Monday, December 20, 2010

It Takes Two to Fight a Class War

Those who seek to change rules to redistribute wealth from richer to poorer are often said to be engaging in "class warfare." Such allegations were frequent in the recent fight over extending the Bush tax cuts for the wealthiest Americans (see, e.g., here and here). But isn't it equally class warfare when the wealthy seek changes in the rules to redistribute income to themselves, e.g., through government bail-outs, tax deductions and loopholes, corporate subsidies, lower marginal tax rates, etc?

As Tyler Cowen explained in his recent column in The American Interest (here), income inequality has increased dramatically in the US over the past 30 or so years. The top 0.01 percent of Americans (about 15,000 families) took less than 1 percent of national income in 1974, but 6 percent in 2007. The top 1 percent of earners increased their share of national income, over that same period, from 8 percent to 18 percent. This trend, which has continued through both Democratic and Republican administrations, may be due primarily to market forces as Tyler suggests, but there's no reason to doubt that the wealthiest Americans have both the motivation and the means to fight for institutions ("rules of the game") that promote their own well-being. After all, class warfare is not a one-way fight.

By the way, I'm not convinced that either the increasing income disparities of the last 30+ years or failed efforts to curtail the Bush tax cuts on top income earners really constituted "class warfare," which is really just  a convenient and ideologically-loaded label that substitutes for merit-based arguments about policy choices.

UPDATE: Apropos of the issues I raised, I just came across an interesting column in the New York Times (here), which wonders (implicitly) whether Senator Bernie Sanders, a self-labeled socialist, is more socialistic than the Federal Reserve.

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