Income Distribution

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Income Distribution
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Key Issues

• What is the existing distribution (USA)
• What is the solution growth or distribution?
• Rationales for income distribution
• Ethics and Justice
• Efficiency
• Stability
• Democracy
• Redistribution mechanisms
• Aid to poor
• TANF
• Medicaid
• Corporate welfare
• Distribution of rent

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What is the existing distribution in the USA?
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Distribution of wealth
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Income Distribution
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The Myth of Upward Mobility?

• Lies, damn lies and statistics OR ideology and
  academics
• Figures on income class mobility from textbook
  ignore life time income cycle and trends
• Is Horatio Algier Dead?
• 1930s-40s The great compression
• 1973-2000, CBO data Average real income of
  bottom 90 fell by 7, income of top .01 rose by
  599
• Business Week Article 2003 Waking Up from the
  American Dream Meritocracy and Equal Opportunity
  Are Fading Fasteconomy slowly stratifying along
  class lines
• University of Chicago economics professor and
  Nobel laureate James J. Heckman "the big finding
  in recent years is that the notion of America
  being a highly mobile society isn't as true as it
  used to be."
• Federal Reserve Bank of Boston economists the
  number of people who stayed stuck in the same
  income bracket -- be it at the bottom or at the
  top -- over the course of a decade actually
  increased in the 1990s.

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New York Times, June 26, 2003 Very Richest's
Share of Income Grew Even Bigger, Data Show By
DAVID CAY JOHNSTON The 400 wealthiest taxpayers
accounted for more than 1 percent of all the
income in the United States in the year 2000,
more than double their share just eight years
earlier, according to new data from the Internal
Revenue Service. But their tax burden plummeted
over the period. The data, in a report that the
I.R.S. released last night, shows that the
average income of the 400 wealthiest taxpayers
was almost 174 million in 2000. That was nearly
quadruple the 46.8 million average in 1992. The
minimum income to qualify for the list was 86.8
million in 2000, more than triple the minimum
income of 24.4 million of the 400 wealthiest
taxpayers in 1992.
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Distribution by factors of production

• Human capital
• Returns to labor wages-70
• Returns to entrepreneurship profit- 20
• Built and Financial Capital
• interest- 8
• Natural capital
• rent-2 (is natural capital under priced?)
• Social capital?

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Current trends The enclosure of the commons

• Values produced by nature and society
• Non-renewables minerals and energy
• Renewables Goods and Services
• Air waves, orbits etc.
• Private property
• Land
• Knowledge and information
• Money and seigniorage

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Rationales for Distribution
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Can we grow our way out of poverty?

• Real GNP doubles every generation
• Poverty declined through most of US history,
  until 1970s

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Ethics and distribution

• Role of charity in most religions
• Maximin
• Should a nation be judged by the welfare of the
  richest or the poorest?

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Justice and distribution

• Are outcomes just?
• Role of luck and heredity
• Sexism, racism, etc.
• Winner take all economy
• Is the process just?
• Are markets fair?
• Are the resources of the commonwealth distributed
  fairly?
• Should individuals be able to capture benefits of
  societies efforts?

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Distribution and efficiency

• Law of diminishing marginal utility
• Different Pareto Optimum for every different
  initial distribution. Desirability of outcome is
  no better than desirability of initial
  distribution
• Status and negative externalities of wealth
• Ecological impacts of status

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Public Good Benefits

• Economic stability
• What is currently keeping the economy afloat?
• What caused the great depression?
• Relationship between income inequality and crime

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Distribution and Democracy

• "We can have a democratic society, or we can have
  the concentration of great wealth in the hands of
  the few. We cannot have both."
• Supreme Court Justice Louis Brandeis

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Redistribution Mechanisms
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Temporary Assistance for Needy Families

• 1996 welfare reform that replaced AFDC
• Why?
• Not an entitlement
• Time limits
• Work requirements
• Block Grants
• Benefit reduction rates
• Is it working?

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Earned income tax credit

• Negative income tax
• High marginal tax rate as people earn more
• Many people who are eligible do not apply
• Substantial new hurdles beginning this year
• According to Wall Street Journal, applying for
  EITC triples chances of audit, and new
  legislation increases this
• EITC fraud estimated at 3 of tax fraud

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Medicaid

• Largest spending program
• Administered by states, funded by states and fed
• Medicaid notch
• Magic of the market, 1997 reform
• Skimming the cream

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Corporate Welfare

• Payments to private sector corporations
• Direct payments e.g. 300 million to market
  Chicken McNuggets
• Insurance coverage e.g. Price Anderson Act
• Subsidized loans e.g. eximbank
• Subsidized research e.g. clean coal
• Tax breaks e.g. clean coal
• Quotas e.g. sugar and peanuts
• More money than aid to poor
• What are the justifications?
• Job creation
• Competition among states

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National Forests

• Historical record
• Tongass article
• Timber Salvage Rider
• Healthy Forests Initiative

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Grazing Lands

• Grazing lands rented at far below market rates
• Arizona fires
• Lump sum payments to end subsidies

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Mining Law of 1872
Foreigners Control Fifth of Mineral Wealth in
American West, Study Shows By FELICITY BARRINGER
Published May 12, 2004WASHINGTON, May 11 -
About 20 percent of the mineral wealth of the
American West is claimed by foreign companies,
most of them Canadian, according to a new
analysis and online database released Monday by
an environmental organization. The report,
produced by the Environmental Working Group, also
shows that of all the uses of federal lands,
hard-rock mining returns the least to the federal
Treasury 2.3 percent of sales, compared with
13.2 percent for oil and gas development, 14
percent for grazing and 66 percent for timber
sales. "For as little as 0.84 an acre, more
than 28,000 companies and individuals have gained
control of precious metals and minerals on 5.6
million acres of public land across 12
continental Western states," the report says.
"Some of these companies are foreign-owned. None
of them will pay anything to the federal
government for the value of the minerals they
extract from public property."
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Agriculture policy

• CSM The Heavy Thud of American CottonBetween
  1995 and 2002, for example, a total of 1.68
  billion was paid to 285 cotton exporters and
  millers under one part of the cotton program. A
  handful of corporations got an average of 80
  million apiece. Allenberg Cotton Co. of Cordova,
  Tenn., was paid 106.9 million.

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Pollution policy

• Mining clean up
• Super fund sites
• CO2 emissions
• SO2 emissions
• Mercury emissions

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Georgist Economics A More Just and Efficient
Alternative?
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Basic Principles

• People keep what they earn with the sweat of
  their brows
• Wealth created by nature and society distributed
  equally
• Public goods replaced with public goods
• Those who benefit most from government services
  pay the most
• One of the most important services of government
  is the protection of private property

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Natural capital redistributing Rent

• Rent unearned income
• Land
• Non-renewables
• Renewables- natural dividend

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The land tax
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Non-renewables Oil to income
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Renewable resources Ecosystem Goods
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Renewable resources ecosystem services

• Set scale, auction off quotas
• Pollution taxes
• Taxes on ecological degradation
• Who should be compensated?
• Public good replaced with public goods

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Financial Capital Bank loans at interest vs.
seigniorage

• What is seigniorage?
• Reserve requirements
• Who should get it?
• e.g. Burlington Bread

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Built capital The stock market

• What do owners of stocks produce?
• About 5 of stock purchases provide capital for
  new investment.
• Peter Barnes estimates about 30 of value of IPO
  is generated by public sector investments (social
  capital?)
• ESOPs