Redistributing Wealth Is the Wrong Way to Fix a Rigged Game

Elites shouldn't be forced to share ill-gotten gains -- they should be prevented from ever getting them.
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In my review of Twilight of the Elites, Chris Hayes's thoughtful critique of American meritocracy, I largely agreed with his contention that the current system is frequently rigged by those at the top.

How should that be fixed? I'd prefer a polity constantly attuned to abuses of power and committed to tweaking the rules of the game in a constant effort to make them as neutral, fair, and equitable as possible. With apologies for the violence a one-sentence summary necessarily does to a subtle, book-length argument, Hayes emphasized the need for affirmative action and redistribution of wealth. Discouraged about the prospects of remedying unfairness, he wanted to address its consequences, causing me to worry that alleviating the symptoms would make the disease easier to ignore.

As I put it at the time:

If rich Americans are gaming the system to illegitimately increase their wealth, if they are pulling up the ladder so that they can never be replaced as elites, if they are too socially distant from the people over whose lives they wield great influence, and if they aren't even punished like regular people when they break the rules, surely there are urgent policy changes needed that are a lot more targeted to reforming the elite than 'raise their taxes and spread the wealth.'

Better to eliminate ill-gotten gains than to redistribute them.

To be clear, there is a lot about which Hayes and I can and do agree. I favor enough redistribution to fund a safety net for the least well-off, and he favors eliminating ill-gotten gains. Where do we disagree? He is more comfortable than I am with redistribution of wealth to the non-poor; more confident that a more redistributive government would advance the common good, rather than ending in abuse; and less confident that direct remedies of injustice would succeed.

Our varying approaches were brought to mind by an exchange between Jonathan Chait, a redistributionist, and Will Wilkinson, a proponent of focusing on ill-gotten gains.

Both are exceptional writers and forceful proponents of their very different perspectives. I recommend reading their full posts, as the discussion that follows won't capture everything about them. Chait writes:

... You could eliminate every business subsidy in Washington, and you'd still have in place a massive income gulf and a wealthy elite able to pass its advantages on to the next generation (through proximity to jobs, social connections, acculturation, spending money on education) that have nothing to do with government. The egalitarian laissez-faire economy is a fantasy ...

Republican populists are obsessed with the role of elites using the government to reinforce their privilege. Certainly examples of this exist. But the main driver of inequality today is the marketplace, and the main bulwark against that inequality is the federal government. The federal government disproportionately taxes the rich, and it disproportionately spends on the poor.

Wilkinson responds:

Mr Chait has set up a false alternative. To say that the "main driver of inequality today is the marketplace" is a fairly empty observation. The marketplace is a complex system of institutions itself created by legal rules, and these rules are mostly established by government.

The law constitutes and codifies the corporate form.

The law defines the scope of property rights, including intellectual property rights. These political artifacts specify the contours of the marketplace and have vast, systemic distributive consequences. These facts are usually trotted out to correct free-market enthusiasts in the grip of the fallacious idea that "the market" somehow exists outside politics, and that the pattern of income and wealth emerging from the operation of market exchange is therefore "natural" and not already thoroughly political. I'm sure Mr Chait has made these points himself, so it should be be easy for him to see that to say that the marketplace drives inequality is just to say that government does, because the marketplace is a creature of politics.

I don't expect that people like Chait and people like Wilkinson are ever going to resolve all their disagreements. But what most struck me in the above exchange was Chait's dismissal of non-redistributive attempts to improve outcomes. Wilkinson goes on to write, "I deny that rooting out all corporate welfare would do so little and that progressive transfers would do so much," adding later that "egalitarian anti-corporatism is a genuinely excellent, genuinely egalitarian idea."

I'd like to broaden the discussion a bit more.

Say we want "a really solid scheme of social insurance," since everyone mentioned, myself included, favors it; and set aside the argument about the wisdom of progressive redistribution on top of that. There are numerous, significant injustices and suboptimal policies that could be remedied, in part or in full, through means other than additional progressive redistribution. And those remedies would make life in America significantly better for the poor, the working class, and the lower middle class, largely at the expense of rent-seekers and incumbents enjoying unfair gains.

Some of the remedies fit more comfortably than others into what's recently been called "libertarian populism." What every suggestion has in common is addressing unfair gains that accrue to elites, who have arranged or manipulated the rules of the game in order to inflate their status. 

The financial sector: As Kevin Drum once put it, "The mammoth profits of the financial industry are bad for the economy because they suck money away from other activities with actual value. They're doubly bad because they were built on, and encouraged, vast amounts of fraud and corruption."

As well, financial-industry profits are increasingly disconnected from the success of the economy. And if there was ever any doubt that Wall Street banks have grown too big to regulate, in part through the implicit subsidy they receive as so-called "too big to fail" institutions, it vanished during the recent cycle of financial crisis and bailouts (both acknowledged and hidden). The rules of the game are broken, and the amount of lobbying done by the big banks, the revolving door between the public and private sector, and the serial failure of the state to prosecute wrongdoing are further signs that successful reform will require breaking up the big banks.

Housing policy: Tax law ought to treat renters and owners equitably, rather than permitting mortgage interest but not rent to be deducted. In high-rent cities, permitting more construction at a lower cost would be a huge boon to most renters. Matt Yglesias has made this point over and over again with respect to the building-height limit in Washington, D.C. In suburbs, there is a much higher demand among working-class families for apartments than there is supply, because incumbent homeowners, fearing crime and traffic, almost never want multifamily units built near their neighborhoods. Eliminating all zoning laws isn't the right fit for every community, but moderate free-market reforms that reduce incumbent veto power would benefit poor and working class households.

Corporate welfare: The Export-Import Bank, ethanol subsidies, sugar subsidies, the part of the Pentagon budget that is protecting the interests of American-run multinationals more than taxpayers: End it all, along with the countless other examples of corporate welfare coursing through our system. There is so much of it that one could go on for pages about this problem alone.

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Conor Friedersdorf is a staff writer at The Atlantic, where he focuses on politics and national affairs. He lives in Venice, California, and is the founding editor of The Best of Journalism, a newsletter devoted to exceptional nonfiction.

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