Must-Read: Melissa S. Kearney: How Should Governments Address Inequality?

Must-Read: Melissa S. Kearney: How Should Governments Address Inequality?: “Putting Piketty Into Practice…

…Capital in the Twenty-first Century… by… Thomas Piketty… examined the massive increase in the proportion of income and wealth accruing to the world’s richest people…. Policymakers would be able to make better decisions about “soaking the rich” if they had a clearer sense of the tradeoffs involved. In After Piketty, three left-of-center economists—Heather Boushey, J. Bradford DeLong, and Marshall Steinbaum—have curated an impressive set of essays responding to Piketty’s work and taking a few steps toward answering those questions…. The essays put Piketty’s arguments into a broad historical and intellectual context and highlight some noteworthy omissions that call into question his book’s most dire predictions. At the end of the volume, Piketty himself weighs in. The result is an intellectual excursion of a kind rarely offered by modern economics….

To more fully answer the questions Piketty’s book raised and to start crafting policies to tackle growing inequality, economists and policymakers need to know much more than they currently do about the causes and consequences of today’s concentration of wealth at the top… enhance the skills and opportunities of the disadvantaged… pursue tax reform and changes to corporate-governance rules that will create more shared prosperity. But policymakers also need to avoid steps that would impede innovation and productivity….

[For] the bottom 90 percent… technology, trade, unionization, and minimum wages have shaped… fortunes…. Less well understood are the causes of the tremendous surge in income among extremely high earners, meaning the upper 1.0, 0.1, and 0.01 percent. From a policymaking point of view, the most important question is how much of the ultrarich’s income reflects activity, such as technological innovation, that benefits the broader economy…. There are likely compelling reasons to raise the top income tax rates—as a way of funding public services and investing in infrastructure, for example. But policymakers would be able to make better decisions about “soaking the rich” if they had a clearer sense of the tradeoffs involved…. In Piketty’s view, the primary factors driving the rise in executive pay at the top are not technology or imperfect markets but eroded social norms, questionable corporate-governance practices, and declining union power. Tyson and Spence favor more research to weigh the relative impact of market forces and institutional factors…. Wealth concentration [perhaps] negatively affects economic growth, shared prosperity, and democratic institutions….

Even if the income of top earners reflects genuinely worthwhile contributions to society and does not impede economic growth, today’s extreme inequality does threaten social cohesion. I used to contend that economists and policymakers need not worry about inequality and should instead focus on reducing poverty and expanding opportunity. But after years of researching the topic, I’ve come to believe that policymakers cannot achieve those goals without directly addressing inequality. In the winner-take-all economy of the contemporary United States, the gap between the top and the bottom has grown so large that it undermines any reasonable notion of equal opportunity. As inequality has increased, the country has witnessed a fraying of communities and institutions and deepening divisions along socioeconomic lines…