One of the best political magazines around is the Democratic Leadership Council's bimonthly Blueprint, edited by my former U.S. News colleague Peter Ross Range. This month's issue has several thoughtful and interesting articles. I'd like to focus on one, Austan Goolsbee's "Democratic Capitalism." Goolsbee is an economics professor at the University of Chicago but not a discipleine of the "Chicago school" of Milton Friedman and others. He's bothered, as many Democrats and the editorial writers of the Washington Post are, by the apparent rise in economic inequality in the United States. In this article, he focuses not on incomes but on wealth:
The average net worth of the top 10 percent of American families is almost 30 times greater than the average net worth of families in the middle 50 percent of the spectrum--and these disparities in net worth have been growing even faster than the disparities in income.
This is not surprising. As Goolsbee points out, high-income people save and invest a larger share of their income than lower-income people, and so naturally accumulate more wealth. And, as Goolsbee points out, tax deductions for 401(k) investments are worth more in dollars to people in the top income tax bracket. As he doesn't point out, that's necessarily the case with any tax deduction when you have progressive tax rates. There's an intellectually serious case for progressive taxation, but only a progressive tax with no deductions--politically unthinkable here or just about anywhere else--is going to deny high-income earners a disproportionate benefit for deductions.
As others have pointed out, even significant tax rate increases on those with high- incomes, above and beyond repeal of the Bush tax cuts, would have only a limited income redistribution effect. In light of this, Goolsbee sensibly calls not for increasing the tax burden on the rich, but for public policies that will help others accumulate more wealth. Here are his last three paragraphs:
Economists don't know whether the stagnating wage growth of recent years will be a persistent feature of the economy. But the returns on capital investment are as high as they've ever been. So at least until there is some clarity in the wage picture, the clarion call for progressives ought to be: Democratize capital ownership!
In the current order of things, the well-off are benefiting from higher wage growth and higher capital income growth than everyone else. On top of that, they've been enjoying a third helping of dessert in the form of preferential tax incentives that have been much more generous to them than to the middle and working classes.
Providing incentives for more people to share in the modern economy's rewards through savings and investment -- that is, democratizing capital ownership -- would establish a kind of hedge for the middle class against just the sort of problem the country has experienced in the past three decades, where the economy grows, but the incomes of typical workers stagnate or even fall.
Democratizing capital ownership: an excellent idea. But what sort of public policy would do that? One idea that occurs to me is to have individual investment accounts as part of Social Security. Every wage- earner would have investments and would accumulate wealth in the form of financial instruments over a lifetime. Unfortunately, when George W. Bush proposed individual investment accounts--admittedly, in rather vague form--no Democrats, including the leaders of the DLC, stepped forward to support some such proposal. On the contrary, most Democrats loudly opposed any such policy change. Goolsbee doesn't mention Social Security in his article, but it provides one available mechanism for his goal of democratizing capital ownership. Will the Democrats, when they win congressional majorities and the presidency again, take up his goal? Will they, like Bill Clinton in 1998 and early 1999, give serious consideration to some investment component in Social Security? Sooner or later we'll see.
One griped about this article. Goolsbee, like most people who write about wealth distribution, doesn't stratify the statistics by age. When you do that, you find that young people have very little wealth (often negative net worths) while most Americans in the 55-to- 64 age bracket have significant (six-figure) wealth, as I pointed out in this blog posting. If, like Goolsbee, you're more interested in increasing wealth accumulation among the great mass of Americans than you are in reducing wealth accumulation among the rich, then you ought to recognize that we already have in place public policies--those encouraging and enabling home ownership, 401(k)'s, and similar investment vehicles--that already do that for very many Americans. Your goal then would be to create policies that do more of this.
Another article well worth reading in the latest Blueprint is by DLC leaders Al From and Bruce Reed, "Proven Formula." Here's the nub of their argument:
Fortunately, the Democratic Party doesn't have to look far for a robust political and governing philosophy. It's called Clintonism, the party's most successful formula for winning the White House in more than half a century.
One of the fascinating things about American politics today is the way the Democrats have turned their back on Bill Clinton's politics and public policies. It's almost as if the Clinton administration and the two Clinton election victories had never existed. Democrats seem so frozen in their hatred of George W. Bush (From and Reed throw them some red-meat denunciations of Bush) that they have lost sight of what was, as From and Reed point out, a winning political formula.