Distribution

Current Events  Government shutdown over health care  Slashing expenditures on food stamps  “Among the 254 counties where food stamp recipients doubled between 2007 and 2011, Republican Mitt Romney won 213 of them in last year’s presidential election, according to U.S. Department of Agriculture data”  Government shutdown over health care  Slashing expenditures on food stamps  “Among the 254 counties where food stamp recipients doubled between 2007 and 2011, Republican Mitt Romney won 213 of them in last year’s presidential election, according to U.S. Department of Agriculture data”

Why Does Distribution Matter?  Ethical and practical question

Distribution and Efficiency

Diminishing Marginal Utility?

Distribution and Democracy  Is our country plutocratic or democratic?  Wealth, power and rent-seeking behavior  "We can have a democratic society, or we can have the concentration of great wealth in the hands of the few. We cannot have both."  Supreme Court Justice Louis Brandeis  Is our country plutocratic or democratic?  Wealth, power and rent-seeking behavior  "We can have a democratic society, or we can have the concentration of great wealth in the hands of the few. We cannot have both."  Supreme Court Justice Louis Brandeis

 The Quiet Coup The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time. By Simon Johnson, The AtlanticSimon Johnson  The Quiet Coup The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time. By Simon Johnson, The AtlanticSimon Johnson

What’s the Existing Distribution of Wealth (stock)?  Top 20%?  Middle 20%?  Bottom 20%?  Top 20%?  Middle 20%?  Bottom 20%?

What’s the ideal distribution?

The L-curve of Income Distribution (flow)  5xcU

Distribution Trends

Income Distribution and Taxation Great compression Great divergence Middle class America

Distribution by factors of production (USA)  Wages-70%  Profit- 20%  Interest- 8%  Rent-2%  Do natural resources contribute only 2% to production?  Wages-70%  Profit- 20%  Interest- 8%  Rent-2%  Do natural resources contribute only 2% to production?

Why is redistribution to be avoided? Conventional view  People are entitle to keep what they have earned with the sweat of their brows  Destroys incentives, reduces well being of worst off  NYT editorialHigher Taxes Mean I'll Work LessHigher Taxes Mean I'll Work Less  Most taxes are distorting, and lead to inefficient outcomes  People are entitle to keep what they have earned with the sweat of their brows  Destroys incentives, reduces well being of worst off  NYT editorialHigher Taxes Mean I'll Work LessHigher Taxes Mean I'll Work Less  Most taxes are distorting, and lead to inefficient outcomes

Current Trends in Redistribution  Hedge fund managers tax rates: 15% on profit share  Share of corporate profits going to finance in 1980: 5%. In 2010: 40%  Only significant financial innovation: ATM machine (Paul Volcker)  Hedge fund managers tax rates: 15% on profit share  Share of corporate profits going to finance in 1980: 5%. In 2010: 40%  Only significant financial innovation: ATM machine (Paul Volcker)

U.S. bank industry profits hit record $42.2 billion in second quarter Finance set to surpass tech as most-profitable U.S. industry Credit market debt, net of gov’t

Current trends in redistribution: enclosure of the commons  Values produced by nature  Non-renewables: minerals and energy (royalties)  Renewables: Goods and Services (natural dividend, waste absorption, etc.)  Air waves, orbits etc.  Values produced by society  Private property  Land  Knowledge and information  Money and seignorage  The enclosure trend  Values produced by nature  Non-renewables: minerals and energy (royalties)  Renewables: Goods and Services (natural dividend, waste absorption, etc.)  Air waves, orbits etc.  Values produced by society  Private property  Land  Knowledge and information  Money and seignorage  The enclosure trend

Policies towards a sustainable, just and efficient distribution of resources

Your views  Should we have a guaranteed minimum income?  Roosevelt’s 4 freedoms  A right to health care?  A right to food and shelter?  A right to other basic needs?  Should we have a guaranteed minimum income?  Roosevelt’s 4 freedoms  A right to health care?  A right to food and shelter?  A right to other basic needs?

Your views  Should we have more income tax?

Your views  Should we have more progressive income tax?  What’s the tax rate for hedge fund managers?  Should we have more progressive income tax?  What’s the tax rate for hedge fund managers?

 Should we cap incomes?  View of Plato and Ben and Jerry  Actual status: Average CEO  Economic rights vs. political rights  Social obligations vs. individual rights  Should we cap incomes?  View of Plato and Ben and Jerry  Actual status: Average CEO  Economic rights vs. political rights  Social obligations vs. individual rights

Basic Principles  People keep what they produce with the sweat of their brows  Wealth created by nature and society distributed equally  Public goods replaced with public goods  Negative externalities of inequality are internalized  Those who benefit most from government services pay the most  One of the most important services of government is the protection of private property

Natural resources: redistributing Rent  Rent= unearned income  Land- rent  Non-renewables- user cost  Renewables- natural dividend

The land tax

Non-renewables: capturing rent  Ricardian rent = total revenue-total extraction cost  Scarcity rent = value arising from scarcity  Investment in substitutes  Salah El Serafy, 1989, “The Proper Calculation of Income from Depletable Natural Resources”, in Environmental Accounting for Sustainable Development, edited by Yusuf J. Ahmad, Salah El Serafy, and Ernst Lutz, Washington D.C., World Bank.  Alaska permanent trust

Weak Sustainability: oil to income

Renewable resources: the natural dividend

Renewable resources: ecosystem services  Who owns them?  Pollution taxes  Taxes on ecological degradation?  Who should be compensated?  VCAT, Sky trust  How do we compensate the future?

Financial Capital: Interest and Seignorage  What is seignorage?  Reserve requirements  Who should get it?  Ithaca hours