Monday, December 12, 2011

Someone tell Matt Yglesias that Chris Paul is doing just fine, thanks

One Yglesias' better qualities as a blogger is his tendency to get bogged down in obscure corners of the policy arena. Land use, monetary policy, Northern European politics... the list goes on. The latest addition seems to be, roughly put, trust-busting. And unfortunately, while I generally agree with Matt's take on economic policy, I think this latest obsession has led him quite badly astray, most notably in this recent post of his.

In his post, Yglesias attacks Democrats generally, and Obama more specifically, for focusing on wealth redistribution as the solution to income inequality. In his view, Obama, et al, ought to be focusing more on policies that addressing the underlying causes of wealth inequality. These policies should differentiate between ill-gotten fortunes, earned through exploitation of the marketplace (think cartels, monopolies, and the like), and well-deserved fortunes, earned by providing a valuable good to willing market consumers. In a timely example, he calls our attention to Chris Paul: CP3 is certainly well-compensated, but he also provides a skill few other people can, and he himself has been continually victimized by cartels in the form the NBA, and previously, the NCAA. Wealth redistribution equally punishes Chris Paul and the cartels that exploit him; it doesn't differentiate between their very different economic roles.

Okay, first, there are a couple of major -- if ancillary -- problems with this argument. For starters, it is not exactly obvious what constitutes correct behavior in the marketplace. Undoubtedly, in many situations, cartels and monopolies are inefficient. Subsidies are inefficient. But not always! And many modern goods and services lie in one of the economic gray areas where it is possible to advance at least a cognizable argument that unconventional market structures are, in fact, ideal. Yglesias is hiding his subjective determinations of correct economic policy behind broad appeals to supposedly-universal market ethics. In reality, the answer isn't usually so clear.

I also object to the idea that taxes should be mentally processed as some sort of punishment. Hardly. Taxes are a contribution towards mutual self-interest. Most calls to raise rates on the rich don't represent an attempt to punish the rich for misbehavior while earning their wealth, but arise instead from a sense that the rich are shirking their responsibility to chip in after they earned their wealth. I don't see why someone' responsibility to their countrymen would be greatly altered because they made money producing valuable goods.

But the real problem with Yglesias' approach is that it's not outcome-oriented. In his concern over market ethics, he's lost sight of the fact that liberals favor wealth redistribution because it works. His recommended policies, by comparison, aren't really about closing the wealth gap at all. They're just wonky methods for fine-tuning the economy and making it more equitable for a select group of participants.

Let me explain. If you take a step back, Yglesias is talking about policies along two separate axes here:
  1. rules, regulations, and other government intervention to enforce a code of "market ethics" that breaks up inefficient monopolies and cartels, and

  2. straightforward wealth redistribution that takes money from all rich people (yes, even people like Steve Jobs and Chris Paul) and gives it to all poor people, be it in the form of health care, food stamps, or tax breaks.
Imagine a world in which we enact the first bundle of policies and ignore the second. Does this approach really move the needle on wealth inequality? Maybe a little -- certainly, market pressures would ensure some goods would be available to more people for less cost -- but I can't think of any historical evidence of a correlation between "market fairness" and economic equality. It's libertarian fantasy to imagine that a correctly managed marketplace would flatten itself out and begin correcting wealth imbalances. Indeed, his own example works against him: the cartels themselves might get poorer, but the genuine producers (again, think Chris Paul) would just enrich themselves even further. There might be increased opportunity for competition in the marketplace, but opportunities would remain finite: for most, economic pressures would probably remain basically unchanged. In short, while the composition of people holding the lion's share of wealth might change -- and for the better, because high-earners would be theoretically contributing more to society -- it's far less apparent that the divide between the haves and the have-nots would significantly subside.

Now imagine the opposite scenario: we enact robust wealth redistribution policies and leave bad market behavior untouched. Here, the wealth gap narrows dramatically. The standard of living of the poor noticeably improves, although the total productive capacity of society remains somewhat below the optimum. And who suffers as a result of these priorities? While everyone is less well off than they could be in an idealized, maximally productive economy, the only people who are worse off than in the previous scenario are, in fact, the well-off. People like Chris Paul, and other well- but under-compensated economic producers. They still fall victim to bad behavior in the market, and some of their money is skimmed indiscriminately away by the government.

And look, I love Chris Paul. But cartels or no cartels, taxes or no taxes, Chris Paul isn't really suffering. And it's not just him: most of the people who are seriously harmed by bad market behavior aren't suffering either. They're only victimized relative to some theoretical measure of their worth in a economy that isn't our economy. Taxes aren't going to change that: one of the nice things about marginal tax brackets is that they can't actually drive anyone into poverty. In absolute terms, these people have got more than enough money to get by without undue physical or mental distress.

The same, of course, cannot be said for the people at the very bottom of the economic food chain. Market fairness doesn't help them, but wealth redistribution sure does. Reduced income inequality sure does.

In reality, it's never going to be all one or all the other. And there's nothing preventing us from pursuing both. We should! But to the extent that progressives hope to rectify wealth disparities -- whether it's because they think it's important to help the less fortunate, or because they believe a more equal society functions more efficiently (and I happen to believe both) -- they can't get too caught up in the task of distinguishing between earned and unearned wealth. Old-fashioned redistribution is a far better means of creating a more equal society, and deserves its centrality in liberal policy and rhetoric.

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