Tuesday, September 21, 2021

Why So Much Inequality?

Answering Kennedy’s Call


President Biden hopes to pass the largest piece of social legislation since the New Deal with his upcoming $3.5 trillion social infrastructure bill. But he is finding lots of opposition to such public spending.

The NY Times’ Jim Tankersley summarized President Biden’s bill.  It:

“… combines major initiatives on the economy, education, social welfare, climate change and foreign policy, funded in large part by an extensive rewrite of the tax code, which aims to bring in trillions from corporations and the rich.”

Tankersley maintains the legislation, which Democrats are trying to pass along party lines and without Republican support, contains the bulk of Mr. Biden’s vision to overhaul the rules of the economy, “…in hopes of reducing inequality and building a more vibrant middle class.”

Then why are conservative economists against programs that would help to mitigate such record inequality? Harvard Prof Greg Mankiw recently said “Americans should be wary of their plans —“… not only because of the sizable budgetary cost, but also because of the broader risks to economic prosperity,” in a recent NY times Op-ed.

Doesn’t he want to reduce our record income inequality, the worst in the developed and many underdeveloped countries? It is a major reason for the political polarization of Americans that have made us so vulnerable to the COVID-19 pandemic.

I don’t believe so, because he said Biden’s social infrastructure bill “…also raises larger questions about American values and aspirations, and about what kind of nation we want to be?”

He is in fact repeating conservative’s mantra since the 1980s that higher taxes and more government regulation discourage work. He maintains:

“Economists disagree about why European nations are less prosperous than the United States. But a leading hypothesis, advanced by Edward Prescott, a Nobel laureate, in 2003, is that Europeans work less than Americans because they face higher taxes to finance a more generous social safety net.”

Prescott and Mankiw couldn’t be more mistaken, especially in asserting that prosperity (in the form of higher GDP growth) should be the gold standard for determining whether a populous is happy or willing to work.

The above FRED graph cited by Nobel prize-winning economist Paul Krugman in fact debunks that claim. Europeans, including Denmark and France (red and blue lines in graph), have a higher percentage of working aged adults 25-44 than the US (green line). They also have higher minimum wages, universal health care, and take longer vacations than Americans.

So the natural inference must be that a higher percentage of adult Europeans than Americans work (even though for fewer hours) and enjoy a much more generous social safety net because of their higher tax rates!

This is while most Americans do not have that luxury. Americans work longer hours for less, have a poor social safety net and less leisure time to enjoy.

Even modern economic history refutes the claim that greater prosperity depends on lower taxes and less government. Our modern prosperity has depended mostly on what Government has done: built our modern infrastructure, sent us to the moon, created the Internet, and protected us from environmental harm.

So we should ask ourselves why do conservatives still maintain prosperity for the few and inequality for the many is the American way?

The Kennedy economist John Kenneth Galbraith provides one answer, in speaking of France’s Ancien Régime that preceded their Revolution: “The privileged feel (also) that their privileges, however egregious, they may seem to others, are a solemn, basic, God-given right.”

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen


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