« The Weeds

Taxing the rich

2019-01-15

Jane, Ezra, and Matt consider the ethics and economics of a 70 percent top marginal rate

Americans misperceive racial economic equality

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This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
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I guess it precipitating event was Alexandria, Cassio Cortez went on sixty minutes and she was taken by the Greek new deal. I know people want us to do a green new deal episode, but its that's got away. So he asked her like how do you want to pay all this and then she said. Well, maybe we should have a top income tax rate of as high as seventy percent, which, when I first side. I don't know my mind was not blown because I was aware that the seventy percent number had been floating around in the academic community for awhile and was not just something she plucked out of nowhere but it seemed to me like there was an immediate freak out like citizens CBS, like put this clip too, like promote them, show where, like something crazies gonna happen, and it was like written up everywhere and it prompted these days of debate, some of which ones of getting into interesting issues that that we want to talk about, but a lot of which was
egg conservative saying that a seventy percent top marginal rate- and I think she had said people making over ten billion dollars amounted to like the government taking seventy percent of your money, which obviously wouldn't happen at all. Unless you happen to earn like into billions of dollars, and everything is worth saying that, in terms of the actual question, she was being ass like there's. No way you could pay for an expansive hundreds of billions of dollars overhaul of the american economy with this like just not that many people make overturned hours a year as a sort of up and where there is no practical impact. But it's kind of like a theoretical question of like how should we treat a handful of super duper duper rich people more than a practical scheme ways revenue to do. I certainly agree that on the US part, but I don T, like to stay in the theoretical kind of big picture questions for little bed before we get into explaining marginal tax rates to Fox NEWS, because there's been some really dumb,
subsidiary conversation about this, but I think there is a the interesting set of conversations to have so maybe maybe we should start here like Matt, why? Nobel Prize Winning economist, Peter Diamond and a bunch of other topic I must say that a seventy three percent top marginal tax rate is the optimal top marginal directorate. So this is dominant phases. Conclusion is that it It has a great by the way name for a paper democracies in the so they say there should be a approximately seventy three percent up and this is based on a sort of two main considerations I think, both of which are controversial but actually the first of which I think is the most controversial and hence again brushed under table a mess, and so they are saying that ok we were thinking about an optimal tax system. We have to think about sort of. Much good, how much welfare, how much utility to people derive from the money that they have and they say, based on the evidence that the more
general value of an extra dollar too rich person is essentially nothing so that if I take like bill gates or Lebron James or Jamie Diamond- and I take five hundred dollars away from him, his life will not be worse off at all right that that is their calculation, so they say early true. I mean I think it's right, but so they say that when you are talking about really rich people, there is no, interest in letting them have money on. ass you attacks, them so much that it somehow wrecks the economy. So the only thing that we should think about is how high can we ways the rate before it? Sort of causes them to all like go, got, retire and and STAR golf right, you want to keep people in the labour market, so then they do. A bunch of empirical estimates are based on. You know what we see internationally, what we see domestically,
They conclude that when you get into the seventy years, that's where it starts to be counterproductive. Right so, like we ve had cigarette taxes for a long time in the United States and one thinks a grand taxes do as they raise revenue. Another thing they do is they discuss people from smoking, most jurisdictions that puts the cigarette tax really really high. They create enough people to quit smoking that you actually start losing tax revenue, but you may say the good public health measure? So that's what they're saying about seventy three percent and that they estimate that if you go higher than that, you can start losing tax revenue and so because letting rich people keep money has no value. You wanted maximize tax revenue and in their scheme. It's not even about getting extra money to pay for programmes there. Just saying look: if you set rich people's taxes at the revenue raising maximum than you can lower other people's taxes- and you know middle class people working class people, they will appreciate the extra money
which people won't see, should design a system that has is very sharply escalating rate structure to keep taxes as low as possible, and people actually need money and take all the money away from super duper, rich people, you can contest this on two grounds, right, there's empirically, are they correct that you can go to seventy three percent without harming the economy and also morally? Is it true that, because rich people do not derive extra pleasure from extra money at the march, and that we should silk the wretch. Why can we take contested, I ground like Jane? Can I ask you to speak for american conservatism here I would be happy to do so I think the right doesn't believe. There's no value in letting rich people right have money right. Net re do not, and I think that that also gets to a cultural
option and it actually came up. I went to a book talk this weekend for the new book fault lines, the history of the United States incited. Seventy four and something that will mean that it is very good something that came up during that talk is and something that conservatives have long kind of utilised. Is this idea that who is among the very richest people, because I think that that something when we talk we talk about like taxing the rich, there is generally an assumption and it was far more prominent? I think in the late in seven is an early nineteen eighties that you could either become one of those very wealthy people or you already in some ways might be one of those very wealthy people. You just don't know it yet. So it's interesting because conversation. I know we wanted a kind of stay away. From the explaining to marginal tax rates are Fox news conversation, but it's interesting. The sea, like Steve, Scully, basically art
like we're, gonna be taking where seventy percent of your income and giving it to leftist fantasy programmes when, like that's, not how marginal through its work, and also this would not be taking place to like the vast vast vast majority of members of the American, Phyllis way- but I mean you, know all this- if I could do it just to Japan, I require one thing that I think is part of the rights view of this, though tat to tread, a big speaks, speak all also. They like that not just moral side, but I think there, like a thickest argument, is a belief that rich people get rich by being good capital is right that there there's an idea of kind of an essential that you go through, that you start like that. You did not start out this way, but you got got their visa capitalism But I don't just mean that, though, that there is an idea that rich people spend money well right. This was it
Home Mitt Romney, like makers and takers. It you rat, you need all these rich people investing and starting businesses. There's a Gregg Monkey, Gregg Monkeys, conservative economist at Harvard he wrote a poster years back that I remember a lot of people, the blogosphere, arguing about pie, madam I rocking about it at that time, but you know you at this long thing which, like the upshot, was that if he raised his taxes higher, he might not give speeches, so you can have your own view on how valuable Gregg make speeches are. But, but I think the view is on the right and the view of many a conversation. That right. This is only a right wing view. Is that whatever value of an extra five dollars or five hundred dollars or fifty thousand dollars or five hundred thousand dollars, is to bill gates or Lebron James or whoever. They are going to you that money in a way that will be better for the overall economy, possibly better for the overall world. Then the government well that if you just like tax money and you put it into whatever it is if this fantasy programmes right the comparative bill, gates, spending that
charity or Lebron James Opening, a school or you know such and such from banker using putting that money to capital markets, so that good ideas can be funded more you no more quickly like that, would be a good use of the money and so that the Focus like the individual utility, a rich people's wrong that, like giving the best capital. the most money is where you may capitals and work the best for everyone. Yeah anybody I do think that the moral philosophy element of this is important, because I will call you don't make you what are the upshot of this sort of internet brouhaha over that post about his like additional speech? Making income was it. He wound up eventually producing a paper which I think is good and people should read in which he says. Look. Economists are often assuming this implicit utilitarian moral framework when they talk about optimal tax policy, and it often leads them to these very strongly. Redistributive conclusion,
but I Gregg make you. Economists have decided that moral philosophy is wrong and that, instead of a utilitarian theory, we should have what he calls just desserts theory in which people get the money that they deserve right, and so, if you are gates, our Emmy. You can quibble about the individual examples as too like who is rich and they really deserve it. But his point is that look if you got rich through some pilgrim, nefarious means or rent seeking. Maybe we should change policy, so you can't be that rich. But if you get rich by trading your labour, which is valuable voluntarily to other people for money, you should get to keep that money right and so at another right now passed way of oppressor. Robert Nosey key is to explain to people in terms of he was writing the seventies in terms of wealth Chamberlain, but you might use Lebron James
day as an example that, like look there's this guy, he's really gotta basketball. People would like to see him play basketball. They are willing voluntarily to pay money to see him play basketball, Sophia masses, in terms of money like. Why is it the government's Raul to take his money away and give it to somebody else? And then you can go back, look the reason to take the money away, and if somebody else is that somebody else is gonna get along value added that money, and he really isn't- and this is a kind of I don't know- this is one of the deep problems of more philosophy. I have opinions about it too, who, but it's it's hard to resolve, but I do think that it dry I think there is disagreement drives a lot of politics, because both the driver, specific difference on tax policy But I think it also drives a deep fear on the part of conservative intellectual swipe, which is that,
whether a redistribution is morally right or not, the fact of the matter is: redistribution is good for most people and so there is just a long standing fear. I mean this is expressed by the founding fathers and from the founding documents that a problem with democracy is it. The masses are just going to vote for themselves to get extra money by taking it away from which people and if you think that redistribution is immoral, why this becomes a really profound problem in political theory and unconstitutional theory, just the way that progressive minded people tend to worry a lot that pure demand We see my trample on the rights of ethnic or religious minority groups if you believe that redistribution is morally wrong than a big problem in political theory is how to defend the interests of the rich from the unfair claims of the poor
and if you see it that way than all kinds of things we talk about from campaign finance, lauded gerrymandering and everything else so delight, look different to the other end of the binoculars. up to and including Steve Police going on tv and pretending that the proposal is that everybody give seventy percent of their tax to the government right which is like maybe squeezes DOM, I think, probably, is dishonest but like, if that's in service of the greater good of preventing the public from enacting this horribly immoral redistribution, then like that, make sense to go on tv set yeah. I think that the idea there and I could but its interests as we were just talking about Tucker Karlsson this idea of its you're, starting to see it a little bit more and its actual coming from a libertarian circles. Like John Stasi has this whole idea of, like he came up with his own term for crony capitalism
and this idea of lake who deserves to be wealthy and who doesn't deserve to be wealthy is actually something that I think is there is kind of in the populace circles of the. Right and some of the libertarian wing, which is obviously not populist, that's a separate issue. There is this idea that there is like a rock way to be wealthy and there's a wrong way to be wealthy and maybe it. The issue is that people like Mitt Romney, who took across and mentions in this model on talking about Bain and it's interesting. How those ideas and the idea that, like maybe some form of reach distribution might be necessary to prevent something like it can Alexandria, Abkhazia, Cortez origins, outright socialism or something like that, which is its kind of an interesting. By ginning issue, so that there is something I think that is interesting here too, which is there's another argument here that I find really interesting and dont fully know how to do it, like empirically rate, but I say this with,
opera, Frank, the economist Cornell but Glenn while and some caused an interesting paper- should have like China put more meat on on the bonus I d, but that they meet. The basic idea is that we should packs rich people not just for the good of society, but for the good of rich people, because a lot of what is happening at the top levels of the economy. It is somewhat ridiculous, positional arms race, where it is not the case that people are no longer gaining utility out of money, but it is a case people getting utility in front of the relative position, their money gives them bi city, other rich people, my favorite example. This is Steve Jobs, Steve Jobs comes back to apple in his kind of like writing back. It is a white knight of Apple and for a number of years takes one dollar in salary and the apple borer, like year of the years like Steve, like you're, doing a great job like we need you to take some selfies, like none at all, like one dollar
and eventually they prevail upon him to begin like actually salary, and then they make him what they think is very generous offer and he comes back its isn't. It no know, it demands a level of salary that the Apple Board, which desperately wants to pay a bunch of money for doing such a good job of apple, actually has trouble accepting? Because it is so big because jobs point in this? Is it It's a good like the rich guy position, arms race to be the heroic dude doing this for a dollar cause. You care about your company so much, and it's good to be the ceo making literally the most money, because that is a way of like capitalism. Saying you are the best ceo like we can't be, as in the middle oddly enough as a funny story about this, with George Washington to what he is. A a believer twenties in the British army are very early in his clear before those in America and fur he actually like he's upset at them any keep saying to them that
happy to either like do his leg leadership in their military, for free or for much more money. But the current level of what they are paying him is insulting. Unlike you can't be that middle space, and so the point that Robert Frank makes a point, I think that in a different way than wild friends are making, is it there's a ton of wasted and unhappy economic effort happening so that, like rich people, can compete with each other about who is richer and that partially, that didn't seem to be happening as much in the Sixtys and Seventys and that the change in tax rates uncorked that by changing the american tax structure and a bunch of different ways which made the century unlimited levels of compensation honourable and valid, for companies to offer you created this endless arms race it. Nobody can stop, because it's not about how much money you it's about how much money the other ceo makes and like you can't make less money than the other ceo
in a slightly similar way, Glenn while and and and friends in this paper- I'm I'm sorry I'm playing on the other co authors in it that they make this argument that it would be good to have these higher tax rates and higher tax rates in general, because you ve to many people, we're very talented, going into industries that waste their talents, but allow them to win this position: arms race, you like too many young people going to say investment, banking, and, if you just like capped the EU tax outside but more heavily, they might go to things that they would enjoy more and society would get more value out of like teaching and ATO a hundred percent. No that's true, but if it gets interesting way to think about this debate, when this I mean that when you get into the empirics right this visit, where I do think it becomes more interesting. This is important background moral philosophy, difference and people of strong ethical convictions about this know that they aren't gonna win the argument by just like pounding the table on their ethics. So then you dive in
but one argument that you will see TAT Tower Cohen was making their son on his bargaining in his Bloomberg opinion article and a number of others will say some sort of stylized models that like look. If you have higher taxes on the Super rich, you were going to get less innovation right, not just in terms of like inventions in the Thomas Edison sense, but like the slow, steady acumen, of work to optimize business practices and that this kind of innovation is ultimately what drives economic growth forward and, in the short, term. It may seem like you, can improve utility by redistributing money, but in the long by even slightly reducing the growth rate. You're gonna make everybody much much much worse off. So that's one thing, which is great: if you have the conservative moral intuition, that's then, like an empirical all reason, why should have it then? The other one? Is this Glenn while view which is that, like?
very large share of the smartest people that I have ever met. Work at Quanta Hedge right now we they are in an arms race against each other to develop better algorithmic methods for executing trades rapidly. And if the average quality of Kuan out hedge fund algorithm was lower. There would be no cost at all to society of that right, like innovation in them field does not produce any gains whatsoever. Another large group of not quite as smart people who I've met in life, work in corporate appellate law so they saw each other. They work for big businesses that suing each other about various obscure legal disagreements and, obviously, if Europe
business with a big lawsuit like you want the smartest lawyer you can get, but if the average quality of corporate lawyer suing each other went down like society would still be fine and if some of those people right, if some of those Kwan algorithm designers were instead working as research scientists and some Those clever lawyers were instead working as high school teachers. We would have for the exact same reason that conservative say the high taxes would be bad. It would be good. We would have way more innovation right. These are valuable things with huge positive externalities, so we can like right down structural models when way. The other two like can approve, whatever we want and its it. I hate to always just like throw my hands up You like who's to say this is actually really important like whose right about this and the like just me,
clever, and we, like all we're gonna have to agree to disagree, is very satisfying but, like. I, don't actually believe that looking at these things, like any one, is measuring it quite right or rigorously are that we have any idea like what is the real social value of smart hard. Working people going into different kinds of fields. I think coming down on the progressive side of this, like all we really really really now is it. There was a period of time in the United States when we had much higher marginal tax rates, and it seems to me that it worked out fine, but what I think it's important also recognise that when we talk about that, that particular time of having higher tax rates, many things were also extremely different. Yes, in terms of the job
we had and the culture in which we were inculcated and the environment in which we were in in a euro, a postwar environment in which the United States stood largely alone. Due to the fact that much of the rest of the world was, you know in shambles. Yes, we had shambles a few apples, that's all true, but I also want to look at this as I go. We ve been talking a lot here about the difference between like, what's it like the democratic social left and the right on this issue. One thing that I think is getting a little bit less attention, and it deserves, is oh, oh, is Cassio. Cortez is sparking here a debate that is very much an Inter democratic party debate. Chuck Schumacher does not believe in seventy percent tax rates on the region and he's like the Senator from New York and Scott Wall Street. I mean that you can say their procure reasons for that potentially but allotted Emily
don't, and I think what you're seeing here too, is the emergent difference between these. These two wings of the Democratic Party that have always been there and it most days, doesn't really matter because they can't get tax rates up at all. So everybody disagrees, they should be higher than how much higher you feel they should be is not the most important difference in the world if you can achieve like that of the base angle, but there's a view in the Democratic Party that you know. I think this is a view Barack Obama held. I think, if you like to Peter, or as I can. I take the view of the NEO liberal wing of the Democratic Party for lack of a better term, which is you want to tax, rich people to fund social insurance and infrastructure and some other things. But rich people are not themselves bad like that. It is not a policy failure to billionaires out there, like one of billionaires, America's great at its great that on the list of Forbes four hundred richest people in the world,
a bunch of em are Americans are plurality or majority? I don't know anymore and that's good. I wanna keep that being case, and it would be sad if the richest person in the world, where from China no or Russia instead of America and there's an embargo the Democratic Party across your quarters as part of this Bernie Sanders as part of this, or that there are others too, of course, who think no like people about rich are there. cells destabilizing for a society, that billions are themselves a kind of policy failure that in the EU want less in a policy and also want less political inequality, and so, even if, on the margin to descend the point you are making a couple minutes ago, Matt, even if those some like minor economic efficiency hit you'd, be taking you be getting a big social stability on political, ability boost which, in the long run, maybe it's good economic growth, but it certainly good for how we relate to each other. It certainly good for social capital. It certainly get for how people feel like there's a lot of good books at research. Of this point,
about the way in equality, increases, stress and hurts public health measures and all kinds of different things like that, and so I do think it's worth noting this debate to like there's a debate not just between conservatives, want lower taxes and have like a bunch of justifications for that, unlike liberals, want higher one justifications for that. But if you do, you want higher taxes, because you want a fun things or do you want higher taxes peaceably rich people are a sort of bad, unlike the competition between which peoples, bad o Cassio Cortez. By putting this in terms of the green new deal, I made it look like the funding things. Part was, it was driving it, but I don't think it is like. I think like when I hear this argument. The most answer. Maybe I'll put this in Bernie Sanders. His terms that is much more that, like this, many rich people who were this wretch with this much inequality, is a problem in and of itself and like we do a smoking, we should use a tax code to solve that problem,
Ray. I may I assure you that very important, and I think you you can't attributed to Elsie, damn ripple, whose I think her policy director now in her house office. He has and, as you know, is twitter handle. You know you can have like your official name and you're out fine and his handle is every billionaire. Is policy failure right. You're going to need your statement you and this right, which is that like, accumulations of wealth on that scale should not be permitted right. It's a twitter hand. Also. I dunno his full reasoning for that, but I think one Imagine- and I also think it is a big difference in how you put forward your politics right, I would say Barack Obama's pitch on taxes to everybody. Taxes in the welfare state was to most people. Don't worry there
not going to be big changes. I'm not going to raise your taxes middle class, American, and I am also not going to disrupt your healthcare arrangements middle Class, American. I am going to try to help the poorest people and I am going to do that by taxing the wealthy Even to you, wealthy Americans like come down like broke Obama's down a socialist. This isn't that big of a deal you got plenty of money. A slightly higher rate is we find and then another view. As I know, we want an upturn, the apple car and we accepted like there will be big downstream consequence swayed, even if relatively few people would pay this we're high tax rate, the whole economy of New York City, where you say Chuck tumor, represents Wall Street is New York but Like ABC, also represents part of Europe.
Yeah right, the whole economy of the city would be turned upside down by super taxing the super rich because it would have a downstream impact on real estate. Prices would have a downstream impact on patterns of consumption and, like I think, like the city would just it's not like everyone who currently works as a server at a super fancy, restaurant would be permanently unemployed, rents would fall, new businesses would open, but there will be a complete reshaping of the social order in big coastal cities. If very rich
ball, had much much less disposable income, because the relative prices of all kinds of things would end up falling, and you saw this right. If you look at the they call it like the great compression of incomes that happened in the nineteen. Forty is right. There were big changes in Homer consignee work. If you compare the twenties to the fifties, the like vastest states among island that they talk about the great Gatsby became these kind of suburban subdivisions right, because even the richest people cannot afford to maintain regular giant mansions, so they had to sell them in the land was put to a different use, and this different kind of more Galatea Arians society was created, and one viewpoint is like this is very appealing. Another report is this is very scary and it's a big changes like should Democrats put forward ideas that are potentially scary, or should they try to reassure everybody? They like it's gonna, be fine. We just want to help out the poorest be yet, and I think that that that the chance that's unique challenge, because
lot of how that compression was par. Stout new in the nineteen forty is was like. This is what you everyone is taking one for the team to do something to fight Hitler right. We had a war, we had a war and its a credibly helpful in terms of developed YO required eating unity across classes do have an sternly enemy. That is way scare and everyone has to fight, and so you there was. This also happened when a sign that this also happened with relation so women's fashion in the early nineteenth forties, because even if you are super wealthy, you still could not get access to certain things as because those things were being used as part of the war effort. You know no one, France, Wrigley GUM stopped largely producing gum because the foil used to wrap up gum was needed for the war effort. No wonder there wasn't like you a secret and gum hall that was accessible to like the very very wealthy Wrigley put out advertisements like no
I can get gum life's tough, we're gonna go win this war, and so I think that that compression it's important to keep that in a context and say you. I think that there is an idea- and this is something that comes up when conservative circles- a lot that they believe progressives are always kind of looking for the next, external threat that could bring people together to do whatever it is progressive. Want them to do, and I think that's what they're their argument is. I think the green new deal is treating climate change like it is an external threat akin to the third Reich that we could all come together and be prepared to give up some in order to fight back this threat across classes, but we, whether or not that is true
or whether or not that is at an amenable concept, is up for deciding that now, after the break more and how the micro care is going to mean, I do think that it's like, if you think about green new deal, rhetoric cried right. The actual analogue is less to the new deal and more to worldwide to re write. It's it's! It's the green more time, mobilization in width we simultaneously reshaped the american economy and also beat Germany in Japan ride like that's the idea. This is an existential threat that requires and justifies the regime. Enough that the social fabric, so in a generalised way to get us out of dislike the specific work, or to mobilization, you do have a pretty long period of this and Vienna seventies, aren't operating as much in a world where two context and something that I think we just don't talk about well in politics in general,
It is the role, is awake? Culture interacts with economic decision making. When we talk about culture and politics, we tend to mean sort of Religious Orient did, you know, behave, moral issues or sometimes, people are like one like like school, the poor for doing something or another, but there's a lot of culture among the Wretch Islamic culture in the economy. Genoa is on a culture about what is acceptable, not acceptable to do and there's a really interesting set of questions which probably cannot be resolved or maybe to resolve in just one direction right things or can be feedback loops and in multiple directions at once about is economic culture. set by economic policy or as economic policy driven by economic culture. There's a ton of in about how CEO pay worked in the seventies and eighties. Just sea ecosystem dinner maximize pay in the way they appear to now they didn't like Lena
boards obedient take as much of the profits of their companies, and there is some evidence that maybe taxes helped with us and that maybe it's when you lifted the taxes that began to change or maybe it something else you ve gotta, eighties. Greed is good Reagan, as you know, the things change in culture. You have like a couple Theo's birthright and change the norm and out everybody does obviously we see this in politics itself, all the time. They're all continents arms are operating in Congress in the in the executive branch and as it gets broken through. Then all of a sudden everybody breaks norms and it's not a strange thing to do any more. But this I It is actually a more important piece of this. Then we quite not to talk about it. We don't have good levers for four four messing around with that, but the kind of tax rates were were discussing here like if you put them into play, would you put them into play and the culture would change,
you put them into play and rich people would spend every waking how her and all of their money like buying lobbyists till I get big break new loopholes into them like something like this can be various active- and I think some of the like Glenn while etc are arguments around. It are important in the particularly if it is able to change culture. Re prohibits able to get us to this more egalitarian, great depression, culture even status. Creates like endless effort, a political lobbying as a single war of you know, of a of the rich against. Whilst maybe that's fine right, like, I think, that's actually sort of the the world. Bernie Sanders envisions to have happened, but it would be like a less effective way of doing it. So, in a way that the Roma to stuff is always interesting to me, but there's a pretty extended culture period there. That is fascinating. For other reasons, I've seen a lot of argument that it has to do with place a lot of the Buddha which people much more rooted in a particular community in a particular place on there's a lot of
concentration of major corporations and industries in just a couple of big cities, and I may be that had something to do with it. How do you change economic? Culture strikes me as a very important thing. I tend to be somewhat optimistic that tax policy and other kinds of things can help, but I don't think it's a fully settled. Question, but I've been. I do think that goes back to the war in a certain sense right. It's like the war create a year's law on Ebay and the depression before it. This kind of like resale right of like how does american society work? It's not just that the result administration past one tax law. There was this like big series of ongoing changes that was then extended for a long time and involved at the same time as the top tax rate was going up. There was war time wage and price setting. There was also a huge increase in Labour union membership bright, and you can try to do like time. Series econometrics error occurred.
Sectional analysis and say: oh, it was the union membership that did it or oh, it was the tax rates that did it or Oh, he was the norms or this policy set the norms, but like just what happened historically? Is that all those things happened at roughly the same tie, and presumably, if you think about how politics works like it would be, the same might like we can talk about a pod cast like what. If President AIR Sea made this one giant tax change, but nothing else happened in politics, but like the way real world politics works, is that you're not gonna? Have a super giant change it just one piece rosy I mean this is just a respect in which, like political activism, differs from like policy nursery right, which is that, like the activists who are pushing for big tax, changes are also pushing for a bunch of other changes and the cautious politicians who only want small tax changes, like also only once
changes on the other side's and you know what would what would America look like? Not if we had a tax change, but if we had a overhaul of politics right like a different kind of question,. If you like, basically anyone listening to this right now, I'm willing to bet that you are you're dealing with stress can visit of it like an overwhelming amount, or maybe it's more like a low, but steady, drumbeat background stress. Remember how you are experiencing stress. It's likely effect moods, your energy in so many other areas of your life, you feel, like stress, is starting to take over stranger relationships and shorten your temper probably tend to unload and better health is perfect, for that better help is customized online therapy that offers videophone and even live chat sessions with therapists she wrote see anyone on camera, if you don't want you it's much more affordable than in person therapy and you communicating with a therapist none forty
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minutes a day and you'll be on your way to confidently speaking a new language in just a few weeks now, for a limited time, Spotify listeners can get up to sixty five percent off their subscription by visiting babbled outcomes. Lashed Spotify, you're gonna, sell saluting paper today. This paper from twenty fifth gene, but it is new to me, I think, to my my cause: it's called american Miss perceive racial economic equality, something I like about peony S as it journal is at their titles very straightforward, so Americans miss see racial economic equality by Michael Kraus, Julian Rucker and Jennifer Rich assumption of registered. As a Pascal to my podcasting, I think her research in general really fascinating, but basically what they did hear ways they gave people surveys and ask them to estimate the how much racial equality has changed on a variety of different measures, since I think it is
seventies, and so they ask about health benefits, about wages, for college grads, for wages for high school grads. Well, things like that they may have a bunch of different measures and they show, as you would expect the people overestimate the strides we ve made towards racial equality on almost everything, but specifically they they the way today over estimate. It is it they think that we have made big changes since the seventies. When, on most of these things, we haven't odd that the difference between African Americans in and cohesion on, these measures has not changed and, in some respects, is actually gotten worse, but always interesting about the study. Is it they show that the people who miss perceive this the most are high income. Whites that law come way to actually have of a more realistic view of what's happening in the racial wealth gap. You know it's not fully realistic, but it's more realistic but but high income. Whites will get this wrong by like forty to sixty percentage points. I bet
get it like unbelievably wrong and that the the Alice here who Ellie switches it is in the department of psychology, I'm, although others here a department of management and so on. They discuss here, make the point that there is a very powerful if you are like a high income white which, by the way describes a lot of people, will power in american politics. So this is important. You have two different reasons to tell you, Self american societies, both fair and more equal than it is like wine. Is it like your white and you? You know you want to believe that that that America is not a place of of racial equality and invite supremacy, but also you I'm pretty well in the economy as he want to believe the people doing while the economy have gotten. Therefore, good reason and that you know were were in a place where people are able to succeed on the on the basis of their skills. So you have it
but a dual pushes for motivated reasoning, and you know so that was our hypothesis, which they said a pre registered before the paper and sure enough, rather than Hankow mice, you might expect be higher information at a higher educated having our sense of all this. They have a much worse one and it will lead downstream two very different ideas about what would be up more policy about what does it doesn't need to be done in the country, but but but it's an interesting paper, because we can talk a lot about what the racial wealth gap is, but in terms of what the policy on it is. It is very important when it is perceived to be, and it is also particularly important what kinds of people who hold a lot of power at american life perceive to be, and the answer is, it is completely miss perceived particularly by by them. Yet it is something that struck me is also that these same perceptions misperception exists. Among african Americans, who also
hand to underestimate the gap, the racial economic gaps, but something else it was point that I thought was interesting is that in the study, if participants, mostly white participants in the study, were asked to think about your black individuals and families that they thought of as being like them, so They would then tend to continue to overestimate racial equality, while thinking or about societal racial discrimination would reduce their view of that, and I think that that goes to really were how we talk about duration. Wealth gap and how we ve used culture as and in order to do so, and it kind of goes against what you might your ear caught prior conceptions that showing american these african american families with no not necessarily wealthy but like with fairly good economic standards?
White Americans and African Americans tend to use that as being like the existence of these families are existence of these groups would also would tend to indicate that we have gotten. We have narrowed the gap in that we've gotten somewhere, but something else to study also points out. Is that it's interesting that this tendency to The estimate, the salience of racial inequality and economics doesn't show up when you, for instance, you they note that, when recent research shows that most Americans mental image of what a poor person looks like is a black person and it's interesting. How those true thing I mean people contain multitudes and it's. This is yet another example of how people can both have a mental picture of poverty. That is a black person, but also radically underestimate the salient of economic inequality.
Yeah, I don't know you want one thing I take away from this, particularly the tendency of affluent whites too greatly overstate. This is, I think, all the time about the way the vicissitudes of the twenty. Sixteen democratic Mary led to this sort of hard the structure of like a race, verses, class, kind of discourse in american, progressive politics and- and one thing you see when you think about the racial wealth gap and how large it strike is it anything almost anything you do that was redistributive nature would actually clothes the racial wealth gap enormous amount in it. It's a little bit paradoxical, but its precisely because the gap is so large right did very crude race. Blind redistributive measures would close the gap a lot
right. If you had a much smaller racial wealth gap, then to make progress in closing the racial wealth gap, you would need narrowly targeted, raise specific measures because broad blunt redistribution wouldn't move the needle that trade, but the gap is so huge trade such an enormous share of the population with zero or negative net wealth is african American that anything. You do and such a tiny percentage of the top zero point. One percent is african American. That very blunt instrument would get you a lot of Closure, and it's only in a much more egalitarian society than the one that actually exists, that fine tuning would be necessary right has, of course, to get to to get too true equality. You ultimately do need re, specific ways, targeted measures, but in a world of such a yawning gaps, you actually don't try, like you would be so easy.
A cloud to make progress and, at the same time, a lot of the narrowly race targeted things that we do do right like Most exclusive private colleges try to make sure war the day or not letting their african american student percentage drop bullet was somehow the threshold that doesn't do much to move the needle in the context of these kind of huge in it these, because such a large share of the black population is sold, are down the economic ladder that those coming opportunities don't make a difference to the related it doesn't it doesnt crater a kind of a real thing, so there's affluent why people have sort of constructed this Potemkin version of reality for themselves
Where you know is there like a black guy and a corporate board of directors threat is like the proximate question in economic inequality when, like it, really isn't an immensely like total lack of financial assets among fairly typical African Americans, even who have some of the other markers of middle class status like jobs and crash agrees and so forth, and I read we achieve in said yet in this conversation, what the racial wealth gap is. So there are different measures of it. You can use, but most measure is putting it mildly, arranged Could you give us our network show which has an episode in the ratio of cap jumping actually really proud of? I think it's terrific, but its roughly five cent on the dollar so are on average african american families have a nickel in wealth for every dollar white families. Have you can get some different estimate? Some will say around seven percent
of what life and we have but its very, very, very low, and something to note about it to do so. Madison there is, it is very high. You have to do a lot to change it, because wealth is a compound measure in general for investing. I, you know, you'll get a seven percent annual, just inflation just return, not in any given year. Right like this had been about so far. It has been a bad if stock market, but but in India you get that in the stock market house intensity go up like if you're either one of The thing you see in this paper when you're looking at different measures is they have this measure of like what people perceive as having happened in health benefits in college wages, in high school wages in wealth and an income, and what really happened, and between had there been a couple decades ago and now the racial wealth gap on those first for on, and if it's on some those wages on wealth, it actually widened, but it actually.
Lowered a little bit on overall income, and you might think a wolf. Lord on overall income? How could it not lower on wealth, and that's because, like the well, his compounding faster than the income is rising and that's true for a lot of different things. I mean there's a huge amount of wealth that is both filling. His country comes from people's parents, investment in real estate like a high about a middle class, while this built on on land assets or or other kind of housing assets, but too. If we cared about aging this you you'd have to do something really beg you know it it to again amounts point and I think, has been passed up. Sewed up the weeds on this court. Booker has a plan for like I've, been calling universal basic well, but it said and also building plan where poor children get up to fifty thousand dollars. And assets they can use for certain kinds of expenditures after turning eighteen and that money can compound over time, and indeed the idea is to give them a head start in it colorblind policy that he is selling as as racial wealth gap answer. I be very curious to know I don't know
can't even know like how much of the gap it would change. There have been policies like this and other countries like like England, and be curious to seize it of what they did wind in the countries where thumb- inequities like I don't know that off hand, but this stuff is very sticky, because a lot of american life is about compounding existing wealth and suited to push against it. You don't just need take begin equalising the number as it exists right now. You need to equalize it faster than the forces already acting on that, which are huge re. Like the mortgage interest, deduction is functionally o a wealth building on policy, which is hundreds and hundreds of billions of dollars each year for people who already have enough wealth to buy a whole like you, ve tons of stuff like that acting and we don't
do anything that is as powerful in the other direction, but us much more powerful. They could begin making rapid progress on the wealth gap. Yet I think it's a really important point to get you to talk about that link. The idea of wealth building has only really been a possibility for African Americans any real and at length middle class levels within the last out. Forty years out today would be Luther kings, ninetieth birthday, and I think that that's an important to make the leg were Martin Luther king still alive? He would ninety years old, which, in Europe, in the scheme of things that is not enough time to see kind of massive levels of racial economic progress, because it's not a very, long time here we're talking about when you talk about mortgages. Are you talk about the
on a home that something many african Americans were kept out of and are still in some sense being kept out of either by government programmes like red lining or by a kind of the billowy to own homes in places that will continue to accrue wealth work, whereas in some places those homes won't, and I think it really important to note that, like how we talk- and I've talked to ask about this- there's no talked on line about this. How we talk about race and racism in this kind It is very much this idea that one day, Martin Luther arose, and then we fix racism in nineteen. Sixty five and since then, if you haven't been able to you're it out. Well, that's on you and that's just not true, and I think that there is very much an idea that the paper goes into. Talking like, like you were saying about the. If we had loan forgiveness for college student
or higher tax rates on millionaires, or we have more african Americans on corporate board that doesn't really do anything to talk about the EU. The inability to accrue actual wealth that African Americans for centuries, were legally kept, from doing and are still dealing with the impact of those policies. As someone who thinks a lot about history, its worth, noting that Ninety years is not really all that long, and forty years is also not that long and what we are saying
now, is that this paper is basically about people wanting to think something or really wanting to believe something about Rachel economic equality. That is not currently true and it's interesting how we think of these change. The the changes that have taken place since the nineteen sixty noting early Seventys is big sweeping when in a lot of ways they haven't been weight, but I mean I, I also think it important thing to know about this. Is that even if it was true there, racism had evaporated in nineteen sixty six, what you would expect from a world in which there was no racial discrimination at all in any sphere of american life from nineteen sixty six to them, and is that there would be no closing of the racial wealth gap. There'd, be it a there would be an increasing of it right that if you
imagine one family that starts out right with no assets and no social capital and another family that starts out with a house am afore one case. This is never going to be a closure of that gap. Unless you do something to force it to be closed. Now, it's like all So true that racial discrimination didn't end it making sixty five, but even if it had there would be widening rather than narrowing of the wealth gap and by that same token, just king steps to end racism, whatever that, wouldn't even me- and it is not going to generate the kind of closure that people would like to think that they are saying like it is a fundamentally in economic process by which their is divergence, that if you put a million dollars in the stock market,
I put two dollars in the stock market. We are never going to converge in our assets. It's gonna keep growing wider and wider and wider wider than the real world is moderately redistributive, so that doesn't necessarily happen, but you know policy shift regular, sits. The nineteen seventeen like, I think it's clear, that we have reduced the amount of racial discrimination in the United States, but we have also made economic policy much less redistributive right right. That has a bigger impact on the racial issue. Although it also applies to white people write like a penniless white family born into a pork unity does not mean random. People can become wealthy through good luck or hard work or whatever else, but on a systematic basis like you should expect. Almost no convergence
one hour and it's funny all of a sudden as we as we see the effects of that now. You're getting. You know, Tucker Karlsson, coming out in saying that a real problem in our economic system itself. Yes, it's not the France of these poor white people. It's like that. The predators, capital we should ensure that thing is even wrong. Jessica's is notable how we treat it I'm to bring this full circle to two where we started preservation. Wealth gap has you dynamics because it is so big links are like it would be a hard problem to solve, or even think about how to solve. If we all greed on its existence and on its size, but the fact that we doubt the fact that there is a massive perceptions that, like on average, are like about twenty five percent. But when you look it sort of apple and whites were the people with the most Paradise fix the problem more or to address the problem in american politics, it Speck forty fifty sixty percentage points of of of over estimation and the progress made that really matters, and I want to make a book in podcast recommendation here:
when I was working on the Netflix episode on on the racial wealth gap, which I do think is have like. I do recommend if you want to learn more about this, its partial explained and it's in the first three episodes. I came across a work of a academic May Mercer Bardon and she wrote a book called the color of money, which I think are a lot of pieces of his story. People, oh but a piece, it I didn't know, and the cheetah such a fantastic job telling is the way in which African Americans, like going all the way back in american life, but it at every one of the periods we're talking about, including by the way coming up to that that the current era and the four closure crisis which wiped out by Wealth in a way did not wipe out white wealth. I mean that the effect of that was very, very disparate, and that was just in two thousand and eight. She talks about this in terms of credit markets and credit markets are like essential for building wealth, both private and public credit markets, everything
from federal home loans to whether or not banks will into your community, and she just tells outside free and the way in which we transmuted like like an an inequality premised on white supremacy. see to a kind of one hour equal. So anything is you're, not equal That's on you too will look, I'm just a capitalist. I kept loan into this place because I there's no money. Air, then there's no money there and you know their bad credit risks because of hundreds of years of discrimination but hey Guiana, I address I gotta. I gotta make my quarterly my quarterly number three can us out of. May she really tell that story. Well, I did a podcast with her as well. It's called political power in the if a wealth gap, but I'd I'd, recommend reading color of money or or listen up on gas, because she tells a story in a way that I think, makes it much clearer by putting it in a much broader context of well. How did it? our creed. All this wealth anyway, like how did America out create and share the wealth that had and who was locked out of that and what
the the mechanisms by which people were locked out of it, and I think it makes the the existence in widening of this, as opposed to it being a confusing, extremely clear and obvious yeah. I think that that something that I always think this is important to remember it, because occasionally I do you see aggressive talking about income, inequality and tough. But then recalling you're like there was this time in american history in which this wasn't so much of a problem which union members was high and everybody was happy. That was never true. It just wasn't euro the same markets that we're so beneficial for building white middle class wealth or even the existence of the White Middle class itself, and the midnight teen fifties was possible because a large was of people were excluded from the economy and largely forced to build their own. You know there's a lot of argument and people talk about
She didn t see you a lot of discussion of kind of like the black businesses of Washington, but they largely existed in a world in which they had no external ability to cut of exchange goods for services with white people, and so I think it's important to recognise that any existing wealth that was within the economic community before say that night, sixty five was not a beneficiary of capitalism, but an effort to kind of find a way around it in a sense that we We have only money good back good. I guess it is good that gas, geographical, anyway. That's a rap for this. Thank our. Producer, Jeffrey Gold and the weeds will return on Friday.
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Transcript generated on 2021-09-11.