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Who framed inequality?

from David Ruccio


Once again, we’re faced with a false choice about the causes of inequality. A few days ago, it was redistribution versus predistribution. And I came down on the side of a third alternative: distribution.

Ezra Klein, too, suggests a third way, beyond what he considers to be the two main schools of thought on income inequality—in this case, redistribution and fatalism:

The fatalists, who contend that rising inequality is the ineluctable result of a changing economy, and the redistributionists, who blame a skewed tax system and lethargic government. Perhaps it’s time to consider a third. . .

Yet the fatalist and redistributionist camps also give the government too little credit — and too little blame — for inequality. Both cleanly divide the issue in half: On one side is the way the economy distributes income, on the other the way the government redistributes it. But this misses the space between: the way the government itself changes the economy.

I couldn’t agree more: the government does play a key role in forming and changing the economy. But, in order to understand that role, we need a theory of the state. The government does not act autonomously, as an independent force setting “the rules for the economy and for those who benefit most from it.” It is also a product of those economic rules, especially as it reflects the influence of those who benefit most from the way the economy is currently organized.

Such a theory of the state would go beyond the liberal framing of the issue of inequality and answer the Millenials’ quandary: why, if the economic system favors the wealthy, does the government not do more to reduce the gap between the rich and the poor?

  1. June 20, 2013 at 11:23 pm

    It’s really quite simple (and rather complex). Any “growth” strategy is also, inherently, a redistribution strategy. Any growth-promoting policy. All growth policies. But each growth policy redistributes income/wealth differently. To a politically weak “social partner” (labour) growth is better than no growth. To the politically stronger corporate partner, only the policies that favor themselves the most are acceptable. Voila! “Here’s my birthright, Guv, now gimme some of that pottage!”

    Or, in the innocent words of Bob Reich, “All growth does is create the economic capacity to do these things. How we use growth — either for more consumer goods of for more public goods (the commons) is a political choice.”

    Wrong. Some kinds of growth create the economic capacity “to do these things”; other kinds create the political capacity to ensure that these things don’t get done.

  2. June 20, 2013 at 11:52 pm

    INEQUALITY of wealth : the appropriation of the 90% of the wealth of a nation by a group of less than 10%. The flaw of American capitalism. How it is being done and how to change its force.
    While we were sleeping, we the people allowed legislation that made it legal for one sector of the economy to be able to legally “gain the whole world and all its possessions”.
    We allowed the Private For Profit Banks to “tax” our money at extremely high compound interest rates; surely you understand that PFPB interest is a tax that they call Net Interest Income (NII) a/k/a profits. And since we wished the PFPB to succeed, we also allowed them to “print” (issue) all the money they desired.
    The cure is simple Do not allow any PFPB to ‘print’ money, also do not allow any PFPB to charge a taxation on money they do not own.

    ** ***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC), Hindu Prince, founder of Buddhism. Don’t End The Fed, Amend The Fed. Zero Income Taxes,The Way To Eliminate Poverty and Secure Prosperity For All. by justaluckyfool Summary To lower taxes,you must raise revenue somewhere.How would a government be able “to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”” at the same time reduce personal income taxes to zero , while maintaining control of the quality and quantity of its currency? Great News!!Zero Income Taxes Solves Worldwide Economic Crises ! The answer lies in how the most powerful force in the universe is used.
    Read,then challenge, improve or remain in your servitude! http://bit.ly/MlQWNs

  3. June 21, 2013 at 12:15 am

    It’s worth remembering that until the Reagan-Thatcher era governments controlled a substantial share of real capital and democracy could decide, amongst other things, how to allocate it. Since then a dogma has taken hold that all capital must be privately held, and if that is not a sure-fire way to increase inequality I don’t know what is. Democracy is now reduced to setting rules, and moreover, rules that don’t inconvenience capital. So what could democracy do to address inequality under these constraints? Not much.

    • June 21, 2013 at 11:27 am

      Pavlos:”So what could democracy do to address inequality under these constraints? Not much.”
      Justaluckyfool,”Perhaps, government can correct the legislation that has allowed the PFPB to “print our money and to “tax” it for their own personal gain”. Amend the Fed, make it the central bank working for the people instead of working for the PFPB.

    • Robert Locke
      June 21, 2013 at 11:38 am

      Perhaps you are confusing government and civil society. Civil society, if properly organized does not need government. If the “rules of he game” in civil society work to benefit the few, then government intervention is necessary, not to direct society but to reset the rules of the game in civil society.

  4. Allen
    June 21, 2013 at 2:37 am

    If there’s a universal % increase in income, inequality increases. Both booms and busts benefit the rich while the poor suffer more in the latter. Real debt increases in a bust. The poor cohort have a higher debt/income ratio than most rich who are net creditors. Replacement of debt-money by debt-free-money is one essential to reduce instability which is a key factor in growing instability.

  5. Peter Shaw
    June 21, 2013 at 11:08 am

    Your point that government is at once a construct and a player in the economy perhaps needs to be maintained in current awareness. It clarifies for me that inequality is fundamentally not an issue of doctrine or selfish choices, so addressing these is not the solution.
    The fit youth of the tribe have ever provided for the old and infirm; only the means change. The “government” of the tribe (perhaps old and infirm) may have a duty to ensure a steady supply of fit, gainfully-employed youth; more cogently, it has an interest.
    The “1%” by their existence surely have a “government” role, so should be assessed on their fulfillment of it. I speculate that at root the current criticism of them may be no more than that.
    For a theory of government, we might do worse than take note of what we’ve done naturally (and its effects).:)
    @Sandwichman: Redistribution also occurs during hardship; I suggest that at grass-roots level, we’re generally good at that.

  6. June 22, 2013 at 2:04 am

    @Robert Locke, I disagree. As @Peter Shaw puts it government, or to be more precise the people, needs to be a shareholder as well as a regulator in the economy. You need to have a certain share of the economy owned by the collective to guarantee a degree of equality of outcome. Note that I don’t mean management by bureaucrats, I mean investment that accrues to the public. Otherwise, the market will instrumentally lead to concentration of ownership, and governments will find themselves utterly unable to deliver equality of outcome – in fact the mere legitimacy of this will be questioned, as we are witnessing.

    • Robert Locke
      June 22, 2013 at 5:42 am

      I think you agree more than you disagree. An example, if the laws & customs in society give the ceos of companies the right to decide all matters in the firm including who sits on the board and who gets what in terms of wages & bonuses, this is a legal foundation in civil society that permits the 1% to benefit disproportionately, but if the law requires the firm to set up a compensation committee that decides matters of pay and bonuses and that committee is elected by employees as well as management, then there is a greater chance for the civil society to have a fairer spread in the distribution of rewards. Civil society is involved not government bureaucrats interfering in civil society. I made this point as a keynote speaker in an assembly celebrating the 20 anniversary of the founding of a business school in a Dutch University in 1998. Nobody paid the slightest attention to my point; people in management schools want the ceos to run firms. Civil society suffers accordingly. Ownership is not the issue, employees are part of a firm, but they are not owners & they don’t have to be, just give them a voice in decision-making.

      • merijnknibbe
        June 22, 2013 at 6:43 am

        Do you still have this speech?

  7. Robert Locke
    June 22, 2013 at 8:03 am

    #10. Merijn, sorry but I don’t. I gave it in Groningen. I’ll look around and see if I can locate a copy.

  8. davetaylor1
    June 22, 2013 at 11:23 am

    What a good blog and discussion!

    Having started as a Distributist myself, I’m not sure that when David Ruccio “came down on the side of a third alternative: distribution”, he meant that as “a cause of inequality”. Initial distribution perhaps, and the way conquest (whether military or by deception) initiates exogenous government (as against endogenous self-government). C.f. Robert Locke at #5. I agree, Merijn, it would be good if we could see what Robert had to say on the different between civil society and bureaucracy.

    With Good Pope John and Fred Zaman’s recent comments on the Great Seal of the US Constitution in mind, I have a similar doubt about Robert’s remark at #9 that “Ownership is not the issue”. In the context of his argument about decision-making, perhaps; but from the point of view of what is decided, the rules of ownership (customary or exogenously imposed) do matter. One of the issues that Fred rightly drew our attention to is a constitutional right to freedom being used as a cover by omission for deceitful claims to absolute personal rights, and by implication the non-existence of communal rights and responsibilities. Hence the legal fiction that corporations are persons with limited liabilities – which in practice are not only monetary ones. Back in 1958 Good Pope John was bang on the nail when he reminded us of “the reciprocity of rights and duties”. The world didn’t call him “Good” for nothing.

    • Robert Locke
      June 22, 2013 at 4:23 pm

      We have a proprietary conception of the firm. Those who own it, have the right to run it. But under director primacy, we violate that principle, which is why we have so many stockholder revolts against the ceo (director primacy). Often the ceo is not that big a stockholder in the firm he runs. The issue, I learned, when studying Germany, changes when one has an organic conception of the firm as against a proprietary conception. The organic conception of the firm recognizes ownership as only one of the parts of a firm. Just as legitimate are the employees who make the products and do the firm’s services and the customers who buy its products and services. If we look at the firm organically, then, each of these interests should have a voice in the firm. This is not some outrageous doctrine, except in Anglo-Saxonia. German law recognizes the legitimate interest of employees in firms and the limitations, therefore, of proprietary demands in private companies In the US since the development of director primacy, even the stockholders (stockholder’s primacy) have had to cede legal control over the firm to the director. So stockholders and employees have lost out to managerialism. This has something to do with advancing inequality.

  9. Peter Shaw
    June 22, 2013 at 3:22 pm

    On the “Ownership” issue: The attitude that “I own it, so I can do what I like” doesn’t stand inspection; history abounds with counter-examples of consequences.
    I argue that a government (of any persuasion) that doesn’t make effective use of its human resources is insane. Similarly, an “owner” style causing mass retrenchment and recession is demonstrably un-economic, so must tend to extinction.
    I suggest the rules of ownership are less important than common-sense constraints.
    A large, gainfully-employed (= wealth-producing) workforce (= taxpayers) credibly is everyone’s preferred scenario; anything else is perverse.

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