Why Taxing the Ultra-Rich and Raising the Minimum Wage Is the Way for a Better America
Increasing Inequality in America Hinders Growth.
Inequality in America is particularly obvious when we look at the evolution of the income of the American population since the 1980s. According to figures published by Emmanuel Saez and Gabriel Zucman in “Wealth inequality in the united states since 1913: Evidence from capitalized income tax data”, the income of the bottom 90% of the population has stagnated, while that of the richest 1% has tripled and now represents nearly one-fifth of the national income.
In 2012, Nobel Prize winner Joseph Stiglitz tried to explain in his book “The Price of Inequality: How Today's Divided Society Endangers Our Future” that these extreme inequalities penalize growth. In the wake of this, the IMF (International Monetary Funds) had shown empirically that countries enjoying long periods of growth were also those that had managed to limit income inequality. But the demonstration remained more than fragile, as no precise mechanism could be identified to justify this empirical result.
Of course, many explanations may come to mind, but what counts is to show that one of them is really at work. This is what economists Atif Mian, Ludwig Straub, and Amir Sufi have just done.
Published in “The Saving Glut of the Rich”, their work shows that the explosion of inequality in the United States is causing a “saving glut”. The accepted term, a “global saving glut”, was used in the 2000s to explain the American financial imbalance. It was a way of blaming the Chinese economy for the excesses of the American consumer. The latter, unable to recycle its trade surpluses into local consumption, was forced to reinvest in the United States.
In fact, the three economists show that, since 1980, the main financier of the government's and the American population's indebtedness has not been China, but the fraction of the richest 1% of Americans. Two-thirds of the wealth they have accumulated over the last thirty years would have come to finance this debt indirectly. On the other hand, the less well-off 90% chose to compensate for the lack of income growth by resorting to debt.
Thus, within the American population, the millionaires are financing the debt of the poorest!
This is a real problem because the indebted households find themselves weakened, their consumption and their propensity to go into debt fall, while the richest continue to want to save. A vicious circle then sets in that will push interest rates down, which would explain the phenomenon of “secular stagnation” pointed out by Larry Summers, with serious consequences: sluggish growth, financial instability, and the relative incapacity of traditional policies to revive the economy.
Of course, we must also understand why savings are not financing productive investment, which has been insufficient in the United States for many years. Recent literature attributes this tendency to a lack of competition, which is a source of rent-seeking, again at the origin of the enrichment of the most affluent. This is what can be found in “Declining Competition and Investment in the US” by Germán Gutiérrez and Thomas Philippon.
Final Thoughts
In the end, everything indicates that such high inequalities penalize American growth, a sort of “trickle-down” phenomenon in reverse. Even the most selfish Republican should start to care! Alas, Joe Biden's rather limited attempts to tax the ultra-rich and raise the minimum wage have recently fizzled out due to opposition from even part of his Democratic camp.
Some reading
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Generally agree but the disproportionate concentration of health has occurred in the upper 0.1% who are the same people who have access to borrowing money at 0% interest. tis permits that class to accumulate productive assets for no risk. Michael Taylor openly admits he borrowed money at 0% to buy bitcoin which appreciated at 300% this year alone. It is so bad that Bernard Arnault of LVMH purchased Tiffany's using negative rate bonds issued by Bank de France. His firm was in essence paid by the French government to buy one of the greatest bands in history Not work if you can get it. Rather than another taxing scheme that, as in the past, will miss the intended target, correct the problem by stopping the money printing and raise interest rates back to the historical range of 3-4%. Kill the Cantillon economy and much of this pathology will fade into history.