MacroScope

Another panel, another group of rich guys talking about income inequality in America.

That seemed to be a running theme of the Milken Global Conference by the time Tuesday afternoon rolled around in Los Angeles – particularly when the well-known and notably tart Harvard historian Niall Ferguson took to the stage to decry single welfare moms as lazy drags on society.

Ferguson was responding to comments made by Jeff Greene, the billionaire real estate investor and Democrat who lost (badly) a 2010 bid to represent Florida in the Senate.

Greene recalled a single mother with five children he met on the campaign trail. She was fat (“over 300 lbs”) and depended on a welfare check of just over $600 to put food on the table for her kids, once numbering five. But one kid died in a gang fight, another was locked up and two others were involved in gangs and the drug trade, Greene recalled.

“She could barely take care of herself, much less her kids,” he said, resigned to the idea that this unnamed woman would never work or even attempt to work, much less wean herself off welfare.

By J. Bradford DeLong
The opinions expressed are his own.

Via a circuitous Internet chain – Paul Krugman of Princeton University quoting Mark Thoma of the University of Oregon reading the Journal of Economic Perspectives – I got a copy of an article written by Emmanuel Saez, whose office is 50 feet from mine, on the same corridor, and the Nobel laureate economist Peter Diamond. Saez and Diamond argue that the right marginal tax rate for North Atlantic societies to impose on their richest citizens is 70%.

It is an arresting assertion, given the tax-cut mania that has prevailed in these societies for the past 30 years, but Diamond and Saez’s logic is clear. The superrich command and control so many resources that they are effectively satiated: increasing or decreasing how much wealth they have has no effect on their happiness. So, no matter how large a weight we place on their happiness relative to the happiness of others – whether we regard them as praiseworthy captains of industry who merit their high positions, or as parasitic thieves – we simply cannot do anything to affect it by raising or lowering their tax rates.

The unavoidable implication of this argument is that when we calculate what the tax rate for the superrich will be, we should not consider the effect of changing their tax rate on their happiness, for we know that it is zero. Rather, the key question must be the effect of changing their tax rate on the well-being of the rest of us.