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Inequality in Distribution: Examining Wealth, Taxes, and Social Impacts

Explore current distribution trends, ethical implications, and policy implications relating to income, wealth, and resources. Understand the impact of taxation, redistribution, and economic justice.

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Inequality in Distribution: Examining Wealth, Taxes, and Social Impacts

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Presentation Transcript

  1. Distribution

  2. Current Events • Government shutdown over health care • Slashing expenditures on food stamps • “Among the 254 counties where food stamp recipients doubled between 2007 and 2011, Republican Mitt Romney won 213 of them in last year’s presidential election, according to U.S. Department of Agriculture data”

  3. Why Does Distribution Matter? • Ethical and practical question

  4. Distribution and Efficiency

  5. Diminishing Marginal Utility?

  6. Distribution and Democracy • Is our country plutocratic or democratic? • Wealth, power and rent-seeking behavior • "We can have a democratic society, or we can have the concentration of great wealth in the hands of the few. We cannot have both." • Supreme Court Justice Louis Brandeis

  7. The Quiet CoupThe crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time. By Simon Johnson, The Atlantic

  8. What’s the Existing Distribution of Wealth (stock)? • Top 20%? • Middle 20%? • Bottom 20%?

  9. What’s the ideal distribution?

  10. The L-curve of Income Distribution (flow) • http://www.youtube.com/watch?v=woIkIph5xcU

  11. Distribution Trends

  12. Income Distribution and Taxation Great compression Great divergence Middle class America

  13. Distribution by factors of production (USA) • Wages-70% • Profit- 20% • Interest- 8% • Rent-2% • Do natural resources contribute only 2% to production?

  14. Why is redistribution to be avoided? Conventional view • People are entitle to keep what they have earned with the sweat of their brows • Destroys incentives, reduces well being of worst off • NYT editorialHigher Taxes Mean I'll Work Less • Most taxes are distorting, and lead to inefficient outcomes

  15. Current Trends in Redistribution • Hedge fund managers tax rates: 15% on profit share • Share of corporate profits going to finance in 1980: 5%. In 2010: 40% • Only significant financial innovation: ATM machine (Paul Volcker)

  16. Finance set to surpass tech as most-profitable U.S. industry Credit market debt, net of gov’t U.S. bank industry profits hit record $42.2 billion in second quarter

  17. Current trends in redistribution: enclosure of the commons • Values produced by nature • Non-renewables: minerals and energy (royalties) • Renewables: Goods and Services (natural dividend, waste absorption, etc.) • Air waves, orbits etc. • Values produced by society • Private property • Land • Knowledge and information • Money and seignorage • The enclosure trend

  18. Policies towards a sustainable, just and efficient distribution of resources

  19. Your views • Should we have a guaranteed minimum income? • Roosevelt’s 4 freedoms • A right to health care? • A right to food and shelter? • A right to other basic needs?

  20. Your views • Should we have more income tax?

  21. Your views • Should we have more progressive income tax? • What’s the tax rate for hedge fund managers?

  22. Should we cap incomes? • View of Plato and Ben and Jerry • Actual status: Average CEO • Economic rights vs. political rights • Social obligations vs. individual rights

  23. Basic Principles People keep what they produce with the sweat of their brows Wealth created by nature and society distributed equally Public goods replaced with public goods Negative externalities of inequality are internalized Those who benefit most from government services pay the most One of the most important services of government is the protection of private property

  24. Natural resources: redistributing Rent Rent= unearned income Land- rent Non-renewables- user cost Renewables- natural dividend

  25. The land tax

  26. Non-renewables: capturing rent Ricardian rent = total revenue-total extraction cost Scarcity rent = value arising from scarcity Investment in substitutes Salah El Serafy, 1989, “The Proper Calculation of Income from Depletable Natural Resources”, in Environmental Accounting for Sustainable Development, edited by Yusuf J. Ahmad, Salah El Serafy, and Ernst Lutz, Washington D.C., World Bank. Alaska permanent trust

  27. Weak Sustainability: oil to income

  28. Renewable resources: the natural dividend

  29. Renewable resources: ecosystem services Who owns them? Pollution taxes Taxes on ecological degradation? Who should be compensated? VCAT, Sky trust How do we compensate the future?

  30. Financial Capital: Interest and Seignorage What is seignorage? Reserve requirements Who should get it? Ithaca hours

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