Below is a response I wrote to John Roemer's most recent "contribution" to the discussion at Creative Capitalism
In this short article, I will not attempt to justify my view that the highly unequal distribution of wealth and income in American capitalism constitutes an injustice (many have argued that elsewhere). Rather, I would like to argue that increasing taxation of the wealthy would not destroy incentives and thereby be inefficient.
Could anyone else even find where Roemer makes this argument?
He begins with a somewhat interesting if disjointed presentation of selected data. First, American top one percent income in 2005 and 1928, followed by the top tenth of a percent income in 2004. To contrast with these random and presumably shocking data points, he presents the top tenth percent income for France and Britain in 2005.
He also presents some data on the effect of taxation on inequality - what does inequality have to do with the effects of taxation on efficiency?
Is this his showing that higher taxation would be inefficient? Does he show or attempt to show that the economies of France and England in 2005 were as or more efficient or productive than that of the US in 2004? Does he show that the economy of the US was as or more efficient or productive in years other than 2005 and 1928?
He then moves from flows to stocks and presents information on distribution of wealth. Presumably here he is arguing for a tax on wealth, as it is a paper on the effects of taxation, however I am unable to see any connection to the effects of taxation on incentives or efficiency. He also makes unintelligible sounds about the connection between wealth and power, however fails to link these to his aim.
Roemer moves on to income tax rate by quantile group relative to the average rate. This too seems a random presentation, isn't the relevant data with respect to program funding the proportion of all taxes paid, not a ratio of rates? It is my sneaking suspicion that the highest quantiles bear an equal or higher portion of the actual burden than they previously did. Also, Roemer fails to note that the bottom 60% of households now pay a lower relative rate.
Here Roemer has half the data he would need. If he could show the economy was as or more efficient in 1960, he could wrap up this waste of his and our time. However, rather than "[arguing] that increasing taxation of the wealthy would not destroy incentives and thereby be inefficient" he launches into a seemingly unrelated story of CEOs, star athletes, and movie stars.
What emerges is a parable in which he explains why a CEO may justly bargain for her marginal product, but explains she may be coerced to work for less than her marginal product as long as it is above her reservation wage (little moral dilemma here - to Roemer these CEOs are not productive captains of industry, merely "Allison and her ilk"). He explains the US is an outlier in that it has let its citizens take home a larger share of their marginal product, and he accuses the US of instituting a "race to the bottom" (to the top?) in which other countries must do the same in order to attract Allison and her ilk, more likely they most reduce rates lest they loose the ilkiest of their own ilk to our corporations.
He then makes the interesting turn from suggesting collusion among firms to drive CEO wages to the reservation wage would be "difficult if not illegal to organize" to suggesting collusion among first world democracies to use tax rates to drive CEO wages to the reservation wage.
Finally here he addresses the view "that such high after-tax incomes
are necessary in order to elicit the talents of those like Alison". His
assessment:
This is a ridiculous claim. Suppose that . . . Alison’s take-home pay were only $5 million . . . Would Alison work less hard? Would she prefer to stay home by the pool and cultivate her tan? Very unlikely. Alison is probably a workaholic, who loves the power that is associated with managing a huge firm, loves producing products which millions of consumers want to purchase, and loves the accolades that she receives from her social set for a being a mover and a shaker.
Also, he makes the incomprehensible assertion that she values recognition in terms or relative consumption. Presumably Roemer doesn't also suggest we tax further into poverty the bottom quantiles as to maintain Allison's recognition which he equates to relative consumption.
So, in the face of such blindingly random data further supported by a hypothetical anecdotal account crafted with such care, why does anyone believe that allowing rewards commensurate with value added are a good way to induce productivity - evil conservative think tanks. Here he launches into a new and even more bizarre attack on institutions who have employed scholars who Roemer could never hope to match (I am thinking, in particular, of FA Hayek at Cato and Milton Friedman at Hoover).
How influential are these evil institutions? Their budget in 2004 was a little less than half of the entire 2007 budget for the National Science Foundation. An interesting statistic considering Roemer embarks on this screed by arguing private funding for good work is not possible and the government must instead tax the rich and give the money out using their unique wisdom. How do these evil institutions work? "Their main strategy has been to influence public opinion through reader-friendly books, articles, websites and media interviews." Sounds as though they are engaging in thinking and the spreading of ideas.
As an interesting contrast, he asks why the left, particularly the
special interest group of labor unions has not responded in kind. His
three ideas:
-Labor unions have decreased in popularity.
-Labor unions used their political energy to lobby for government
favors but ignored the issue of from whom these favors should be
extracted because taxation was unpopular even among their members.
-The lefts hold on universities has been insufficient to "educate the
public about the importance of government and redistribution of
income", or perhaps, has failed in the face of the opposite education
put forward by Hoover, Cato, and the like.
I have a normally high opinion of this blog and of Yale university, that Roemer's screed is considered scholarship by either lowers both in my estimation. Creative Capitalism started with as a premise the power of individual entrepreneurship and free markets and asks how these might be trained on the global problems of poverty - a piece like this which instead seeks to debunk this premise has no place.
