Market Forces

Ian Dew-Becker and Robert J. Gordon take an interesting look at the growth in inequality in the United States:

Within the top 10 percent, SBTC has certainly still been an issue, and there is a role of SBTC in contributing to pay premia of entertainment and sports superstars. In a variety of settings, technology has allowed superstars to distribute their talent to a wider variety of consumers. This has driven their incomes up exponentially. Their earnings are an outcome of market forces, and the only policy measure available to achieve greater after-tax equality is an increase in tax rates at the top balanced by a decrease at the bottom. However, for top corporate executives, there is strong evidence that incomes have been driven by non-market forces. This is where policy can have the most positive impact on inequality; increased disclosure and improved corporate governance laws can not only raise firm value but help distribute economic gains more evenly across society.

This treatment of the "superstar" issue seems wrongheaded to me. The point of understanding the causes of the growth in inequality isn't to assemble a prosecutor's brief against very rich people and then dole out appropriate punishment. If that was the point then, yes, we'd have to deem superstar athletes and entertainers (and presumably the agents, managers, and lawyers who take home a percentage of their gross) who've taken advantage of the globalization of the entertainment space to become richer than ever "innocent." But the point of understanding the situation is to enable us to think clearly about forward-looking policy options.

It seems to be the case at first blush, for example, that policies which tax the incomes of the very rich in order to pay for widely used public services are very appealing policies. But, an opponent may counter, such policies will actually crush economic growth and make us all worse off! To the extent that the super-rich class is composed of superstar entertainers and their hangers-on this counterargument seems to me to be weaker -- ever-growing after-tax income for movie stars is not integral to the long-term future of the American economy in the way that potential uses of the money to provide for adequate infrastructure and a healthy, well-educated population are.