So you’re actually writing a socialist manifesto on a conspiracy of evil capitalists preventing America from achieving noble redistribution like in heavenly Australia, and you only want arguments to support that thesis. You should have said that up front, I thought you were trying to do some actual science.
Yes. In fact all decent republics are. Not to high-jack, but it’s a stupid question because a democracy is not a system of government. Hell, on this list Switzerland is not defined as a democracy, because democracy measures something else entirely.
What the fuck, Christoph? What he said in the OP:
In political economics a number of theoretical models predict that in a democracy an increase in pre-tax inequality will result in an increase in the redistribution of wealth by Government (or, alternatively, social expenditure by Government). This is due to heightened inequality giving the majority of voters in a democracy an incentive to demand higher taxation and redistribution (this is not an ideologically driven statement, financially they would be better off and a cornerstone of economic theory is that economic agents pursue their self-interest).
However, econometric models based on historical data show that this prediction does not hold. While results are very mixed in the literature, generally speaking there is not a strong correlation between inequality and Government redistribution in democracies. This is often called the redistribution puzzle. A number of papers have attempted to extend the basic model in order to explain the lack of correlation between the two variables. In my proposed thesis I will introduce a number of extensions to the model that have not previously been considered, and place a strong emphasis on the econometric testing of explanations in order to give empirical evidence on whether the explanations presented actually explain the redistribution puzzle or not.
Every paper written in economics and social sciences can be labelled political if you’re a lazy asshole, but if you have a real complaint maybe you should actually say what the problem with his explanatory variables are (and what you think the proper, non-political ones might be).
I was replying to his second post, not the original post. The OP left open the question of the “redistribution puzzle”, but the second post only allowed for misinformation and manipulation of the voters as the answer. Fixing your expected answer upfront is not what you do in a scientific investigation.
Nope. A CEO is paid to think real hard how to keep stock prices high. That is it. If laying off half your workforce before your quarterly earnings report gives stock traders goosebumps, they do it without a second thought.
Have you considered the difference when the voting public can have their say, as what happens in a few states - I’m familiar with Oregon and California having tons of initiatives on the ballots, compared to the federal govt?
For example, 1.5 years ago, Oregon voters voted to tax the wealthy individuals and business owners in hopes of adding $750M to the bottom line - lookup measure 66 & 67.
So, I agree with Jason that at the federal level, they have it pretty much locked down where that type of change won’t occur, but in states where the public can vote directly, does it have an impact on redistribution?
Generally speaking, stock price is a function of the expected profitability of a company. So unless it’s an extreme case, laying off half your workforce would be a bad sign, since the company willingly hired those people in the first place. As attractive as the narrative of “CEOs will fire half the company to make a buck” is, it’s not really realistic.
I am trying to do some actual science, but to be honest it gets hard with such a politically charged topic. I realise that with a topic as controversial as inequality even the slightest hint of prejudice or bias on my part as the paper writer will alienate a large chunk of my potential readership. Don’t worry Chris, I know this, I was merely bringing up a couple of possible explanations I was throwing around at the time. I am interested in all sorts of explanations, and like I said in the OP I am interested in what people have to say from all political persuasions. Actually, I am especially interested in your thoughts if you are right-wing, as myself and alot of my friends are quite left so it gets hard to get the full spectrum at times.
The main goal is to take all of these explanations and test them against actual data. If the data says it’s a poor explanation, I don’t care if it’s my pet theory as a socialist, it will get reported as poor in the thesis. I am going to need to work really hard to get a shot into joining academia, I don’t have the luxury (yet hehe) of skewing my results and hiding facts.
The question of the redistribution puzzle is as open as it was when I started the thread, my second post did not “only allow” they were just a couple of ideas I was considering including. If you think those are stupid ideas and not worth my time investigating, i’d love to hear your thoughts on why (not being sarcastic).
That’s an interesting point, thanks for that. My interest is in democratic countries around the world, not just the US, but I could definitely look at whether the relationship between inequality and redistribution is much stronger in countries/states that flirt with “direct democracy” types of political systems, relative to representative democracies.
Sorry if I overreacted, but I thought the points you quoted fell in way too neatly with the usual narrative of rich people manipulating the masses to keep taxes low. While this is certainly also happening in America I don’t think it’s either sufficient or exclusive cause:
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As mentioned above, Switzerland is highly decentralized and has strong plebiscitary elements, yet relatively low taxes. The Swiss want rich people coming into their canton, figuring that they gain more from the influx of rich people than they lose from lower tax rates. So a low level of redistribution is compatible with direct democracy.
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On the other hand, virtually every European and British Commonwealth democracy has strong political elite groups that wield considerable media influence and are in favor of redistribution, namely various the well-established socialist and social democratic parties. So Jason’s thesis (as I understood it) of political elites being automatically against redistribution is also incorrect.
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Both America and Britain did go quite a long way toward income redistribution via high taxes in the 1960s and 70s and then backed off again, all without changing the electoral system. You’d have to investigate how this was possible, and if there were concrete rational reasons why the voters would support that reversal.
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Continuing from 3, the influence of money on elections is itself not guaranteed. Anecdotally, I saw small groups pouring a lot of money into advertising at regional German elections, and they never got anywhere. People here consider political advertising a mere nuisance, they vote based either on habit or on what they see/read in the media (i.e. other than ads). (This isn’t perfect either since it makes journalists the gatekeepers of elections but that’s another story.) So the readiness to reward expensive campaigns with votes seems itself culturally conditioned.
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Another thought along this line is the notable absence of a powerful socialist political force in America which contributes to a relatively powerful plutocratic elite. How is that possible? Socialist parties and similar organizations were strongly resisted by European elites in the 19th century yet emerged anyway as dominant forces in the late 20th century. In America this did not happen, and this again points at a cultural conditioning that’s unrelated to current election spending.
One final thing: I would be very hesitant to bring up lack of compulsory voting. As I’m sure you know this is rare anywhere in the world, so its absence hardly seems to explain anything.
Thanks for those points Chris, your input is helpful. As a general note, I believe a small misunderstanding has arisen on the nature of the puzzle. My paper will not directly be concerned with why different democracies redistribute different amounts (although this is itself a very interesting subject, and is related), but rather whether inequality and redistribution move together. Less about the levels of redistribution, and more about changes in redistribution over time specifically in response to changes in inequality. It may be that a country that has a very low level of redistribution acts entirely consistent with the basic models with a positive causal relationship between inequality and redistribution, or a country with extensive redistribution acting contrary to the models and requiring explanation. It is my fault for not being clear enough.
- As mentioned above, Switzerland is highly decentralized and has strong plebiscitary elements, yet relatively low taxes. The Swiss want rich people coming into their canton, figuring that they gain more from the influx of rich people than they lose from lower tax rates. So a low level of redistribution is compatible with direct democracy.
I was sorting through my dataset on redistribution and I did notice the peculiar case of Switzerland. The OECD reports that as of 2007 the level of Government social expenditure as a % of GDP was 18.5%. The US at the same point in time is at 16.2% and Aus 16%, but most European states are sitting at over 24% (the one exception is the UK at 20%). It will certainly be an interesting country to include in the models.
- Continuing from 3, the influence of money on elections is itself not guaranteed. Anecdotally, I saw small groups pouring a lot of money into advertising at regional German elections, and they never got anywhere. People here consider political advertising a mere nuisance, they vote based either on habit or on what they see/read in the media (i.e. other than ads). (This isn’t perfect either since it makes journalists the gatekeepers of elections but that’s another story.) So the readiness to reward expensive campaigns with votes seems itself culturally conditioned.
This is a good point, and raises questions over campaign contributions being a major explanation for the redistribution puzzle. In America it seems like a perfect fit, but a number of other democracies who also display the redistribution puzzle place a much weaker emphasis on private donations to political parties and political advertising. At the same time, however, it is a feature of all democracies (in varying degrees), and I do not want to preempt the results.
One final thing: I would be very hesitant to bring up lack of compulsory voting. As I’m sure you know this is rare anywhere in the world, so its absence hardly seems to explain anything.
Off the top of my head I believe 12 countries use compulsory voting, but you are right that the only major developed democracy that uses it is Australia. It will be hard to get data for some of the other countries like Argentina or Brazil for this to be assessable.
So Chris, based on your responses so far it appears that you would explain the redistribution puzzle from cultural factors. This may be true, but isn’t it possible to go further than this and isolate the specific cultural factors that are preventing inequality from affecting movement in redistribution? Additionally, aren’t cultural qualities to some degree explainable by the economic or political features of the country? It would be unacceptable for my thesis to simply include cultural factors (itself a very vague term) as an exogenous variable.
Well, the classic comparative analysis of cultural influences on economic attitudes is Max Weber’s “Wirtschaftsethik der Weltreligionen”, and that’s over a thousand pages… I do think that cultural factors are very important but to thoroughly examine them would be the work of a lifetime. You are certainly correct that there’s going to be some mutual influence of economic conditions and cultural traditions, too.
But as for statistically quantifiable attitudes, I’d look at how much people in various countries and at various times like and trust their governments, how highly they value things like “working hard” and “getting rich”, and whether they feel that their society is by and large fair. I would expect a negative correlation between these attitudes and rising redistribution, independent of actual inequality. Then you can safely leave the complex cultural causes to another study. :)
I would like to hear your thoughts on what factors of modern democracies sever this predicted link between inequality and redistribution.
I think it most clearly boils down into two points:
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Many people, in the US at least, simply do not vote. However, this wouldn’t apply to other nations where similar severing takes place, and voting is even mandatory.
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Since the democracy is not direct, people aren’t actually able to vote for anything. They vote for people, based upon claims of what those people will do. But those elected officials, especially at the federal level, do not actually act on behalf of their constituents. What’s worse, their actions are so far away, and so abstract to the people voting for them, that with very little hand-waving they can explain why it’s not their fault.
Of course, this is merely an explanation, not a judgement. The reality is, our government is not supposed to function as a direct democracy… Generally, because if it did, and the cycle you describe was not broken, then the economy and government would inevitably collapse.
Timex, given that (2) is more or less the same as it has always been, how do you explain variance over time?
Which variance are we talking about?
Switzerland has lower taxes than Europe’s representative parliamentary democracies (see here for example). So if you think that plebiscites or the absence of powerful political elites cause more redistribution you’re totally on the wrong track.
Switzerland is also filthy rich and doesn’t need as much, I’d guess. :P
That’s a good point. I don’t think it’s true everywhere, just in the US for some reason.
Come to think of it, Timsfker, what definition of redistribution are you using? The industrial world’s government-mandated retirement and health care insurance programs have to count in some way, and those are rather large.
Timsfker, I hope you’re including some thoughts on the three welfare regimes in the Esping-Andersen model. (Anglo, Continental European, Scandinavian).
Timex, electoral system isn’t a helpful variable in explaining changes over time, since it usually remains the same.
But what changes over time are you talking about here?
You have read “The Spirit Level”? They make the case from a demographics and epidemiologists view of the social costs to societies with great inequalities. You could them look at the economic costs, competitiveness (or lack there of) of these social costs. Basically apply a lot of the economic development models used in determining how much the social issues in the third world hurt their economies to the first world countries and see what effect inequality has economically?
Perhaps regress out data, as third world often has inequality + other issues. However, as data from OECD used in the book shows that assumption of greater inequality in less developed countries is incorrect in some cases now, and rapidly becoming incorrect as a generality.
Just a random thought.
To quote jeffd:
Income inequality basically rose steadily from Reconstruction through the Gilded Age. It wasn’t until the Great Depression and WWII that things evened out and we enjoyed thirty or so years of more equal incomes. Starting in the 70s the rich began to pull away.
Now, it might be that there are exogenous factors that impacted more or less all western democracies so that electoral system explains the difference in level, but otherwise, inequality and redistribution changes over time, and an explanation that doesn’t account for that will be flawed.
But I’m suggesting that the indirect democratic system is preventing the electorate from taking a direct role in the policy, so the fact that inequality changed over time wouldn’t really matter.
Indeed, isn’t that kind of the point of the original question? Why these things aren’t related as we would otherwise expect them to be?
The fairly stable system of government has resulted in a fairly stable redistribution mechanism, despite changes in inequality, because the electorate isn’t able to actually enact policy decisions directly.