Lecture 25: IPE and War Benjamin Graham Inequality (2) Benjamin Graham Lecture 25: IPE and War Benjamin Graham

Lecture 25: IPE and War Benjamin Graham Reading Quiz (1) The research featured in the NY Times story concludes that: A. For the bottom 50% of the population, incomes haven’t grown since the 70s B. For the bottom 75%, incomes haven’t grown since the 1970s C. For the bottom 90%, incomes haven’t grown since the 1970s Why start with supply and demand? Lecture 25: IPE and War Benjamin Graham

Lecture 25: IPE and War Benjamin Graham Reading Quiz (2) What type of new tax is considered in one of our readings? A. Value-added tax B. Border adjustment Tax C. Reimbursable sales tax D. A tax on unimproved land E. Augmented Capital Gains Tax Why start with supply and demand? Lecture 25: IPE and War Benjamin Graham

Is Income Inequality Self-Correcting in Democracies? Income inequality may be self-correcting in a democracy. Can we work through how that would work? Hints: A. Each person gets one vote B. The government sets the level of redistribution — i.e. the level of taxes and the level of government spending on welfare, unemployment etc. Why start with supply and demand? Lecture 25: IPE and War Benjamin Graham

Five Reasons for Failure to Self Correct in the U.S. Bonica et al. 2014, JEP article 1. Ideological shift toward a particular form of free market capitalism 2. Immigration and low voter turnout among the poor 3. Rising real incomes means a higher share of the public don’t need social safety net programs. 4. Campaign contributions, lobbying etc. give the rich a disproportionate voice in the political process. 5. Institutions limit the accountability of politicians to voters and induce gridlock Why start with supply and demand? Lecture 25: IPE and War Benjamin Graham

Five Reasons for Failure to Self Correct in the U.S. Bonica et al. 2014, Journal of Economic Policy article 1. Ideological shift toward a particular form of free market capitalism 2. Immigration and low voter turnout among the poor 3. Rising real incomes means a higher share of the public don’t need social safety net programs. 4. Campaign contributions, lobbying etc. give the rich a disproportionate voice in the political process. 5. Institutions limit the accountability of politicians to voters and induce gridlock Why start with supply and demand? Lecture 25: IPE and War Benjamin Graham

Five Reasons for Failure to Self Correct in the U.S. Bonica et al. 2014, JEP article 1. Ideological shift toward a particular form of free market capitalism 2. Immigration and low voter turnout among the poor 3. Rising real incomes means a higher share of the public don’t need social safety net programs. 4. Campaign contributions, lobbying etc. give the rich a disproportionate voice in the political process. 5. Institutions limit the accountability of politicians to voters and induce gridlock Why start with supply and demand? Lecture 25: IPE and War Benjamin Graham

Why has labor’s income share fallen over time? Decline of unions (at the margin) Rising importance of technology Anti-competitive regulations in: Tech and pharma (patents) Law and medicine (barriers to entry) Finance (risk subsidies) Why start with supply and demand? Lecture 25: IPE and War Benjamin Graham

2017 Tax Reform Legislation Reasonable people disagree about the long-run growth effects of cutting taxes on corporations Less debatable: The tax overhaul is regressive, particularly after the first three years Cutting taxes in 2017 is pro-cyclical – i.e. this bill increases budget deficits at a time when unemployment is very low and the economy is strong Note: Most Democratic budget proposals are also pro-cyclical, though on the spending side Why start with supply and demand? Lecture 25: IPE and War Benjamin Graham

Guidelines for Thinking About Policy Seek out thinkers who disagree with you Always respond to the strongest version of the argument made by those who disagree with you Do not hold strong views in areas where you know little Recognize that we all know little in most areas Beware confirmation bias when receiving new information Do not discount new empirical information that challenges your current beliefs Why start with supply and demand? Lecture 25: IPE and War Benjamin Graham