Today’s Inequality Could Easily Become Tomorrow’s Catastrophe

Robert Shiller:

Today’s Inequality Could Easily Become Tomorrow’s Catastrophe: Economic inequality is already a concern, but it could become a nightmare in the decades ahead, and I fear that we are not well equipped to deal with it. ...

One way to judge the likely outcome is to look at what has happened in the past. ...Kenneth Scheve ... and David Stasavage ... 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 has increased. ...

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. ...

This is consistent with my own survey results, which focused on inheritance taxes. ... 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? ...

Angus Deaton..., 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 ... said, “We are not good at large-scale redistribution of income.” ...

No one seems to have an effective plan to deal with the possibility of much more severe inequality, should it develop. ...

Despite past failures, we should not lose hope in our ability to improve the world. ...