magically achieve it) is that of the past New Deal and collective bargaining that pushed wages, working conditions and safety higher with the result being that of the strong middle class we are losing (have lost?) today.

There is no reason that those working in the highly productive service and retail sectors shouldn't participate in the gains as did mfg and agricultural workers when those were the dominant industries.

And one last? Do we even KNOW if lower income folk are benefiting more than high income folk from "redistributionist tax policies?

Take for example the mortgage interest deduction, once meant to enable lower and middle income earners get into their first home.

Today the lower income earners would not get into the home at all and the tax break for the median earner would be (5% interest on $200,000 for $10,000 of interest on a new mortgage and declining as the mtg ages, times .15 tax rate for a whopping $1500 break)

The much higher earner could have Two deductible mortgages, each of a million bucks. Thus $100,000 of deductible interest and a benefit of $35,000 in the 35% tax bracket.

Often both small biz and higher income employees drive new cars with much of the cost being a deductible biz expense while the same is not the case for the low income earner trying to maintain his aging rig or paying bus or taxi fares.

[jim kirby]

No, I don't agree with Posner. First of all, a whole lot of redistribution is NOT from the rich to the poor, but from producers to non-producers in the same social class. A young, child-free man or woman is heavily taxed to support non-productive lifestyle choices, like marriage, breeding and the public mis-education of the brood of others. Child-free men and women are also denied welfare benefits, at least in Texas. Wealth is redistributed from renters to homeowners, from frugal homeowners to barons of huge mansions, from risk-takers to the superstitiously insured, who even lack the enterprise to leave a bad job for fear of losing health insurance or a pension.

We are talking about poor-to-rich, not rich-to-poor, redistribution here--redistribution of a type that specializes in rewarding non-productive lifestyle choices.

My personal experience sure belies Posner's assertions. I'm single and childfree, and I started out working as a rocket scientist. Once I figured out that tens of thousands of my dollars were being redistributed (stolen) annually to others of my same social class, I quit working as an employee and became an independent contractor. I shunned all jobs that came with benefits, including vacation. I eventually quit doing rocket science, finding it much more lucrative to improve property and live off capital-gains proceeds, which carried less tax and no FICA obligations.

The sad truth for society is that I could have skipped much of the 27 years I sat in classrooms, almost completely at gummint expense, very little of which is needed to develop property. Most people will not be turned from rocket scientist to property developer by the tax code as I was, but they will find their own ways of avoiding taxes to the detriment of society.

Of course, our tax policy will guide a young man to save taxes by marrying and by breeding. It will force him out of apartment living into ever bigger houses to accommodate the ever-growing number of gummint-subsidized brats. Now he's really trapped: he can't quit that lousy job because of the mortgage payments, loss of health insurance benefits and kiddie expenses. He eventually becomes a divorced drone, long ago having lost interest in learning languages, traveling or working in a less rapacious country. Indeed, a young, single and child-free rocket scientist today would have ample opportunity to sell his services to a country that actually rewarded building ICBMs, anti-tank rockets and nuclear warheads above breeding.

[Jack]

Jim: For doing so well and having been lured away from your career by finding opps in flipping homes and tax loopholes that turner your earnings into the much lower capital gains category that has SO benefited the rich and uber-rich you sound more than a bit disconsolate and bitter. Why?

While it's likely there will always be a niche for the creative rehab or repurposing of real estate, in many areas it's an economic anomaly born of the bursting bubble and unusually low interest rates that enable buyers to absorb the cost of improvements and buy more house than would be the case were interest rates to return to historic trend lines.

But, all in all, isn't it great that the (waning) flexibility of our economy allows the flexibility for many to change occupations, be if for doing something more personally rewarding to them, or for economic gain? Yep! that's a hallmark of capitalism; ie spotting a market inefficiency and being able to take advantage of it. As you surely know some found their own nirvana and pot of gold in the careers for which they were trained.

One great side benefit of the Affordable Healthcare Act is that of freeing those "trapped" in their jobs by "pre-existing condition" or other insurance related shackles. Those going out on their own will have one less, negative, wild card to consider.

Lastly, remember that "supply and demand" capitalism is always seeking its elusive equalibrium and that includes housing and r/e. Down through history it's not always been the case for money to grow on houses, but for now, at least we have the opps born of the great distortions of last decade and a half combined with the efforts of "gummint" to prevent a deep crashing devaluation of assets and the resulting world-wide depression. Let's hope we dodge that meteor which may well be on a trajectory difficult to duck.

[jim kirby]

Well, Jack, I won't take your bait on sounding "disconsolate and bitter."

My heroes, Martin Luther, Werner von Braun, Bohr, Einstein Lise Meitner and many others were "driven from their careers."

For Luther, von Braun, Bohr and Einstein, things arguably turned out better, which is the reason I mention the option of leaving a stupid country to seek your fortune elsewhere. For Lise Meitner, it turned out not so fortunate. She had a good reason to be "bitter."

Anyhow, all that has nothing to do with the loss suffered by the stupid country that tries hard to alienate productive folks. The Catholic church continues in decline after expelling Luther; the Nazis lost the bomb by alienating Bohr, Einstein and Meitner. And Amerika gained a lot by hiring the true-blue nazi von Braun.

[Thomas Rekdal]

So we are back to Bismark. The best argument for redistributing more income from the rich to the poor is not, after all, that it would make society more just, but that it would keep the lower orders more quiet. Not so many unions, radical parties, and Occupy demonstrations to interfere with economic efficiency.

The ever shrinking segment of our population able to find interesting and remunerative work will be too distracted by the fascinating challenges they face to notice the increasing portion of their income syphoned off by the unproductive. The latter, freed from economic necessity and the stigma of being economically superfluous (if that is possible), will devote themselves to ever more creative and harmless ways to escape boredom.

Will this arrangement really work? I do not know, but it may not be such a bad bargain, if it does, and I am more and more inclined to believe it is the direction in which we are moving.

[Jack]

Jim: It would be interesting if you'd list a few nations in which their tax rates are less than that of the US. I'm sure there are some but it seems unlikely that they'd spend 5% of GDP plus that of ginning up costly wars carried "off the books".

I do think you can find civilized and developed nations in which the overall take is less than the combo in the US of 20 something percent in Fed taxes plus being taken for nearly twice the H/C costs of other nations, and still having a delightful parade of the unfortunate who thought they were "covered" or were not covered at all making the trek from their recently foreclosed home and on to stand in the long line of others facing medical costs bankruptcy.

Yes, it does seem many of those great minds did far better in these united states and that those having the natural human abhorence for unleashing nuclear power and building ICBM's figured that if such horrific weapons were to come into being that it was far better to provide them to "this stupid country" than to those far more irrational. BTW would you agree that Einstein, von Braun and others weren't too concerned about maximizing their incomes or ducking the tax man? But..... we stray from the topic of the day.

Thomas: You make your own good arguments in favor of a lower GINI being more just and lessening individual strife, depression and frustration at not getting a fair shake and not having the fruit of their labors accurately priced.

(ie There is something systematically wrong when the highest "earners" or those closest to the cash? have garnered 400% gains while those doing the work have had stagnant wages and those of lowest incomes not even seeing gains to offset inflation after the min wage peaked in 1968, much less get a share of the tremendous gains in productivity and overall wealth.)

The strongest arguments, however, for increasing wages at the median and lower levels is that of the differences between the spending patterns of the rich and very rich as compared to those "just getting by" or not even getting by.

It doesn't take an economist or a powerful bank of computers to learn that the highest earners do not spend a high percentage of there income, even if one were to count bidding up the price of existing estates and "flats" overlooking Central Park.

Thus, the half century trend of the rising tide of a doubling of productivity having lifted only the boats of the top 5% while leaving those living hand to mouth, or worse, with NO surplus with which to "go shopping" and spur this dead and dying DEMAND constrained economy.

Either of our profs here could tell us that an additional buck showing up on the table of a single mom, or even that of the median ($52,000) household will immediately be spent and cycle through OUR economy. The same? or as has been the case for all too long, many more dollars showing up at the home of the "one percenters" or the FAR richer one tenth of one percenters, is likely to lay there for a while with the largest fraction going to one form of savings or another.

Saving, of course, can be a good thing, and especially so were the savings coming from a much larger percentage of our work force. Right now, "trouble is" we need economic DEMAND much more than we need savings and investment. That story is told in many ways including a prime lending rate that is lower than even our low rate of inflation.

It's told again by once aggressive companies sitting on their cash or buying back their own stock. It's told again when banks, unable to find viable biz plans on which to lend, find the "best place" for their cash that of US Treasuries despite the record low returns.

The story is again told by other voices when year after year we have WEAK Christmas seasons with another spate of retailers folding their tents soon after or being bought for cents on the dollar by outfits long on cash.

Our economy is much like any powerful engine. If for whatever reason that engine pumps all its oil up into the valve covers with too little "trickling down" to the heavily burdened crankshaft and main bearings result will be catastrophic engine failure.

[jim kirby]

Estonia, home of Skype and other advanced products, has a tax rate of 15%. Similar are Hong Kong and Singapore.

When I'm at my home in Rio, my taxes are very low, except for the taxes and Obamacare obligations I have back in the States. No Amerikan services, including Obamacare or Medicare, are available in Brazil, by the way.

Good reason to seek citizenship outside Amerika. Depardieu, Assange, Snowden and numerous ex-Amerikan millionaires understand!

Right: Einstein, Bohr, Meitner and many others were refugees from fascism; we Amerikans will be refugees from socialism, it appears. Sad to have expended so many lives and so much treasure to win the cold war, only to have become them.

[Mattnotda]

Hey Jack, the "Affordable Care Act" actually helps trap me in my job. I would love to be an independent contractor, but since the affordable care act has basically destroyed the individual insurance market in California, the hurdles to my dreams have gotten a whole lot higher. The reason people have been trapped in their current jobs via pre-existing conditions is that health care was ever attached to employers in the first place.

[Jack]

Jim: There are lots of places where visitors can hang out w/o paying income taxes, but it appears those living and earning their incomes in Brazil are paying rates up to 28%. Not far from the rates of the US but as you point out getting few services for what they do pay.

With a GINI coefficient even worse than that of the US, and 180 million folks scrambling over a $2.5 trillion GDP, I'd guess that those showing up with good ol' US greenbacks would be treated quite well, though the plight of their millions of children living in abject poverty must tug at the heartstrings of those not prepared for such a specter.

Anyway, you seem bent more toward putting forth a somewhat bitter version of rightwing ideology than helping to solve a few of the problems that beset the nation that, as you mentioned, educated you and afforded you your lifestyle.

But then, I suppose it's a facet, and benefit, of worldwide capitalism that those seeking an escape or greener pastures in which to invest their capital and energies can do so. GOOD though, that the costly US military, and the Monroe Doctrine serves to protect Brazil, SA, Mexico and Central America.

[Jack]

Matt, not much detail, but with CA's GDP growth rate topping the rest of the states, I'd guess being a contractor there would be about as good a shot as anywhere in the nation.

I'd agree with you that it was unfortunate that H/C became tied to the employers as a dodge of the wage/price freezes of WWII, but, of course, that's not closely related to "insurance companies" cherry picking the most profitable folks to "insure".

As you surely know, before the ACA reforms of five years ago those with "pre-existing" conditions had to be VERY careful even in changing jobs while going out on one's own and trying to obtain an individual policy was to court bankruptcy -- either immediately in the premiums extorted, or, a bit later on when the uninsured "pre-existing" generated some massive hospital/doctor/ bill just at a time when it was difficult or impossible to run the fledgling company.

But fill us in a bit more on CA. I've been hearing that CA's early embrace of the reforms replete with setting up their own website (makes sense with Santa Clara being right there) and if I recall, taking the feds up on the companion expansion of Medicaid for those falling between the gaps.

[Terry Bennett]

Pardon my intrusion upon this morality-free zone. I'm still trying to parse the heading of this post, but it seems to me that a more fundamental question is begged here.

We are talking about reaching into one man's pocket and taking out money to give to another man. Call me old-fashioned, but I think there should be a highly compelling reason before we do that. A beneficiary who is failing to subsist is, in general, highly compelling to me. A beneficiary who wants to "go shopping" is not.

Since consequences are the preferred topic, let's talk consequences. If redistribution is meted out extravagantly or indiscriminately (I believe the economic term of art is "willy-nilly"), the recipients learn a new vocabulary word: "entitlement". This is not yet an economic consequence, but it lays the foundation for the greatest possible economic consequence: the mass corruption of Weltanschauungen, and the allowance of a world in which producers are labeled as evil and deserving of penalty. The inevitable consequence of that change in thinking is on display in our time in the form of failed and failing socialist states world-wide.

The human engines meanwhile resent the yoke of the less diligent, and strive to circumvent it, as so poignantly described by Mr. Kirby above. I sympathize. At this time in my life I do not want any employees. I could be making more money and redistributing it directly, but I am unwilling to subject myself to the accompanying volumes of regulatory nonsense, which I'm sure would eventually trip me up and erase whatever profits thus gained. My potential reward has been diminished to the point that I rationally substitute leisure time for productive activity (as is obvious in this moment).

I am willing to work a little harder, since I am able, to supplement the substance of those who strive and fall short, so that all may subsist with basic food, basic shelter, basic health care, and basic education (by which I mean reading, arithmetic, health, and civics). I will pay my share toward collective endeavor - military, NASA, highways, etc. In the end however, I was raised to believe that this is a free country, and I have seen with my own eyes what is available to any individual who wishes to pursue it. As for anyone who thinks he is "entitled" to the fruits of my "evil" labor, I will go to my grave resenting you far more than you are capable of resenting me.

[Neilehat]

"Does redistributing Income from Rich to Poor increase or reduce Economic Growth or Welfare? I don't know, ask the French since their Revolutions I & II. Ask the British about the general collapse of the Peerage and Aristocracy and the rise of the Industrial Revolution. Ask the Germans about it since the demise of their Aristocracy and Oligarchy. Ask the Japanese about it since the collapse of their Aristocracy and Oligarchy. Ask the Chinese about it since the collapse of their Aristocracy and Oligarchy...

The majority of Historical antecedents seem to indicate Yes. There is a power in Revolutionary change; far beyond our limited powers to add or subtract...

[Jack]

Terry, joining the conversation is just fine.

As for the MAIN reasons for finding SOME means of adjusting for ALL of the gains from more than a doubling of per employee productivity over the last half century accruing to those of the topmost 5% of gleaners and even MORE such to the topmost one tenth of one percent, is that of "keeping the game going"

Many here will recall what happens in the last rounds of Monopoly when one player has Park Place and Boardwalk fully developed while others are eking out $16 of rent from nearby Baltic Ave. Or! what happened after 1928 we "we" had the same constipation rate of the wealth and income in the greedy paws of the very, very few as we have this very day.

As for "going shopping" in our economy that is over 70% dependent on consumer spending and suffering badly from massive rates of Over Capacity and LACK of demand, if most of us do not have the discretionary income to turn our many wants and needs into the economic demand that drives the economy we'll continue to stagnant and run deficits driven by unemployment and other "welfare costs" and of course, public spending as pols attempt to bring job spurring PORK back to quiet the demands of their constituency. Not a good trend at all.

Hmmm....... "willy nilly" Were you a complainant during the last half century in which the truly massive redistribution generated this problem? and a GINI (inequality ratio) exceeding that of Mexico? that we used to ridicule for the rich carving off Mexico's wealth while 100 million continued to live in dire poverty? or escape to the US? IF........... seeking truth or at all interested in seeking a reform, I'd strongly urge you to take a look at what a failure JFK's "rising tide that lifted ALL of the boats has been as only the yachts of the rich rose while the day boats and skiffs pretty well sunk.

"Substituting leisure" for frustrating efforts to increase one's wealth? GREAT! What the US NEEDS is more of the same! I was just reading of the "Most productive execs." in Fast Company that tells of most of them frantically arising at 5am to a slew of E-mails, and Facebook or Twitter pap. Many used even their drive to work to have "meetings on the phone", sat at their desk or cubicle to eat the same boring lunch before plunging into the afternoon and late evening struggles.

Lunacy! in a nation leaving 15% of its work force under or unused. Did they skip the chapters on delegation? organization? grassroots decision making? Indeed! those able to quit or phase out of the American rat race should do so and leave their rat lane for one or more who really need the work and income. "Go shopping" or "vacation" as what our economy most needs is economic DEMAND; production to meet the demand will quickly follow to the benefit of all.

"Work a little harder?" NO! Instead PAY your employees a living wage and DUMP more responsibility on them (assuming they're not bowed to the waist by unrealistic burdens at the unlivable wages that ARE a major problem for the US.

"Free country?" It is indeed! And while Posner and Becker are both familiar with lower skilled labor and generic commodities having NO market power whatsoever --- and yet less when we're in this mess with high rates of STRUCTURAL unemployment that has those at the bottom scrambling for the few tidbits that do "trickle down".

Yep... a "free country" to be sure, but when the economic playing field becomes so tilted as it is today, "the market" is telling all too many of us that we are "free" to starve (or be subsidized?) at one wretched, dead end job or another and with still one in ten of our former workforce being "free" to live on "extended" unemployment or....... after that runs out......... foodstamps? or air?

"Go to your grave... resenting?" Whew! Well don't rush the process as it seems to come all too soon for most. And what is there to resent? If you ARE one of the one percenters??? you've had it all your way for decades while those doing the slave work have made NO gains at all. Shouldn't you leave the task of "resenting" to those having something to resent?

[Terry Bennett]

I have nothing to resent but resentment itself - and that is precisely what I do resent: the premise that I have done something less than honorable in successfully earning my bread. I've never bribed a politician. I didn't inherit land. I worked and paid the full tuition asked of me in college and law school. My public grammar school was the poorest in my state. Today some of my classmates are successful, and some are poor. I have never been less than humanly kind to any of them, and I reject the accusation that I caused their current circumstance.

Capitalism is not something we have consciously created; rather, it is simply what is revealed when we agree as a society that we will not physically violate each other and take each other's substance by force. Each man, thus relieved of the constant specter of being clubbed by a stronger man, can set about sustaining himself and his family, either by tending his own food supply or by trading with others. We have added prudent constraints to the system over the ages, proscribing fraud and such, but underneath, this is just the natural order of how peaceful men behave toward each other.

Enter "entitlement", which means you are entitled to take from my wallet. Why? Good question...I have yet to hear a coherent answer. I believe the true answer flows from my character, not yours - which means it's not an entitlement. Whether out of compassion or practicality (as mentioned by Mr. Redkal above), I do not begrudge anyone the stock of my larder, but I'll have none of the unfounded pride nor the lame rationalizations of one whose choices have left his production outpaced by his consumption. Accept my gift, but keep your insult.

[Jack]

Terry -- First nothing here is a critique of you or your life, remember it's largely a macro-econ discussion board.

"Capitalism" does not "just happen". Instead it can be a powerful engine for, as our founders, strongly suggested, to develop our resources for the benefit of THE people. I can't think of ANY engine that works well w/o a whole lot of regulating devices. The engine of capitalism is the same; it REQUIRES regulation, limitations and guidance created by a FUNCTIONING democratic process.

Again, I'd urge actually reading any intro to the subject of econ and paying especially close attention to the chapters on "some" having great economic and political power, while others have NO effect whatever on "the market". You'll surely enjoy learning why EVERY developed nation has government mandated work rules, a min wage and a plethora of farm price supports. Too, you may want to reflect upon the various subsidies accorded both corporations and individuals.

Oh! and did you read mine on how the home mtg interest deduction can be used by the upper income folk so as to benefit by 25 TIMES more than the benefit to the median income homeowner? And that NO benefit accrued to those not even able to enter the housing market? Do you abhor these upward redistributions that take from lower income folk to benefit those of upper incomes? IRA's? 401's? "Medical savings accounts?" ALL tax dodges or tax delaying schemes of FAR more government benefit to the wealthy.

"Entitlement" is only a word used by political hacks and is vague and technically meaningless. Some of the sleaziest would even like to get away with calling SS, or Medicare, both of which are insurance programs, "entitlements" as if something illicit were going on. IF.... you want to employ the word here, first off get rid of the "compassion" and other such emotion provoking wards and LIST what you feel to be an "entitlement". Please be sure to zoom out so as to include larding the oil companies with billions though they are already awash in an embarrassment of ill-gained windfall profits from the collusive price gouging of recent years.

"Production outpaced by "his" consumption?" It would certainly be a good study to look into WHAT is going on with CEO's having upped their take from 70 times working folk's pay (already the highest in the world) to over 400 TIMES that of those doing the work. I don't have such a study, but am quite sure that the productivity of CEO's has NOT increased Five fold in these last decades of stagnant and declining "compensation" for working folk.

See? To any claim of "capitalism" or our mixed economy running on auto-pilot, we are running into the very same economy, nation and world tanking problems that brought us down in 1929 and WAS a precursor to the horrific slaughter of WWII.

Anyway, perhaps get the book? read, at least the pertinent chapters and see how they fit with your existing ideology, OK?

[Terry Bennett]

Happy New Year.

Jack, I find your passion somehow laudable, but I am unmoved by either the slight logic offered nor your suggestion that were I more educated / intelligent / diligent in my thinking on the subject, I would be obliged to agree with you (speaking of "hack" arguments).

"Entitlement" is not a meaningless word - you will notice that I defined it in my previous post.

If CEO's are overpaid - and no doubt plenty of them are - it is up to the corporate shareholders whose dividends are thus diminished to vote to pay them less. I find people who vote with their wallets more credible than mere sidewalk opinion; the only gun to shareholders’ heads is their own desire for profit. It’s a victimless crime, and a non sequitur.

Your larger point seems to be that our system is designed to favor some constituencies unfairly, to the unfair disadvantage of other constituencies. That may be true. You are welcome to your opinions as to who is in fact favored and who if any should be favored, and here your all-over-the-map outpouring of our system's litany of sins makes the outlines of a point. I don't disagree: the system has many significant flaws, which may be the result of legislative incompetence or something even more deplorable.

Back to my original point, I found it curious in reading the posts and comments that everyone talks about the expected outcomes of this or that scheme of redistribution, as if it is a foregone conclusion that we have a right to effect it. Speaking of pretty good books some people ought to read, Judge Posner can attest that I have in fact read his source text, Economic Analysis of Law, word-by-word and cover-to-cover. Whether I have understood it is a separate question, but it seems to me that one of the most revolutionary implications of the "Law and Economics" school of thought, indeed a large part of its elegance, is that the notion of a morality among men is subsumed into economic theory, i.e., if you are not injuring another economically, you are not acting immorally. (I remain unconvinced and unconverted, but I certainly grant that this is a very useful way to look at issues - and one of the reasons I try to read this blog.)

I continue to think my question is valid. On what grounds is it suggested that I am obligated to produce more than I consume so others can consume more than they produce? I've heard the shotgun blast about farm price supports, medical savings accounts, economic conditions in 1929, economic oligarchy, and so forth, nothing I haven't heard before, but I don't see where any of that touches on my question. At best it is an implication, and a weak one, and necessarily an aspersion upon me and the supposed economic crimes I have committed against those currently not succeeding in the market. It is this suggestion I reject.

Further, I may not be connecting the disparate dots as might have been intended, but it sounds to me like Jack would have society re-engineered to place constraints on my economic freedom, just so other people won't feel so bad about their own low output. I for one think that my "life, liberty, and the pursuit of happiness" trumps someone else's tendency toward sloth and depression.

Eugene Debs on his pinkest day never uttered an offense so putrid as BHO's, "You didn't build that." There is a presumption on the left that if you aren't complaining about your lot, you must have cheated to get enough to satisfy yourself - and THAT is their moral justification for taking from me, and the root of my umbrage. It is the tyranny of the majority of sore losers, and nothing more.

[Thomas Rekdal]

As one who still yearns for the Old Time Religion, as defended by Terry Bennett, I am more than sympathetic to his claim that economic inequality is much more a problem in morality than positive economics. The undertone of moral outrage in Jack's comments seems to me only to confirm this. Jack's contention, as I understand it, is not that it would be a good idea to rob Peter to pay Paul, but rather that Peter has exploited his initial advantages too much in acquiring the wealth he has. Corrective justice is not the same as theft.

Try though I will, I cannot entirely account for the wealth gap between me and the 1% on Jack's basis. My own lack of imagination and industry, unfortunately, play too prominent a role to indulge the consolation. In so far as this is true, is the wealth gap really unfair, or even unfortunate?

It might be, if the attributes that make one man more successful than another are entirely arbitrary from a moral point of view. If it is entirely a matter of genes and moral luck, perhaps it is more important to find ways of blunting the sources of social conflict than to sort out the bases of moral desert.

This is how I read the efforts of Posner and others to design tax policies that skirt the moral issues in favor of Bismarckian welfare solutions that might blunt the resentments of the unproductive without damaging the industry of the industrious. An ideal tax policy would make it somewhat unclear as to who is exploiting whom. Through ambiguity lies the path to social harmony.

Frankly, I find this ambition noble. I am just not convinced it will work.

[jim kirby]

The goal was the summit of Everest. The prize, contested by others, was world dominion.

Our group set out full of hope and faith, but some dropped out along the way. Less prepared, less daring they were--who knows? As the rest of us went on, they settled down and built shelters, draining some of our energy, and some of them married, draining more. Some bred, draining even more. As best we could, we staggered on, forgoing food and missing family, some suffering and even dying along the way, but a few of us fought on until we were in sight of the summit, when we had to turn back. It was a damn shame, considering all the lives, time and treasure expended since we had begun to plan our enterprise, not to mention the threat we faced below.

On the way down, we met up with the laggards, of course. We held no rancor, since we recognized them as weak and indolent, and, after all, they were only responding to grand incentives imposed by the gods. Once we escape from our prison, however, we will wreak vengeance upon those gods.

[Thomas Rekdal]

Jim Kirby: Where is the Nietzschean well advised to turn today? I am a mediocrity seeking alternatives, so the same advice may not apply. Still, I am looking for options.

[Jack]

Thomas: Good comments, but don't be so hard on yourself. The ladder, rope? thread? that leads to the one percent is narrower and more treacherous to climb than any time in the last century. And! increasingly it's become a LOT better, if as the great Molly Ivins penned about G Bush "you were born on third base but thought he'd hit a home run".

Morality...... well it isn't usually a part of what runs the economy ('cept for the egregious corruption and theft of the cancerously growing "financial sector" that we continue to witness) but morality should seep into the works via a FUNCTIONING democratic process, and especially so in remedying the decades of neglect of the min wage.

And, yes, if as I strongly suspect is the case that we'll be saddled with structural under and unemployment problems for a long time, one of the toughest problems is that of the cultural adjustment to some "getting a free ride" while others put in "silicon valley" hours and efforts. The choices of guaranteed incomes, WPA style government as employer of last resort, or abject poverty for those flung out of the economy, or having never gotten to climb in to begin with will be tough problems to solve.

Two other choices? IF by means of gov intervention or collective bargaining wages for most of us were increased, we may well approach full employment as far more of us would spend our gains on our wants and needs that would employ others.

The other, and to some extent a variation used in combo with the above is to, finally, move to a shorter work week. In theory a 10% shorter work week would require 10% more working folk, though my guess is that we could cover a ten percent shorter week w/o adding any new employees to most tasks. Ha! a recent study indicates as much as an hour or two of "social media" per DAY on average. Let 'em stay home one day a week? Less traffic and a lot less fuel wastage.. and a spur to leisure activities biz.

One thing we KNOW, is that were we or an august group of economists and social scientists to conclude that we have a structural under and unemployment problem and HAD to pick one or another of the above, or a combo, it would take decades for pols to gird up the courage to do anything and even longer for most of our society to adjust. As today, despite the double digits of under and unemployment the lingering legend and mythology would be that of "jobs being there is only the lazy would go out and look for them."

And ha! your last on "who is exploiting whom". Even today don't we all know some of those who don't fit well into the economic construct but who give of themselves in beneficial ways while living close to the poverty line? or worse? Ah, yes, when a big team wins (or loses) it's difficult to determine the credit or blame.

[Neilehat]

I'm not much of a fan of Nietzsche or his twisted Weltgeist based on syphilis and his descent into the abyss of madness... It all becomes a question of "Power" granted by Revolutionary Change and it's Democratic-Humanitarian application. Perhaps, I alone have become the true "Superman"...

[Jack]

Terry... Thanks for the NY greeting; it will be interesting to watch "Obamacare" roll-out and see if my prediction of our being stuck in a DEMAND limited, stagnant economy and continued high rates of structural unemployment.

We really need to think about what these lingering rates of joblessness is doing to not only our youth but all of us and our flagging economy. A study in the UK revealed 30% of the long unemployed youth harboring suicidal thoughts. Here, we know from history that those, whether HS, college or advanced degree who don't get off to a good start tend to suffer throughout their career.

As for some of your points, CEO's are hardly going to be controlled by there stockholders as they might have been back when their gleaners were a more workable 70 times employee wages than today's more than 400 times. Nope! Consider, instead of the loyal stockholders of decades past we have program traders attempting to snipe a fractional gain based on momentum and mutual funds run by the buddies they slept with at Yale or Wharton.

"Favored constituencies?" Yep..... that's close enough and the evidence of the above gains by CEO's and that of ALL of the gains from more than a doubling of per worker productivity having been creamed off by the top one percenters pretty well stands on its own and highlights the fact of our upward mobility having stagnated and fallen behind that of Germany and perhaps even Mexico.

These aren't opinions but facts easily corroborated. Good that you touch on the wholesale corruption of Congress and our democratic process -- indeed, those we know who creamed off all the wealth and income from the "rising tide" that failed to lift the skiffs and launches of working folk are indeed purchasing favorable treatment in DC. While I can't gin up videos of money changing hands there IS CRP.org that is a very interesting site for seeing who gave,and who got.

Last I looked the number of registered lobbyists were well over 100,000, but that was a couple years back. While the existence of such a well-funded army doesn't mean we KNOW they are purchasing big favors surely the fact of "someone" paying 'em BIG money in salaries plus filling their satchels with plenty for "campaign donations" and, of course, since the Citizens United mistake, larding the PAC's that fling oodles of cash out against those not playing their game.

Here, I'm reminded that Bush didn't just "think up" the idea of ending the inheritance tax, and leaving a bit more of the tax burden to the working folk, no, he was put up to it by the Walmart heirs and one or two others of the richest (and seemingly greediest) families in the US and perhaps the world.

"Obligated to consume less than you earn?" Well, trouble is it's such vague territory. To start at the bottom, do we think, have any evidence that those slaving away for a min wage that has DECREASED by 30% since the min wage peaked in 1968 are doing less? or shoddier work than in 68?

And at the top? That say, a CEO of a H/C insurance outfit paying himself $2 million in the 70's but w/o inventing a thing now carves off $12 - $15 million or more plus flitting off to the sports arena boxes in the company jet and being assured of a golden chute in case his performance is so miserable that even his pals on the board have to dump him.

And what about your own wages? WERE we to return to the wage distribution curve of the 70's those of the median household income of $52,000 would have an extra $12,000 each year with the same being true for those quite a bit above median and quite a bit below.

"1929?" Indeed, it is NOT your fault that today the concentration of income and wealth is the same as it was in that carefree (for the rich) year of 1928. Fortunately when some who should have seen IT coming woke up to see the world crashing around their ears and ankles, managed, at great cost, managed with modern techniques to stave off the worldwide depression of the decade of the 30's.

But! THE problem, has not been cured. We still suffer from unacceptably high rates of under and unemployment, stagnant wages for most, too little DEMAND with which to sop up excess productive capacity and a GDP increase of a meager 2% that does not come close to generating enough jobs to ever whittle down the number of those millions who remain jobless.

"feel bad about low output?" Hmm, despite the recent revelation that on AVERAGE employees and managers are spending 2 hours of company time a day on "social media" our per capita productivity has never been higher. Indeed! Output is double that of your parent's era..... but! ONLY the topmost few are getting the related pay.

"You didn't build that....................... alone" The whacked right radio 'baggers had a field day distorting that one! But surely one who would find and participate in this discussion board would not have to be lectured on "...it taking a village". Surely you understand that you not only stand on the shoulders of those who came before us, those who provided our education, often w/o much recompense, but those who work with us, and those who make the community around us safe, habitable and productive.

Our recently re-elected President and his energetic and inspirational First Lady would be prime examples. Beginning with humble roots, to be sure Barack deserves a lot of credit for finishing school, going on to college, excelling in law, opting to return to his humble origins instead of signing on with other WS thieves and banksters and having the courage to lead and run for high office. Still...... few, I suspect including yourself would make the claim that he made the trek all the way to the White House........ alone.

"Tyranny of sore losers?" Missing THE point! If this trend and perhaps agenda of ALL FOR THE RICH continues we'll ALL be losers.

Here's some of the warnings in Posner's words:

"Rising inequality of income and wealth creates anxieties that can have dire economic consequences by increasing the demand for trade protection, restrictions on immigration, union protections, other anticompetitive measures, and government subsidies; it can also create class resentment, and thus lead to inefficient regulatory measures. The economist Raghuram Rajan speculates that increased inequality was an indirect cause of the financial meltdown of 2008 and the ensuing economic crisis."

The words are a bit bland and not those of a pol or advocate, for example "create class resentment" doesn't come close to conveying the problems of grinding poverty and long term unemployment, doing w/o rational access to H/C and the depression revealed in the UK that has 30% of the long term unemployed entertaining thoughts of suicide.

Well, Cheers and let's hope that the food service folk striking for a still unlivable $15 aren't indicative of millions more hitting the streets or "occupying" WS or something else this spring and summer.

[Neilehat]

Jack, Welcome to the "New Revolution". The Laundry List Litany of systemic problems is not going to solve the problems created by a rising and ever powerful Oligarchy and subsequent Aristocracy that has been insidiously entrenching itself in the body politic and in the bosom of the Nation over the years. And has been said once before, "The dogmas of the quiet past, are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise - with the occasion. As our case is new, so we must think anew and act anew. We must disenthrall ourselves and then we shall save our Country" - and ourselves...

[Jack]

Neil, thanks, I recall your wise additions from a year or so ago. Ha! "As our case is new..." brought to mind Dylan's "the carpet too is moving under you....." from "It's all over now baby blue"

[Verse 1]
You must leave now, take what you need, you think will last
But whatever you wish to keep, you better grab it fast
Yonder stands your orphan with his gun
Crying like a fire in the sun
Look out the saints are coming through
And it's all over now, Baby Blue

[Verse 2]
The highway is for gamblers, better use your sense
Take what you have gathered from coincidence
The empty handed painter from your streets
Is drawing crazy patterns on your sheets
This sky, too, is folding under you
And it's all over now, Baby Blue

[Verse 3]
All your seasick sailors, they are rowing home
Your empty handed armies, are all going home
Your lover who just walked out the door
Has taken all his blankets from the floor
The carpet, too, is moving under you
And it's all over now, Baby Blue

[Verse 4]
Leave your stepping stones behind, something calls for you
Forget the dead you've left, they will not follow you
The vagabond who's rapping at your door
Is standing in the clothes that you once wore
Strike another match, go start anew
And it's all over now, Baby Blue

Dylan sings/sez it well but then there are the great covers by

Van Morrison

http://www.youtube.com/watch?v=jdb_3H-28dE

Grateful Dead... plaintive..... like a dirge for our time

http://www.youtube.com/watch?v=rljvxm4xHVI

And this version (that no one knows of as the album didn't sell well) Mannfred Mann

http://www.youtube.com/watch?v=trtyS9JHB2U