Will Wilkinson who I agree with overwhelmingly on the topic at hand and in particular in this post states
If we take a moment to note that the United States contains 40% of the world’s billionaires, and stop to see how America’s wealthiest people came by their fortunes, it’s easy to conclude that the statistic Mr Kristof waves about like a bloody shirt actually reflects the fact that American institutions are unsually conducive to innovation and the creation (as opposed to the expropriation) of immense wealth. I do worry that America’s nexus of political and financial institutions in particular have made it too easy for a small class of people to hoover up massive amounts of cash while producing little of value to the rest of us. But it’s worth noting that the people at the top of the Forbes list have grown rich mostly by making useful stuff, or making or selling useful stuff more efficiently. I don’t think American innovation would much suffer were these folks to face somewhat higher income-tax rates. At the same time, the fact that innovation is so richly rewarded in America surely has something to do with why America produces so much of it.
I am less and less sure of this. Would Jobs had said “Aw fuck it, why boher” if the Apple turn around only made him $200 Million rather than billions.” Assuming of course that his rank ordering among other billionaires would be the same – I do think being among the richest probably matters a lot regardless of the absolute level – I am guessing he wouldn’t have worked an hour less even if his paycheck was cut by 90%
Same with our other billionaire innovators.
Our innovators are so richly rewarded, I would argue, because we tolerate so much innovation. The natural human propensity to tinker and tweak can produce breakthroughs that have unimaginable social value. Allowing as many of those breakthroughs to thrive means a population with people earning vast fortunes.
This is probably independent of whether or not we use those fortunes to finance public goods, redistribution, etc.
I know Will is sympathetic to this point but maximizing the space for innovation, entrepreneurship and dynamism may be almost completely orthogonal to personal financial gains from doing so.
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Friday ~ November 26th, 2010 at 4:39 am
teageegeepea
Perhaps “innovation” is overrated. Good ideas pop into existence, but actually carrying them out and putting a final product in people’s hands takes a lot of effort, luck and money. Intrinsic motivation can carry some of the weight, but not all. Those areas are likely where corporate income and capital gains taxes come in, revealing why there is a more elastic response. Though it may be socially desirable to tax investment* anyway.
*I could have sworn you had a post responding to that one, but I can’t find it now.
Friday ~ November 26th, 2010 at 5:47 am
TomGrey
When you point out the winners, the 1/10 of 1% (or fewer) might not produce less with higher marginal rates, you may be correct for those people. but you more importantly assume that this would remain in the future, as well.
What if, as seems likely, the success of the top business stars is dependent to some greater or lesser degree on the efforts of the 9999 (of 10k) wannabee stars. I am not at all sure that a society which continues to, culturally, punish the successful rich with higher taxes, will culturally support the 10k college students or so needed to get more Jobs or Gates.
Let’s recall that it is increased gov’t spending, over the post-Clinton baseline, which has caused the gov’t deficit. In Ireland, and Greece, it is excess spending (of Other People’s Money).
Calling for higher taxes, on the rich(!), without dealing with the excess spending, is a recipe for ever increasingly gov’t spending. And crony-distribution, crony-capitalism, and crony-capture of gov’t distribution programs.
Being new, I’m not sure about your feelings on TARP, but it clearly was a huge bailout to the Big Banks, and top rich Financiers — crony-bailouts. I think Kristoff was also in favor in TARP, certainly the majority Dem Party (which he supports) is why TARP passed.
The market would have hugely reduced inequality by bankrupting AIG (and probably Goldman Sacs after), with the reckless rich plutocrats rightfully losing their excess wealth. Of course, the market requires a gov’t willing and able to enforce rule of law and bankruptcy when contractual obligations are not met. That’s the gov’t role needed for a market to work.
The plutocrats will be much happier, and inequality less disturbed, by higher tax rates, higher gov’t spending, higher gov’t regulation (protecting the rich) and more opportunity for crony-plutocrat-distribution.
Friday ~ November 26th, 2010 at 5:48 am
Thijs
” I am guessing he wouldn’t have worked an hour less even if his paycheck was cut by 90%”
I would guess the same thing. But I doubt he would have stayed in the US.