It certainly is conventional wisdom that “taxes and the safety net” should be the primary means for redistribution while redistributive regulation is an ill-conceived “bank shot.” But I usually don’t go to Matt Yglesias’ substack for conventional wisdom. In any case, Zach Liscow (Yale Law School economist) has an interesting paper suggesting otherwise: Worth reading! https://law.yale.edu/sites/default/files/documents/faculty/papers/liscow_-_redistribution_for_realists_2020-08-03.pdf
One thing which I think we don’t talk about is jobs where the value scales. A surgeon heals a person at a time. A cybersecurity specialist at a large-ish bank will protect 70 million people at a time. Over time, I’d expect people who are providing more value to be paid more and this will expose the underlying structure of scaled value leading directly to pre-distribution inequality - which is fundamentally “fair” in that scaled work adds a lot of value to a lot of people’s lives.
Your average taxi driver knows there way around better than your average Uber driver in NYC but Uber is just more convenient (especially outside of Manhattan) and the cab industry does not deserve government protection.
Sorry, you can't have what you call neo-liberalism without all the severe political distortions that come with it. Those distortions economically empower the wealthy who then use their wealth to seize all political power for themselves. You seem to understand this from the Bush election. You also simply ignore the vast damage that neo-liberalism has done to our democracy and to our economy.
I know it's not the point of your article but it seems to me that a lot of these startups like Uber look like they are engaging in monopolistic practices. The whole principle is to use large amounts of investor capital to provide a product that is cheaper and drive up market share even though they are losing money the whole time. Then once they dominate the market they jack up prices so they can actually make money. Does that really seem like behavior that should be encouraged?
The reason why centrists are never going to convince more left-leaning people of the centrist/center-right idea that the US system is more distributive is left-leaning people can look at countries in Europe and see a bunch of things done in Europe that are distribrutive.
Plus, as noted, a lot of that distribution is, "we'll overpay for health services if you need it," which while good, it's not like we'd be actually less redistributive to the person on the ground if government rate-setting forced a CAT scan or prescription drug to be closer in cost to what it costs under European or Japanese health care regimes.
Like, is the US now less redistributive because insulin is now $35. By the math, kind of?
The problem is the US already pays more for health care per capita than Europe, by a lot. The US already decided to overpay for health care it needs by a lot! You (leftists) need to convince the rest of the country that you’re going to do something worthwhile with our money instead of throwing it onto the flaming money pile and celebrating that it was spent.
I think it's worth highlighting that these carveouts are not necessarily even redistributional. In California the lobby representing builder's unions opposes the use of modular housing in all public contracts. The effect of this is that a single unit of supportive housing in SF is one million dollars as opposed to five hundred thousand dollars. I really struggle to see how they justify this to themselves--basically they're arguing that their jobs are more important than the lives of people living on the street. But this is how politics works. Interests groups are created to look out for the interests of their members and for nobody else. In some cases the carveouts that we make for them only come at the expense of "the rich", but not always, and caving to these interests on every occasion leads to the sort of "everything bagel" progressivism that people now decry.
The narrative is that NIMBYism has good political economy: established homeowners don’t typically have that much income, since it wasn’t necessary when they bought in. They gains they have seen aren’t really gains for them, either, since the neighborhood price level has risen proportionally and they are entitled to similar quality housing in the same location. But as the neighborhood price level rises, the wage incomes of the people who can move in are increasingly obscene (a place to live is not neutral for THOSE people), and it becomes even more morally urgent to redistribute them as hard as possible towards real community members.
"The “neoliberals” think you should try to address individual issues on the merits and deal with distributional concerns separately through tax policy and the welfare state. The anti-neoliberals think this is misguided, and a big part of how they’ve persuaded more people to join their team is by convincing them that the “address distributional concerns separately through tax policy and the welfare state” is impossible to execute on."
I'm not sure the anti-neoliberals are wrong here. To use your Uber example, where are your solutions to the problems you raise? The gas tax hasn't been raised in 30 years, a carbon tax was a nonstarter, and the best attempt at congestion pricing in the one city possibly suited for it just died an ignoble death. It looks like all the negative externalities created just sailed on through without any pushback.
At some point, is there a difference between "address the concerns separately" and the conservative philosophy of "cut taxes now, and cut spending later when the deficits force us to?" If the second step never happens, and the rest of your piece suggests it only happens in fits and starts when one part holds the presidency and both houses of Congress, is it a workable philosophy?
The anti-neoliberals think this is misguided, and a big part of how they’ve persuaded more people to join their team is by convincing them that the “address distributional concerns separately through tax policy and the welfare state” is impossible to execute on.
Matt points out that this was wrong. To me, even if it's true, the question is why is it impossible? Why makes this so unpalatable to voters? And if it's unpalatable, why do the "smart progressives" shy away from persuasion, expanding their coalition, and generating the mandate for change. This goes back to one older post where someone noted how the progressive left fundamentally doesn't want to be honest with the voters and this in itself is deceptive, just like Trump's stance on abortion (and so many others).
One important problem with US healthcare is opportunity costs. When the US spends 18% of GDP on healthcare vs. 9-13% in most countries with single payer systems (often with better measurable outcomes), there’s a massive impact that ripples throughout the economy. I personally don’t care whether I spend that money on taxes or insurance costs: if you cut my costs overall, I have money available to use elsewhere.
Redistributive taxation? I’m going to sneak in another plug for my favorite tax idea:
Instead of an endless tug of war over marginal tax rates, you could unite the left and right by replacing the income tax (in fact, all taxes) with the Land Value Tax – as the name implies, a tax on the value of land, but not buildings (not a “property” tax).
Advantages:
- Simple to define and enforce. The tax would be “x” percent of assessed land value, no exceptions. You can try to hide income, but you can’t hide land.
- Progressive and pro-growth. The wealthy owners of high-priced land would provide a disproportionate share of the revenue, but the marginal tax on income would be ZERO – a win-win for both “progressives” and market advocates.
The philosophy - Henry George (look him up; no, he's not a Substack author) believed that the money you earn from your business or labor belongs to you 100%, but the value of your land is due not so much to your own efforts but to the value of the surrounding community and is therefore fair game to be taxed to support that community. And “community” can be defined as your neighborhood, your state or the entire country.
The land value tax doesn't have enough revenue potential to replace all taxes. It's nondistortionary but it's not free--it decreases land values so its revenue potential is self-limiting.
If my math is right, taxing all private land in the US at an average of 19 cents a square foot would raise $12 trillion, which is roughly equal to the combined budget of the federal government and all state and local governments.
The value of a parcel of land is based on “location, location, location”.
LVTs don't work by setting a flat tax based on land area (which would be distortionary because low-value land would become a negative-value tax liability source that nobody wants to own); they tax a percentage of land value. The value of land is its cash flows plus its consumption value (appropriately discounted). A tax liability is a negative cash flow so mechanically it reduces land value, which in turn reduces how much revenue you get from the tax.
Georgism is great, but I personally think the distortions caused by high marginal income tax rates are good actually.
People should be pushed to work fewer hours and consume more leisure. Higher household leisure consumption is pro-natalist, environmentally green, and prosocial. Higher leisure consumption in good times gives us more room to expand labor supply as needed in bad times.
High marginal income tax rates encourage wage compression, which creates a more egalitarian society, and it mutes wasteful status competition in material goods.
The fact that you can get paid a lot of money by getting very good at something is good, actually. We shouldn't be going out of our way to encourage mediocrity.
I've never been overly ambitious. I've been content with a corporate cubicle career that provided decent pay and a reasonable work/life balance. But where would we be without the folks who are willing to put in the long hours to start new businesses and invent new technologies? If you take risks and accomplish Big Things, I don't begrudge you your rewards.
Of course, if you make your fortune from wheeling and dealing in real estate, then my friend Henry wants to have a word with you.
That argument makes intuitive sense, but I dunno, TFP growth was pretty good in the 50s and 60s when top income tax rates were very high.
If you can't boost long-run TFP growth with lower top rates, you're only trading off between leisure and income now, and I think there are structural reasons to think we'll get too much income and not enough leisure if we don't intervene.
Back then movie stars became "producers" so they could take their compensation in (lower taxed) capital gains. Only a fool put much effort into earning income that would be taxed at 90%. And if fools were rich, I'd be mooching off my brother-in-law instead of the other way around.
Yeah, I’m sure there was a fair amount of tax avoidance, but I don’t think people were 100% successful at working the same amount and just shifting their labor compensation into lower tax channels. Inequality was a lot lower back then, presumably in part because some rich people responded to 90% top tax rates by just working less.
Inequality was a lot lower back then because the cleverest guy on the production line could maybe assemble his personal quota of widgets 3% faster... now he's a software engineer typing out a 3% optimization for all of Meta's 3 billion users.
So, if I understand your argument, you don’t see graduated tax rates as a revenue device, your message to high achievers is to slow down, take it easy?
But back to Georgist thought, a major source of inequality is the unearned wealth from land ownership.
The article gives the impression that over the course of US history, inequality has ping-ponged but has become increasingly more egalitarian. That's not true. Though inequality peaked in 2018, the US has nowhere near the amount of economic equality that existed prior to the Reagan Revolution.
I think this chart should help contextualize this conversation:
I don’t think he’s claiming it became more egalitarian - he’s claiming that the poor have been getting better and better lives, through both participating in economic growth and getting more redistributive aid, even though there is so much growth that inequality is still going up.
"Jimmy Carter and large Democratic majorities weren’t able to accomplish much in the late-1970s, in part because a shitty macroeconomic situation made it very challenging to do anything programmatic. And I think it’s actually what the current crop of very smart people are missing."
The first step to success in life is to get the macroeconomics right.
I'm disappointed this series hasn't addressed the growth of the FIRE sector, which now comprises more than 20% of the GDP, and is disproportionately responsible for growing the wealth of the super-rich. Why has this become a bigger chunk of the GDP, and does it improve consumer utility commensurate with the amount of resources that are dedicated to that sector? Why have asset values, mainly stocks and land, appreciated so much faster than the GDP has grown? I think any analysis of neoliberalism that isn't focused around finance and asset values is really missing the ways our economy has transformed.
By far my favorite thing about Uber, as a customer, is that it aligns the incentives of the driver with mine. Uber drivers have an incentive to get you where you are going as fast as possible. Taxi drivers often have an inventive to keep the meter running as a long as possible. I have been overcharged so many times by taxi drivers, especially when visiting a new city.
I am not sure this is really that big a deal in terms of the overall economics, but I much prefer services where I don’t have to constantly interrogate whether the more-informed person sitting in front of me is trying to screw me.
Yes. Regarding interrogating incentives: the most eye opening thing for me was considering real estate agents.
The buyer's agent and the seller's agents are the two parties in the transaction that have exactly aligned goals. They both want the transaction to occur at the maximum possible price. Failing that, they just want to get the transaction over with.
While even $50,000 is a lot of money to the buyer or the seller, to the real estate agents involved, that represents maybe a few thousand dollars each ($50k * 0.03). So, as a real estate agent, do you really want your client to put their foot down over $50,000 when you could sew things up and just take the $20-50K plus commission that's coming your way depending on the transaction price, stop having to put time into moving the property, and move onto another listing where you can make another $20-$50k?
Yeah, I'll never forget the first time I bought a condo my agent trying to inch me upward just to get the transaction over when I clearly had the leverage and was going to get it at the current price anyway. Infuriating.
It certainly is conventional wisdom that “taxes and the safety net” should be the primary means for redistribution while redistributive regulation is an ill-conceived “bank shot.” But I usually don’t go to Matt Yglesias’ substack for conventional wisdom. In any case, Zach Liscow (Yale Law School economist) has an interesting paper suggesting otherwise: Worth reading! https://law.yale.edu/sites/default/files/documents/faculty/papers/liscow_-_redistribution_for_realists_2020-08-03.pdf
I like this article more the more I re-read it.
One thing which I think we don’t talk about is jobs where the value scales. A surgeon heals a person at a time. A cybersecurity specialist at a large-ish bank will protect 70 million people at a time. Over time, I’d expect people who are providing more value to be paid more and this will expose the underlying structure of scaled value leading directly to pre-distribution inequality - which is fundamentally “fair” in that scaled work adds a lot of value to a lot of people’s lives.
Your average taxi driver knows there way around better than your average Uber driver in NYC but Uber is just more convenient (especially outside of Manhattan) and the cab industry does not deserve government protection.
Sorry, you can't have what you call neo-liberalism without all the severe political distortions that come with it. Those distortions economically empower the wealthy who then use their wealth to seize all political power for themselves. You seem to understand this from the Bush election. You also simply ignore the vast damage that neo-liberalism has done to our democracy and to our economy.
I know it's not the point of your article but it seems to me that a lot of these startups like Uber look like they are engaging in monopolistic practices. The whole principle is to use large amounts of investor capital to provide a product that is cheaper and drive up market share even though they are losing money the whole time. Then once they dominate the market they jack up prices so they can actually make money. Does that really seem like behavior that should be encouraged?
The reason why centrists are never going to convince more left-leaning people of the centrist/center-right idea that the US system is more distributive is left-leaning people can look at countries in Europe and see a bunch of things done in Europe that are distribrutive.
Plus, as noted, a lot of that distribution is, "we'll overpay for health services if you need it," which while good, it's not like we'd be actually less redistributive to the person on the ground if government rate-setting forced a CAT scan or prescription drug to be closer in cost to what it costs under European or Japanese health care regimes.
Like, is the US now less redistributive because insulin is now $35. By the math, kind of?
The problem is the US already pays more for health care per capita than Europe, by a lot. The US already decided to overpay for health care it needs by a lot! You (leftists) need to convince the rest of the country that you’re going to do something worthwhile with our money instead of throwing it onto the flaming money pile and celebrating that it was spent.
I think it's worth highlighting that these carveouts are not necessarily even redistributional. In California the lobby representing builder's unions opposes the use of modular housing in all public contracts. The effect of this is that a single unit of supportive housing in SF is one million dollars as opposed to five hundred thousand dollars. I really struggle to see how they justify this to themselves--basically they're arguing that their jobs are more important than the lives of people living on the street. But this is how politics works. Interests groups are created to look out for the interests of their members and for nobody else. In some cases the carveouts that we make for them only come at the expense of "the rich", but not always, and caving to these interests on every occasion leads to the sort of "everything bagel" progressivism that people now decry.
The narrative is that NIMBYism has good political economy: established homeowners don’t typically have that much income, since it wasn’t necessary when they bought in. They gains they have seen aren’t really gains for them, either, since the neighborhood price level has risen proportionally and they are entitled to similar quality housing in the same location. But as the neighborhood price level rises, the wage incomes of the people who can move in are increasingly obscene (a place to live is not neutral for THOSE people), and it becomes even more morally urgent to redistribute them as hard as possible towards real community members.
"The “neoliberals” think you should try to address individual issues on the merits and deal with distributional concerns separately through tax policy and the welfare state. The anti-neoliberals think this is misguided, and a big part of how they’ve persuaded more people to join their team is by convincing them that the “address distributional concerns separately through tax policy and the welfare state” is impossible to execute on."
I'm not sure the anti-neoliberals are wrong here. To use your Uber example, where are your solutions to the problems you raise? The gas tax hasn't been raised in 30 years, a carbon tax was a nonstarter, and the best attempt at congestion pricing in the one city possibly suited for it just died an ignoble death. It looks like all the negative externalities created just sailed on through without any pushback.
At some point, is there a difference between "address the concerns separately" and the conservative philosophy of "cut taxes now, and cut spending later when the deficits force us to?" If the second step never happens, and the rest of your piece suggests it only happens in fits and starts when one part holds the presidency and both houses of Congress, is it a workable philosophy?
The anti-neoliberals think this is misguided, and a big part of how they’ve persuaded more people to join their team is by convincing them that the “address distributional concerns separately through tax policy and the welfare state” is impossible to execute on.
Matt points out that this was wrong. To me, even if it's true, the question is why is it impossible? Why makes this so unpalatable to voters? And if it's unpalatable, why do the "smart progressives" shy away from persuasion, expanding their coalition, and generating the mandate for change. This goes back to one older post where someone noted how the progressive left fundamentally doesn't want to be honest with the voters and this in itself is deceptive, just like Trump's stance on abortion (and so many others).
One important problem with US healthcare is opportunity costs. When the US spends 18% of GDP on healthcare vs. 9-13% in most countries with single payer systems (often with better measurable outcomes), there’s a massive impact that ripples throughout the economy. I personally don’t care whether I spend that money on taxes or insurance costs: if you cut my costs overall, I have money available to use elsewhere.
Redistributive taxation? I’m going to sneak in another plug for my favorite tax idea:
Instead of an endless tug of war over marginal tax rates, you could unite the left and right by replacing the income tax (in fact, all taxes) with the Land Value Tax – as the name implies, a tax on the value of land, but not buildings (not a “property” tax).
Advantages:
- Simple to define and enforce. The tax would be “x” percent of assessed land value, no exceptions. You can try to hide income, but you can’t hide land.
- Progressive and pro-growth. The wealthy owners of high-priced land would provide a disproportionate share of the revenue, but the marginal tax on income would be ZERO – a win-win for both “progressives” and market advocates.
The philosophy - Henry George (look him up; no, he's not a Substack author) believed that the money you earn from your business or labor belongs to you 100%, but the value of your land is due not so much to your own efforts but to the value of the surrounding community and is therefore fair game to be taxed to support that community. And “community” can be defined as your neighborhood, your state or the entire country.
The land value tax doesn't have enough revenue potential to replace all taxes. It's nondistortionary but it's not free--it decreases land values so its revenue potential is self-limiting.
If my math is right, taxing all private land in the US at an average of 19 cents a square foot would raise $12 trillion, which is roughly equal to the combined budget of the federal government and all state and local governments.
The value of a parcel of land is based on “location, location, location”.
LVTs don't work by setting a flat tax based on land area (which would be distortionary because low-value land would become a negative-value tax liability source that nobody wants to own); they tax a percentage of land value. The value of land is its cash flows plus its consumption value (appropriately discounted). A tax liability is a negative cash flow so mechanically it reduces land value, which in turn reduces how much revenue you get from the tax.
Georgism is great, but I personally think the distortions caused by high marginal income tax rates are good actually.
People should be pushed to work fewer hours and consume more leisure. Higher household leisure consumption is pro-natalist, environmentally green, and prosocial. Higher leisure consumption in good times gives us more room to expand labor supply as needed in bad times.
High marginal income tax rates encourage wage compression, which creates a more egalitarian society, and it mutes wasteful status competition in material goods.
The fact that you can get paid a lot of money by getting very good at something is good, actually. We shouldn't be going out of our way to encourage mediocrity.
I've never been overly ambitious. I've been content with a corporate cubicle career that provided decent pay and a reasonable work/life balance. But where would we be without the folks who are willing to put in the long hours to start new businesses and invent new technologies? If you take risks and accomplish Big Things, I don't begrudge you your rewards.
Of course, if you make your fortune from wheeling and dealing in real estate, then my friend Henry wants to have a word with you.
That argument makes intuitive sense, but I dunno, TFP growth was pretty good in the 50s and 60s when top income tax rates were very high.
If you can't boost long-run TFP growth with lower top rates, you're only trading off between leisure and income now, and I think there are structural reasons to think we'll get too much income and not enough leisure if we don't intervene.
Back then movie stars became "producers" so they could take their compensation in (lower taxed) capital gains. Only a fool put much effort into earning income that would be taxed at 90%. And if fools were rich, I'd be mooching off my brother-in-law instead of the other way around.
Yeah, I’m sure there was a fair amount of tax avoidance, but I don’t think people were 100% successful at working the same amount and just shifting their labor compensation into lower tax channels. Inequality was a lot lower back then, presumably in part because some rich people responded to 90% top tax rates by just working less.
Inequality was a lot lower back then because the cleverest guy on the production line could maybe assemble his personal quota of widgets 3% faster... now he's a software engineer typing out a 3% optimization for all of Meta's 3 billion users.
So, if I understand your argument, you don’t see graduated tax rates as a revenue device, your message to high achievers is to slow down, take it easy?
But back to Georgist thought, a major source of inequality is the unearned wealth from land ownership.
Oh, I think the median Slow Borer is well aware of Georgism and its merits.
The article gives the impression that over the course of US history, inequality has ping-ponged but has become increasingly more egalitarian. That's not true. Though inequality peaked in 2018, the US has nowhere near the amount of economic equality that existed prior to the Reagan Revolution.
I think this chart should help contextualize this conversation:
https://data.worldbank.org/indicator/SI.POV.GINI?locations=US
I don’t think he’s claiming it became more egalitarian - he’s claiming that the poor have been getting better and better lives, through both participating in economic growth and getting more redistributive aid, even though there is so much growth that inequality is still going up.
Maybe you're right. But I thought he included a chart showing that income inequality had gone down.
"Jimmy Carter and large Democratic majorities weren’t able to accomplish much in the late-1970s, in part because a shitty macroeconomic situation made it very challenging to do anything programmatic. And I think it’s actually what the current crop of very smart people are missing."
The first step to success in life is to get the macroeconomics right.
I'm disappointed this series hasn't addressed the growth of the FIRE sector, which now comprises more than 20% of the GDP, and is disproportionately responsible for growing the wealth of the super-rich. Why has this become a bigger chunk of the GDP, and does it improve consumer utility commensurate with the amount of resources that are dedicated to that sector? Why have asset values, mainly stocks and land, appreciated so much faster than the GDP has grown? I think any analysis of neoliberalism that isn't focused around finance and asset values is really missing the ways our economy has transformed.
Well he did talk about the RE part, but I am interested in the FI part too.
Not doubting you I just don’t know what you mean when you say FIRE comprises more than 20% of GDP. Is there a source I can read about that?
Very good point, and I wish Matt would address this. Maybe invite Noah Smith for an interview?
By far my favorite thing about Uber, as a customer, is that it aligns the incentives of the driver with mine. Uber drivers have an incentive to get you where you are going as fast as possible. Taxi drivers often have an inventive to keep the meter running as a long as possible. I have been overcharged so many times by taxi drivers, especially when visiting a new city.
I am not sure this is really that big a deal in terms of the overall economics, but I much prefer services where I don’t have to constantly interrogate whether the more-informed person sitting in front of me is trying to screw me.
Yes. Regarding interrogating incentives: the most eye opening thing for me was considering real estate agents.
The buyer's agent and the seller's agents are the two parties in the transaction that have exactly aligned goals. They both want the transaction to occur at the maximum possible price. Failing that, they just want to get the transaction over with.
While even $50,000 is a lot of money to the buyer or the seller, to the real estate agents involved, that represents maybe a few thousand dollars each ($50k * 0.03). So, as a real estate agent, do you really want your client to put their foot down over $50,000 when you could sew things up and just take the $20-50K plus commission that's coming your way depending on the transaction price, stop having to put time into moving the property, and move onto another listing where you can make another $20-$50k?
I don't know how things have shaken out yet, but maybe after that big court case buyer's agents will change their pricing model. https://www.cnn.com/2024/03/15/economy/nar-realtor-commissions-settlement/index.html
Yeah, I'll never forget the first time I bought a condo my agent trying to inch me upward just to get the transaction over when I clearly had the leverage and was going to get it at the current price anyway. Infuriating.