Richard Freeman is certainly right that unprecedented inequality of wealth, income, and wages in America is a crisis threatening the sense of community, the essential foundation of the republic. As he says, the crisis deserves urgent attention. Economists and other social scientists need to seek possible remedies. Alas, effective policies are very hard to find. I shall discuss in turn the five planks in Freeman’s own platform.
Asset-based redistributions. America likes to describe itself as the land of equal opportunity. Conservatives in particular emphasize this equality to differentiate it from equality of outcomes and conditions. They choose to ignore the unpleasant reality that one generation’s inequality of outcomes is the next generation’s inequality of opportunity.
Freeman would like to soften this connection by some redistribution of assets. This requires, it seems to me, progressive taxation of estates and intergenerational gifts, and of income. A logical but radical instrument would be a progressive wealth tax. Private net wealth in the United States is about $25 trillion, 3.5 times GDP.
The most important asset we should help the young to acquire is human capital. We should emphasize education from pre-school to post-high-school, with national standards and federal financial help. We should promote health from womb through adolescence. We should provide needs-tested financial aid for education after high school, offering grants and loans with repayments dependent on subsequent incomes. Back in the 1950s I proposed in the New Republic universal “youth endowments,” an idea suggested by the successes of the G.I. Bill; these too could require income-conditioned repayments. In motivation, this proposal was like Freeman’s asset redistribution.
In today’s conservative politics, these all look like non-starters, unless the national mood can be changed by appreciation of the perils of the status quo. Anyway, they are preferable to the currently fashionable tax credits or deductions, which mainly are windfalls for the middle- and upper-bracket students who would be going to school beyond 12th grade anyway.
I sympathize with Freeman’s proposal to give worker-owners control of their own pension funds. I would also like to see each individual worker’s pension claims vested and portable. But these reforms will do little to redistribute assets to workers at the bottom, whose jobs rarely offer pension plans anyway.
Beware of privatization of Social Security. I am afraid it will have regressive distributional effects. It is unlikely to open any doors Dick Freeman would want to pass through.
Starting-gate equality. Some of my remarks above apply here as well. I don’t find anything in particular wrong about the degree of redistribution we now have between affluent elderly and poor elderly. Indeed we could do more of this, without destroying the elements of universal insurance in Social Security and Medicare. Affluent elderly should pay much more than they do now for Medicare Part B, which is not covered by the hospital insurance trust fund but is heavily subsidized from general revenues. The most affluent should pay the entire cost of non-hospital health care insurance.
In the spirit of Freeman’s preference for redistribution at earlier ages, I have proposed that the government “pay” the payroll taxes of workers with abnormally low earnings in any year.
Social wages and targeting benefits. I suppose that treating social benefits as taxable income-including in-kind benefits and values of public goods only to the extent they are taxable to other people as well-is psychologically and politically helpful, even if it is substantively meaningless. As an old proponent of the “negative income tax,” I believe that we should give the poor positive incentives to earn income and to live in families, even if this means that some nonpoor households will be receiving a bit of cash. If the incentives of moderate marginal tax rates are good for the rich, why are they not good for the poor? The Earned Income Tax Credit is a step in the right direction. It should be strengthened.
Build unions. I don’t see this proposal as necessarily improving the distribution of wage incomes. It might raise wages for organized workers with skills and bargaining power relative to, perhaps even at the expense of, less fortunate workers. It might increase labor incomes at the expense of capital incomes in some sectors. But past experience cannot make me optimistic that it will change the aggregate shares of labor and capital in GDP significantly. There may, however, be other reasons for rectifying the balance of power between employers and workers.
Rebuild cities. Amen! I think we should implement the proposals of Bill Wilson: government as employer of last resort, hiring the residents of inner cities to rebuild their own districts. Tax credits for private employers will never do the job. Harry Hopkins’s WPA is the right model. This does not exclude government-financed big projects, constructing and renovating houses, schools, clinics, streets, and other capital facilities of civilization.
Remarks. Let specific proposals stand on their substantive merits. There’s no need to label them ideologically. Yet neither should we deceive ourselves. If “liberal’ means anything in current politics it describes a willingness to use the public fisc to make economic well-being less unequal than market earnings. If “conservative” means anything today, it means that unequal market earnings should prevail, scarcely modified by taxes and transfers. Freeman’s proposals for redistribution are liberal.
