David Stockman on the causes of rising economic inequality:
[T]he share of wealth held by the top 1 percent of households has risen to 35 percent from 21 percent since 1979, while their share of income has more than doubled to around 20 percent.
The culprit here was the combination of ultralow rates of interest at the Federal Reserve and ultralow rates of taxation on capital gains. The former destroyed the nation’s capital markets, fueling huge growth in household and business debt, serial asset bubbles and endless leveraged speculation in equities, commodities, currencies and other assets.
At the same time, the nearly untaxed windfall gains accrued to pure financial speculators, not the backyard inventors envisioned by the Republican-inspired capital-gains tax revolution of 1978.
Can this possibly be an accurate list of the causes of greater money inequality, even at the top?
a) Trade and technology, both of which devalue unsklled labor, reward skills, and multiply the payoffs to successful entrepreneurs, had nothing to do with it? Remember that income inequality began growing at least a few years before the “capital gains-tax revolution of 1978.”
b) Last time I checked–which admittedly was a long time ago–taxes couldn’t come close to explaining the entire inequality boom. Incomes at the top have been rapidly rising before taxes, remember. CEOs of old-style corporations as well as asset-trading I-bankers now routinely pull down multimillion dollar paychecks. Maybe, thanks to GOP tax cuts, they get to keep more of those checks and invest them (though Clinton raised their taxes, without stopping the boom at the top). In 1992, I crudely-but-cautiously estimated** that taxes didn’t come close to explaining even half the increase at the top. More recently, Timothy Noah estimated that taxes caused a mere 5% of the rise in inequality. Joseph Stiglitz, in a new article about the top 1%, lists taxes as only one factor in a long list–a list that itself is only “one big part” of the explanation for inequality. Even Paul Krugman has blamed economic policy, including taxes for having “reinforced, not countered, the movement toward greater inequality”–a movement implicitly caused by other factors;
c) As for asset bubbles, don’t the rich get less rich when the bubbles burst? I suppose any kind of volatility makes those who guess right every time even richer. But how many of them are there? …
P.S.: I’m not quite sure what role Stockman’s super-Krugmanesque view–that inequality is “policy-driven”–has in his argument for tough deficit-cutting. He seems to be saying there’s an underlying rationale for Obama’s emphasis on raising taxes for the top 2%, even though we actually need a much broader tax hike. But does Stockman believe that even if income inequality were driven entirely by, say, increasing returns to education, or to luck, that Obama wouldn’t propose taxing the rich to compensate, and that he’d have no justification for doing so?
Maybe Stockman’s weird explanation of inequality doesn’t serve a purpose in his argument. Maybe it’s just what he actually believes. But it still seems weird. …