Sunday, August 19, 2012

A Penchant for Redistribution

I am taking the liberty of recycling the following article from my drafts bin from three years ago when the debate in America was raging over healthcare. This post could have been written yesterday given the way things have played out, which is why I am posting it here:

Many commentators have opined that America under Pres Obama is re-casting itself in the mould of European socialist regimes. As Alan Wolfe observes,
the covers of National Review ("OUR SOCIALIST FUTURE"), The Nation ("REINVENTING CAPITALISM, REIMAGINING SOCIALISM"), and Newsweek ("WE ARE ALL SOCIALISTS NOW") have--respectively--lamented, heralded, and observed the coming rise of socialism (Obama vs Marx, The New Republic, April 01, 2009).
From his statements, Richard W Stevenson surmises the intent of Obama to reshape capitalism by
diminishing the consumerism that has long been the main source of growth in the United States, and encouraging more savings and investment. He would redistribute wealth toward the middle class and make the rest of the world less dependent on the American market for its prosperity. And he would seek a consensus recognizing that an activist government is an acceptable and necessary partner for a stable, market-based economy (Redefining Capitalism After the Fall, New York Times, April 18, 2009).
A High Tolerance for Inequality

Politically the cover for undertaking redistributive policies in the US is being provided by the current crisis. According to Alberto Alesina and Paola Giuliano who have studied income and wealth inequality, Americans are less “inequality intolerant” by nature compared to the Europeans. This is due to the perception that prevails in the US that social mobility is possible (the World Values Survey found that 60%, compared to 40% in Europe, believed in the possibility of improving their standing income-wise).

Only during the “Great Compression” lasting from the mid-40s to the 70s has the US seen inequality decline continuously; that is apart from what seems now to be a blip that lasted from the mid-90s to the early 2000s. Franklin Foer and Noam Scheiber write in The New Republic that
(b)eginning in 2004, the data gradually began to undermine the Clintonites' central assumption: that the benefits of growth would accrue to the poor and middle class ... Workers' wages had once tracked productivity growth. Now workers were producing more, but only the wealthy were reaping the rewards; everyone else's income had basically flattened out.
Alesina and Giuliano tell us that by August 2008, inequality in the US had returned to its previous level in the 1920s. Following the crisis which is widely perceived to be the fault of financiers at the top of the income pyramid less tolerance for inequality will ensue as
voters (will) demand especially strong action to reduce inequality, even in a country like the US, where inequality is much more tolerated than in Europe.
While there is a greater appetite for social levelling, it is the extent of that levelling that will be determined soon. Alesina again:
(w)ill Americans turn into “inequality intolerant” Europeans? Probably not, but this crisis may imply a turning point towards more government intervention and towards redistribution.