Malo periculosam, libertatem quam quietam servitutem.



April 2014

Should We Punish Success as Inequality Fix?

Written by , Posted in Economics & the Economy, Taxes

Thomas Picketty has received a lot of attention for his attack on capitalism. His new book Capital in the Twenty-first Century has breathed new life into old Marxist critiques of capitalism, and been elevated to the status of very important book by the designated smart people™ who make it their business to decide what is important for the rest of us. It has received glowing coverage from the elite press like The New York Times and The Nation, and gushy reviews from prominent statists thanks to his assertion that capital is unfairly allocated, and that inequality poses an existential threat to democracy. In response, he calls for the admittedly utopian and impractical imposition of a global tax on wealth.

I’m not going to offer a rebuttal to Picketty. That work has already  been done. Rather, I’m here to note how his work has emboldened statists to admit their deepest policy desires – policies so radical and destructive that in the past were only whispered about at cocktail parties.

Matthew Yglesias writes at Vox that we need “confiscatory taxation” because “endlessly growing inequality can have a cancerous effect on our democracy.” Others are calling for a “maximum wage.”

There are problems with such proposals. First, inequality is largely misstated and misunderstood. Much of the data to back claims of rapidly growing inequality are being driven by statistical artifacts and cultural trends – creations of changes in the nature of households which make up the basis of inequality comparisons, or of changes in marriage patterns, or of problems with trying to take static snapshots of a dynamic economy.

Yglesias correctly notes that taxes influence behavior. Specifically, if you tax something, you get less of it. This forms the basis for his assertion that we should “apply the same principle of taxation-as-deterrence to very high levels of income.” If you start with the presumption that large incomes are unearned and without economic merit this might make sense. But if you believe that the market by-and-large distributes resources based on productivity, then this plan is quickly revealed as a tax on high levels of productivity. And with the agreed upon understanding that taxing a thing makes it less likely to occur, that means discouraging high levels of productivity. The net results is lower total output.

It is, in other words, the classic leftist plan to more evenly distribute a smaller economic pie. Or, as Margaret Thatcher would say, they would “rather that the poor were poorer, provided that the rich were less rich.”