Monday, June 07, 2004

On redistribution

The Atlantic | January/February 2004 | Are We Still a Middle-Class Nation? | Lind
The disparity between rapid productivity growth in mechanized sectors and slow productivity growth in human-service jobs produces Baumol's disease—named after the economist William J. Baumol. According to Baumol, in a technological economy falling prices for manufactured goods and automated services eventually increase the relative cost of labor-intensive services such as nursing and teaching. Baumol has predicted that the share of gross domestic product spent on health care will rise from 11.6 percent in 1990 to 35 percent in 2040, while the share spent on education will rise from 6.7 percent to 29 percent.

The shifting of relative costs need not in itself be a problem. If Americans in 2050 or 2100 pay far more (as a percentage of their spending) for health care and education than they did in 1900, they may still be better off—if they pay correspondingly less for other goods and services. The problem is that as the relative cost of services like education and health care rises, more and more Americans will find themselves in service-sector jobs that, unlike the professions, have historically been low-wage...

... In the absence of some system of private or public redistribution, then, there is no guarantee that rising national productivity will spontaneously and inevitably produce rising incomes and wealth for most Americans, rather than just windfalls for the fortunate few.

Since the 1970s inequality of both income and wealth in the United States has increased dramatically. As Paul Krugman has observed in The New York Times, a Congressional Budget Office report shows that from 1979 to 1997 the after-tax income of the top one percent of families climbed 157 percent, while middle-income Americans gained only 10 percent, and many of the poor actually lost ground. The share of after-tax income that goes to the top one percent of Americans has doubled in the past three decades; at 14 percent, it roughly equals the share of after-tax income that goes to the bottom 40 percent. The concentration of wealth at the upper levels of the population has been even more extreme....

... It is doubtful that in any society with universal suffrage the majority is going to sit on the sidelines and watch, generation after generation, while a handful of investors and corporate managers reap almost all the benefits of technological and economic progress.


This is a good complement to Reich's Book, except Reich backs away from redistribution. A bit of intellectual cowardice, as his text makes the case even more strongly than this article.

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