"There are a lot of wealthy, successful Americans who agree with me - because they want to give something back. They know they didn't - look, if you've been successful, you didn't get there on your own...If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you've got a business - you didn't build that. Somebody else made that happen. The Internet didn't get invented on its own. Government research created the Internet so that all the companies could make money off the Internet."
Cue the head explosions.
Much attention was given to the "...you didn't build that" part by conservatives, because it so neatly fit the caricature of everything they perceive and fear the president to be. Never mind the mundane, logistical question of whether the president was referring to the "roads and bridges" or the "business" as the "that" which one did not build. That was irrelevant. So too, was an actual discussion on the merit of the government's role in the private sector. No, what was more important was how the Republicans, particularly Willard "Mitt" Romney's campaign, could capitalize on this.
And so it came to pass that on Tuesday, Aug. 28th, the Republican National Convention in Tampa would bear the official theme of "We Built It!" The day was a delightful and hilarious romp in which nearly every conservative commentator and politician took turns roasting the president for the sin of suggesting that America's entrepreneurs are anything less than the 100% self-made supermen they are widely fetishized to be. On this day, any notion that government funding could, in fact, be used to help a private business flourish was left by the wayside.
The RNC, of course, was held at the Tampa Bay Times Forum - an arena in which 62% of the money allocated for its construction was provided by the government.
***
For all the uproar it caused, President Obama's statement was nothing compared to remarks by (now Massachusetts Senator) Elizabeth Warren nearly a year earlier:
"I hear all this, you know, "well, this is class warfare, this is whatever." No. There is nobody in this country who got rich on his own - nobody. You built a factory out there? Good for you. But I want to be clear. you moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police-forces and fire-forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory - and hire someone to protect against this - because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea. God bless - keep a big hunk of it. But part of the underlying social contract is, you take a hunk of that and pay it forward for the next kid who comes along."
While the two sentiments are very similar, Sen. Warren was much more brazen and unequivocal in her progressive beliefs.
What are the implications here? Both are making an economic argument in favor of progressive taxation, or higher taxes on the wealthy, because they are the primary beneficiaries of government largess. Furthermore, redistributing the additional revenue to the poor and middle class helps to combat one of the most pressing problems of our time: wealth inequality.
Allow me to make my own argument in favor of both propositions. To begin, let's take a closer look at our nation's wealthy:
"In the United States, wealth is highly concentrated in a relatively few hands. As of 2010, the top 1% of households (the upper class) owned 35.4% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 53.5%, which means that just 20% of the people owned a remarkable 89%, leaving only 11% of the wealth for the bottom 80% (wage and salary workers)."
11%. For the remaining 80% of Americans. That's our share of the pie of wealth (here, "wealth" doesn't just refer to income; it includes marketable assets such as stocks, bonds, real estate, etc.).
There are many reasons that as many as 47% of Americans don't pay federal income taxes, as Gov. Romney kindly pointed out during the 2012 campaign. Perhaps one of the more pertinent reasons is that they increasingly have little earned income to tax to begin with, as much of it has accumulated to the very top:
The top 10% have captured roughly 50% total annual income, including capital gains. Conservatives like to point out that a large percentage of the revenue collected by the federal government already comes from the wealthy via income taxes. In their defense of the rich, however, they frequently neglect to mention all of the above-mentioned statistics, which I'll recap here: the top 20% owned 89% of all privately held wealth, and roughly 95% of all financial wealth, while the top 10% earn roughly 50% of total annual income. It's difficult to argue that the rich are "taxed enough already" when they command such large quantities of wealth.
Compounding the problem is the fact that most Americans have no idea just how skewed things are. This was made evident in a study published by Harvard Business School professors Daniel Ariely and Michael Norton in 2010. When asked to guess who owned what percentage of our nation's share of wealth, survey respondents were widely off the mark on the top and bottom quintiles. For example, survey respondents guessed that the poorest bottom 2 quintiles (40%, or roughly 120 million Americans), owned between 8 and 10% of our nation's wealth when, in fact, they only own about 0.3%:
Furthermore, as the graphic indicates, survey respondents would actually prefer a more equitable distribution than what they guessed it to be. In other words, they'd prefer our country be more like Sweden. If your goal is an economically equal society, it's difficult to do better than Sweden. According to the CIA World Fact Book, Sweden's Gini index, or "the degree of inequality in the distribution of family income in a country," is one of the lowest in the world, at 23.0. The more equal a country's income distribution, the lower its Gini index. The United States? We're at 45.0, which puts us in the fine company of Bulgaria, Uruguay, Cameroon, and Uganda. Which is to say, closer to third world countries than first world countries.
Conservatives/libertarians don't consider this to be a problem, though, because they 1) believe that the wealthy earned all that they have through hard work and that the rest of us can be wealthy as well, if only we work hard enough for it, and 2) that their considerable wealth doesn't have negative repercussions for the rest of us, so concern over inequality must be borne out of jealousy or envy. They're wrong on both counts.
As President Obama and Sen. Warren noted, the rich benefit enormously from public infrastructure, public education, and public health care programs. Having the world's most powerful military to protect the nation from foreign armies coming in and seizing private assets is certainly more beneficial to those who actually have assets to seize as opposed to, say, a homeless man living under a bridge. So too, is the National Highway System, which allows companies to ship their goods to customers all over the nation with relative ease, as opposed to your typical commuter who might find that its greatest benefit is making vacations easier. Public investment frequently leads to private profits. Perhaps the best example would be the creation of the Internet, which was the end result of a plethora of federal spending and work by agencies such as the National Science Foundation (NSF). In addition to being the greatest tool ever created for disseminating goods and services, there are entire companies, such as Facebook, Twitter, and Google, that plainly wouldn't exist without it.
All of this is an argument for progressive taxation, more broadly. The wealthy benefit more than anyone else from federal spending insofar as it enables them to accumulate stratospheric wealth that would otherwise be impossible without the existence of the federal government. Shouldn't they pay more for it? In the end, President Obama's statement would have been more artful if he had immediately followed "you didn't build that" with a "...by yourself." The general gist of what he said, however, is correct; there is no such thing as a self-made man.
Implicit in the right's belief of the self-made man is the notion that the poor are equally responsible for their own misfortune. Absent from this belief is the consideration of intergenerational mobility. Or rather, in modern America, the lack of intergenerational mobility. Leading the way in research on this particular topic is UC-Berkley Professor Emmanuel Saez, who recently published a paper alongside Raj Chetty and Nathaniel Hendre of Harvard, and Patrick Kline, also of UC-Berkley, which explores the factors correlated with upward mobility, and the differences in mobility across different regions of the U.S. Here's part of the abstract:
"The conditional expectation of child income given parent income is linear in percentile ranks. On average, a 10 percentile increase in parent income is associated with a 3.4 percentile increase in a child's income. Second, intergenerational mobility varies substantially across areas within the U.S. For example, the probability that a child reaches the top quintile of the national income distribution starting from a family in the bottom quintile is 4.4% in Charlotte but 12.9% in San Jose. Third, we explore the factors correlated with upward mobility. High mobility areas have (1) less residential segregation, (2) less income inequality, (3) better primary schools, (4) greater social capital, and (5) greater family stability."
There's a lot to unpack here, but the most important take away, to my mind, is that your likelihood of economic success is largely dependent upon whether your parents (or parent) were economically successful. Although the emphasis of the study was on the regional differences in mobility, the authors state that "a child born in the bottom fifth of the income distribution has a 7.8% chance of reaching the top fifth in the U.S. as a whole." Conservatives love to tout the classic rags-to-riches story as proof of the 'American Dream,' but any realist knows that 7.8% is nothing to brag about. Pretending that everything is fine because a few kids here and there wind up successful after growing up in poverty is problematic because it ignores how many kids don't wind up successful specifically because the deck is so thoroughly stacked against them.
The authors found that "the fraction of children living in single-parent households is the strongest correlate of upward income mobility among all the variables...explored." A child can hardly help what type of family structure he or she is born into. In addition to this, the quality (or lack thereof) of the public schools a child attends is also a factor:
"The income-adjusted test score and dropout rates are very highly correlated with upward mobility across all specifications...These results are consistent with the hypothesis that the quality of schools - as judged by outputs rather than inputs - plays a role in upward mobility. At a minimum, they strengthen the view that much of the difference in intergenerational income mobility across areas emerges while children are relatively young."
In other words, the factors that correlate most strongly to your likelihood of getting out of poverty are solidified when you are young, and least likely to be able to do anything about it. If I could will conservatives/libertarians to understand one thing, it would be that the "just-world" hypothesis, or the belief that a person's predicament is only the result of his or her actions, is utter bullshit. A child raised by a single parent in inner-city Detroit is objectively less likely to rise out of poverty than children born into more fortunate circumstances. Indeed, the authors crunched the numbers and quantified that likelihood: a child raised in Detroit has a 5.5% chance of rising from the bottom income quintile to the top quintile.
But it's far easier to blame individuals and individuals alone than it is to try and quantify all these variables. Congressman Paul Ryan (R - WI) is one such example. In his "Roadmap for America's Future," the Congressman derides social welfare programs and their recipients:
"Until recently, Americans were known and admired everywhere for their hopeful determination to assume responsibility for the quality of their own lives; to rely on their own work and initiative; and to improve opportunities for their children to prosper in the future. But over time, Americans have been lured into viewing government - more than themselves, their families, their communities, their faith - as their main source of support; they have been drawn toward depending on the public sector for growing shares of their material and personal well-being. The trend drains individual initiative and personal responsibility. It creates an aversion to risk, sapping the entrepreneurial spirit necessary for growth, innovation, and prosperity."
On cue, the man who once utilized Social Security survivor benefits to pay for college is here to tell us that assistance from the government does nothing but sap our initiative and lull us into a life of dependency. Except, of course, when government assistance is given to him. No, he's the exception to the rule. That's the point though, isn't it? It's always someone else. Someone else is abusing welfare. Someone else is living off the government. After all, the only moral welfare is my own welfare.
Congressman Paul's hypocrisy aside, he's empirically wrong as well. Prof. Saez and the other researchers found that public expenditures are positively correlated to upward mobility:
"In summary, we find that areas that provide more local public goods and larger tax credits for low income families tend to have higher levels of upward mobility. However, segregation and inequality are much stronger and more robust predictors of the variation in intergenerational mobility than differences in local tax and expenditure policies."
Public assistance doesn't lull lower income families into complacency; rather, it helps them reach their full potential. Consider programs such as SNAP (food stamps) and school lunch programs. Hunger and malnutrition are pretty serious impediments to studying and performing well in school. How can you focus on homework when you aren't getting enough to eat? Indeed, poverty more broadly is taxing on the brain. Recent research has quantified the impact poverty has on one's IQ:
"In a series of experiments run by researchers at Princeton, Harvard, and the University of Warwick, low-income people who were primed to think about financial problems performed poorly on a series of cognition tests, saddled with a mental load that was the equivalent of losing an entire night's sleep. Put another way, the condition of poverty imposed a mental burden akin to losing 13 IQ points, or comparable to the cognitive difference that's been observed between chronic alcoholics and normal adults."
It shouldn't come as any surprise that so few people rise from the depths of poverty to achieve upper or even middle class status. Public assistance programs can alleviate these problems and tighten the wealth inequality gap to boot, but it's difficult to implement and strengthen such policies with Congressmen like Paul Ryan in Washington.
And wealth inequality isn't just a problem for those at the bottom of the inequality gap. Rather, it's a problem for our entire country, including the wealthy. To demonstrate this point, here's a TED talk given by Richard Wilkinson, back in 2011:
As Mr. Wilkinson shows us, first world nations with high inequality do worse in terms of societal problems such as life expectancy, student performance, infant mortality rates, homicide rates, incarceration rates, obesity, and overall health. Addressing wealth inequality need not be simply framed as a moral matter of fairness; there are real, measurable costs in the realms of health, education, and overall quality of life to take into consideration as well. Adding more millionaires to the mix won't fix these problems. Contrary to the theory of "trickle-down" economics, the rich don't benevolently share their wealth with the rest of us by creating jobs. Rather, the wealth trickles down to the bottom of their pockets, and stays there. In the 1950's, The C.E.O.'s of major American companies made roughly 20x as much as their employees. Today, they make about 200x as much. Are today's C.E.O.'s that much harder working, or that much more deserving than the C.E.O.'s of the 1950's? Not too fucking likely.
Furthermore, redistribution of wealth from the rich to the poor doesn't necessarily impede a nation's overall economic growth, as conservatives typically claim. New research from the International Monetary Fund (IMF) concludes that "lower net inequality seems to drive faster and more durable growth for a given level of redistribution." In other words, more equal first world nations don't just do better in terms of the societal problems laid out by Mr. Wilkinson in his TED talk, but seemingly enjoy greater long-term economic growth as well. The IMF authors also state that:
"...redistribution appears generally benign in its impact on growth; only in extreme cases is there some evidence that it may have direct negative effects on growth. Thus the combine direct and indirect effects of redistribution - including the growth effects of the resulting lower - inequality - are, on average, pro-growth."
"Redistribution" is a scary word to some. It means, quite bluntly, taking something from someone and giving it to someone else. In a country such as ours, it means higher taxes on the wealthy to help fund social welfare programs to combat poverty. I've already written about the rationale for progressive taxation, in that the rich benefit more from the existence of the federal government, and should therefore pay more in taxes to maintain its existence. Conservatives like to pretend that reducing taxes on the wealthy frees the "job creators" to, well, create jobs, and grow the economy. Again, they're wrong. Per a 2012 report by the Congressional Research Service:
"There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution."
This can be observed at the state level as well. In 2012, Kansas enacted a significant income tax cut for the state's wealthiest residents. In addition to the loss of revenue which would otherwise be used to fund some pretty important things, such as K-12 public eduction, a Center on Budget and Policy Priorities report found that "Kansas has added jobs at a pace modestly slower than the country as a whole," while the "number of registered businesses grew more slowly" after the tax cuts were enacted.
In conclusion, wealth inequality has negative repercussions for us all, whether we be poor, middle class, or rich. Recent research suggests that redistribution of wealth leads to stronger, more durable economic growth, while giving lower income families a fighting chance to rise from the very bottom. This isn't a moral argument; it's an economic argument, based on empirical evidence. It's time to stop pretending that the "job creators" will spend their vast, accumulated sums of cash in a torrent of investment in new jobs any day now. It's time to stop pretending that they're "job creators," period.
It's time for a new approach.
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