Who Is Really 'Deserving'? Inequality and the Ethics of Social Inheritance

...As the structures of general prosperity have been eroded in recent decades—with a flattening of the tax code, a steep decline in collective bargaining, diminishing college assistance relative to tuition costs, severe inequalities in health care coverage and quality, and on and on—economic growth in America has become a near zero-sum game between the increasingly few with extraordinary market power and the majority of everyone else...

...For example, if average wages had risen with productivity gains over the last few decades, as they did in a ratio of nearly one-to-one in the three decades after the Second World War, the projected budgetary shortfall in Social Security would not exist today...

...Simon in particular, a Nobel laureate economist, began to redeploy this concept in a forceful attack against the growing inequalities of recent decades...

...There is no itemized list of such social premiums on our pay stubs next to the deductions sent off to the government...

...John Stuart Mill...

...As he stated shortly before his death in a speech to the American Political Science Association, in 2000: If we are very generous with ourselves, I suppose that we might claim that we “earned” as much as one fifth of [our income...

...The fiscal impact of such distributional trends is rarely considered...

...and, more recently, Robert Dahl and Herbert Simon...

...On one side, there is the private marketplace, where individuals work and make productive contributions, and then receive rewards—wages, benefits, wealth, and so on—that are roughly equal to the value of what they contribute to the economy...

...Hobhouse was very careful to distinguish his argument from more radical collectivist positions...

...Strikingly, only one-eighth of the gains could be attributed to increases in the supply of capital, capital accumulation being conventionally thought to “play a large part in explaining growth, not just a small supporting role,” as Moses Abramovitz later wrote in interpreting the new growth discoveries...

...The share of national income going to the richest 1 percent has more than doubled over the last three decades, even as the top marginal tax rate has been cut in half...

...How Much Value from Society...

...As economic journalist David Warsh summarizes the case in his book Knowledge and the Wealth of Nations, “Here was the answer to the question of why the economy kept climbing the mountain of diminishing returns...

...Hobhouse...

...Now, however, we understand much more about the sources of economic growth and rising living standards, and the evidence strongly suggests that the relative importance of unique individual contributions has shrunk dramatically compared to other productive factors that can only be described as common or collective contributions, developed over time...

...In politics, the idea of deservingness is traditionally a conservative one associated with tax cuts and attacks on welfare...

...Government-funded research and development, as well as government-created markets through procurement provide a huge collective subsidy for private gains, a key “public foundation of private wealth...

...In 1957, Solow published a brief but powerful article that applied a new growth model he had developed to measure the relative importance of various factors of production (labor, capital, and so on) as sources of economic growth...

...You earned it and the government has no right to take it away...

...The large share of growth unaccounted for by conventional measures could only be attributed to “technical change in the broadest sense,” Solow concluded...

...In understanding that much of the value created today derives from a common “patrimony” of cumulative infrastructure and knowledge, we are able to redefine the moral debate, not by rejecting the principle of deservingness but by applying the principle more rigorously, exposing and challenging the private capture of societal wealth and crediting society for its contributions in an equally traditional sense...

...The unequal distribution of income across society, in turn, is held to be the natural outcome of an underlying distribution of individual productivity or value, extreme differences in income simply reflecting a natural order of high-value and low-value individuals...

...Between the slow decline of average wages and benefits since the late 1970s, and the huge overhang of consumer and public debt, there seems to be nowhere to turn for prosperity...

...In an offhand comment, he described his tax policy as an effort to “spread the wealth around,” igniting a loud controversy headlined by accusations of rampant “socialism” in the Democratic Party...

...As he wrote in his influential 1911 book Liberalism, “The true function of taxation is to secure to society the element in wealth that is of social origin, or, more broadly, all that does not owe its origin to the efforts of living individuals...

...Deservingness, in the important economic sense of linking rewards to contributions, is far less obvious today than it was when John Locke first formulated the traditional idea of desert-based entitlement to property and market gains in the late seventeenth century...

...If the magnitudes suggested by Solow’s work are roughly accurate over time—as subsequent research has suggested—this presents extraordinary problems for conventional moral arguments about the inherent deservingness of all market rewards, large and small...

...The False Ethic Exposed During the 2008 presidential campaign, Barack Obama proposed a modest plan to raise taxes on the wealthiest Americans...

...The notion of a systemic crisis of entitlements and other social goods is increasingly debated in our current fiscal circumstances...

...Franklin D. Roosevelt...

...It raises the question of whether public claims to a greater share of the gains at the top will grow stronger in the future or continue to be frustrated by the political system that allowed such inequalities to grow...

...Fifteen percent of our total productivity gains across the twentieth century, they argue, was due to advancing education levels in the workforce, as free universal K-12 schooling became the norm...

...The fundamental problem with this framework can be specifically defined and, in fact, challenged directly: the strong moral assumptions of private, individual deservingness in the marketplace rest on an empirical understanding of our economy that ignores the sources of value and growth in an advanced society...

...It is important, we suggest, to affirm—but reassert in new ways—the traditional moral principle of deservingness, thereby also resonating with how ordinary people think about taxation, the role of government, and much else in their daily lives...

...Put simply, the conventional view fails to recognize how “private” market activity— and pre-tax income—is already highly socialized in many ways before the government starts “spreading the wealth around” by tax policy...

...Inequality and the Ethics of Social Inheritance GAR ALPEROVITZ AND LEW DALY The start of the twenty-first century finds America in a perilous state that many consider to be a turning point in our history, one that could lead to a painful decline in living standards...

...His book God’s Economy will be published this fall by the University of Chicago Press...

...For this terminology and way of thinking grow out of deep-rooted assumptions about the creation and distribution of income and wealth...

...Gar Alperovitz is Lionel R. Bauman Professor of PoliticalEconomy at the University of Maryland and author, most recently, of America Beyond Capitalism (Wiley...

...David Lloyd George...

...Such pessimism is justified...

...We believe that public claims on the wealth of the richest Americans will grow stronger...

...Such attacks did not work at the time, but they have not disappeared...

...The individual’s contributions at any point in time are extremely modest compared to the contributions of society...

...What if we had spent that lost revenue on common needs, such as effective K-12 education programs, college financial aid, and research and incentives for a clean energy economy...

...Instead, “‘[t]echnical progress,’ the growth of knowledge as measured by the [Solow] Residual, was creating the new wealth...

...This vast productive investment—a collective contribution of teachers, students, parents, and (mainly local) governments—is not accounted for as something that adds to our national income and to every paycheck...

...From the growth of inequality to the current Wall Street bailouts, this is precisely what we have today...

...Robert Solow’s pioneering work on economic growth helps us understand the importance of cumulative learning and other forms of social value...

...The value we attribute to today’s labor and capital, he explains, is “due almost entirely to the cumulative process of learning that has taken us from stone age poverty to twenty-first century affluence...

...Indeed, it fails to account for the significant share of each individual’s gains that is actually unearned surplus, “an increase in output that is not commensurate,” economic historian Joel Mokyr writes, “with the increase in effort and cost” contributed by market actors...

...As comprehensively examined in Claudia Goldin and Lawrence Katz’s recent book The Race Between Education and Technology, public education is an important part of our economy...

...It had little to do with labor or capital accumulation, he confirms...

...The key empirical assumption is the individual nature of the productive contributions, which in turn generates a key moral assumption about the deservingness of individual rewards, and therefore their justness...

...At bottom, the debate revolves around a strict dichotomy between private and public, market and state, free individual activity and coercive government power...

...According to recent polls, a majority of Americans believe that today’s children will not fare better than their parents did, and many will fare worse...

...Much attention is focused on health care, education, and retirement, systems in deep crisis as the costs of these critical life-cycle needs have risen far beyond both the earning and saving capacity of average households and the spending capacity of government at current tax levels...

...As of 2004, the top 5 percent of households controlled more than 50 percent of the entire net worth of the country, while the bottom half controlled less than 3 percent...

...The Knowledge Economy If the public share of national income is to rise enough to meet the social challenges we now face, we need to develop and promote a better understanding of the types and magnitudes of social value that drive economic growth...

...In fact, the public systems that support economic growth are much less important, in the long run, than other kinds of collective assets and social contributions in such areas as technology and cognitive evolution...

...Or take Ronald Reagan’s, and especially George W. Bush’s, program of tax cuts for the wealthy...

...And thus, “our current standard of living” is something we “owe” to the past...

...Together they are the authors of Unjust Deserts: How the Rich Are Taking Our Common Inheritance and Why We Should Take It Back (New Press...

...Public education is another example...

...One of the most penetrating advocates of these ideas, Leonard Trelawny Hobhouse, understood the moral task in a way that resonates strongly today...

...It is utopian to think that we can ignore the distributional changes and simply grow our way out of this crisis...

...In contrast to the natural realm of individual gains in the marketplace, government destroys the natural order of things by turning some people’s welldeserved earnings into other people’s unearned benefits, uprooting the whole system from any moral grounding in fairness...

...But that point of view, common in both major parties, depends on omitting other parts of the economic story of the last thirty years, most important, how virtually all of the economic gains in this period were captured by a small minority of households at the top...

...There is more and more evidence, however, that traditional “desert-based” defenses of market rewards rest on a delusional understanding of wealth creation...

...An “individualism which ignores the social factor in wealth” is no individualism at all, but rather a type of “private socialism” that “deprive[s] the community of its just share in the fruits of industry and so result[s] in a one-sided and inequitable distribution of wealth...

...We cannot review our analysis of the deeper social dimensions here, but suffice it to say that our national output in any given year or period has far more to do with our inherited productive capacity— the fruit of long-run technological change and cumulative knowledge—than with current contributions in the marketplace...

...What Solow found was that most productivity growth was due to a “shift” in the production function, a change in output beyond what could be explained by changes in the supply of conventional inputs such as labor and capital...

...Private socialism occurs when the wealth generated by common assets is not generally shared but captured by a small minority and when, at the same time, the public absorbs the losses when the wealthy fail...

...The income channeled upward by tax cuts for the wealthy, by soaring executive compensation (equaling roughly 10 percent of corporate earnings in recent years), and by other distributional trends has been drained away from critical social needs and average consumption...

...It is time to dismantle this morality of private socialism, first, by crediting society for the value it creates, and second, by recapturing that value for common purposes— for a new general welfare that is not only socially necessary but, increasingly, well-deserved...

...The rest is the patrimony associated with being a member of an enormously productive social system, which has accumulated a vast store of physical capital, and an even larger store of intellectual capital— including knowledge, skills, and organizational know-how held by all of us...

...As we document in our recent book Unjust Deserts, there are many obvious examples of such collective subsidy in the marketplace...

...Specifically, Solow found that nearly seveneighths of productivity gains in the first half of the twentieth century, about 88 percent, could not be accounted for by measuring conventional inputs of labor and capital...

...Nobel laureate economist George Akerlof puts the key point succinctly: “Our marginal products are not ours alone...

...Locke’s views of strong individual entitlement were in some ways reasonable at the time, based as they were in a primitive agrarian economy resting almost entirely on the value added to nature by individual physical labor...

...On the other side, there is the bad, dictatorial realm of government, which confiscates individual earnings for the greater good...

...But this shift depends on the public’s developing a new perspective on the inequalities at the heart of the current crisis, one that diverges from the predominant progressive philosophies of the last thirty years...

...Among many other things, such collective goods include cooperation with others in the workplace, shared physical and cultural infrastructure, and, most important, the expansion, refinement, and increasing accessibility of scientific, technical, and other forms of productive knowledge—a vast “knowledge inheritance” that Mokyr describes as the “free lunch” at the heart of the modern economy...

...It is only by crediting social value, he argued, that genuine individualism could be preserved...

...What allowed it to develop was, at bottom, a morality of entitlement that did not contemplate the value of societal contributions or the obligations they generate...

...And, accordingly, if deservingness is the test, the individual’s reward should be equally modest...

...How many times have we heard a politician rail against taxes by shouting, “It’s your money...

...Lew Daly is senior fellow and director of the Fellows Program at Demos in New York City...

...Lacking a better empirical understanding of the economic impact of common assets—most important our expanding inheritance of scientific and other forms of productive knowledge and know-how—public debate will continue to be controlled by moral arguments pitting strong assumptions of individual “deservingness” in the private economy against equally strong assumptions of “undeservingness” in the development of social policy...

...This basic idea—that the wealth generated by common assets should be generally shared—has been advocated by many thinkers and leaders well within the liberal tradition, including Thomas Paine...

...ARTICLES Who Is Really ‘Deserving...

...Private income is not only enabled but enhanced by a range of collective goods that individuals enjoy but do not create...

...The remainder, now commonly called the “Solow residual,” essentially represents an increase in the efficiency— not an increase in the amount—of the combined conventional inputs...

...Yet, if we are serious in holding that contribution matters, then—as the Solow study and many others demonstrate—society “deserves” much more than many believe, and all members of society should share in the common fruits...