Is Inequality All About Capital?

A blog about business and economics.
Feb. 20 2013 4:56 PM

Is Inequality All About Capital?


Via Kevin Drum and Greg Sargent a study from Thomas Hungerford of the Congressional Research Service (PDF) indicates that in the 1991-2006 period the distribution of wages, taxes, and social insurance benefits all reduced the level of inequality in the United States. This was offset by a big pro-inequality rise in the returns to capital, as witnessed by capital gains income, retirement income, and business income.

What inclinations one draws from this empirical finding are going to be strongly colored by your priors. If you believe the tax preference for investment income serves no useful pro-growth purpose, then the obvious upshot is to double-down on advocating higher taxes on investment income. Those inclined to believe the reverse are going to say the upshot is that there's no viable policy remedy to growing inequality.


My judicious middle ground take is that this highlights the importance of disaggregating "capital" as it's construed by the actual functioning of the American economy. "Capital" for these purposes includes what the classical economists would have considered "land"—the valuable dirt that hosts San Francisco houses buildings and North Dakota oil wells. It also includes intellectual property. It also includes, of course, the stuff that a classical economist would have recognized as "capital"—machines used in the production process. I continue to think that conservatives are write to believe that the tax code should in fact favor the accumulation of production equipment rather than the accumulation of consumption goods. But land and natural resource extraction should almost certainly be taxed much more heavily (it's in Ricardo) and we should be acting more decisively to make municipal policy less biased toward creating land scarcity. On intellectual property, the agenda shouldn't be so much to tax the profits more heavily as to reduce or eliminate them entirely by weakening or eliminating these protections.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.


The World

The Budget Disaster that Sabotaged the WHO’s Response to Ebola

How Movies Like Contagion and Outbreak Distort Our Response to Real Epidemics

PowerPoint Is the Worst, and Now It’s the Latest Way to Hack Into Your Computer

Everything You Should Know About Today’s Eclipse

An Unscientific Ranking of Really, Really Old German Beers


Welcome to 13th Grade!

Some high schools are offering a fifth year. That’s a great idea.


The Actual World

“Mount Thoreau” and the naming of things in the wilderness.

Want Kids to Delay Sex? Let Planned Parenthood Teach Them Sex Ed.

The Shooting Tragedies That Forged Canada’s Gun Politics

  News & Politics
Oct. 22 2014 9:42 PM Landslide Landrieu Can the Louisiana Democrat use the powers of incumbency to save herself one more time?
Continuously Operating
Oct. 22 2014 2:38 PM Crack Open an Old One A highly unscientific evaluation of Germany’s oldest breweries.
Lexicon Valley
Oct. 23 2014 10:30 AM Which Came First, the Word Chicken or the Word Egg?
  Double X
The XX Factor
Oct. 23 2014 8:51 AM The Male-Dominated Culture of Business in Tech Is Not Great for Women
  Slate Plus
Tv Club
Oct. 22 2014 5:27 PM The Slate Walking Dead Podcast A spoiler-filled discussion of Episodes 1 and 2.
Oct. 23 2014 11:08 AM Seeing the Familiar in Black and White
Future Tense
Oct. 22 2014 5:33 PM One More Reason Not to Use PowerPoint: It’s The Gateway for a Serious Windows Vulnerability
  Health & Science
Bad Astronomy
Oct. 23 2014 7:30 AM Our Solar System and Galaxy … Seen by an Astronaut
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.