Redistribution: It Works!

August 8, 2011

Peter Frase has an excellent post whose points of emphasis a somewhat disagree with highlighting the fact that globalize/grow/give is in fact a perfectly viable strategy for increasing people’s living standards. He notes the contrast between the change in inequality over time in Germany and the U.K.:
Here we see something very interesting. Before you take taxes and transfers into account, the rise in inequality in Germany looks very similar to what happened in the UK–indeed, the two countries converge to almost the same value by 2005. But disposable income inequality has stayed flat in Germany, because the German state has used taxes and transfers to counteract rising inequality.
As he also notes, “the transfers included in disposable income are only cash transfers and ‘near-cash’ benefits (like food stamps), not in-kind services like health care.” Given the large and growing shares of GDP accounted for by health care and education, and the large role of state provision in these sectors, that means this doubtless understates the amount of redistribution that is happening in practice in both Germany and the United Kingdom.
Frase wants to make the lesson of these charts that people like me have “to either make [our] peace with the sources of working-class power that currently exist, or else come up with workable models of what might replace them.” That’s fine by me. But to me the real lesson here is that, once again, it’s not clear to me what the alternative policy agenda for residents of Anglophone countries is beyond pushing for policies that are friendly to economic growth and for taxation of high-end consumption to transfer money to poorer people. It’s great that Germany has a strong labor movement, and that surely explains why it’s politically easier to enact progressive policies in Germany. But even in Germany where they have a strong labor movement they’re not doing anything miraculous to control inequality or boost living standards. It’s taxes and it’s transfers. And of course differential union strength is hardly the only difference between U.S. and German political institutions. If the U.S. Senate operated by majority vote, we would have enacted some steeply progressive tax measures in the 111th Congress. Conversely, in many European countries growing racial diversity seems to be somewhat undermining political support for the welfare state, a problem American progressives have been coping with forever.