One of the more surprising publishing phenomena of recent years was Thomas Piketty’s Capital in the 21st Century, which surged to the top of the best-seller lists on the strength of a cool-looking cover, an impressively large page count, and the ominous warning that if we did not do more to combat the increase in inequality, we would be returned to the dystopian nightmare of Jane Austen novels.
Deirdre McCloskey wrote a long and interesting review that argued that tolerance of inequality has been, historically, an indispensable part of the incentive structure of successful capitalism- the rich get rich first, then someone shows up to outcompete the rich guys, and in the end the little guy benefits from the variety and innovation that competition provides. If there’s a problem in contemporary developed societies, it is that competition is penalized (through regulation and barriers to entry that favor incumbent firms) not that rich people have too much money per se.
All of which is fine and good- largely convincing to me, though not to others. But it does, I think, make complex what could be simple and try to untangle the Gordian Knot rather than cut it. That is…
If rich people have too much money, get them to spend it.
Given that r>g only leads to an increase in inequality if the marginal propensity to consume out of wealth is sufficiently small, isn’t it more plausible to convince the rich to spend their money than to find (probably doomed) ways of taking it from them? This is what our society is best at, convincing people to spend too much money. Many people who become quite rich do, in fact, spend it all and end up broke. You don’t have to go back very far to find persistent downward mobility among the rich precisely because they had large families, hired personal servants, and generally had a social mandate to “act rich.” If every billionaire thought they needed Cornelius Vanderbilt’s mansion, they wouldn’t be billionaires very long.
Our current cultural environment- including Piketty’s book- encourages the rich to hide their wealth rather than spend it, and to direct their spending to status goods like housing,art, and education where it is likely to stay with other rich people. This directly contributes to the problem.
I’m no macroeconomist, but a quite similar issue comes up again and again in education and educational philanthropy. The first classic blunder in educational philanthropy is rich people’s determination to give their money over and over again to the same already-rich universities, rather than somewhere it might do some good. But the second classic blunder is using huge bequests to go head to head against existing institutions rather than giving it away free of charge. The robber barons of the late 19th century, for all their faults, spent their money on things people could see: grand buildings, libraries, museums, new schools and universities and hospitals. Our billionaires instead try to use money as an end-run around democratic process. In the case of education, they use bequests as a carrot to entice school systems, teachers and parents to adopt their favored reforms- mostly changes in teacher evaluation, expansions of charter schools, and adoption of more challenging curriculum. Putting aside the value of these individual approaches, this is quite naturally derided as an abrogation of democracy and an attempt to outwit parents and teachers who may or may not want the carrot but can definitely see the trap. This is why Zuckerberg’s $200 million gift to the Newark schools failed.
I don’t really expect Zuckerberg, who seems to have modest tastes in consumption and imperial ambitions for his work, to spend his money on palaces for himself. But if he wants to spend money on giving kids nice places to go to school or read a book, have at it. Newark would not be my first choice for this- thanks to New Jersey being a wealthy state and the Abbott school redistribution decision, low income schools in New Jersey have more money than pretty much anywhere else in the world.
But even so, there is some good you can do, if you just Spend the Money. Princeton, down the road from Newark, has an amazing, palatial, much-used public library, that I think cost Princeton $50 million to build. In a slightly dysfunctional city like Newark, it might cost twice as much, leaving $100 million as an endowment to keep the library going forever. Would it boost test scores? Of course not, it would just be a nice place for kids to go to storytime or play on the internet or read a book.
But that’s just about the best we can do.