A friend from Manhattan visited Cambridge last week. He was thrilled that President Obama won reelection, but told me that the main economic and social problem facing the U.S. currently is wealth disparity. It is not hard to see how rubbing elbows with the billionaires of Wall Street would make one envious (I remember walking down Madison Avenue a few years with with a millionaire friend; neither of us could afford anything that we saw in any of the shop windows (e.g., $20+ million apartments, $400,000+ Maybach automobiles, women’s shoes, etc.)). And indeed my visiting friend mentioned the absurd wealth accumulation on Wall Street as Prime Example #1 of our problem with wealth disparity.
On the other hand, from a functional on-the-ground point of view I can’t see how chipping away at wealth disparity would help grow the economy. Consider the most obvious way of reducing disparity: halting immigration. The U.S. has approximately 1 million legal immigrants each year. Many of these folks show up without any wealth and without the ability to speak English. Plainly they are not going to be wealthy any time soon. On the other hand, since many of these immigrants work hard, turning them away would shrink the overall GDP.
The second most obvious way of reducing disparity would be a tax on wealth. Indeed we have such a tax already: property tax. It does serve a wealth redistribution function as the owners of valuable property fund schools, police, fire departments, and government worker health care and pensions. However, the money from property taxes is kept within city or a state and not sent from a wealthy region of the U.S. to a poorer region. My friend was apparently against this idea, however, because he said that it was the federal government’s responsibility to shower New York City with tens of billions of dollars to help pay for cleaning up after Hurricane Sandy. Essentially after complaining that people in New York, New Jersey, and Connecticut (i.e., Wall Street) had misappropriated hundreds of billions if not trillions of dollars in wealth from comparatively poor residents of Arkansas, my friend was advocating that folks in Arkansas pay additional federal taxes (or that their children and grandchildren be saddled with additional federal debt) to help out the owners of $100 million beach houses in the Hamptons and $2 billion office buildings in Manhattan. So the idea of transferring wealth from property tax revenues in a rich-to-poor direction is apparently politically unpalatable, even to a person for whom wealth disparity is America’s #1 problem. In any case, it is difficult to see how such a property tax transfer would help the overall economy. California has a system in place where local taxes are sent to Sacramento and then sent back down to local schools before being used to fund classroom instruction (i.e., it is illegal for a wealthy town to tax its residents and spend the money directly on schools). Despite this pioneering effort at wealth redistribution, the state has an unemployment rate that is substantially higher than the national average. An argument could be made that taxing away Wall Street wealth to fund schools in poorer states could improve educational quality nationwide and that would benefit the economy in the long run, but at least with public schools there is no known correlation between funding levels and educational outcomes.
On a “what happens when you wake up and make a decision about what to do today” level, it is difficult to see why the presence of absence of billionaires on Wall Street affects the willingness for those who aren’t currently working to start working. The easiest way to grow the economy is to give people who don’t currently work sufficient incentive that they start or resume working. I’m writing this post in Cambridge, Massachusetts, where roughly 8 percent of the housing is city-owned and much of the rest is dedicated for occupancy by low-income families. A friend pays $3000 per month for a two-bedroom apartment in a newly constructed luxury full-service building. This is her reward from studying assiduously during roughly 20 years of schooling, culminating at an Ivy League university, and working a demanding job. One of her neighbors is a family of five. The father is observed to spend his days drinking and chatting with friends in Central Square. The mother stays home to care for the three children. The family receives a $4000 per month three-bedroom apartment at no cost. The family receives free health care via Medicaid and a City of Cambridge program that supplements Medicaid. The family receives food stamps from the USDA. They get a free cell phone with 250 minutes per month of service paid for by the U.S. government (details). Each child will receive a free K-12 education from the City of Cambridge (funded with over $26,000 of taxpayer money per student (source; the true spending is probably well over $40,000 per year because the official budget does not include the capital expenses of the buildings, the value of the land, or the likely pension and retiree health care costs)). This family’s basic needs are met, but if they want luxury items, however, one of the adults will have to earn some cash. That would result in GDP growth and the government collecting some payroll tax (if done via a W2 job) or at least some sales tax. How would their decision to participate in the labor market be affected by whether or not someone in New York City is rich? How would that decision be influenced by the degree of richness enjoyed by the New York City fatcat?
Economists have published papers showing some correlation between wealth disparity and economic growth but I haven’t seen an explanation for causation. People have been observed to work more hours when tax rates are reduced. At least in the absence of the Welfare State, people have been observed to work harder when they need to support children. People have been observed to work fewer hours when their financial needs have been met, e.g., due to a trust fund, pension, welfare checks, child support payments that exceed the cost of rearing a child, or alimony. But is there any evidence that anyone looks at East Hampton beach house values on zillow.com in the morning before deciding whether or not go out and look for a job? If not, what is it about wealth disparity that causes an economy to shrink or stagnate?
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right now. The image quality is surprisingly good, even indoors, for a small camera. The controls, on the other hand, are more complex and far more confusing than on a Canon 5D Mark III semi-professional single lens reflex. This has gotten me thinking about what controls I would want in a compact camera like the RX100. How about the following: