Monday, May 16, 2011

What to do about the top income problem

Raise taxes!

More research on the impressive ability of top earners to post consistently huge pay rises when most other incomes barely hold their own.

The same research suggests that people do not believe governments are able to do much about it. And yet, all the evidence suggests otherwise. Why else would wealthy interests be trying so hard to cut government programmes which are inherently redistributive by design (such as Medicare)?

The tragedy of the left at present is that the trend in the private sector is towards ever greater inequality, yet many of the victims of this distributive shift are reluctant to accept the higher taxes and government spending which would counteract it. Countries with higher government spending tend to have lower inequality, but countries with high inequality find it hard to generate political coalitions in favour of a bigger state.

In other words, the biggest beneficiaries of bigger government tend to oppose it. My guess is some kind of increasing returns model is the only way to make sense of this.