Like Robin Hood, the above revenue measures would take from the bloated rich. How do we “give” that money to those who are at the other end of the income and wealth scale? Clearly Robin Hood would be called a Communist today, especially by the wealthy, but he really wasn’t. He didn’t have the legal power to confiscate lands, which were the primary source of income and wealth in his day. He just redistributed some of the income. We have proposed exactly that. But throwing around bags of gold coins is a recipe for drunken revels, not a serious way to address ongoing income and wealth inequality. Here are some suggestions which focus on increasing opportunity in particular.
Opportunity
Only a fool or a eugenicist would argue that there is no relationship between the economic circumstances of your birth and your opportunity in life. In the US, those born well off tend to stay that way, and those born poor tend to stay poor. The US was founded on the ideal of equality, and by that was meant equality of opportunity and before the law. The “American Dream” to most of us implies that if you work hard, you’ll get ahead, in other words everyone has an opportunity to rise economically.
Clearly that is not always the case. During the Great Depression you were lucky to find work at all. It is also true now that in many occupations you can work your butt off and not “get ahead”. And by “get ahead” we mean not just a rising income but also the ability to accumulate some wealth. As we saw in Figure 14 about half of us Americans have essentially no wealth.
One of the main findings of this book has been that general labor in advanced economies has had its bargaining position eroded, primarily by continued automation. We also looked at trade and immigration and other factors that are often blamed, but all the evidence points to automation as responsible for most of the loss in labor’s bargaining position. It is simply a fact that less labor is needed to produce goods and many services. So, opportunity to “get ahead” for many has declined while the country as a whole has gotten richer. A plague or kicking out immigrants would improve general labor’s position as we found after COVID, but that is temporary. We simply must come to terms with the reality that redistribution of income now, as during the New Deal era, is both necessary and economically beneficial. Back in 1936 Franklin Roosevelt noted that “man’s inventive genius released new forces in our land which reordered the lives of our people. The age of machinery, of railroads; of steam and electricity; the telegraph and the radio; mass production, mass distribution—all of these combined to bring forward a new civilization and with it a new problem for those who sought to remain free.” [1]
The New Deal was a response not just to the Great Depression but also the realities of the industrial age. Programs such as Social Security, a guaranteed right to unionize, and a 40-hour work week, helped the industrial work force achieve a middle-class lifestyle. But as we’ve seen, 80% of us now work in “services”. We’re “postindustrial” and have to come to terms with what that means. Economists, from the left and right and center (everyone these days seems to be classified as either left or right, but in fact there is considerable consensus in professional economics) are concerned about the effects of deindustrialization on labor. The statistics we’ve seen on income and wealth are quite compelling but even more so are the accounts of widespread homelessness. How do we deal with the fact that the country keeps getting richer, but the middle class remains stuck, and the poor get less and less as a share? We suggest several ideas below. These ideas are complimentary and are designed to redistribute income while increasing opportunity and help those with no wealth to finally acquire a stake in the country. None of these ideas touch our capitalist economic engine, in fact it is essentially guaranteed that increased opportunity will translate into growth that will benefit our businesses and economy as a whole.
Poverty, Mobility and the Universal Basic Income in the US
The US is a country based on the concept of equality. But “born equal” doesn’t really work if, for example, you’re born a slave. Or poor in a country where opportunity is highly dependent on your circumstances at birth. Providing a good education for a poor child does not deprive a richer child of a good education, but it does increase opportunity for the poor child. Children grow up to be more productive, and both they and society richer, when education levels are higher as we saw in the section on developing economies in Part 2. But education by itself is not enough give poor children the same opportunities as better off ones.
Note that equality of opportunity does not imply equality of outcome. But the economic circumstances of a child’s parents do affect the child. That doesn’t mean we should strive for absolute economic equality, but it does mean that measures designed to help families achieve the basics of a stable life are helpful in the quest for greater equality of opportunity. A homeless child is obviously disadvantaged, and most certainly not “responsible” for that lack of opportunity. Again, from an economic perspective, lower productivity makes us all poorer and greater productivity makes us all richer.
In the discussion in on Economic Mobility (page 179 in Part 2) we found that US intergenerational income mobility is similar to other rich countries for the middle class, even the Scandinavian ones, but lousy for the poor. In short, we have a persistent economic “underclass” of people who find it hard to work their way out of poverty: if you’re born to poor parents your chance of rising in the income ranks is relatively low. Is there anything we can do about this that is in accordance with US ideals and a managed capitalist economy?
Of course there is. Some ideas include universal free preschool the way we already have universal free primary and secondary education. For younger children, free childcare is also an option. Studies show that quality programs of this type increase mobility substantially and have a net positive payback: returns for every $1 spent on such programs has been calculated as ranging from $2 for the short term to $17 when the child is followed through adulthood. Fewer grade repeats, special-ed classes, incarcerations, and higher lifetime earnings translate into these returns on investment for both the individual and society[2].
Many economists, including conservative ones, have suggested looking at a universal basic income or guaranteed basic income to reduce poverty and improve economic mobility[3]. These programs give all of us a fixed amount of money every month. A universal basic income goes to everyone as the name suggests, while a guaranteed basic income provides regular fixed amounts to poor families. The name “basic income” suggests such programs would provide enough to live on, but the numerous pilot programs that have been run only provide $500 to $1,000 per month. Still, they have been highly successful. Such small contributions to income paradoxically increase employment. They lead to higher rates of business formation, and they lead to large improvements in life satisfaction. In some cases, they lead people to work fewer hours, but they spend more time taking care of children or elderly parents. And of course, they lead to lower rates of poverty and reduce or eliminate the money required for means-tested poverty programs. In short, it has been repeatedly shown that a universal basic income works[4].
We can easily afford a universal basic income (UBI). In Figure 14 we saw that if personal income were evenly distributed, every family would have an income of $144,000 (in 2019, more now) which is several times more than recent proposals for a UBI. The universal basic income is entirely a transfer from the top of the income scale to the lower end, it is in no sense “government spending”. The same amount of income is produced in the country, at least the same amount of personal spending is done and business is not affected. A universal basic income would almost certainly increase demand which would drive up total output and hence income for the country and per capita[5]. You may be wondering why people in middle- and upper-income brackets should get the same universal basic income as poorer people. Because life is uncertain and a UBI, like Social Security or Medicare, is an entitlement you get for being a citizen of the US. A productivity royalty so to speak, like the payments you get for renting out the mineral rights on your land if you are lucky enough to own a ranch on oil land in Oklahoma. For the upper middle of the income distribution, the UBI would probably be just about balanced by a tax increase so nothing would change. But if you lose your job or are unemployed for a period of time, you’d have your UBI to help. And if you work a low wage job, you wouldn’t need a pandora’s box of demeaning means tested “programs” (mostly administered by states) to make ends meet. In fact, one of the reasons some conservative economists (“conservative” does not imply Republican in 2024) favor a UBI is precisely because it is free market and requires minimal bureaucracy.[6] Andrew Yang deserves credit for proposing a universal basic income of around $1,000 per adult per month, although I dislike his idea of funding it with a value added tax.[7]
There is historical precedent for a universal basic income. In 58 BC the Roman Tribune, Publius Clodius established an allotment of free grain for all Roman citizens to help deal with economic dislocations. That system lasted for about five hundred years and gave rise to the saying “bread and circuses”. In America Thomas Paine suggested UBI as a way to compensate people who lost their right to hunt, fish, or farm on frontier lands as that land was sold to private owners. The US was a land of opportunity, at least for European immigrants, because of its frontier. Nixon proposed a negative income tax for the poor in the 1970’s. The state of Alaska distributes a “dividend” on oil production from public lands of between $1,000 and $2,000 annually to all residents. Recently, as we mentioned, local experiments with universal basic incomes have had good outcomes.
Other Ways to Expand Opportunity
In the graph above and in the section on income and wealth inequality we saw that both income and wealth are exponentially unequal and growing more so in the US, as well as the world in general. Such extremes of income and wealth are not really in line with democracy and the egalitarian values of the Enlightenment. Back in the days of the Revolution, discussions of how to organize a state both in principle and as a pragmatic matter were widely pursued. The abuses of the industrial revolution, the trusts, and the great depression in the US more or less forced the government to act to create a balance between unfettered capitalism and widespread misery.
It is high time for us to again have an explicit discussion about how we organize our economy. Along with science and engineering, market capitalism is the engine that is largely responsible for the economic gains of the last two centuries. It’s not going anywhere, nor should it. But it is unacceptable that a country as rich as the US should have tens of millions of people living in poverty even to the extent of being homeless. A universal basic income can help solve this problem through market means: the added income would allow people to find their own housing and buy their own food without government subsidies. I would argue that a universal basic income should be sized to a supplement a working income, Andrew Yang’s proposal for a $1,000 per adult per month basic income does that nicely. It is enough to make life more tolerable for someone working a full-time minimum wage job, but not enough to replace a working income.
A universal basic income is not the only way for us to more widely benefit from the enormous gains in productivity that we’ve seen but many (actually most) of us haven’t felt.
Healthcare is free and by right in most of the other advanced economies. Forget the forms, the paperwork, the 15% to 30% of healthcare spending that goes to administrative overhead, including insurance[8]. And why should US businesses be saddled with the costs of healthcare when foreign ones aren’t? In the section on Healthcare Costs (page 74 in Part 2), we discussed the reasons why free market conditions don’t exist in healthcare, and why it is so much more expensive in the US than in other countries.
Other uses for our “productivity dividend” should include lower cost or free higher education, universal high-quality daycare and preschool, better maintained and additional infrastructure, and public amenities such as the national and local parks. Much of this redirection of national income would yield higher productivity and eliminate or lower the costs of programs that subsidize low-paying, low productivity work[9].
[1] Roosevelt, Franklin Delano. n.d. “FDR at Franklin Field_ A Rendezvous with Destiny _ University of Pennsylvania Almanac.”
[2] https://learningpolicyinstitute.org/product/untangling-evidence-preschool-effectiveness-brief?gad_source=1&gclid=Cj0KCQjw_-GxBhC1ARIsADGgDjvRaThMKiAJ5_PiSlXCT0lzC0e_4IDScZnrA911I83KUxB2pFIKYawaAp0cEALw_wcB
[3] Conservative economists like Milton Friedman and Greg Mankiw among many. See this interview with Mankiw Harvard Conservative Economist Backs UBI | Greg Mankiw
[4] An experiment to inform universal basic income | McKinsey and Universal basic income has been tested repeatedly. It works. Will America ever embrace it? – The Washington Post
[5] As is often noted, consumer spending drives the economy, and a UBI would likely increase demand
[6] For a conservative view of UBI see https://www.gainesville.com/story/opinion/2020/10/08/guest-columnist-conservative-look-universal-basic-income/3594284001/
[7] You can find Yang’s 2020 proposals at https://2020.yang2020.com/policies/the-freedom-dividend/ . I much prefer an income tax to a VAT for a variety of reasons, not just repressiveness. Some models show that a VAT has a much larger negative effect on GDP growth than a personal income tax, it requires another complicated tax and the US has outperformed the many countries that use a VAT.
[8] https://www.healthaffairs.org/do/10.1377/hpb20220909.830296/#:~:text=Administrative%20spending%20accounts%20for%2015,of%20administrative%20spending%20is%20wasteful.
[9] Workers and Walmart and McDonalds make so little that their employees often qualify and use public assistance such as food stamps. This is effectively a subsidy for low paying work.