Econintersect: Yale professor Robert Shiller (pictured) says some income and wealth inequality is actually a good thing in many ways. It is a strong motivating 
factor for individuals, creating innovation and economic growth. Problems arise when wealth and income distributions reach extreme levels that seem arbitrary. He points out that the finance sector of the economy provides many useful services and it is only reasonable that there should be many people who achieve top tier wealth in finance. However, he expresses concern that there are too few in the fields outside of finance that achieve the same top tier.
In a series of articles at Bloomberg, Shiller discusses a number of aspects of income and wealth inequality. In Part 3 he offers an idea for discussion which would use taxes to effect a greater leveling of unequal distributions that have occurred.
Shiller does not propose that any particular specific tax proposal is the one to be implemented. He simply says that there should be discussion of how greater progression in taxation might impact both the initiative to build businesses and economic value and the distribution of income and wealth.
Not only income taxes should be in the discussion, but progressive consumption taxes should also be discussed, according to Shiller. Forms of such taxation have been tried in the past in the U.S. with the so-called luxury taxes that have been imposed on things such as expensive cars. And, of course, estate taxes are also in his discussion lexicon.
The difficulties encountered in the discussion Shiller proposes are exemplified by some of the first comments left by readers at Bloomberg:
- It is immoral for someone to inherit money from their parents because they didn’t earn it, but it is moral to redistribute someone else’s wealth to poor people who didn’t earn it?
- Why is it “fair” to support a government that funds wars and failed social engineering projects while bailing out their pals?
- An equal society should not be one based on equality of income but of equality of opportunity.
- …resent those whose ill-gotten gains are taxed at half the rate of people who actually work for a living.
- The article fails to make the case that income inequality on whatever scale is a bad thing.
- In plain English a lot of rich people have co-opted our government and slanted everything in their favor. They have convinced the conservative masses that the rich are saviors and will create jobs for us little people if we let them keep all of their money, a ridiculous assertion.
- There is no such thing as “simple redistribution of wealth”. There are plenty of insiders feeding at the trough along the way.
Editorial note: Econintersect believes a healthy economy has income and wealth distributed through most levels of society. The current level of polarization in the U.S. is not healthy and is part of the cause of lack of employment opportunity. If people are not employed or have subsistence wages they have reduced consumption and reduced consumption removes the need for production and therefore for employment. Change in taxation may be part of the solution but it is more likely to be a nudge rather than a sledge hammer in effectiveness. One thing that this editor thinks is a valid theme (and it is seen in the comments at Bloomberg) is that equality of opportunity is the key, much more important than trying to codify more equality in income or wealth distribution. The proper solution will inhibit those with wealth from excessive advantage for further advancement relative to those in the lower economic strata. The big problem, of course, is that “excessive advantage” is often defined from the perspective of the one making the definition.
Sources:
- Walt Whitman, Artist of Finance (Part 1): Robert Shiller (Robert Shiller, Bloomberg, 04 March 2012)
- Finance Isn’t as Amoral as It Seems (Part 2): Robert Shiller (Robert Shiller, Bloomberg, 05 March 2012)
- Shiller: Don’t Resent the Rich; Fix the Tax Code (Part 3) (Robert Shiller, Bloomberg, 06 March 2012)
- Taxes & Inequality: Shiller’s Plan to Fix Tax Code (Janet Levaux, AdvisorOne, 07 March 2012)
