In the USA (a presidential election year), there is a considerable debate on how much emphasis government policy should assign to economic growth (properly interpreted to encompass all externalities and market failures) and how much to income and welfare distribution. The argument in the US revolves around economic efficiency, individual freedom and fairness.
Let us deal first with economic efficiency. Conservatives tell us that an increase in income tax policy will discourage economic growth, even at current levels of taxation. A contrary view (http://economistsview.typepad.com/economistsview/2012/03) is that the “optimal” income tax rate in USA – before it would deter the wealthy from trying to earn more – is well above the present 36% level and is much closer to 50 to 60%. One can at least say that the effect of a higher marginal tax is small to insignificant.
On the question of individual freedom, there is no doubt that many Republicans, which are now condemning gay marriage, abortion, access to contraception etc., are effectively attacking individual freedom. As Reich says, “a society where one set of religious views is imposed on a large number of citizens who disagree with them is not a democracy. It’s a theocracy”. See http://economistsview.typepad.com/economistsview/2012/03/the-difference-between-private-and-public-morality.html I am sure that most libertarians would agree with this view. As to the impact of smaller government on freedom, this depends on one one’s perspective on fairness.
One’s notion of what is fair is a subjective issue. The average income of the vast majority of Americans is today slightly below the average back in 1966, whereas the top 1 percent share of real income growth has been strongly increasing over this whole period. The gains of the super-rich have made the US one of the most inequitable in the developed world..
Personally, I do not accept the view that distribution effects do not matter. The US has a long way to go to ensure that it has an adequate safety net to provide enough income mobility (at least relative to Scandinavia and Australia). More importantly (and less subjectively), the enormous rise in relative income of the super-rich has occurred in a period of rapid productivity growth – with all of the productivity growth going to the super-rich! It is hard to accept that there is any semblance of “fairness” in the US system.
Can something be done in the USA to shift power to the working class? Reich says: Congress has lost interest; Unions have no voice; most of the press are controlled by vested interests which seek to retain the present distribution of political power; and the working class have neither the time nor access to wealth nor the sense of unity it needs to demand change. In some cases the Republicans are trying, with its deficit reduction policy, to make distribution worse.
This is one good reason why Governments need to balance fairness against alleged economic efficiency effects. What do you think?