Opinion

Edward Hadas

Shhh – don’t talk about higher taxes

Edward Hadas
May 7, 2014 14:53 UTC

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Many people assume that tax increases are the only realistic response to excessive income inequality. They are wrong. There is a better way.

The International Monetary Fund first came out in favour of greater “redistribution,” a code word for higher taxes, in February. It joins the Organisation for Economic Co-operation and Development, which issued a big document decrying the privileged position of the richest residents of rich countries in 2011. The OECD has just called for “policies to restore equal opportunities,” another code for higher taxes.

The IMF and OECD certainly are not alone. This year, Thomas Piketty’s “Capital in the 21st Century” has been at the top of best-seller lists. The French economist has helped popularise the idea that an overly privileged “1 percent” needs to be restrained. His main proposal? The elite should pay more in taxes.

Income inequality is worth worrying about. Ethically, pay levels should bear some relation to the worker’s actual economic contribution. Of course, the value of work cannot be measured precisely. But success in the modern economy is too much of a group effort for bosses to be paid massively more than other employees. The rapidly increasing rewards for top executives, identified by Piketty as the main source of increasing inequality in the United States and other rich countries, are unjust.

Wealth buys less lifestyle, more power

Edward Hadas
Apr 2, 2014 14:39 UTC

Many serious people think economic inequality in the United States and other developed economies should be a hot political topic. But the general public hardly cares. There is a bad reason behind lack of public interest.

President Barack Obama said last December that a “dangerous and growing inequality” is “the defining issue of our time,” but the most recent Gallup poll suggests that view is not widely shared. Only 3 percent of Americans chose the “gap between rich and poor” as the country’s “most important problem” and 4 percent went for poverty. Unemployment scored 19 percent.

The American indifference is surprising because the measured increase in inequality there has been relatively large by international standards, to judge from the recent Chartbook of Economic Inequality from the Institute for New Economic Thinking at the Oxford Martin School. But the lack of concern is widespread. Neither help-the-poor nor soak-the-rich politicians have gained much traction in any rich country.

China’s wisdom on GDP growth

Edward Hadas
Jul 3, 2013 12:10 UTC

“We should no longer evaluate the performance of leaders simply by GDP growth. Instead, we should look at welfare improvement, social development and environmental indicators.” That is a fine piece of wisdom from Xi Jinping, China’s president. Leaders of developed economies can learn from it.

Xi was speaking to a domestic audience about the choice of leaders within the ruling Communist Party. The desire for people who are “devoted fighters for the socialism with Chinese characteristics” is distinctly local, but Xi identified a fact which transcends all Chinese characteristics: GDP is a poor measure of economic progress.

Actually, for China, GDP is modestly helpful. In a country still so poor, increases in output correlate well with genuine economic improvements: factories and farms producing more and better goods, enterprises offering more and better services, and so on. Still, Xi is right that China is ready to outgrow this crude indicator. The idea is all the more relevant in richer economies, where GDP growth is a terrible measure of economic progress.

Who suffers in the U.S. economy?

Edward Hadas
Sep 26, 2012 14:31 UTC

Barack Obama and Mitt Romney put the economy at the top of their campaign agendas. They have both focused primarily on labour – the high rate of unemployment. The attention is deserved, but other parts of the economy should not be ignored. There is the worrying decay of the nation’s capital stock – the physical, social and financial infrastructure. There is also something wrong in the consumption side of the economy, but there is a heated debate on just what the problem is.

Many commentators believe that the middle class, which makes up the bulk of the population, has a big problem: a decline in living standards. After all, the Census Bureau reports that the $50,054 median household pre-tax income in 2011 was 9 percent below the all-time peak, adjusted for inflation, reached 12 years earlier. That decline in income is so large that it must have led to some erosion in the typical family’s consumption.

Even if purchasing power really had declined by a few percent, the slide was from such a high starting place that loud complaints about deteriorating lifestyles would be unseemly. In fact, though, the median income measure distorts consumption reality. It omits services received without cost, for example healthcare provided by the government and insurers. It excludes the effects of changing taxes and shrinking household sizes. It underestimates the value of technological improvements – think mobile phones and the internet – and of the vast expansion of new, now-cheaper housing during the bubble.

Remembering the 1960s

Edward Hadas
Sep 19, 2012 14:28 UTC

Revolution was not on the agenda when the Second Vatican Council of the Catholic Church opened on Oct. 11, 1962, almost exactly 50 years ago. However, the gathering marked the start of a new era, not only for the world’s largest centrally-run religion. During the following years, the hope for a better, freer world led to everything from the sexual revolution to the Prague Spring, from African independence to the hippie culture of Woodstock. A half-century on, it seems a good time for an economist to take stock.

The economy was not the top concern of the ’60s would-be revolutionaries, but calls for a new society had two revolutionary economic implications.

First, like so many other parts of the established order, the economic “system” was to be overthrown. The target was clear enough in Eastern Europe – the Communist planned economy. Elsewhere, the economic villain was harder to pin down, although it was often assumed that “capitalism” was intrinsically evil – heartless corporations and excessive materialism in the West and post-colonial exploitation in the Third World. It was time for radical change; if not a return to some imagined pre-industrial communal paradise then at least a massive refusal to become cogs in the machine. It hardly seemed to matter then that dissidents in the East were longing for what protesters in the West were loathing.

Tame the persistent elites

Edward Hadas
Aug 8, 2012 14:09 UTC

It is circa 1900. A young girl from a simple fishing village has been sold as a ’practice wife’ to the Bendoro, or local lord. When the Bendoro tires of her and expels her from his house, the girl retires from his presence the way peasants are supposed to: backwards, and on her knees.

The scene is from the novel “The Girl from the Coast”, and is based on the life of the grandmother of the Indonesian author, Pramoedya Ananta Toer. The girl suffered because the absolute authority of a petty local ruler and the accompanying indignities were considered normal. And this in a land which, by the standards of the age, was relatively refined. The Bendoro’s rules did not hold in the Netherlands, which ruled the land, but many Europeans would have shared his belief that sharp social stratification was part of the natural order of things. The Victorian author of All Things Bright and Beautiful, the childrens-favourite hymn, expressed the same sentiment a few decades earlier: “The rich man in his castle, the poor man at his gate, God made them, high or lowly, and ordered their estate.”

Times have changed. Pramoedya’s story comes from a vanished world, one in which the privileged elites were considered superior beings to the masses of ’ordinary people’. To the modern reader, the Javanese peasant bride’s humility looks demeaning and disgusting, not pre-ordained. The Bendoro’s worldview has been superseded by that of the Universal Declaration of Human Rights, which takes it as self-evident that, “all human beings are born free and equal in dignity and rights”. And the verse about “the rich man in his castle” is usually excluded from editions of modern hymnals.

The two sides of inequality

Edward Hadas
Nov 23, 2011 15:30 UTC

Around 100 BC, a Roman nobleman calculated that it took about 100,000 sesterces a year to live comfortably. That was roughly 200 times the amount of money a poor city dweller needed to eke out a living. If an American needed the same multiple of the subsistence income to join the upper middle class today, the threshold would be $3.5 million. The United States economy has become less equal lately, but it remains much more egalitarian than the ancient Roman Republic.

The modern news on economic inequality is much more good than bad. The good news is very good. The greatest moral problem caused by inequality – the unequal access to the most basic economic goods, those which support life – has become less severe. The portion of the total population that suffers from this bottom-inequality is probably the lowest ever in history.

True, we do not know how many ancient Romans were on the wrong side of the bottom-inequality, but statistics for the most recent decades are encouraging. In 1970, 26 percent of the world’s population suffered from hunger, according to the UN’s Food and Agriculture Organisation. The proportion is now 13 percent – still scandalously high, but the gain in food-equality is clear. Nor is food an isolated example. Electricity is a relative new development, but the Soviet dream of universal electrification has already nearly become a reality; more than 80 percent of the world’s population can plug in, according to the International Energy Agency. Health care and sanitary living conditions are now considered basic goods – and access to them has become more equal. The average life expectancy at birth is 65 or above in countries accounting for roughly 80 percent of the world’s population.

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