Distribution of Wealth

A good Paul Krugman article about the shifting distribution of wealth and more importantly a nice summary of how to shift it.

Suppose that you actually liked a caste society, and you were seeking ways to use your control of the government to further entrench the advantages of the haves against the have-nots. What would you do?

One thing you would definitely do is get rid of the estate tax, so that large fortunes can be passed on to the next generation. More broadly, you would seek to reduce tax rates both on corporate profits and on unearned income such as dividends and capital gains, so that those with large accumulated or inherited wealth could more easily accumulate even more. You’d also try to create tax shelters mainly useful for the rich. And more broadly still, you’d try to reduce tax rates on people with high incomes, shifting the burden to the payroll tax and other revenue sources that bear most heavily on people with lower incomes.

Meanwhile, on the spending side, you’d cut back on healthcare for the poor, on the quality of public education and on state aid for higher education. This would make it more difficult for people with low incomes to climb out of their difficulties and acquire the education essential to upward mobility in the modern economy.

And just to close off as many routes to upward mobility as possible, you’d do everything possible to break the power of unions, and you’d privatize government functions so that well-paid civil servants could be replaced with poorly paid private employees.

Variations on these are exactly the same as what you do if you want to increase the slope of market concentration or the dominance of a given standard.

For example if your trying to increase the concentration in a market you want to make it harder for the small players to get access to supply (that’s analagous to cutting off health care to the poor). Or you might want to raise regulatory barriers such that strong players have a scale advantage in meeting those new requirements (standardized testing for example).

The article that Krugman cites refers to “Wal-Martization” as causal factor in the increasing disparity of wealth and the falling mobility between classes. That’s exactly right, as Wal-Mart has consolidated the retailing industry they have created increasing barriers to the ablity of small firms to reach consumers. So, for example, when Wal-Mart requires RFID tags or EDI support from their suppliers they raise barriers that assure only larger suppliers can survive. It’s a commercial twist on the old chestnut of excessive goverment regulation.

One aspect of the whole distribution of wealth debate that goes under reported is, I believe, a blindness to the effect on small businesses. I’d be very surprised if it weren’t true that what ever is true about the distribution of individual wealth wasn’t exactly true about the distribution of firm wealth. I just don’t see why there would be a meaningful difference between these two kinds of economic entities – in a macro economic sense.

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