Thread by @michael_stiefel

When does inequality become a problem? What has capitalism to do with it, and what can be done to create a fairer world?

Looking forward to able to learn from Nobel laureate Angus Deaton about these questions (link to livestream below 👇).

https://twitter.com/ubscenter/status/1326148658677604353

.@DeatonAngus begins this year's keynote lecture of the #UBSCenterForum by highlighting the political debate in the US centering around inequality - "the defining challenge of our time" (@BarackObama)

Angus Deaton contrasts this with a timeline of the Gini coefficient, that strikingly did not rise after 2008 when the political debate about inequality began to get heated in the USA.

Angus Deaton talks about the economic tradeoff between equality - a virtue in itself for egalitarians - and the incentives that are missing when equality can be taken for granted.

He mentions another approach "relational egalitarianism" that is not about strict equality but about "a community in which people stand in relations of equality to others"

Angus Deaton describes inequality as an inherent characteristic of capitalism: it is bound to grow over time. The way to tame this growth in inequality can only be some form of social insurance (taxation, for example).

Angus Deaton sees no problem with people getting rich "in the public interest". He argues that creative distruction lies at the core of economic growth and our prosperity. He worries about people using their wealth to work against creative disruption, e.g. through lobbying.

Angus Deaton begins now to talk about education inequality which he regards as the essential issue (and not the Gini coefficient from the beginning). The striking inequality lies between people with a college degree and without a college degree.

This inequality between middle aged men with and without a college degree cannot only be seen in labour force participation and real wages but also in other statistics such as life expectancy, health outcomes and marriage rates.

So what has gone wrong? Angus Deaton heavily criticizes the American pharma industry that "was allowed to addict and kill people for money". From an economic point of view, there has been to much lobbying and too weak antitrust in the healthcare system.

He also sees one branch of economics as responsible: "the chicago law and economics" that emphasized efficiency and did not see a role for equality.

As policy recommendation, the first-best option according to Angus Deaton is to restore competition with strict rules on lobbying and the elimination of tax havens. This includes a "re-orientation of the courts" to also consider inequality and not just efficiency.

A second-best option is working through taxation (higher income and wealth taxes), though Angus Deaton mentions the risk of harming innovation and the fairness issue that "we should not deal with theft by taking its proceeds".

In the Q/A-session, Angus Deaton says that philantrophy is not a solution to the rise in inequality: Distributing the proceeds should be an issue for governments and not individuals/corporations. Those should pay proper taxes first.

Angus Deaton cautions against the naive belief that inequality is healing itself over a longer time span: today's political situation shows risks that this need not happen.

In the Q/A session, Angus Deaton concludes that this rise in inequality poses a threat for democracy when two thirds of the population - those without a BA / college degree in the US - see deteriorating economic and health outcomes in the current system.