Inequality Is Too Strong For Our Puny Governments

Given the fact that economic inequality has been rising for nearly four decades, it’s natural to assume that government redistribution of wealth has disappeared. According to a new study: Not so! But that raises even more sinister questions.

A century ago, the idea of a progressive, redistributive tax code—one that would serve to take money from the rich and give it to the poor—barely existed. It was just a fanciful dream. Today, such governmental redistribution is standard in almost every developed nation, to some degree. But if inequality has been on the rise for more than a generation now, this redistribution must be broken somehow—right?

Economics professor Peter Lindert examines this question in nations around the world and concludes: Progressive redistribution is still in effect in almost every developed nation, and the long-term trend “suggests stability and convergence in governments’ redistribution,” meaning that there has not been any large decline in the amount that governments are funneling from rich to poor. He writes:

The lack of any clear retreat to regressivity since the 1970s or 1980s implies an important corollary for the debate over the disturbing rise of overall inequality in this same era. None of this rise is due to a net shift of government budgets towards helping the rich at the expense of the poor. The entire net rise of inequality must have been due to changes in the market economy, such as technological bias, globalisation, and/or trends in human capital.

This is something to be reckoned with. If government budgets have not become more regressive and yet inequality has still exploded, think about how strong the other forces must be that are driving that inequality. And, even more importantly, think about how strongly this demonstrates the fact that the current level of progressive redistribution is not up to the task of balancing out the economic forces contributing to inequality. So if the current trend is for redistribution levels to remain stable, that is a policy failure—what we need are redistribution levels that are much higher. Or a meaningful change in the other factors driving inequality. The fact that a century of ever greater progressive taxation has only gotten us back to Gilded Age levels of inequality goes to show that we must be much, much more aggressive in moving wealth from the rich to the poor.