It gets tiresome to listen to the same arguments which have bedeviled economic debate on inequality for some three hundred years. Once inequality is abolished, and I am thinking about the Scandinavian countries, we see what caused the GINI index to drop, growth to increase and the population income levels to change. The case of Norway is probably the simplest case. Once health and education were made free and available to all, full employment became commonplace, and the speed with which the population moved to higher levels of income was faster than that of any other country. Income level mobility is very slow in the US in comparison with Norway. This happened under both left wing and right wing governments in Norway. The fact that one party, out of seven, had to form a coalition with at least one other party in order to govern required negotiations and compromise--something that is seemingly impossible in todays US. As for taxes, both the US and Norway tax the population at about the same level, around 40%. But the degree of inequality is about twice as high in the US as in Norway. Norway is wealthier, with a higher per capita income, and with an economy where it will be difficult to hire any workers for less than $25 per hour. The reason for the difference in inequality is the way the tax systems function in the two countries. In the US the architecture of the tax collection system transfers income and wealth from the lower income strata of the income distribution to the higher income strata. In Norway it is the opposite. Stiglitz ascribes this to politics, but I disagree. The vision for a country determines policy, and each one of the seven political parties presents nuanced differences across party lines in vision, but is in broad agreement on foreign policy, the social safety net, a competitive private sector that exports nearly half of Norways GDP (as compared to 11% to 14% in the US), and is made possible because of the need to continuously raise the level of productivity in all sectors to remain competitive in world markets. This is part of the vision shared by everyone. It is tempting to say that the embarrassingly low annual productivity improvement levels in the US is the main cause of the income differential between the US and Norway. It plays a part, but I think it is the absence of a unifying vision, and the policies that would support the vision that is lacking. Without a vision the country drifts, and if the tax structure is kept intact, there will be greater and greater accumulation of wealth and power to the upper income strata, and corresponding shrinkages in wages and benefits at the lower levels. China used a productivity strategy to lift 800 million people out of poverty. There is no reason to think that the US cannot do better than China in economic growth, and for that matter Norway. The US did so during WW2, when annual productivity improvements were ten times higher than today. But it should not be necessary to rely upon a world war to remedy a frozen tax system, unleash and buy into a unifying vision, and create wealth for everyone. Thats just statecraft. It is intriguing to note that in the US this may have to start at the level of the state. Scandinavia is just five states. They all developed their own unique system, but they all learned from each other. Maybe this could happen in the 50 states. Why dont we start by lifting the productive contribution of every man, woman and child in Minnesota? Her is Stiglitz on inequality: opinionator.blogs.nytimes/2014/06/27/inequality-is-not-inevitable/?action=click&pgtype=Homepage&version=Moth&module=inside-nyt-region®ion=inside-nyt-region&WT.nav=inside-nyt-region
Posted on: Tue, 01 Jul 2014 06:06:59 +0000
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