Daily Archives: January 28, 2016

Are Economists in Denial About What’s Driving the Inequality Trainwreck?

Naked Capitalism has the article Are Economists in Denial About What’s Driving the Inequality Trainwreck?

A new paper by economist Lance Taylor for the Institute For New Economic Thinking’s Working Group on the Political Economy of Distribution takes on the way economists have looked at wealth and income inequality.

The existing social order does not necessarily guarantee that the rich will get richer (remember Keynes on the essential uncertainty of the future). But even if they do, a stiff tax on capital gains could be used to build up a socially-oriented wealth fund that would help offset that.

Look at Norway’s “oil fund,” which takes a cut of petroleum revenues and invests the money while giving a small annual pay-out from its investment returns. An example closer to home is California’s CalPERS retirement fund. The key point is that such funds can save at a higher rate than wealthy households, amassing market power and potentially using capital income for social purposes.

In the labor market, real wages of employees have lagged productivity growth, which is why the profit share for the boss has gone up. Outsourcing has played some role, but policies and legal interpretations (think of so-called “right to work” legislation and attacks on public sector unions) that reduce labor’s bargaining power have been more important. Recreating that power could reverse the trends and slow the accumulation of wealth. Our studies and others suggest that simply raising taxes on the rich and transferring the proceeds downward in the income distribution will not have a large immediate effect on distribution, but the impacts could cumulate over time.

It’s possible to reduce U.S. wealth and income disparity, but reversing the trends of the past 30 or 40 years that got us there will not be easy or quick.

Of course I would like this article. It substantiates a lot of what I have been writing on this blog. Just because I suffer from confirmation bias, doesn’t mean that the article is wrong, though. It is just possible that my ideas really are close to correct.

The talk about Norway’s “oil fund” demonstrates what I think are the benefits of having large parts of the Social Security Trust Fund invested in the stock market. California’s CalPERS retirement fund is just another example. Admittedly CalPERS management has gone off the rails a bit in recent years as documented by the Naked Capitalism web site. That just means we need to develop better control mechanisms for the Social Security Trust Fund when it gets into stock market investing.

Search this website for the many articles I have posted on investing Social Security in the stock market.