Ezra Klein's "Who Killed Equality?" Has a Simple Bottom Line: Read Dean Baker!
Ezra Klein: Who Killed Equality?:
The fatalist case rests on technology: As we replace human toil with networked computers and tireless robots, those who own the technology or learn to master it benefit, and those whose jobs are displaced by technology suffer…. The winner-take-all economy is a boon to people who can market themselves or their product globally and a bust for those who can’t. Of course, this creates a less equal world, the fatalists say….
The redistributionists agree with much of this analysis. But they think the fatalists understate both how much the government has contributed to inequality by cutting taxes on the rich and not investing in the poor, and how much good it could still do…. Andrew Fieldhouse makes the most optimistic version of this case…. The twist in Fieldhouse’s argument is his identification of a secondary effect by which tax cuts have goosed incomes at the top while holding them down at the bottom. He cites research suggesting that the high tax rates paid by the rich in the mid-20th century gave them little reason to spend time and energy trying to get even richer…. Thus, declining tax rates unleashed the desire of the wealthy to seek a bigger piece of the pie. As it turned out, they had quite a lot of power…. Fieldhouse concludes that higher taxes on the rich may do more to curb inequality than many realize. First, higher taxes would reduce inequality directly through redistribution. Second, they would lessen it indirectly by discouraging the rich from making great efforts to become even richer. If Fieldhouse is right, then the fatalists are wrong: Pretax inequality can be mitigated by tax policy. There’s something to this, but ultimately I think Fieldhouse gives the tax code too much credit. Changes he attributed to the tax code are really rooted in political culture. Taxes on the wealthy didn’t lower themselves, after all. Wealthy Americans fought to bring them down. And now that they’ve grown used to those low taxes and high incomes, they will fight to keep them….
It’s a shame that [Dean] Baker frames his book as advice for progressives because his argument should also appeal to conservatives. Who the government taxes and how it spends that money, Baker argues, doesn’t begin to describe the myriad ways in which the government shapes the economy. The Federal Reserve’s decision to prioritize low inflation over full employment, for example, is a government intervention of staggering importance…. The same goes for the Treasury Department’s management of the dollar. The duration of patents matters enormously, as do the licensing requirements for high-wage jobs…. Where he parts with both fatalists and redistributionists is in his belief that government policies have hastened those divisive economic changes, and that a different set of government interventions has the potential to counteract them, creating a more equal economy….
Washington argues a great deal over taxes and spending, and far less over the way government sets the rules for the economy and for those who benefit most from it. “This is sort of like playing football without knowing that the way to score points is to get the ball into the other team’s end zone,” Baker writes. “It’s hard to win when you don’t know how the game is played.”
