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
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
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.
Originally published in the December 1996/
January 1997 issue of Boston Review