Monday, December 19, 2011

Levelling and The Republic

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed...

The Declaration of Independence is the founding document of the American Republic, and the aspirations eloquently expressed in the second paragraph quoted from above have a central place in the quest for freedom everywhere. Their moral force has shaped our national character and our Constitution, and many of our best deeds have been inspired by our attempts to live up to those aspirations.

It's not an easy standard, and we have failed repeatedly to live up to it, but its potentcy as a battle cry for freedom has never wilted. Our nation's long struggles over slavery and equal rights are the most dramatic manifestation of the challenge of that standard. The fact that these words were penned by a life long slave owner are yet another proof of difficulty their achievement.

The founders of our nation knew history, so they were not under any illusions that they had created a magical system for the preservation of liberty. John Adams and George Mason in particular were wary of the hazards of evolution into oligarchy or dictatorship. The present age is hardly free of warning signs of their encroachment, especially the emergence of the national security state in the wake of 911 and the exploding inequality in wealth.

Ian Ayres and Aaron S Edlin, writing in today's New York Times, sound the alarm and plump for a proposal:

THE progressive reformer and eminent jurist Louis D. Brandeis once said, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.” Brandeis lived at a time when enormous disparities between the rich and the poor led to violent labor unrest and ultimately to a reform movement.

Over the last three decades, income inequality has again soared to the sort of levels that alarmed Brandeis. In 1980, the wealthiest 1 percent of Americans made 9.1 percent of our nation’s pre-tax income; by 2006 that share had risen to 18.8 percent — slightly higher than when Brandeis joined the Supreme Court in 1916.

Congress might have countered this increased concentration but, instead, tax changes have exacerbated the trend: in after-tax dollars, our wealthiest 1 percent over this same period went from receiving 7.7 percent to 16.3 percent of our nation’s income.

What we call the Brandeis Ratio — the ratio of the average income of the nation’s richest 1 percent to the median household income — has skyrocketed since Ronald Reagan took office. In 1980 the average 1-percenter made 12.5 times the median income, but in 2006 (the latest year for which data is available) the average income of our richest 1 percent was a whopping 36 times greater than that of the median household.

Television and the consolidation of media has hugely increased the power of wealth make it's voice the only one heard. In Lincoln's day, a city of a few thousand people was likely to have a dozen or more newspapers, each with its own editorial voice. Today, a tiny number of giant corporations control nearly all media.

The author's of the Times Op-Ed have a levelling proposal, one that I think deserves (but is unlikely to get) consideration by our political class:

Enough is enough. Congress should reform our tax law to put the brakes on further inequality. Specifically, we propose an automatic extra tax on the income of the top 1 percent of earners — a tax that would limit the after-tax incomes of this club to 36 times the median household income.

Importantly, our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down.

Of course our government is pretty much already owned by not the 1%, but the top 0.01 %, so the prospect is hardly reallistic. Note also that as Krugman and others have pointed out the the sharp point of inequality is really in the top 0.1% and 0.01%. (My guess is that Prof K himself is solidly in the top 1% of earners but not quite in the higher priced groups).

Let me review just a couple of potential criticisms:
(1)That's socialism! - Answer: Not it isn't. Buy yourself a dictionary (or find one online), and look under S. They have definitions. Socialism is social ownership of the means of production.
(2)That's Communism! Answ: See number (1). Check dictionary under I, for idiot - that would be you.
(3)Taxes compromise liberty. Answ: Yes.