The Conservative Sensibility Page 34

  But does it really? Not according to this foundational American belief: Government—including all those public goods such as roads, airports, schools, fire and police departments—is instituted to facilitate individual striving, aka the pursuit of happiness. The fact that collective choices, resulting in public goods, facilitate this striving does not compel the conclusion that the collectivity is entitled to take as much of the results of the striving as the collectivity decides that it made possible. Were this conclusion valid, government, representing the collectivity, would be judge and jury in its own case and would make a generous estimate of its contributions and hence of its entitlements.

  Today, arguments about progressive income taxation are only arguments about the degree of progressivity. This indicates that many people are more distressed by inequalities of income than of wealth. By itself, a progressive income tax can make inequalities of wealth more durable, as Blum and Kalven noted: The income tax alone can do nothing to mitigate existing inequalities in wealth, and, moreover, it retards the accumulation of new fortunes. The progressive income tax alone, no matter how steep the progression, tends to preserve and magnify the advantages of inherited wealth. This is one reason why the egalitarian’s work is never done. Redistributive taxation seems to require redistributive wealth-transfer taxes. But, then, from the redistributors’ point of view, why not? They have a sturdy, two-fold confidence—in their moral vision of the correct distribution of social rewards and in their ability to engineer this condition, which will require constant fine-tuning by them.

  To say that the case for progressive taxation is “uneasy” is not to suggest that it is wrong to question the market’s allocation of wealth. Rather, it is to say three other things. First, markets—the consensual transactions of millions of people making billions of daily decisions—do deserve initial deference. Second, inequalities of income and wealth, which arise from unequal distributions of the attitudes and aptitudes essential to adding value to the economy, are not prima facie disturbing. Third, to the extent that resulting inequalities are disturbing, progressive taxation is a blunt and ineffective remedy. This is so because, as Blum and Kalven wrote, the most important source of intractable inequality of opportunity in America is what is called “cultural inheritance.” In the more than half a century since they wrote, abundant research and bitter experience have confirmed their judgment that much of the transmission of culture “occurs through the family, and no system of public education and training can completely neutralize this form of inheritance.”94 Since 1952, when the percentage of American children born out of wedlock was about 4 percent, we have seen that percentage rise to 40 percent. The causes of this are unclear; the consequences are calamitous, particularly regarding opportunities for upward mobility. The cures for family disintegration are as unknown as are its causes. What is certain is this: Progressive taxation is a flimsy lever with which to try to reshape a society, many of whose problems are driven by family disintegration.

  Blum and Kalven proposed a thought experiment to clarify the weak link between distress about inequality and support for progressive taxation. Suppose, they said, that society’s wealth trebled overnight without any change in the relative distribution among individuals. Would the unchanged inequality at much higher levels of affluence decrease concern about inequality? Their answer was: Surely not. The issue of inequality has become more salient as affluence has increased, which suggests two conclusions: People are less dissatisfied by what they lack than by what others have. And when government engages in redistribution in order to maximize the happiness of citizens who become more envious as they become more comfortable, government is apt to become increasingly frenzied and futile.

  ENVY, POSITIONAL STRIVING,

  AND ANDREW CARNEGIE’S SIXTEEN CENTS

  Besides, envy is not something that should be encouraged by being rewarded. The sociologist and philosopher Robert Nisbet was correct: “Of the seven deadly sins, of all the states of the human mind indeed, envy is the basest and ugliest. It is also the most corrosive of spiritual and moral fiber in the bearer and the most destructive of the social fabric.…Envy is a compound of covetousness, felt impotence, and nihilistic resentment of anything and everything that is honored in a culture.” Envy is “the tax which all distinction must pay,” according to Emerson. It is, according to Samuel Johnson, the vice closest to “pure and unmixed evil” because, inevitably, it motivates “lessening others though we gain nothing to ourselves.” Envy is the common denominator of the many flavors of populism and, paradoxically, envy intensifies as equality of social conditions increases. “When inequality is the general rule in society,” wrote Tocqueville, “the greatest inequalities attract no attention. When everything is more or less level, the slightest variation is noticed. Hence the more equal men are, the more insatiable will be their longing for equality.”95 This longing is the fertilizer of envy.

  The fact that envy has increased as society has become more wealthy made sense to Fred Hirsch, a British economist who in his 1976 book Social Limits to Growth distinguished between the “material economy” and the “positional economy.” The former is the economy as we normally think and speak about it—the aggregate production of goods and services. The latter, which is increasingly important, concerns goods, services, and jobs that are (inherently) minority enjoyments. As affluence has satisfied more and more basic material needs, more income, aspiration, and energy have been devoted to “positional competition” for such things as a “choice” suburban home, an “exclusive” vacation spot, an “elite” education, a “superior” job. As affluence increases, competition moves more and more from the material sector to the “positional” sector, where one person’s gain is necessarily a loss for many other persons. Unlike the demand for radial tires and laundry detergents, supplies of which can be expanded indefinitely, each demand for a positional good can be satisfied only by frustrating the similar demands of many other people. Because affluence sharply increases competition for positional goods, a society’s economic success actually increases frustrations and tensions. The nagging sense that affluent people are more harried than ever is sometimes explained in terms of consumption of material goods: The supply of such goods increases while the time to consume stays constant—or decreases because of the time devoted to the work that is necessary to fund acquisition. But an additional explanation concerns the time and income needed for “positional competition.”96

  Materially, economic growth has been a leveling force. Cars and air conditioners and other goods that are luxuries for one generation become necessities for the next generation. The richest American cannot purchase better antibiotics than the average American can. No billionaire in 2000 could have purchased a technological marvel like the smartphones carried today in the pockets of millions of middle-class teenagers. Now, however, affluent consumers face increasing frustrations because the collective advance of the middle class is inherently impossible regarding “positional goods.” Tension, not satisfaction, results when the middle class, observing the top strata of society, acquires an appetite for “elite” education, “superior” jobs, and beachfront properties. Positions of status and leadership, like beachfront acreage, cannot be expanded indefinitely to become majority enjoyments. The intractable problem of the “positional economy” is social congestion: The desires of the middle class have expanded beyond middle-class opportunities. The dominant political aspiration of the modern age is equality, but the reality of the “positional economy” is that, in an important way, the affluent society must become steadily less egalitarian. The pursuit of positional goods becomes steadily more important, and such goods are inherently restricted to a minority.

  The complexity of positional striving is vividly illustrated in higher education. Economic growth has made possible a vast expansion of what is called “educational opportunity.” But one reason there are so many bored or sullen students is that for many of them college is not an “opportunity.” Rather, it
is what Hirsh called a “defensive necessity.” The sullen student pursues a degree only because it will raise his or her income above what it would be if others got degrees and he or she did not. This grim scramble for position is an aspect of modern society’s mania for “credentials,” like the current pursuit of meaningless master’s degrees. As Hirsch said, there is a sense in which “more education for all leaves everyone in the same place.…it is a case of everyone in the crowd standing on tiptoe and no one getting a better view.” And the number of persons who are, or—just as important—who think they are, educationally equipped for “superior” jobs increases faster than the number of such jobs.97

  A society that values individualism, enterprise, and a market economy is neither surprised nor scandalized when the unequal distribution of marketable skills and inclinations produces large disparities in the distribution of wealth. Long experience with government’s attempts to use progressive taxation to influence the distribution of income suggests the weakness of that instrument and the primacy of social and cultural forces in determining the distribution of wealth. Consider two things that might conduce to a smaller gap between the most and least affluent households. A stock market crash would devalue the portfolios of the wealthy. And curtailing access to college and postgraduate education would limit the disparities in the marketable skills that increasingly account for income disparities. To suggest such “solutions” is, however, to come face-to-face with the fact that the problem of increasing inequalities of wealth is not a problem we will pay whatever price is necessary to remedy. And it might not be a problem at all. In an increasingly knowledge-based economy, education disparities drive income disparities, which are incentives for the rising generation to take education seriously as a decisive shaper of individuals’ destinies. The market is saying, insistently: “Stay in school.” In today’s global economy, with highly mobile capital and an abundance of cheap labor, the long-term prosperity of an advanced nation is a function of a high rate of savings—the deferral of gratification that makes possible high rates of investment in capital, research, and education. All these forms of social capital are good for society as a whole and are encouraged by high rewards for those who accept the discipline involved. This is why promoting more equal distribution of wealth might not be essential to, or even compatible with, promoting a more equitable society. And this, in turn, is why increasingly unequal social rewards can lead to a more truly egalitarian society, one that offers upward mobility to all who accept its rewarding discipline.

  Government uses redistribution to correct social, meaning market, outcomes that offend it or some of its powerful constituencies. But government rarely explains, or perhaps even rarely recognizes, the reasoning by which it decides why particular outcomes of consensual market activities are incorrect. When taxes are levied not merely in order to efficiently fund government but to impose this or that notion of distributive justice, remember this: Taxes are always coerced contributions to government, which is always the first, and often the principal, beneficiary of taxes. Furthermore, in any complex modern society, any ambitious redistributionist agenda faces an epistemic barrier: The diffusion and division of knowledge about actions and their consequences is such that the project of redistributing wealth must give rise to government agencies guessing about consequences, and wielding vast discretion in doing so, with unhealthy consequences for the rule of law. The first function, and often the final achievement, of any redistributionist ideology is to legitimate the existence and activities of these agencies of redistribution.

  In modern democracies, where majorities rule and the poor are far from a majority, the poor are not the principal beneficiaries of a redistributionist state. At first, perhaps, the middle class is. But any attempt to impose upon society a politically determined, government-approved allocation of wealth—and with it, of opportunity—will, over time, favor the wealthy because a redistributionist state inevitably distributes upward. This means that such government is inherently regressive; it tends to distribute power and money to the strong—including, first and foremost, itself. Government becomes big by having big ambitions for supplementing, and even supplanting, markets as society’s primary allocator of wealth and opportunity. Therefore ameliorative government becomes a magnet for factions muscular enough, in money or numbers or both, to bend government to their advantage. When government embraces redistribution, it summons into existence factions eager to get in on the action. Government constantly expands under the unending, intensifying pressures to correct what it and its many client groups disapprove: the distribution of wealth produced by consensual market activities. But as government, prompted by its own preferences or those of clients, presumes to dictate the correct distribution of social rewards, politics becomes a maelstrom of infinite appetites in competition for finite resources. The result is that social strife, not solidarity, is generated by government’s distributional activities that are intended to promote harmony, or are advertised as so intended.

  An oft-repeated story about redistribution might be apocryphal, but is nevertheless instructive: A socialist came to Andrew Carnegie’s office to argue that the wealth of the rich should be redistributed to the less fortunate. Carnegie directed an aide to bring him an estimate of his, Carnegie’s, net worth, and of the Earth’s population. He divided the former by the latter, then told the aide to give the socialist his share of Carnegie’s wealth: sixteen cents. Although redistributive government is a fact—67 percent of the federal budget consists of transfer payments—redistributive fiscal policies have been minor factors in the egalitarian gains of modern society. The major factors have been economic and social changes, such as agriculture shrinking from the largest sector of the economy to less than 2 percent of employment. Many changes have made human capital—education, information, skills—more important than land and physical capital in the productive process. Government did, however, play a large role in this by making primary and secondary education compulsory and free, by multiplying the number of colleges, universities, and other postsecondary education options, and by expanding scholarship programs that democratized access to these options. By making private contributions to colleges and universities tax deductible, government encouraged the transformation of old wealth produced by land and physical capital into human capital—skills—possessed by children from outside the upper classes of old wealth. Cumulatively, these acts constituted, as Robert Fogel had said, one of the largest programs of redistribution of wealth in history. The wealth was redistributed not by giving wealth directly to individuals but by equipping individuals for strivings that add value to the economy.

  Of the three economic conditions that are important causes of social distress—poverty, insecurity, and inequality—the latter is surely the least important. The first stunts opportunity. The second casts a pall over daily life and prevents people from transcending present-mindedness. The third is not inherently injurious to anyone. The philosopher Harry G. Frankfurt argues that economic inequality is not inherently objectionable as a matter of moral reasoning: “To the extent that it truly is undesirable, it is on account of its almost irresistible tendency to generate unacceptable inequalities of other kinds.” These can include access to elite education, political influence, and other nontrivial matters. But Frankfurt’s alternative to economic egalitarianism is the “doctrine of sufficiency”: The moral imperative should be that everyone has enough. The pursuit of increased economic equality might, but need not, serve the ethic of sufficiency. And Frankfurt says this pursuit might distract people from understanding, and finding satisfaction with, “what is needed for the kind of life a person would most sensibly and appropriately seek.” This should have nothing to do with “the quantity of money that other people happen to have” because “doing worse than others does not entail doing badly.” Furthermore, an obsession with the quantity and quality of others’ resources “contributes to the moral disorientation and shallowness of our time.”98 And to the failure t
o recognize that egalitarian effects can have calamitous causes. And that modern life has some astonishingly egalitarian aspects.

  Stanford’s Walter Scheidel, whose scholarship encompasses classics, history, and human biology, has a wonderfully startling insight that is pertinent to the debate about economic inequality. Tight labor markets shrink such inequality by causing employers to bid up the price of scarce labor. Therefore epidemics can be helpful to the egalitarian cause. Wars, too. The tendency in stable, peaceful, and prosperous societies is for elites to become entrenched and adept at using their entrenchment to augment their advantages. Many of the most potent solutions to this problem are unpleasant. They are disruptions that cause the crumbling of the cake of custom, and of much else. Wars, revolutions, and plagues have egalitarian consequences by fracturing society’s crust, opening fissures through which those who had been held down can rise. Scheidel says that mass-mobilization wars have given the masses leverage and have required the confiscation, through high taxation, of much wealth from the comfortable. Revolutions often target categories of people who are considered impediments to the strivings of those in the lower orders, e.g., “landlords” and “the bourgeoisie.” The Black Death, too, was particularly useful. By killing between 25 and 45 percent of Europeans in the middle of the fourteenth century, the bubonic plague radically changed the ratio of the value of land to that of labor, to the advantage of the latter. The well-off, who owned land, were not amused. Scheidel notes that in England, the Chronicle of the Priory of Rochester noted unhappily that “the humble turned up their noses at employment, and could scarcely be persuaded to serve the eminent for triple wages.” The king decreed wage controls, but the canon of Leicester dourly noted that “the workers were so above themselves and so bloody-minded that they took no notice of the king’s command.” They benefited from the robust attack on inequality waged by the rats that carried the fleas whose intestines carried the bacteria strain and produced the Black Death.99