America Is Forgetting Why We Share Things
On many days, I’ve gotten up in the morning, taken a shower with clean city water, and walked outside on a well-kept sidewalk. Breathing clean fresh air, I would stroll through a nice park, board a convenient train and head to work. It’s a great way to start the day. And the amazing thing is, except for a couple of dollars to buy a train ticket, I didn’t pay for any of it.
Or at least, not directly. I pay taxes, directly and indirectly. But the services I consumed were not priced. They were provided by the government. My ability to enjoy sunshine and air unclouded by coal smoke, to enjoy the park, and to ride the train are the same whether I’m a billionaire or a pauper. In the lingo of economists, these things are public goods and public services.
Economists care about public goods because there are good reasons to think that these things won’t be provided in sufficient quantities unless the government gets involved. But there’s another reason to care about public goods. They represent a real kind of social wealth that isn’t counted in the official statistics. And that means that by providing more public goods, governments can fight rising wealth inequality.
In the U.S. in recent years, the share of private wealth owned by the lower 90 percent of the distribution -- in other words, most Americans -- has been falling:
This is a pretty extreme number -- the bulk of Americans, combined, own less than a quarter of all the wealth in the private sector. That bottom 90 percent includes young people who are just getting started in life, and haven’t had time to build up wealth yet, so the numbers aren’t quite as dire as they appear. Still, the fall in the bottom 90 percent’s share over the past decade should have everyone concerned.
QuickTake Income Inequality
The most commonly recommended solution to this problem is a wealth tax. Economists Thomas Piketty and Gabriel Zucman, who study inequality, have suggested this. It's an interesting idea, especially because some theorists have reason to believe that wealth taxes can also improve productivity. The two main kinds of wealth taxes that already exist are estate taxes and property taxes, both of which have additional reasons to support them -- estate taxes seem fair to many people, while property taxes can help reduce the power of urban landowners.
But then there’s the question of what to do with the tax money. Should it be redistributed to people directly with a universal basic income or an earned income tax credit? These would certainly improve many people’s day-to-day lives, but there’s reason to think that direct cash giveaways are unlikely to change the wealth distribution in the long run. The reason is that over time, the distribution of private wealth is determined by savings rates. And rich people save more than poor people:
So even as taxes would help make the wealth distribution more equitable, savings rate differentials -- and other forces, such as the higher rates of return rich people tend to earn on their savings -- tend to restore the original distribution. It’s also possible that giving people more money would lower their savings rates even further, as they spent their government checks. That’s good for improving poor people’s lives, but it won’t reduce inequality.
But there’s another option if you want to move society toward a more equal distribution of wealth -- public goods. Although the value of government-owned infrastructure and land, not to mention clean air and water, aren’t measured in private wealth statistics, they represent real wealth nonetheless. And the value these public goods represent can’t easily be spent down by individuals.
Better roads, light rail networks and broadband internet would be real wealth that all of society, rich and poor, could use equally. Public parks, beaches, hiking trails and other natural areas, protected from logging or other private exploitation, are a resource that can provide benefits to the entire populace. Cleaning up toxic waste and removing lead from water make vast swathes of the country healthier and happier.
Many in the U.S. seem to forget the benefits of public goods. Congress recently canceled an Obama-era rule preventing coal waste from being dumped in streams, and President Donald Trump has signed executive orders opening some federal lands to drilling, logging and mining. Meanwhile, although the president campaigned on a promise to increase infrastructure spending, he now seems committed to slashing funding.
If the U.S. is going to counteract the creeping rise in wealth inequality, it should be creating more public goods, not privatizing or eliminating the ones it has.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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