SYNOPSIS:A response to Richard Freeman's "Solving the New Inquality," from the December/January 1996-97 issue of Boston Review.
I don't want to seem to quibble with Richard Freeman's essay, since I am overwhelmingly in agreement with it. Let me just make a few points.
First, I think Freeman is over-optimistic when he asserts that there is consensus on the fact of drastically increased inequality. It is true that all reasonable people are now agreed on this fact, but unreasonable people have a lot of influence in this country. Recently National Review ran an article asserting, yet again, that the only evidence for growing inequality comes from fraudulent statistics concocted by liberals, while the St. Louis Fed published yet another spurious study claiming that hardly anybody stays in the bottom quintile for more than a few years. The persistence of such views mainly reflects the ability of some wealthy people to buy "research" that caters to their prejudices and interests, but it means that getting a consensus on action is going to be even harder than Freeman thinks.
Second, the debate over causes is a bit more important than Freeman suggests, because there is a significant bloc of opinion that thinks that closing off international trade is the answer to the problem of inequality. We can and should argue that protectionism is a bad idea because of its side consequences-not least for workers in developing countries-but it is also important to realize that it simply would not work, because most of the rise in inequality is explained by other causes.
Anyway, on to Freeman's five strategies. I want to comment mainly on the first (asset-based redistribution) and fourth (build unions). I agree entirely with the rest.
I like Freeman's idea of providing each individual with a trust fund when young rather than retirement benefits when old, but we had better realize that this is a significant change in the character of the social insurance system. Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today's young may well get less than they put in).
Freeman's scheme, however, will necessarily be frankly redistributionist, because the trust fund you receive when young cannot be based on what you will actually pay into the system over the rest of your life. Presumably the size of the trust fund will be the same for everyone-which means that some people will receive much more than the present value of the trust-fund taxes they pay over the rest of their lives, others much less. Now I don't have any problem with that kind of redistribution, but I think we had better realize that it will face intense opposition, that its "capitalistic" aspects will probably not buy off many of the critics.
Put it this way: Freeman may think that it is a shared value that everyone should have an equal chance at the start of life; but it isn't. On the contrary, recent news reports tell us that the next big push by tax-cutters will be a drive to eliminate the inheritance tax-that is, what the right wants more than anything else is to allow the wealthy to pass on their status to their children.
On a related point: I could not figure out from this essay what Freeman thinks of the Earned Income Tax Credit, which is also a frankly redistributionist scheme, but whose link to willingness to work has given it at least a fragile political acceptance. Isn't a significant expansion (say a tripling) of the EITC program the line of least resistance way to do something about incomes at the bottom?
On to union-building. I agree totally with Freeman here: even if you don't like unions very much, even if you think they often reduce efficiency, we need them as a social and political counterweight to the power of wealth in our country. What I would say is that this is a much broader point than just unions. The stunning fact about US political economy over the past 25 years is that policy has reinforced rather than opposed the growth in inequality-a fact best explained by observing that the growing concentration of wealth has also led to a growing concentration of power in the hands of the wealthy. What this means is that if you are serious about pursuing the goal of limiting inequality you must think strategically; you should ask about any proposed policy change not only how it directly affects less well-off Americans, but also how it will affect the future political balance. For example, proposals for school vouchers should be critiqued not only on educational or cost-efficiency grounds but also because they raise the risk of a collapse in the political support for public education. (If upper-middle-class families are allowed to "top up" their vouchers with their own money, they will soon realize that it is in their interest to cut the size of the vouchers as much as possible). And-dare we say it?-we should in general oppose privatization plans if they are likely to destroy public sector unions. After all, people on the right tend to favor privatization for exactly the same reason.
I have to admit that I am fairly cynical about the prospects for the kind of bipartisan, cut-across-the-political-divide assault on inequality that Freeman hopes for. Right now we have a powerful conservative movement that cannot really bring itself to admit the fact of inequality, let alone talk about solutions; and right-wingers are furious and embittered by the outrageous willingness of their middle-of-the-road opponents to play political hardball as fiercely as they do. At the moment it is hard to imagine much more than a modest expansion of the EITC. But we do need a discussion of how to make a broader assault on inequality, to prepare the ground for the time when some real action may be possible.