Doug Masson can always be counted upon for thoughtful observations about policy proposals, whether those are at the state or federal level. In a recent post, he took a look at the GOP’s tax bill, and made a point that is often missed–or misunderstood.
After criticizing Orrin Hatch’s nonsensical justification for a provision that would widen the gap between the rich and poor, Masson writes
I always get grief from my conservative friends when I say stuff like this, but reducing wealth disparities in the country isn’t just a matter of bleeding-heart, feel-good liberal mumbo jumbo like fairness and equality. Concentration of large amounts of wealth in a few hands distorts markets and democratic processes. The system can tolerate — even thrives under — certain amounts of inequality. It creates incentives that fuel the economy. But, beyond a certain point, things start to break down.
The most common defense of Masson’s position–a defense that is entirely accurate, albeit incomplete–is historical. Most countries that have experienced persistent large-scale inequalities have eventually been destabilized by revolt or revolution. This country is already seeing signs of citizen unrest; continued Congressional theft from the poor in order to bestow even more goodies on the rich will be met with anger and resistance, and it won’t be pretty.
Economists also support Masson’s thesis. They point out (as I’ve done several times on this site) that 70% of American economic activity is dependent upon consumption, and when large numbers of Americans have little or no disposable income with which to consume–when they are barely able to afford necessities–the economy can’t grow. When demand is weak, employers don’t increase production–which means they don’t create new jobs.
Those practical arguments are persuasive, but we shouldn’t ignore the fairness argument, because it goes to the heart of what makes a just society.
John Rawls was the pre-eminent political philosopher of the 20th Century, and his book Justice as Fairness established a framework within which political philosophers still argue. Rawls believed that all social primary goods–by which he meant liberty and opportunity, income and wealth, and what he termed “the bases of self-respect”–should be distributed equally, unless an unequal distribution of any or all of these is to the advantage of the least favored.
Inequality, in other words, can be justified, but only if that inequality is necessary to the improvement of the lives of the least fortunate.
When Masson writes “The system can tolerate — even thrives under — certain amounts of inequality. It creates incentives that fuel the economy. But, beyond a certain point, things start to break down,” I read that as another way of making Rawls’ point.
When markets work–when we have genuine capitalism, not the corporatism that characterizes the United States today–they usually meet Rawls’ criteria. Invent that better mousetrap, and everyone’s mouse-catching is improved. The money earned by the inventor provides an incentive to other ambitious folks, prompting them to invent something else that will improve life for many people, including poor people. A rising tide really does lift all the boats–we just have to be careful to define what constitutes a “rising tide.”
The fact that our mousetrap inventor has more money than someone else is thus a permissible inequality, because he has earned it in a way that improves–in some way, to some extent– the lives of the less fortunate.
This definition of justifiable inequality doesn’t reflect the inequities in today’s America. As Masson points out, money acquired isn’t necessarily the same thing as money earned; there’s a difference between that inventor/entrepreneur and those whose wealth was inherited or acquired as a reward for “gaming the system” or helping others to do so. Bigly.
Our gilded age inequality fails all three tests: history, economics and fairness.
We need to fix it.
A good start:
Maintain Inheritance taxes – or increase them
Increase Minimum Tax for ALL citizens – – NO FREE RIDERS
That would be a good start
FAIR Tax
“A rising tide lifts all boats.” That works only as long as the harbor can hold all of the boats, and the shores around the harbor are not eroded by over use. What happens when there are too many boats, and the harbor has been destroyed?
The supporters of this tax reform and the proposed budget need to be inundated with calls and emails to give them a sense of the impending doom many people will experience. I have explained my position to Todd Young twice only to receive a “talking points” reply explaining how the middle class is going to benefit from all the Republican “reform” efforts. It continues to amaze me that even with the news media and non-partisan analysis showing how the tax reform will harm the working poor and lower middle class, the Republicans persist in extolling its virtues for all Americans, and especially the ones it will harm the most. No matter what, no matter the consequences, Republicans unconscionably stand together against the best interests of the majority of the American public, and exclusively for that of their donors and themselves.
If anyone has any doubts about the damage inequality can do, please read “Why Nations Fail” by Acemoglu and Robinson. Historically, those nations that don’t allow all citizens to share politically and economically do not survive. It’s the most instructive book I’ve read in a decade.
Quoting from the comments about Rawls,
“liberty and opportunity, income and wealth, and what he termed “the bases of self-respect”–should be distributed equally, unless an unequal distribution of any or all of these is to the advantage of the least favored.”
This sounds like the Sermon on the Mount. No wonder Republicans are opposed to this sort of thing. They thump the bible but never open it.
“…reducing wealth disparities in the country isn’t just a matter of bleeding-heart, feel-good liberal mumbo jumbo like fairness and equality. Concentration of large amounts of wealth in a few hands distorts markets and democratic processes.”
That first sentence contains terms usually from the mouths of the “haves” who want to keep it all and get more who consider Social Security and Medicare as handouts, which we pay into for years and pay Medicare monthly. They also want no help given to disabled or those living at poverty level even on a temporary basis. I call this help “humanitarianism”, not being liberal. My income level is barely above the federal poverty level and I do not resent a portion of my tax dollars going to help those less fortunate.
The second sentence also refers to the “haves” who have it and want to keep it all and get more; the fact that it distorts markets, the democratic processes and prevents those they depend on to support the economy from earning a decent wage matters not to them. I also do not resent the “haves” having more than I will ever see – and don’t want – but don’t understand their resentment of the majority of Americans wanting only their fair share, such as a living wage. I do not consider this “conservative” governing.
“justifiable inequality” in this country is creating a caste system here; it goes way beyond the former acceptable level of those who “have” who earned it and those who “need” being denied due to avarice and greed. The current tax budget is being referred to as “tax reform” by Congress and “tax cuts” by Trump…the first true words he has uttered, his lie is who those “tax cuts” are aimed to benefit.
Will any Democratic Senator, and especially the Republicans, be brave enough to demand removal of any and all references to health care issues from this so-called “tax budget”…or remove any and all references to “tax cuts” from the health care bill. They ARE separate issues. Our lives and our futures are in the hands of the Republicans who don’t seem to realize their skewed reasoning on all issues is harming their Republican constituents along with the Democrats. They are “getting theirs”; we are left to scramble to survive.
JoAnn is on target again.
For years, Paul Ryan has cautioned us about “makers and takers”, but now his tax bill lets the ultimate “takers”, the children of the very wealthy, take even more without cost to them at all. This current tax reform bill is about nothing other than the destruction of government.
It’s amazing that something as simple as this has to be hashed and re-hashed so often. It must be that greed is the laser beam into the eyeballs of the corporatists and their equally greedy stockholders. Moreover, those getting stinking rich without doing anything more than moving electrons around are a drag on the economy as the net result is the removal of capital from the monetary flow.
Even an old, retired science teacher can see the points made in this perfectly understandable column. Thank, Sheila.
We have seen a “distortion of the market” since before Adam Smith (the father of modern economics). Such a distortion is not wholly the result of wage and wealth inequality. Some of the underlying causes of such distortions arise from the expansive nature of the capitalistic process itself, but when combined with wage and wealth inequality may well explain recessions, depressions and even the so-called “business cycle.” Equilibrium in supply-demand, processes, costing etc. are desirable from a social but not a financial point of view. Those who finance corporate ventures earn their bread from differences in corporate performances, and lately, in how successful they are in the halls of Congress in securing tax and other breaks to feed their bottom lines. Corporations can have a net operational loss and still pay dividends – from our pockets. Profitability is thus not dependent upon operational efficiency – another distortion.
This latter subterfuge of lobbyists’ running to the Congress, campaign contributions in hand, and obtaining tax breaks and new and/or expanded loopholes is one of my pet peeves. The Dow, as we are currently seeing in anticipation of giant tax cuts to corporations in the Republican tax bill now pending, is exploding, but not because corporations are more efficient in production, not because they have built a better mousetrap, but because they have wheedled money out of your and my pocket through our “representatives” based on trickle down economics, a “system” that Stiglitz writes has never worked in large economies. We have a large economy.
So is the market distorted and, if so, why? My view is that some of market distortion arises from the nature of the capitalistic process itself, but that assumes that we had a market once upon a time when (as Smith assumed) there was perfect competition, which never happened (and especially in this day of rampant monopoly via merger and acquisition) is not happening. As John D. Rockefeller did during the first Gilded Age, you now (since the Sherman Anti-Trust Act is not enforced) buy up your competition so you can raise prices. Works out for corporate America and its Wall Street financiers who are rolling in historic profits while working America is trying to survive on a median wage that (adjusted for inflation) has hardly moved in the last forty years.
Conclusion: We have added wage and wealth inequality as policy to a system of capitalism that was already distorted by its inherent characteristics. Result? Surprise! Surprise! The rich get richer and the rest of us get poorer. Final conclusion: There may not be much we can do about the nature of capitalism but there is much we can do about wage and wealth inequality, so let’s do it before the whole thing comes crashing down due to terminal greed. As I often write, I am trying to save capitalism – if the capitalists will let me.
Preaching the qualities of American life,is a truly sensitive thing today,with all the slants taken by so callled people in the know. every time i set foot into a conversation about the devide between so called us and them, its more on a scale of the working class,not rich and poor. the media has barraged us with this,immigration,workers rights,wages,taxes taxes taxes. when the point is, inequality,and some who feel they are left out, but their the ones who do the best, white, family,house,obviously,spending capital, and they bitch the most. most wont give you the time of day on the inequality issue, looking at people in the white house structure,these people believe theyre part of it, at less than 70k a year. they assume being the one who so called made it,(by whos standards) are the faction that talks and fights the most,about whos got what and how. white on black, those protesters,etc. when they are actully supporting the working class demise,and supporting the rich ones to overide any attempt by the working class as whole,to stop this travisty. If the ones who are most effected,cant find a place to start the fight,we will never have a fight for equality. too many Americans cant see where the fight is,and where to start.we have people willing to help stop the billionaire take over of this country,but after watching c span last night, seems the only cause we really have is to boot the republicans to the curb as they are doing now,to the working class,this very minute. Shumer walked out on trumps photo op, and the republicans complain about us not being bi partisan in a congress that expects,expects us to fall into the money pit.. vote,mentor,and speak out before we dont have a societey we all supported,,,,and died for.
It’s sickening how Paul Ryan hated 45’s guts until he was elected. Then, it’s “he’s on our side, let’s make sure he does everything we want.” I’ve copied a file on my desktop computer and will be making calls to McCain and Flake today voicing my opposition to this horrible tax bill. RESIST!
Copied from your post: “Most countries that have experienced persistent large-scale inequalities have eventually been destabilized by revolt or revolution. ”
THIS is what I have been saying will happen. I saw this coming more than twenty years ago. There is no stopping it because our government and its financial backers/owners have taken inequality too far.
The Institute For Justice just released the 2nd edition of the guide to state licensing requirements for low end jobs. It is now republished in The Atlantic. This lists legal requirements designed to keep poor people from climbing the very first rung up from poverty. These requirements are NOT created by the Evil Koch Brothers, but state and local governments that can look out the window and SEE the poor, and their children, they are hurting. Doing the right thing here and now is a LOT better AND easier than theoretical discussions in Congress about how to make complex regulations APPEAR to help the poor while still helping the rich, including Hillary, Warren, Sanders, Trump, and other moneybags. BTW, the IFJ, a non profit, is interesting to read about – and support.
Sheila, you mention: > Economists also support Masson’s thesis. They point out (as I’ve done several times on this site) that 70% of American economic activity is dependent upon consumption, and when large numbers of Americans have little or no disposable income with which to consume–when they are barely able to afford necessities–the economy can’t grow. When demand is weak, employers don’t increase production–which means they don’t create new jobs”.<<<<
An interesting point on "consumption". Setting aside food, etc., our consumer consumption is based upon products manufactured out side of the USA. My computer, keyboard, printer-scanner and monitor are all made in China. I recently went up to Chicago and bought a Chicago Cubs Hooded shirt and a Chicago Cubs sweat shirt. They were made in Indonesia, and Honduras. My tennis shoes are made in Vietnam. If there will be an increase in production, it will not happen in the USA.
Our manufacturing jobs that supplied that consumption have been aided and abetted by both Democrats and Republicans left America. We are left with the Big Box Store Economy of low wages, part-time jobs and few or no benefits. Today the Big Box stores of bricks and mortar are suffering from direct internet purchases – Think Amazon.
Jim Hightower has an excellent column on Amazon – Why Does Amazon Get Corporate Welfare?
Not satisfied with just taking your money, Bezos is coming after your tax dollars as well.
https://www.commondreams.org/views/2017/11/01/why-does-amazon-get-corporate-welfare
“…70% of American economic activity is dependent upon consumption, and when large numbers of Americans have little or no disposable income with which to consume–when they are barely able to afford necessities–the economy can’t grow.”
Monotonous; your comments above are what I meant with my earlier comments:
“…the “haves” who have it and want to keep it all and get more; the fact that it distorts markets, the democratic processes and prevents those they depend on to support the economy from earning a decent wage matters not to them.”
Have you or anyone else reading these daily blogs and keeping abreast with the news seen Democrat or Republican refer to the fact that George W. gave the wealthy temporary tax CUTS which he swore would result in more jobs? They are trying the same unworkable lie they also referred to as their “trickle down” benefit. I hate to say it again because I still support President Obama but…his biggest mistake was NOT allowing Bush’s tax cuts to the wealthy to end on the date George W. set. Our problems began in earnest when January 1, 2010, came and went with the tax cuts still in effect and the takeover of the House by Republicans. We will be paying for these mistakes for decades to come and will never see “paid in full” stamped on that debt.
IF I WERE KING, I would institute policies that nurture the middle class, not because I think such policy is moral, but because those policies make MY country–the country that I own and which protects me and my interests– stronger, richer and safer.
You can put away every argument mentioned so far in this post, give them up, throw them away, concede all of them…and still you can win the argument for policies that support a wealthier middle class on the singular basis that a thriving, robust middle class is the fundamental underpinning of a strong nation. I use the word fundamental because logic–not bullet points, not dogma, not emotion, not tomes by economic theorists–arrives at that conclusion. For instance, all nations, even the weakest nations, have a moneyed class, but only the strongest nations have a middle class, and only the strongest of the strong have a robust middle class.
So, Adam Smith, the quasi ethics philosopher, wrongly thought to be an economist, is dead wrong about this question when, in THE WEALTH OF NATIONS, he blatantly, and theoretically, states, “…the wealth of individuals IS the wealth of the state (the rest of his writings argue that by wealth he meant strength, the ability of a country to compete with and protect itself and its citizens from other countries). Smith doubles down on that philosophy: “The surest provision for the future wealth (strength) of a nation is (the) capacity to produce.” As if the capacity to buy has nothing to do with it. Well, Smith expresses the Koch/Trump side of the argument–the wealth of the few determines the strength of a nation.
On the other hand, Henry Ford, if not a philosophical economist, was a practical economist, who, in 1914, upon recognizing that a country’s strength, as well as his own, would improve as its middle class grew wealthy enough to have expendable capital, paid his auto workers FIVE DOLLARS AN HOUR. Ford risked his own money on economic matters according to the practical philosophy that a strong middle class–anchored by well-paid workers–would not only make him richer but make the country stronger. Ford spoke of the “circle of wealth” as if the surge of capital through ALL the arteries of the economic body is life blood to a nation’s strength. Opponents called Ford a lunatic when he advocated that only part of a man’s wages are for his labor, the other part, the smart part of wages is the part paid to a person to spend on things outside subsistence. Although an active philanthropist, Ford did not argue that generosity or altruism or fairness is an economic policy, or that egoism is a detriment to an economy. He did not need to. Practical results were all the argument he needed.
If you want to win the mind of the powerful and the wealthy, you must show them policies that will strengthen the machine (the nation, and now the world) that makes their money.
And you must be prepared to rebut their argument that when there are six and a half billion other consumers in the world, who needs the American consumer? We know the Koch brothers think that way about American labor, but we need to understand that they think that way about consumers, too. And how do we rebut that? There is logic in their thinking. To me, the rebuttal comes from whether there is efficacy and pragmatism in long-term economic thinking that surpasses the results of short-term thinking.
Show me someone who believes the wealth of the few determines the strength of the nation and I will show you a short-term thinker. To win that person over, you must sell the practical benefits of long-term thinking.
Show me someone who believes the wealth of the middle class determines the strength of the nation and I will show you a long-term thinker already convinced by results.
In submitting arguments supporting the long-term economic efficacy of the middle class, it is important to avoid moral and ethical arguments; they mean nothing to those who need convincing.
If I were king, I would institute policies that nurture the middle class, not because I think such policy is moral, but because those policies make MY country–the country that I own and which protects me and my interests– stronger, richer and safer.
Think of how things would be today if a, say, Lincoln had been elected instead of the crowned prince of Brooklyn.
He would have said in his inauguration speech, first I’d like to thank my predecessor for a fully recovered economy which is well on its way to a job for everyone who needs one. And thanks also to him for his steps towards leaving no child or adult behind in terms of health care. A monumental achievement. I look forward to working with all of Congress and both parties to address the many opportunities that are facing us today not the least of which is leading a world intent on having what we have, sharing what we have more than a century of immigrants to thank for – abundance.
If that had happened our trajectory would have continued up rather than the regard for America as represented by our government both here and overseas diving like a rock.
Rawls difference principle can be easily misunderstood as generous. Technically, that’s not so. Giving the least well off as little as possible satisfies Rawls principle just as well as giving them an opportunity not to need the increment. It’s as much a justification for inequality as it is an attempt to ameliorate the consequences. Bill Gates throwing a penny to the least well-off would satisfy Rawls’ principle. It is a neo-liberal justification for ignoring the supposed “laws of economics” by which he assumes away all the crimes committed to siphon value out of working people.