Capitalism and Inequality

Alex Gourevitch and Aziz Rana offer what I take to be the fairly standard (non-economist) lefty solution to inequality. They draw a distinction between Jeffersonian equality of opportunity and Lincoln’s view of upward lifetime mobility.

It’s not clear exactly what kind of a world they are proposing. Certainly they come down against a market-based income structure which even if everybody has equal opportunity still leads to inequality. Instead they seem to veer closer to socialism/communism in which worker power is enriched and people have more control over their work lives.

Here are my two cents. Yes, people should be protected against poverty, and poverty is a relative term that can mean different things at different places and times. But (and I hate to sound like a typical economist) people will work harder if they are working for themselves. Now Gourevitch and Rana never come out and say that we goods and services should be provided “from each according to his abilities, to each according to his needs,” but it’s not at all clear what they do suggest.

Should we still have a competitive economy? If so, worker collectives (say where labor owns each firm) would still leave workers subject to the vicissitudes of capitalism. If not, then it’s hard to imagine that we would enjoy the kind of growth that we have over the last 100 years. People work harder for themselves and their families. I wish it weren’t so, but it is.

My own solution would be to ensure as much competition as possible to provide incentives for growth, and tax the extremes of the resulting income distribution. If those at the bottom cannot earn enough to escape poverty, increase their earnings through subsidies like the EITC. If those at the top earn “too much” hit them with a 70% marginal tax rate. My belief (although evidence is scarce) is that higher marginal tax rates will reduce incomes at the top while doing little to reduce growth. If that’s the case, wages at the bottom and in the middle should grow.

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