Barack Obama has written ... a book that will touch everyone's life: "A New Era of Responsibility: Renewing America's Promise. The President's Budget and Fiscal Preview" (Government Printing Office, 141 pages, $26; free on the Web). This is the U.S. budget for laymen, and it's a must read.
Turn immediately to page 11. There sits a chart called Figure 9. This is the Rosetta Stone to the presidential mind of Barack Obama. Memorize Figure 9, and you will never be confused. Not happy, perhaps, but not confused.
One finds many charts in a federal budget, most attributed to such deep mines of data as the Census Bureau or the Bureau of Labor Statistics. The one on page 11 is attributed to "Piketty and Saez." ... Thomas Piketty and Emmanuel Saez, French economists, are rock stars of the intellectual left. Their specialty is "earnings inequality" and "wealth concentration."
Messrs. Piketty and Saez have produced the most politically potent squiggle along an axis since Arthur Laffer drew his famous curve on a napkin in the mid-1970s. Laffer's was an economic argument for lowering tax rates for everyone. Piketty-Saez is a moral argument for raising taxes on the rich.
As described in Mr. Obama's budget, these two economists have shown that by the end of 2004, the top 1% of taxpayers "took home" more than 22% of total national income. This trend, Fig. 9 notes, began during the Reagan presidency, skyrocketed through the Clinton years, dipped after George Bush beat Al Gore, then marched upward. Widening its own definition of money-grubbers, the budget says the top 10% of households "held" 70% of total wealth.
...
The White House says its goal is simple "fairness." That may be, as they understand fairness. But Figure 9 makes it clear that for the top earners, there will be blood. This presidency is going to be an act of retribution. In the words of the third book from Mr. Obama, "it is our duty to change it."The knee-jerk conservative reaction to all this is, of course, utter revulsion. I tend, however, to believe that we ought not completely abandon this sort of conversation.
The argument for inequality: There is a certain amount of inequality which is healthy for society. Progress requires achievement. Achievement requires reward. As achievement will not be equally distributed, reward ought not be (or rather: reward can only be at high cost). Additionally, attempts at imposing fairness come at a high cost. The great example of that for me are the public buses outside Giants Stadium after a football game. They are usually loaded serially instead of in parallel. This is nominally fairer in that it is first come first serve, but the average rider is forced to wait (out in the often freezing cold) much longer.
On the other hand, we need to recognize that there is some amount of economic inequality which makes political equality -- democracy -- untenable. Additionally, to the degree that we justify rising income inequality by claiming that it reflects achievement inequality: In as much as a society of citizen-achievers is preferable to a Randian leech-ridden dystopia, this increasing inequality should be a concern.
Its also far from clear to me that the increasing income inequality reflects some actual achievement. It is increasingly difficult to suasively argue that people like Stan O'Neal or Steven Schwartzman made their fortunes creating value. Quite the contrary. Obama is not wrong in arguing that we have been failed by those at the commanding heights.
In other words, I think even conservatives ought be concerned about increasing income inequality.
On the other hand, the response Obama has in mind -- increasingly progressive taxation -- reflects the limitedness of both his imagination and his proclaimed faith in markets. A more serious response would take the problem more seriously. His response is also likely less then timely: if inequality rose on the way up, it is likely to fall on the way down.
As a conservative, I rather suspect misguided Government intervention in markets is a big part of the story behind rising wealth inequality. To the degree increasing economic inequality is not coming from increased achievement, it comes from being able to fix the game. The ability to fix the game, these days, is mostly in the hands of government.
To give an easy example: We now understand that outsized wall street bonuses were driven more by 30+ to 1 leverage then achievement. The 30+ to 1 leverage was, arguably, only made possible by the then implicit (now more explicit) Government guarantees. Another easy example is how the investments of the rich were protected by fiscal policy which artificially propped up asset values by lowering interest rates. And so forth...
For Obama -- and, perhaps, the political class in general -- a crisis is less an invitation to carefully examine the causes and courses of action then an opportunity to sell idealogy-driven policy.
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