The Income-Inequality Love Train


The Wall Street Journal (Opinion)
By: Daniel Henninger
April 2, 2014

Suddenly the subject of income inequality has turned into a global love train. Politicians and public-policy shops all over the world are hopping onboard.

Naturally the engineer is Barack Obama, who gives speeches on income inequality and won a presidential election by rolling over 1% of the population. Democrats in this year's midterm elections are running on income inequality, and this is rational. Their alternatives don't look attractive, despite Obamacare's seven million recruits.

Less obvious is the linkage being made now between global warming and--what else?--income inequality. Or that the International Monetary Fund is moving income inequality to the top of its agenda for global economic adjustment, even as it begs congressional Republicans to authorize more billions for its general fund.

On Monday, the United Nations released the fifth report by its Intergovernmental Panel on Climate Change. In addition to its familiar warnings of species extinction, irreversible eco-destruction, and the disappearance of ski resorts, the report introduced what it called "a novelty in the IPCC." That would be income inequality.

"Climate-resilient development pathways," the IPCC's authors announce, "will have only marginal effects on poverty reduction, unless structural inequalities are addressed and needs for equity among the poor and non-poor people are met." Until now, saving the planet's ecology alone was thought to be a heavy lift. No more. Among the new challenges: "Existing gender inequalities are increased or heightened by climate-related hazards."

Less novel is the conclusion from the U.N.'s college of climate cardinals that the interlocking catastrophes of global warming and income inequality have a "funding gap." The IPCC says current estimates for "adaptation costs" range from $70 billion to $100 billion annually, but the real needs are "orders of magnitude greater." Who could doubt it?

Next in line to get its income-inequality ticket punched is the International Monetary Fund. A few weeks ago, 20 authors with the IMF's fiscal affairs department published a report called "Fiscal Policy and Income Inequality."

According to the report, "Rising income inequality in advanced and developing countries has coincided with growing public support for income redistribution." The Fund staff then goes about explaining how the world's nations can get moving toward income redistribution.

What's noteworthy about the IMF's dive into income inequality is that it comes just as its legions of white-hat supporters are trying to shame Senate Republicans into voting to let the organization double its general fund to $733 billion, plus give emerging-market nations more voting power to authorize payouts from the Fund's resources. "Dereliction of duty," cries the Economist's editorialist about the Republicans' doubts. In a speech Wednesday, IMF Managing Director Christine Lagarde noted that the U.S. alone is withholding support.

Any GOP senator still wavering over the IMF should print out "Fiscal Policy and Income Inequality" for reading over the Easter and Passover recess. Its novel idea is that tax-and-spend is under-utilized.

The report cautions up front that it is nothing more than a staff report that does not advocate any "redistributive goal or policy instrument for fiscal redistribution." Uh-huh. Reuters, as did most press coverage of the report, noted that it's "another sign of a shift in [the IMF's] thinking about income disparity." The head of Oxfam's Washington office, Nicolas Mombrial, saw it that way: "In the bad old days, the IMF asked governments to cut public spending and taxes. We hope this research and Christine Lagarde's recent statements are a sign that they are changing their tune."

Here's the chorus. After positing that "income inequality has increased" in recent decades (measured, as always, by the Gini coefficient), the report cites among the causes "declining top marginal tax rates." In response, it proposes reinstituting more steeply "progressive" income tax regimes almost everywhere, though it allows that the top rate should max out between 50% and 60%. The purpose is explicit: "These taxes should focus on raising revenue to finance other redistributive instruments."

Under a subhead, "Implementing progressive personal income tax rate structures can contribute to reducing inequality," it notices that 27 countries, mostly in Eastern Europe or Central Asia, have flat-tax systems that their results are "less distributive" and there is "scope for more progression at the top." So much for the flatter tax regimes proposed here by Rep. Dave Camp, and the bipartisan Simpson-Bowles and Domenici-Rivlin commissions.

If this is where the IMF's head is, it can go there--on its own.

Inequality is forever a worthy subject. As is justice. And fairness. All these have puzzled humanity since at least the Old Testament. What's unacceptable about the income-inequality agenda of the Obama Democrats, the United Nations and the IMF is that all assume that the U.S.'s historic century of strong, capital-driven growth is over, and that it must reorder its priorities to admit the reality of reduced long-term economic performance. In short, it's time to slow down and divide up what pie we've got.

That's what Europe did. That's what Vladimir Putin saw. That's what the United States would be nuts to do.

About this Entry

This page contains a single entry by CFED published on April 3, 2014 3:17 PM.

Will Mobile Banking Help the Unbanked? was the previous entry in this blog.

Report Finds Hispanics Faring Better Than Blacks is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.