We *Are* the Rich
links for 2010-09-20

Daniel Shaviro Speaks Sense

Dan Shaviro:

Start Making Sense: Late to the fray: Xxxx Xxxxxxxxx... from what appears to be a classic U of C pro-markets and anti-regulatory perspective, has been having a rough time over the last few days... because of a blog post in which he complained about being potentially subject to a tax increase if the expiring Bush tax cuts are not extended for top-bracket taxpayers. Xxxxxxxxx got into hot water by rightly interpreting a lot of the rhetoric about not extending the top-bracket tax cut as pertaining to how "rich" people should be taxed, as compared to those who are "middle class." The latter group's tax cuts both parties are eager to extend (leaving aside the chance that the Republs will hold their tax cuts hostage to those of the top bracket). Hence, Xxxxxxxxx thought it germane to note how the circumstances of his life prevent him from feeling "rich," even though he is a law prof at a leading school and his wife is a doctor, making for two six-figure professional-level salaries.... The word "whining" has been used, and Xxxxxxxxx has been condemned for lack of empathy with people in that portion of the U.S. population (99.5 percent or so) whose households earn less, and in most cases at least 80 percent less, than his, and yet somehow seem to get by. But show me a non-whiner and I'll show you someone who isn't fully human. The important thing is what perspective one ends up taking towards one's own inclination to whine.... Frankly, I can identify emotionally with Xxxxxxxxx's complaint.... Emotionally though not intellectually, I very much feel the same way as he does about the "who's rich" question....

The reason why is identified by Krugman, as well as by Brad DeLong. The way our society operates these days, people in Xxxxxxxxx's and my tier see those above them who (at least as it seems to us) live way higher on the hog and have no financial worries whatsoever. Suppose I take a long flight on a business trip to Europe or Asia and find myself in the cattle cars, a.k.a. coach. Do you think I close my eyes while staggering with my bag through first and business class? Of course not. We often encounter, and psychologically are inclined to care about, what people above us have (and recall that the income gap between us and the top has skyrocketed over the last 20 years). Plus, we find ourselves strongly encouraged and inclined to want and even expect a whole bunch of things that add up to more than we can easily afford, even if we're in the 99th percentile. But then again, economics is the "dismal science" because it's about choice under scarcity.

Equally or more importantly, there's sufficient economic segregation going on to ensure that many of those in our tier will not get to see a whole lot from the inside regarding the lives of the 99+ percent of households that earn less than we do. (Well, I personally DO get to see some of this, and am emotionally inclined to keep it in mind, but that's just me.) So the feeling Xxxxxxxxx had is understandably widespread in his (and my) socioeconomic tier. Where he really went wrong, but with substantial encouragement from the rhetoric surrounding the extend-the-tax-cuts debate, is in thinking that the case for allowing top bracket rates to rise rests on the notion that all these people are "rich," a claim that necessarily depends on one's frame of reference. But this is the impression that non-tax and budget experts might have been expected to derive from Obama Administration rhetoric....

Brad DeLong's takedown nails this pretty hard, noting the horrific long-term budget problems that we face, which make huge tax increases inevitable. Brad also notes this isn't just because the Democrats like a big public sector - Bush did more than all preceding presidents put together (or at least the net of them) to make the fiscal problem a huge one. But of course this goes to show that the so-called middle class tax cuts shouldn't be extended either....

So let me try this quasi-defense (?) of Xxxxxxxxx, who after all could have been my colleague had I stayed at Chicago. The commonly offered public rationale for permitting his annual tax liabiity to go up, via non-extension of the top bracket tax cuts, which is that he is "rich," doesn't jibe with how most (I would surmise) people in his socioeconomic position feel about their lives. This admittedly reflects their myopia, but of a sort strongly encouraged by the circumstances in which they (we) commonly live. But in fact the question of who is "rich" in the proper comparative sense is really beside the point....

As a matter of brute political reality, taxes are going to have to go up, and indeed a lot, for way more than just the "rich" by anyone's definition. Extending the so-called middle class tax cuts is insanity as well (leaving aside the case that the current recession calls for delaying the effective date of rate hikes, at least given other political constraints on fiscal policy). And the Obama Administration (albeit under political duress) has helped perpetuate the misunderstanding that this is all about who's "rich," because no one in politics - and Republicans even less than Democrats - has the incentive or the nerve to speak in full candor about the long-term budget picture, its causes, and likely or feasible solutions.

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