Truly extreme gaps in income and wealth could arise from many causes. Consider just a few: Innovations in robotics and artificial intelligence, which are already making many jobs uncompetitive, could lead us into a world in which basic work with decent pay becomes impossible to find. An environmental disaster like global warming, pollution or disease could sharply reduce the ability of people of ordinary means to live in specific regions or entire countries.
Future wars using ever more highly destructive technology, including chemical, biological, radiological or nuclear weapons, could devastate vast populations. And it’s not out of the question that dire political changes, like the rise of racist or otherwise exclusionary social structures, could have terribly damaging consequences for less privileged people.
Of course, I dearly hope none of these things ever happen. But even if they are unlikely, as part of our progress to a better world, we should be thinking now of how we might address them.
The current presidential campaigns in the United States have not really touched on long-range issues like these. The campaigns have instead been focused primarily on short-term concerns, and on issues facing people of middle income instead of those in extreme poverty.
The private sector isn’t helping much, either. It has not gone very far in developing insurance or hedging markets to protect against these risks. That raises an important question: Can we depend on the benevolence of society to compensate and care for those who would lose out if dire events actually happened?
One way to judge the likely outcome is to look at what has happened in the past. In their new book “Taxing the Rich: A History of Fiscal Fairness in the United States and Europe” (Princeton 2016), Kenneth Scheve of Stanford and David Stasavage of New York University looked at 20 countries over two centuries to see how societies have responded to the less fortunate. Their primary finding may seem disheartening: Taxes on the rich generally have not gone up when inequality and economic hardship have increased.
Instead, they found that taxes tend to rise when warfare increases, largely “because war mobilization changed beliefs about tax fairness.” These tax changes were generally aimed at ensuring national survival, not correcting economic inequalities.
Professor Scheve and Professor Stasavage found that democratic countries have not consistently embraced more redistributive tax policies, and most people do not vote strictly in their narrow self-interest. As the right to vote broadened through the centuries, for example, and people without property began to vote, they did not consistently act to tax the rich. These findings run counter to a popular narrative. Recall that in 2012, Mitt Romney said that in a democracy, a candidate who offers tax breaks to the less well-off at the expense of the rich will win mass support “no matter what.” That claim does not appear to be supported by the historical record.
Instead, it appears that, for better or for worse, the majority of people share simple notions of entitlement and fairness. Professor Scheve, Professor Stasavage and their colleagues found that in 2014, when people in the United States were asked what marginal tax rates they would “most like to see” on family incomes of $375,000, the median answer was 30 percent, with the bulk of answers ranging from 20 percent to 40 percent. (The federal marginal tax rate for that income is 33 percent.)
This is consistent with my own survey results, which focused on inheritance taxes. In 1990, Maxim Boycko, then with a Moscow think tank, the Institute of World Economy and International Relations, and I asked both New Yorkers and Muscovites: “In your opinion, what inheritance tax rate for really wealthy people do you think we should have?” The average answers in the two cities were virtually identical: 37 percent in New York, 39 percent in Moscow. Taxing around a third of wealth, more or less, seemed fair to people. And perhaps it is reasonable, in the abstract, yet what will we do in the future if this degree of taxation won’t produce enough revenue to meaningfully help the very poor as well as the sagging middle class?
Along with nine other economists, I contributed to a project that engaged in really long-term forecasting. The results appeared in a book edited by Ignacio Palacios-Huerta of the London School of Economics: “In 100 Years: Leading Economists Predict the Future,” (M.I.T., 2013). None of us expressed optimism that inequality would be corrected in the future, and none of us ventured that any major economic policy was likely to counteract recent trends.
For example, Angus Deaton of Princeton, commenting on what he called the “grotesque expansions in inequality of the past 30 years,” gave a pessimistic prediction: “Those who are doing well will organize to protect what they have, including in ways that benefit them at the expense of the majority. ” And Robert M. Solow of M.I.T. said, “We are not good at large-scale redistribution of income.” Both Professor Deaton and Professor Solow are fellow Nobel laureates.
No one seems to have an effective plan to deal with the possibility of much more severe inequality, should it develop. In the disturbing book “Poverty and Famines: An Essay on Entitlement and Deprivation,” (Oxford, 1983) Amartya Sen, a Harvard professor, documented an extraordinary thing: In each of four devastating famines in different parts of the world, there was enough food to keep everyone alive. The problem in each case was that the food was not shared adequately. Systems of privilege and entitlement permitted hoarding of food by people of status whose lives went on much as usual, except that they had to brush off starving beggars and would occasionally see dead bodies on the street.
Satyajit Ray’s 1973 movie “Distant Thunder” depicted one of those terrible episodes, the Bengal famine of 1942-43. Millions died, almost all from the lower echelons of society. Among the privileged classes, only the most moral seemed to find the situation troubling enough to help in a significant way.
Despite past failures, we should not lose hope in our ability to improve the world. In a recent column, I described ways in which society might change a deep-rooted sense of entitlement by radically broadening wage and job insurance. Such a program would be a start in getting us prepared to deal with some of the immense challenges that may lie ahead.