Piketty's Tax Hikes Won't Help the Middle Class

A post by Megan McArdle. It is about Thomas Piketty’s "Capital in the Twenty-First Century." Excerpts: 

"What I want to quarrel with is not the book’s methods or conclusion, but with the general idea that income inequality is the most important thing going on in the world. In terms of how it matters to lived human experience, I doubt it even makes the top 20.

I am not disputing that something unhappy is going on in the global economy. Nor am I disputing that this unhappiness is unequally distributed. But the proportion of this unhappiness due to income inequality is actually relatively small -- and moreover, concentrated not among the poor, but among the upper middle class, which competes with the very rich for status goods and elite opportunities.

If we look at the middle three quintiles, very few of their worst problems come from the gap between their income and the incomes of some random Facebook squillionaire. Here, in a nutshell, are their biggest problems:

1. Finding a job that allows them to work at least 40 hours a week on a relatively consistent schedule and will not abruptly terminate them.
   
2. Finding a partner who is also able to work at least 40 hours a week on a relatively consistent schedule and will not be abruptly terminated.
   
3. Maintaining a satisfying relationship with that partner over a period of years.
   
4. Having children who are able to enjoy more stuff and economic security than they have.
   
5. Finding a community of friends, family and activities that will provide enjoyment and support over the decades.
   

This is where things are breaking down -- where things have actually, and fairly indisputably, gotten worse since the 1970s. Crime is better, lifespans are longer, our material conditions have greatly improved -- yes, even among the lower middle class. What hasn’t improved is the sense that you can plan for a decent life filled with love and joy and friendship, then send your children on to a life at least as secure and well-provisioned as your own.

How much of that could be fixed by Piketty’s proposal to tax away some huge fraction of national income from rich people? Some, to be sure. But writing checks to the bottom 70 percent would not fix the social breakdown among those without a college diploma -- the pattern of marital breakdown showed up early, and strong, among welfare mothers.

Writing checks to the bottom 70 percent would probably alleviate some of the worst stresses of being a single mother -- but even in Scandinavia, the children of single parents still don’t do as well as children raised in intact households. Similarly, an unemployment check eases the financial stress of joblessness, but not the psychological pain of being out of work. To the extent that it helps people to stay on the dole and look for a perfect job that doesn’t exist, it may make people less happy, not more so.

Writing checks to the bottom 70 percent will not prevent a factory from moving to China or find meaningful replacement work for the 50-year-old accountant who has been there for 20 years. It will not bring back the feeling that you can expect each year to be better than the last in tangible ways."

"But when you look at places where a large percentage of the people are completely dependent on government benefits, you don’t really see a great explosion of human flourishing. Nor do I think we would see it if only the checks were larger. Checks do not fix the psychological pain of unemployment or the emotional deprivation of single parenthood. They do not increase social cohesion. They don’t even necessarily cut down on crime; while you’d think there would be an obvious connection between economic conditions and crime, apparently there isn’t."