Better Insurance Against Inequality - NYTimes.com

Better Insurance Against Inequality - NYTimes.com

Better Insurance Against Inequality 

APRIL 12, 2014 

Economic View By ROBERT J. SHILLER 

Paying taxes is rarely pleasant, but as April 15 approaches it’s worth remembering that our tax system is a progressive one and serves a little-noticed but crucial purpose: It mitigates some of the worst consequences of income inequality. 

If any of us, as individuals, are unfortunate enough to have income drop significantly, the tax on that income will plummet as well — and a direct payment, or negative tax, might even be received from the government, thanks to the earned-income tax credit. In this way, the tax system can be viewed as a colossal insurance system, guarding against extreme income inequality. There are similar provisions in other countries.

But it’s also clear that while income inequality would be much worse without our current tax system, what we have isn’t nearly enough. It’s time — past time, actually — to tweak the system so that it can respond effectively if income inequality becomes more extreme.

"Respond effectively if"???

How about policies that would prevent a large portion of our current income inequality by either pre-collecting, for public purposes, the economic rent which rent-seekers love to capture as long as we let it hang out there, or putting a market price on privileges of various kinds -- the right to collect tolls, the right to use the airwaves, the right to string wires of various kinds along public rights-of-way, to occupy other parts of the commons and charge others to use what one puts on it.  One could call it "natural public revenue."

Bob Schiller knows some of the ways people grow wealthy in their sleep, without lifting a finger.  He knows about boom-bust cycles, and the economic agony they cause to ordinary human beings in our society.  He chronicles, he measures, he profits from the selling of those measurements.  

Probably once or twice it has passed through his mind that by some simple alterations to public policy, we could make our economy more stable, our society more just.

Perhaps he has played the game Monopoly, and maybe he knows that it was not created in the 1930s, but has its roots in The Landlord's Game, created by late 1902, to teach the ideas of Henry George, who, it is likely, was at least mentioned in his Eco 101 textbooks, though perhaps glossed over by a busy and unaware instructor.

Does he seek to reduce the income inequality by preventing it, or only collecting some piece of the privilege-payments after the fact without tweaking the system that permits them even a tiny bit?

Milton Friedman, another economic eminence, maintained that land value tax was the "least bad" tax, but never lifted his voice to promote it further than that acknowledgment (in 1968 and 2006 and perhaps in between).  He likely had other kinds of interests top of mind.

Let's not just "mitigate the worst effects."  Let's acquaint ourselves with the structures that create those worst effects, and destroy them!  Go to the root!  Be radical!  Eradicate those structures!  

It was Henry David Thoreau who said, 

 

"There are a thousand hacking at the branches of evil to one who is striking at the root."

 

Dare Professor Schiller strike at the root?  Dare he point to the root?  Has he sought the root?  Or is he content with hacking -- nibbling -- at branches, which doesn't help the victims a tenth as much as striking at the root?

Ironically, Professor Schiller is the "Sterling Professor of Economics" at Yale. That seat was endowed by Jack Sterling (1844-1915), co-founder of the law firm Shearman & Sterling with Thomas G. Shearman (1834-1900)*, upon his death in 1918.  Shearman knew where the root was, and devoted himself to seeking its eradication. (Explore the NYT archives for references.)  It is ironic that nearly 100 years later, the occupant of that seat (and many other things at Yale) is content with nibbling.  But maybe it isn't surprising.  Lots of alumni would not be happy to have those roots identified, and even a tenured professor could be uncomfortable being the one to call attention.   They might be the ones who endow the next set of professorships, from the gains they've made based on the unjust and unwise structures their respected -- and aspiring -- professors have failed to publicly question.

 

*See:

• "The Coming Billionaire" (1891)
• The Menace of Plutocracy (1889)
• The Distribution of Wealth (1887) - in 3 parts -- Part 1, Part 2, Part 3
• The Owners of the United States (1889)
• Natural Taxation -- see this and this

 

Let's not "insure against inequality." (Who gets to collect that insurance, and how does it compare to their losses?)  Let's find ways to create a level playing field on which all can prosper.   Sustainable and just to all.

 

And let's see about making it okay for tenured professors to share those ideas with their readers and students.  And more profitable than promoting structures that need to be "insured against."