real-world economics review, issue no. 92 subscribe for free
Fixing capitalism: stopping inequality at its source Dean Baker [Center for Economic and Policy Research and the University of Utah] Copyright: Dean Baker, 2020
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The basic facts on the growth in inequality in the United States and elsewhere over the last four decades are well-known. There has been a rise in inequality throughout the OECD, but it has been most pronounced in the United States where the share of income going to the top ten percent has risen by 20 percentage points, with the top one percent alone gaining 10 percentage points of national income. If these gains were reversed, it would allow for an increase in the before-tax income of the bottom ninety percent of the population of almost 40 1 percent. The usual response from those on the left to these facts are proposals for strengthening labor unions, higher minimum wages, and other labor market protections, as well as more progressive tax and transfer policies to make after-tax income less unequal. While these are sound policy proposals, it is important to recognize that the upward redistribution that we have seen did not just happen as a natural outcome of the market. The upward redistribution was the result of deliberate policies that were put in place for the purpose of redistributing income upward. These policies could be altered in ways that don’t lead to the same degree of inequality, and which are also likely to increase the efficiency of the economy. The most obvious, and probably most important, of these policies are patents and copyrights. These government-granted monopolies have been strengthened and lengthened over the course of the last four decades. Patents and copyright monopolies do serve a public purpose; they provide incentives for innovation and creative work. However, they are not the only ways to provide incentive. Furthermore, they can always be made stronger or weaker, depending on policy goals and the relative efficiency of these mechanisms compared with alternative incentive mechanisms. It speaks to the bankruptcy of economics that it is standard for economists to assert that technology is a major or the major factor driving inequality, when it should be completely evident that it is our policies on technology, not technology itself, that leads to inequality. In a world without patents and copyrights, Bill Gates would likely still be working for a living instead of being one of the world’s wealthiest people. This paper analyzes some of the ways in which our policies have led to the immense wealth held by those at the top of the income distribution. In addition to patent and copyright monopolies, it also discusses the treatment of the financial sector, rules of corporate governance, and the laws governing Internet intermediaries like Facebook and Google. The point of this exercise is to show ways in which we can structure the market differently so that it does not lead to extreme inequality. It is fine to try to address inequality with tax and
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These numbers are drawn from Saez, 2018.
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