What are the policy implications of capital-biased technological change?

Paul Krugman has a very interesting post on this topic, so I will add a few points:

1. Taxing capital per se is not the way to go, since capital (of some kinds) bids up the wages of labor.  If one accepts Krugman’s distributional premises (not exactly my view but let’s see where it brings us), the answer is to tax mainly those forms of capital which substitute for labor, either directly or indirectly.  That would mean high taxes on the internet and other media of communications as well as high taxes on software and embedded software.  I don’t myself favor those policies, all things considered, but still I find it worth pursuing this logic to its implied conclusion.  It would imply especially high taxes on our technologically most dynamic sectors.

2. Intellectual property rights of many kinds should be weaker, as Alex discusses in his Launching the Innovation Renaissance.  That is one way to “tax” some forms of capital.  But do not expect the main action here to be found in easy-to-reproduce forms of capital, rather look to the more durable rents.

3. If you believe that the wages of labor are “stickier” than payments to capital, and there is downward pressure on wage shares, this implies a higher steady-state rate of price inflation.  I know, I know, there are various nominal vs. real finesses buried in my claim but still I think it holds up for the most part.

4. A lot of the surplus from Ricardian progress will end up captured by land, so we should follow Matt Yglesias’s recommendations in The Rent is Too Damn High.

5. A lot of the surplus from Ricardian progress will end up captured by resource owners, so we should relax constraints on resource exploration and development as an egalitarian move.  (NB: Beware tech models with only two factors!  They are usually wrong when it comes to incidence and the like; see for instance Nick Rowe.)

6. Let’s consider cutting the minimum wage.

7. Whatever we do, we should avoid mandated benefits programs — which raise the fixed cost of hiring an ever-cheapening labor — like the plague.  Whoops.

8. Lower wages strengthen the case for subbing in social security income for Medicare benefits, as the marginal value of cash is becoming higher for many of the elderly.  The case for in-kind as the appropriate form of aid is weaker.  Let’s also think about a longer-term consolidation of various aid programs into some form of guaranteed annual income.

What else can you think of?


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