The President was right (though politically clumsy) to go after those luscious 529 college accounts

At the State of the Union, President Obama proposed limiting the tax advantages of 529 college savings accounts. If you’re an affluent college parent, you probably already know this. If you’re not a parent and/or you are not affluent, you probably said “Huh? What is a 529 account?” Which rather exemplifies the problem.

I have 529s for both of my daughters. I recommend these to all my friends with children. These accounts allow you to accumulate tax-free investment gains to help finance your kids’ college. These also provide a good mechanism for relatives to chip in on birthdays and holidays. Given time to accumulate interest, a few hundred dollars a year from Grandma can easily accumulate to cover a whole semester at a state college. 529s provide a convenient nudge to help you save more, too, though the net impact of such tax-advantaged savings vehicles appears to be quite limited.

The president’s proposal produced an entirely-predictable uproar among affluent families and within the industry of financial and college-savings advisors.  Leading Democrats such as Nancy Pelosi and Charles Schumer immediately ran from the proposal.  Political heat was so intense that President Obama was forced to beat a hasty retreat and to abandon the proposal….

Continue reading “The President was right (though politically clumsy) to go after those luscious 529 college accounts”

Mitt Romney Says the Thing That Is

Mitt Romney says more income inequality is “worse.” He probably doesn’t mean it, but his saying so is a BFD.

I notice that progressive bloggers and Tweeters are pointing and laughing at poor little Mitt Romney for his sudden outburst of populism. But it seems to me that, as pleasant as laughter is, what’s really called for is a smile of grim satisfaction. He has told the truth – albeit probably insincerely – and there’s every reason to hope that he and his party will come to regret it.

It is among the core Blue-Team beliefs  that the current level of income inequality is unjust, inefficient, and socially destructive, and that public policy should attempt to reduce the degree of inequality.

The Red team – up until today – has believed, or at least said, that market-driven inequality reflects natural differences in economic contribution and is therefore just, while taking from “producers” and “job creators” and giving to the “47%” is unjust, and that the great inequality of outcome maintains incentives and thus contributes to efficiency. They love to criticize redistributive policies as “class warfare” and emphasize the importance of making the pie bigger rather than carving it up more equally, along with (formal) equality of opportunity rather than equality of result.

So when Mitt Romney describes rising levels of disparity – the rich getting richer while the number of poor people increases – as “income inequality getting worse,” he is making a major rhetorical concession to the good-guy side.

Of course he doesn’t really believe it, but hypocrisy is the tribute vice pays to virtue. Once the GOP concedes the claim that, from where we stand now, more equality would be an improvement, I don’t think it’s hard for the Democrats to win the argument about whose policies would do better at moving money from the rich to the middle class and the poor.

If this White House event didn’t exist, Thomas Piketty would have to invent it

This White House event, chronicled in the New York Times, seems both politically astute and more than a little sickening.

From the fashion section, naturally
Blame the game, not the players….

Maybe my favorite part of the story comes from the reporter:

(Disclosure: Although the event was closed to the media, I was invited by the founders of Nexus, Jonah Wittkamper and Rachel Cohen Gerrol, to report on the conference as a member of the family that started the Johnson & Johnson pharmaceutical company.)

Poverty, inequality, and Public Health

IMG_3018Below are my comments on a panel held over the weekend in India to celebrate the opening of the University of Chicago’s new Delhi Center. Regular readers will recognize much of what’s here. I hope it is of interest.

Thank you very much for the opportunity to speak on this panel for such a special occasion.

I will use my time to discuss some linkages between poverty, inequality, and health. I do so with trepidation, since I can see some of my betters—James Heckman, Jean Dreze, and Martha Nusbaum to name a few—are here today in this audience.

It’s humbling for any American to speak on these topics when so many great Indian political economists have made fundamental contributions. Many of these men and women were motivated by their first-hand observation of famine, deep poverty, gender and caste inequality. These matters are fundamental in the efforts of the world’s largest democracy to address the post-colonial development challenges of one billion people.

These matters have wider application, as well. Scholars, policymakers, and citizens want to know whether, when, and why various forms of inequality harm the most vulnerable citizens. The truth is, inequality sometimes is harmful, sometimes not. The mechanisms are complicated, and often indirect. We can’t always tease them out, which doesn’t mean that they aren’t there.

My own work concerns domestic US poverty and public health policy. Even so, Amartya Sen’s Poverty and Famines: An Essay on Entitlement and Deprivation was probably the most important book of my graduate career. His combination of rigorous economics with a passionate commitment to equality and human flourishing was revelatory to me.

I assign my introductory microeconomic students a stylized problem modeled on Sen’s analysis of the Bengal famine. It’s a parable, of course. Like most parables, it’s been cleaned up a bit, crystalized to its essentials before inclusion in the sacred canon of economics problem sets. The basic mechanics remain useful to elucidate one possible pathway through which inequality can undermine public health…. Continue reading “Poverty, inequality, and Public Health”

How-are-the-mighty-fallen! dep’t: Bob McDonnell and the corruption that flows from inequality

The sad part about the McDonnell scandal is that the Governor of Virginia needed a Rolex as a status symbol.

I won’t pretend to be sad about the indictment of former VA Governor Bob McDonnell on corruption charges. If I have any compassion to spare, I’ll use it on the children of poor families in Virginia denied medical coverage by McDonnell’s refusal to accept Federal money to expand Medicaid. I hope McDonnell and Chris Christie share a prison cell and come out dedicated advocates for correctional reform.

But there’s one deeply, deeply twisted element to the story that ought to worry all of us. McDonnell was the Governor of Virginia, the successor of Jefferson. And he wanted a Rolex watch.

Now, I can understand a salesman who wants a Rolex to show that he’s a successful salesman. Money is how salespeople keep score, and without expensive wristwatches and suchlike how is anyone going to be able to tell a successful salesman from a wannabee? But if you’re the #$!@ing Governor of Virginia, what on earth do you need a Rolex for? As a status symbol? Isn’t t he title “Governor” pretty good status indicator?

One of the many problems that flows from increasing inequality of income and wealth is that the standards of the rich become the ruling standards. Mrs. McDonnell obviously felt that she would be disgraced if she appeared at her husband’s inaugural ball in the sort of dress an honest public servant’s wife could afford, when all the fundraisers’ wives – to say nothing of the female fundraisers – would be wearing a large fraction of the median annual household income. Does that excuse her committing extortion to get an Oscar de la Renta dress? Of course not. But it testifies to a corruption of manners that goes far deeper than corruption in office.

The extreme wealth of the rich is as great a public menace as the poverty of the poor, and great wealth is a greater problem than high income. Some of the way that money is made is destructive, and much of the way it is spent is even more destructive.

It would help if, at official functions such as inaugurations, our elected leaders and their families discouraged conspicuous waste among their guests and refrained from it themselves.

My $15 wristwatch from Target keeps excellent time, and – to my eye – looks pretty damned elegant.


But if I were a surgeon or an investment banker, I couldn’t afford to wear it. That, I submit, is a problem. And one part of the solution is for the President of the United States to wear, and let it be known that he wears, a cheap wristwatch. Not as important as restoring the estate tax, of course, but it’s a start, and it could be done tomorrow.

Update Lots of interesting ideas in comments. It’s certainly right that inequality increases the means of bribors as well as the vulnerability of bribees, but that’s a different point. It’s certainly wrong that status anxiety is simply “envy and spite,” though it might easily be a cause of envy and spite.

The most important point raised in commments that was missed in the original post is that one’s perceived need for display wealth depends strongly on one’s social group. If you hang out with rich folks, you look bad if you don’t have rich folks’ sort of stuff. The dominance of money in politics requires politicians to hang out with rich folks; otherwise they lose the “money primary” that filters the candidates in every election.

To apply this to my own case: If I were (which God forfend!) a dean rather than a professor, it would be professional malpractice for me not to drive a more expensive car and not to wear fancier clothes. And I doubt it would take long for my tastes to adjust to my behavior, to the point where I would feel ill-dressed in what I now regard as my go-to-meeting getup.

Yes, some people have tougher moral fiber than others: that’s a personal characteristic. How much strain is put on that fiber is a social question. Our current system increases the strain. That doesn’t keep me from disapproving of the McDonnells, but it does lead me to ask what we could do to decrease the pressures they felt and the pressures others similarly placed feel. That’s one reason the Clinton Global Foundation, for all its good works, creeps me out.

Voting and inequality

This election is a straight-up choice between a candidate who wants to raise taxes on the rich and a candidate who wants to keep cutting them. Isn’t it obvious that opponents of plutocracy ought to care deeply which candidate wins?

In an election year where one presidential candidate wants to raise taxes on the rich and the other wants to cut them, and immediately after near-party-line votes on whether to extend the Bush tax cuts for income above $250,000 a year, you’d think that Tom Edsall’s review of Joseph Stiglitz’s tract against inequality would acknowledge that the voters have a choice to make about the issue. But no:

Prospects for programs boosting public investment are virtually nil. Republicans stand a good chance of taking control of both branches of Congress after the next election. Their presumptive presidential nominee, Mitt Romney, may capture the White House. If so, his tax and regulatory proposals will most likely embody all that Stiglitz finds repugnant. Even if Romney loses, the American political system does not appear ready to respond to Stiglitz’s call to arms.

Yes, it’s true: due in part to the new system of campaign finance put in place by the Republican Supreme Court, even Democrats find their ability to legislate against plutocracy limited by their need to raise campaign funds from plutocrats. Simply re-electing Obama and keeping the Senate in Democratic hands won’t change that. But if Republicans manage to take both the Presidency and the Senate on a frankly plutocratic platform – which would enable them to lock in their partisan control of the judiciary for another couple of decades – that will tend to exacerbate the trend toward more inequality, while a Democratic victory would exert pressure in the opposite direction.

This is more or less the same argument I had with Glenn Loury in a bloggingheads diavlog that unfortunately got eaten by technical problems and will have to be redone. The plutocrats don’t have any doubt about what’s on the table this fall: that’s why they’re going to spend a billion dollars or so to elect their homeboy. Nobody on the right is urging people to sit this one out because it doesn’t really matter. Only our side is burdened by this sort of thumb-sucking electoral nihilism, earlier instantiations of which elected Richard Nixon in 1968 and George W. Bush in 1980 2000.

Update And of course there’s the $200 billion in downward income redistribution embodied in Obamacare, which will survive or not largely based on the results of this election.