Populism, Patrimonialism and US politics (crosspost from Crooked Timber)
Nuance is nearly always appealing to academics. For a long time, that was true of my approach to economic issues, particularly including income distribution. When presented with simplistic populist solutions to inequality like “Make the rich pay!”, I was inclined to responses along the lines of “It’s more complicated than that”.
A big problem with “Make the rich pay!” is that with the kind of income distribution that prevailed in the mid-to-late 20th century, any change to income tax that would raise significant revenue would have to apply to the top quintile (20 per cent) of the income distribution. People in the top quintile of the income distribution mostly derive their income from (typically professional or para-professional) employment, don’t think of themselves as rich, and aren’t, in general, seen this way by others. So, the slogan didn’t match the implied policy.
But with the rise of the patrimonial society that’s largely ceased to be the case. The top 1 per cent of the US population now get more than 20 per cent of all pre-tax income, considerably more than the total revenue of the Federal government. Within that group, the top 0.1 per cent have done better than everyone else, and the top 0.01 per cent even better.
So, taxing the 1 per cent more makes sense. I responded a little while ago to a piece trying to argue increasing the top marginal tax rate would make no difference to inequality. And while I was drafting this post, the NY Times came out with an article that reached broadly the same conclusion as mine.
There’s nothing inherently ludicrous in the suggestion that the very rich should pay most or all of the costs of sustaining a system that benefits them so greatly[^1]. And, as in the 1920s, the very rich are different from everyone else. Their wealth is derived primarily from capital, or from control over capital (as business owners or from the financial sector). And, while most of the current cohort of ultra-wealthy did not inherit large fortunes, that’s an inevitable consequence of the fact that there weren’t many large fortunes to inherit until recently. As Piketty demonstrates, a society dominated by large accumulations of wealth will inevitably one in which inheritance, rather than effort, education or talent, determines life outcomes.
Similar points arise in relation to proposals for a large increase in the minimum wage,say to $15 an hour. In the mid-to-late 20th century, a lot of minimum wage jobs were filled by teenagers, who often came from relatively well-off families and could expect to earn middle-class wages in the future. Moreover, the minimum wage was substantially higher in real terms than it is now, so that poverty was primarily a problem for those who were not working. So, it made sense to focus attention on other policies.
Again, things are different now. Teenagers from high-income families are increasingly less likely to work, particularly in minimum wage jobs that do nothing for a resume. More importantly, as the real value of the minimum wage has fallen, the number of “working poor” or near-poor households has risen.
Finally, the argument that higher minimum wages would greatly reduce employment has been refuted by empirical studies, beginning with the work of Card and Kreuger. Although controversy remains active on this, the mainstream view has clearly shifted to the position that employment effects of minimum wage increases, over the range being debated at present, are likely to be small.
Unlike attempts to reverse the decline of unions, or to push for a more expansionary fiscal policy, the demand for a higher minimum wage is simple to campaign for, and easy to implement in legislation. Unsurprisingly, it attracts strong support across the political spectrum. In particular, it’s the kind of policy that could peel off a lot of non-college educated[^2] white voters from the Republican Party.
So, it’s time for populism. A program based on taxing the rich much more heavily and raising the minimum wage is not only politically saleable but economically sensible.
[^1]: I’m hoping no one here is silly enough to bring up the debating point that the top 1 per cent pay a large share of Federal income tax. If you’re tempted to do so, try Google first. Or read the NY Times article, which shows that the average tax rate of the very rich (33 per cent) is only moderately higher than that of the top quintile (26 per cent) which in turn is only moderately above the average for the population (20 per cent).
[^2]: In a lot of US political discussion, the term “working class” is often implicitly defined as “non-college educated”. This is misleading – there are plenty of business owners without college degrees for example. Still, there are plenty of current Republican voters who are working class by any definition, and would benefit from higher minimum wages.