Arnold Kling  

Gintis vs. Redistribution

Comments on the Possible Swind... Did MAD Work - Or Did We Just ...

Herb Gintis writes,

if the wealth were redistributed to the middle class, the US investment rate would fall, since the rich save their money and it is translated into investment, whereas the middle classes would spend their gains on consumption, thus driving out investment. A "soak the rich" policy simply cannot work to the advantage of the middle classes.

My reading of this is that Gintis is an apostate in the liberal church. He is saying that he would rather leave the rich alone to save than take their money and give it to the middle class, who would consume.

I think that the class-based theory of saving, which goes back to Marx, does not hold up in the data--at least not perfectly. My understanding is that there are savers and spenders spread all over the income distribution.

But I agree with the larger point that the case for taking from the rich to give to the middle class ought to be stronger than just "the top 1 percent get X percent of income, and that's a lot."

Gintis' comment appears in the context of a negative review of Paul Krugman's book. Perhaps it is a sign that the Bush fatigue that is emerging on the right has a mirror-image Krugman fatigue on the left.

Pointer from Alex Tabarrok, who credits PrestoPundit (Greg Ransom), who in turn found it on Free Exchange, the blog of The Economist.

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CATEGORIES: Income Distribution

COMMENTS (4 to date)
Rachel writes:

You don't need any type of class differences to get that result. Just assume that some of the "rich" are having a single good year. The Permanent Income Hypothesis says that these people will save a very high proportion of their income. Conversely, some of the "poor" are having a single bad year. These people will choose to draw down savings.

back40 writes:

Gintis is an X-Marxist, still leftist, a social democrat I suppose, but he's a careful thinker who has done interesting work in evolutionary game theory in addition to his economics stuff. Bowles, his frequent co-author, seems further left and less precise.

Troy Camplin writes:

Yes, there are spenders and savers in each group, but the difference is that the rich spenders don't stay rich for long, while the rich savers and investors do tend to stay rich. THe middle class, trucking along and making the same money year after year, aren't affected except that the savers might get a little extra something every few years.

spencer writes:

Over the last quarter century we have had a massive increase in inequality and a significant shift in the tax burden from the top of the income distribution to the middle of the income distribution. Moreover, we have created numerous tax breaks for savings.

So what has been the results"

The savings rate has fallen to zero.

We may have a theory that Herb Gintis is right,
but we have a quarter century of data that says he is absolutley and completely wrong.

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