The Agenda

Michael Lewis and the Great Exodus

Michael Lewis’s column on the “top 1%” is pretty clever. He writes as though he is addressing a super-secret committee of America’s richest individuals:

Hence our committee’s conclusion: We must be able to quit American society altogether, and they must know it. For too long we have simply accepted the idea that we and they are all in something together, subject to the same laws and rituals and cares and concerns. This state of social relations between rich and poor isn’t merely unnatural and unsustainable, but, in its way, shameful. (Who among us could hold his head high in the presence of Louis XIV or those Russian czars or, for that matter, Croesus?)

The modern Greeks offer the example in the world today that is, the committee has determined, best in class. Ordinary Greeks seldom harass their rich, for the simple reason that they have no idea where to find them. To a member of the Greek Lower 99 a Greek Upper One is as good as invisible.

He pays no taxes, lives no place and bears no relationship to his fellow citizens. As the public expects nothing of him, he always meets, and sometimes even exceeds, their expectations. As a result, the chief concern of the ordinary Greek about the rich Greek is that he will cease to pay the occasional visit.

That is the sort of relationship with the Lower 99 we must cultivate if we are to survive. We must inculcate, in ourselves as much as in them, the understanding that our relationship to each other is provisional, almost accidental and their claims on us nonexistent.

My reaction to this thought experiment is, I suspect, very different from many of my friends and interlocutors. I wrote a never-published column on this subject at the start of this year. (A friend of mine said he didn’t like it, and that the transition was awkward, so I killed it.) The following is an excerpt:

According to economists Thomas Piketty and Emmanuel Saez, the average annual income in the top 0.01 percent rose by 95 percent between 2002 and 2007 to $20 million per household. Of course, it went down by 25 percent between 2007 and 2008, but that’s still a pretty good run. If you’re convinced that inequality is a serious problem, this is very bad news indeed.

So what might we do about this? The above numbers are pre-tax, so raising taxes won’t in itself stop America’s richest 15,000 households from earning more money, though it might encourage them to hide their money in tax shelters or spend more time gorging themselves on foie gras and less at the office.

One obvious solution for rising inequality, if you can call it that, would be for the richest 15,000 households in the United States to pick up stakes and go elsewhere. Call it The Great Exodus. Countries like Canada, Australia, New Zealand, and Britain tailor their immigration policies to attract high-skilled workers from other countries, and one can assume that many of America’s rich could find a home in one of them. Switzerland,the Cayman Islands and Singapore have been attracting tax exiles from other countries for decades. It’s easy to imagine other countries with hospitable climates and a hunger for talent getting in on the act. I can see Argentina, Uruguay, and Chile doing very well.

While The Great Exodus would cause a lot of heartbreak for rich families reluctant to leave Palm Beach and Atherton, it would barely dent their bottom lines. The owners of capital in a global economy benefit from global growth. Whether you live in Tribeca or a mountain retreat in southern Chile, you benefit when that multinational you own a big chunk of increases sales in Brazil, India, China, or all of the above. To stop this accumulation of wealth, you’d have to stop global growth. Let’s just say that’s a non-starter. In a sense, different countries are competing to be the first home of choice for the global elite, and America has a huge head-start.

What exactly would be the impact of The Great Exodus on those of us left behind? We’d instantly see the level of income inequality decline dramatically, which, for some people at least, would be very welcome. Upper-middle-income families in cities like New York and San Francisco would have a much easier time buying homes, as their stiffest competition will have left the playing field. Of course, those upper-middle-income families who relied on serving the super-rich to earn a living will find themselves in a tough spot.

We’d definitely see a collapse in tax revenue. In 2007, the top 1 percent of earners paid more in federal income taxes than the bottom 95 percent. This would presumably make it much harder to fund early childhood education, nutritional assistance, and other programs aimed at bettering the lives of our poorest citizens. But we’d manage. Even without our 15,000 richest households, the United States would still be among the world’s richest countries. To keep up, however, middle-income families would have to bear a much heavier tax burden.

What definitely wouldn’t change is life for struggling Americans. There are 2 million Americans behind bars, and almost all of them have families who’ve been scarred by being apart from their loved ones. Most people in prison come from poor families and poor neighborhoods, which don’t have the resources to keep them on the straight and narrow once they’re released. Few things contribute to the perpetuation of intergenerational poverty and the spread of single-parent families more than mass incarceration.

Yet the 15,000 richest Americans didn’t decide to lock up millions of our fellow citizens. We did, in election after election. And the schools that serve our poorest children will remain just as broken as they were before The Great Exodus.

Felix Salmon has a totally different take:

In a way it’s reassuring that America’s billionaires are still so civic-minded that they buy laws and political parties: it’s a sign that they’re invested in the country and are here for the foreseeable. And the one law they’re not going to repeal any time soon is the most important one — the one which says that US citizens have to pay US federal taxes on their global income, no matter where they live. (Or at least demonstrate that they’ve paid at least that much in taxes elsewhere.) American plutocrats, almost uniquely, are tied to their home country in a way that other members of the global elite can barely imagine.

If you live in London, you’re constantly aware of the contingency of residency: you know those multi-million-dollar Chelsea homes are occupied for maybe only a few weeks per year by their Saudi or African owners. In America, by contrast, the rich can buy their fourth or even tenth home without ever having bought property abroad. So while America’s rich might dream of a stateless existence, they don’t have it — not yet. And I don’t think it’s coming any time soon. [Emphasis added]

Felix and I have diametrically opposed views on the taxation of global income. I think it’s a terrible idea, which I’ve editorialized against on Marketplace. Unfortunately, I think it is likely to spread.

Felix’s point does, however, remind me of the superb Devesh Kapur book Diaspora, Development, and Democracy, the Princeton University Press summary of which notes the following:

Devesh Kapur finds that migration has influenced India far beyond a simplistic “brain drain”–migration’s impact greatly depends on who leaves and why. The book offers new methods and empirical evidence for measuring these traits and shows how data about these characteristics link to specific outcomes. For instance, the positive selection of Indian migrants through education has strengthened India’s democracy by creating a political space for previously excluded social groups. Because older Indian elites have an exit option, they are less likely to resist the loss of political power at home. Education and training abroad has played an important role in facilitating the flow of expertise to India, integrating the country into the world economy, positively shaping how India is perceived, and changing traditional conceptions of citizenship. The book highlights a paradox–while international migration is a cause and consequence of globalization, its effects on countries of origin depend largely on factors internal to those countries. [Emphasis added]

One could argue by analogy that left-leaning policy change would be much easier to achieve if the U.S. abandoned the taxation of global income, which might be a reason for me to reconsider my views on the subject. 

Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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