Behind the Seven Veils of Inequality. What if
it’s all about the Struggle within just One Half of the Population over just
One Half of the National Income?
Jose Gabriel Palma
ABSTRACT
This article addresses three main
issues: why there is such a huge diversity of disposable income inequality
across the world, why there is such a deterioration of market inequality among
countries of the Organization for Economic Cooperation and Development (OECD),
and why inequality seems to move in ‘waves’. There are many underlying questions:
does diversity reflect a variety of fundamentals, or a multiplicity of power
structures and choice? Is rising market inequality the product of somehow
‘exogenous’ factors (e.g., r>g), or of complex interactions between
political settlements and market failures? How do we get through the veils
obscuring these interactions and distorting our vision of the often
self-constructed nature of inequality? Has neoliberal globalization broadened
the scope for ‘distributional failures’ by, for example, triggering a process
of ‘reverse catching-up’ in the OECD, so that highly unequal middle-income
countries like those in Latin America now embody the shape of things to come?
Are we all converging towards features such as mobile elites creaming off the
rewards of economic growth, and ´ ‘magic realist’ politics that lack
self-respect if not originality? Should I say, ‘Welcome to the Third World’? In
this paper I also develop a new approach for examining and measuring inequality
(distance from distributive targets), and a new concept of ‘distributional
waves’. The article concludes that, to understand current distributive
dynamics, what matters is to comprehend the forces determining the share of the
rich — and, in terms of growth, what they choose to do with it (and how they
are allowed do it).
(...)
What we are
witnessing in the OECD is another type of distributional failure (number 4 on
my list),which is not about increasing market inequality per se — large though
this has been. This failure is about the ever less sustainable gap between market
and social distributional outcomes, and its inevitable plethora of distortions,
transaction costs and public debts. I want to highlight five (for a detailed
analysis, see Appendix 5):
i. Increased
market-inequality has not been ‘Pareto-improving’ even in the ‘Kaldor–Hicks’
sense.
ii. There are
also significant transaction costs in letting market inequality go one way only
to try to reverse it later in terms of disposable income.Like the Grand
Old Duke of York: ‘He had ten thousand men; He marched them up to the top of
the hill; And he marched them down again’.
iii. But as the
OECD’s ‘reverse catching up’ aimed not just at Latin-style market inequality,
but also at its regressive taxation, the very rich and large corporations also
became de facto practically
tax-exempt. So, instead of the winners compensating the losers it was those not
invited to the party who were left with the bill, and had to be ‘over-taxed’
for this — but over-taxed not because of the growing needs of the poor, but in
order to compensate the increasing tax evasion and avoidance of the winners.
iv. As transfers
balloon, governments’ debts are soaring. The EU’s share of ‘social protection’
stands at 40 per cent of public expenditure —and with health and education,
this share jumps to two-thirds. But in their new tax status, corporations and
the very rich now prefer to partpay/part-lend their taxes, and part-pay/part-lend
their wages (Palma,2009). It’s so much more fun than the old-fashioned way of
having to pay for public
goods via progressive taxation, and having to put up with positive but
challenging wage–productivity dynamics. That is, growing market inequality
creates further necessities for public expenditure,
while a new generous tax status for those who benefited most denies the
necessary public revenues. And as there are limits to taxing those ‘others-than-the-real-winners’
(ask the gilet
jaunes),governments’
debts are mounting.
v. Finally, now
that OECD markets have finally been unshackled from all those Keynesian ‘rigidities’
and ‘distortions’ brought about by well intentioned but supposedly economically
misguided post-war policies,are Latin America’s
levels of market inequality really the new rising sun? Are OECD countries now
embarked on a ‘creative destruction’of those rigidities, or just bent on some
(fairly uncreative and highly corrosive) ‘reverse
catching up’, including the return of some of their own disagreeable ghosts of
the past?As discussed in
detail for Europe in Appendix 5 (and in section 2.4 below for the USA), it
seems highly unlikely that elites and special interest groups captured policies
with the aim of enhancing economic efficiency
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