So, far I’ve argued that the inequality of incomes in our society is largely a matter of luck rather than inherent personal ability, and that it is only distantly related to the social value of the contributions people make through their work. These conclusions undercut the idea that taxing those on high incomes will harm society by reducing incentives to work for the most able and social valuable workers. Although the evidence was already strong, the pandemic has brought these points into even brighter relief.

Now I want to consider the claim that we need inequality in order to encourage people to take risks. The simplest response is to point to the empirical fact that high income earners take (or, more accurately, are subject to) less risk than average not more[1].

Hardy and Ziliak (confirmed in general terms by many other sources) give the numbers https://onlinelibrary.wiley.com/doi/full/10.1111/ecin.12044?casa_token=2_dvANjFw2EAAAAA%3AiKxuB6Tn34GJBIOZlN9Hs55w9MxJlkgR0Ns1z-1UAPIosDi2G8Yq3WF9hjUTVy8HQb95t9DwLzCRel8vyg

in any given year since 1996 the level of volatility among the bottom 10% was 81% higher than the volatility among the top 1%, and this level nearly doubled since 1981

Here’s a graph illustrating this point.

https://onlinelibrary.wiley.com/doi/full/10.1111/ecin.12044?casa_token=2_dvANjFw2EAAAAA%3AiKxuB6Tn34GJBIOZlN9Hs55w9MxJlkgR0Ns1z-1UAPIosDi2G8Yq3WF9hjUTVy8HQb95t9DwLzCRel8vyg

This graph shows that those at the bottom of the income distribution experience higher variance than anyone else. But using the variance as a measure understates the problem, since what matters most in an assessment of risk is the discretionary income remaining after unavoidable commitments have been met.

The statistics confirm what anecdotal evidence tells us every day: once someone has made it to the top of the income distribution, they will never become poor as a result of bad luck or business mistakes. Failed business owners wash their debts away with bankruptcy and return to the scene only marginally diminished. Failed CEOs are given multi-million dollar parachutes to soften their fall. Even personal bankruptcy isn’t commonly a problem: careful use of homeowner exemptions, irrevocable trusts and well-timed (but not too obviously well-timed) gifts can allow a bankrupt 1 percenter to live far better than a solvent member of the (shrinking) middle class, let alone a poor person.

If anything, our institutions encourage too much risk-taking at both ends of the income distribution. The rich can take risks secure in the knowledge that (with the current tax system) they will keep most of the benefits of bets that payoff while shifting most of the losses from unsuccessful bets to others. The poor take more voluntary risks because any chance of escaping the bottom of the distribution in a highly unequal society is worth a shot. And freely chosen risks seem less worrying when you are subject to so much risk that is out of your control anyway.

As usual, the pandemic illustrates this point in spades. Throughout his career, Donald Trump has relied on his ability to cash in his (relatively rare) winning bets while shifting the losses onto others. Now having gambled with his own safety and that of anyone who listens to him, he is guaranteed the best medical care money can buy, while thousands of less fortunate victims of the pandemic die every week.

fn1. The idea of the top 1 per cent as entrepreneurial risk-takers is part of a complex of spurious factoids, including ‘executive stress’ and the idea that this stress in turn causes ulcers.

Unequal incomes are regularly justified by claiming that high incomes reflect a larger contribution to society. This has never been true as a general proposition.

Some high incomes, like those of skilled surgeons, reflect a contribution well above the norm. Others, like those of entertainers and sports stars, reflect services that are highly valued by our society whether or not they make it a better place.

Others on high incomes make only marginal contributions to society or cause active harm. The massive growth in the number and incomes of lawyers and finance professionals over the past forty years has not been matched by any obvious improvement in justice, financial security or the rational investment of capital.

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Five planets visible in the sky at the moment. Mercury in the West just after sunset, Jupiter and Saturn near the moon, Venus and Mars in the morning. Earth is the one we really need.

Despite yet another round of policy announcements from the Morrison government, energy policy in Australia is still stuck in the morass created by a combination of climate denialism and the failed reforms of the 1990s, of which privatisation was a critical element.

I’ve argued for some time that the grid should be renationalised, and the case is even more urgent now.

The case for renationalisation has been massively strengthened by the fact that real interest rates on government debt have fallen below zero, and seem likely to remain there indefinitely. That makes renationalisation of monopoly infrastructure assets a bargain at any plausible price. Let’s look at the numbers

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I’ve been working on the idea of a Livable Income Guarantee for some time. This is a version of the participation income idea put forward by the late Tony Atkinson. ANU has just published a policy brief on the idea, written jointly with Tim Dunlop, Jane Goodall, Troy Henderson and Elise Klein.

It’s not the ultimate theoretical ideal for ideas like Universal Basic Income or a Job Guarantee. Rather, it’s a policy that could be introduced now, within the existing fiscal framework. The key elements are

Various people, mainly but not exclusively in the Murdoch Press, are still complaining about the cost of the lockdowns and other restrictions imposed to control the Covid-19 pandemic. But most of these people seem to think that, in the absence of the controls, we would have avoided the economic costs, without any additional deaths (or, for the more hard-nosed, with only some expendable old people who would have died soon anyway). So, I thought I’d fill the gap by doing a comparison of the actual outcome with a baseline case: no government-imposed restrictions and no economic policy response.

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… is available here, and over the fold.

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I’m busy working on my book on the Economic Consequences of the Pandemic, and thinking about implications for the information economy. In the process, I dug up a blog post from 2004, which reproduces an article I wrote in 1995 (I can’t remember if I managed to get it published). An interesting aside is a reference to Camille Paglia, a big name back then, who did the whole Jordan Peterson thing earlier and better, though I’m obviously not a fan of either.

With 25 years of hindsight, I was quite pleased with how my 1995 piece stood up. But it would be interesting to see how others respond.

h.3 From 2004

Following up on a discussion at Crooked Timber, I looked at this much-linked piece by Camille Paglia, and was struck by its dated references to television and the 60s[1]. She goes on to talk about computers, but apparently sees the computer as nothing more than a turbocharged TV set. This impelled me to dig out a piece I wrote nearly ten years ago, making the point that far from privileging visual media, the computer, and particularly the Internet are contributing to a new golden age of text. Blogs weren’t thought of when I wrote this piece, but the argument anticipates them, I think.

fn1. Oddly enough, although the main argument is a restatement of positions that were familiar 50 years ago, the piece is full of references to the young, as though the current generation of young adults has been, in some way, more saturated in TV than were the baby booomers.

h3. The Coming Golden Age of Text

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Back again with another Monday Message Board.

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