From Germany to America: A Dialog on Inequality

By Polly Cleveland

At a coffee break between sessions at the annual History of Economics Society meeting, I chatted with D___, a tall, blond young woman, a professor of political science at a German university. On hearing that I work on inequality, she immediately challenged me.

D: “I don’t believe in equality. Inequality is just a statistic, a side effect. What’s relevant is how people actually live. What matters are policies to improve citizen’s wellbeing, like health or education, not policies to reduce inequality.

P: But aren’t those statistics useful in identifying those societies that are or are not doing a good job providing those services? After all, there are many statistical studies showing that more equal societies have grown faster and have a higher GDP per capita.”

D: No. Inequality statistics are just an artifact. They don’t mean anything. We could all be perfectly equal in extreme poverty, like we were in East Germany. [Obviously before she was born.] Is that what you want?”

P: In the United States, our Congress just passed a new tax law reducing income taxes for the rich and for large corporations.  That will surely lead to reduced services and other benefits to poorer people.

D: Well, what do you want? A flat tax? The same tax on each person? That would be a perfectly equal tax.

P: A flat tax would be regressive because it would take a higher percent of the income of poor people—if they could pay it at all. How about a flat percentage tax on wealth? Since wealth is much more unequal than income, that would be more progressive even than an ideal progressive income tax.

D: That’s not the point. We need to focus on ordinary citizens’ wellbeing. If we do that, the rest will take care of itself.

P: OK, how about a basic income grant, that is, the same sum paid monthly to every citizen of a country, man woman and child, rich and poor. A large enough sum to provide a modest living. That idea has become very popular lately. It is being promoted by some Silicon Valley tech entrepreneurs.

D: No, I don’t think that’s a good idea. People should contribute to society. Basic income would give people bad incentives. They would take it easy.

P: Wait a moment, there’s a difference between basic income with no strings attached, and public assistance money. Here and I assume in Germany, public assistance is phased out as people earn more income. What’s amazing is that some people who receive assistance keep on working even though they lose income. The dignity of holding a job is very important.

D: Well you may be right about that, especially in Germany.

P: In the 1970s there was a guaranteed minimum income experiment run for five years in Manitoba, Canada. Recipients received additional income which—as with public assistance—was phased out as they earned more. A few years back Evelyn Forget, who’s here at the conference, analyzed the data. She found that only new mothers and teenagers worked substantially less. The teenagers became more likely to finish school, presumably due to less pressure to support their families. New mothers and school age teenagers are just the people you’d want to stay home. Remember, this was not a fixed basic income, but a guaranteed minimum with a sharp phase-out at 50% or more effective tax.

D: Still, you have to make a choice. Do you want equality of opportunity or equality of outcome? You can’t have both.

P: Actually, I think you can, sort of. A basic income grant, plus the public services we expect in a modern society—health, education, pensions, security, justice –including protection from unfair practices like monopolies—those should guarantee a rough equality of opportunity. Above that, it should be OK for people to earn high incomes by hard work, talent, or even luck. But you need progressive taxes to finance the system.

Whoops, just as I was getting to the punch line, the elevator arrived to take us downstairs to the next sessions. I would have said that as Adam Smith wrote in the Wealth of Nations (1776), taxes should be proportional to benefits received—a notion more radical than any proposed by today’s leftists. Chief among benefits received, Smith included government protection of title to land, in an era when some 2% owned most of the land in England. The tax he favored was a tax on the value of that land, a tax that would capture the “rent” or unearned income England’s “great proprietors” gained from the mere title to land granted and protected by the king. England had a land tax, but at low rates and poorly administered. The French “Philosophe” reformers whom Smith visited in Paris is 1766 advocated land taxes, as did the next generation of economists such as David Ricardo.

A hundred years later, in 1879, the American economist and radical reformer Henry George took Smith’s idea and ran with it. In his world-wide bestseller Progress and Poverty, George argued that all taxes should be replaced with taxes on land values only, and the revenues used for public purposes like schools and infrastructure (including public bath houses!). This was a perfectly practical proposal: property taxes then and now are assessed on land and buildings valued separately. In the heyday of George’s influence in the late 19th and early 20th century, assessors just left out the buildings and raised the rate on land to make up the difference.

Now almost 140 years later, as support for basic income has grown, some advocates have made the obvious connection: why not finance basic income with a land tax? That squares the circle, doesn’t it? Equality of opportunity at the bottom via a basic income grant, financed by a tax that limits inequality of outcome at the top.

That might be too theoretical for my pragmatic German acquaintance. She’s right, though, that we need to be more specific in talking about inequality.

Our May/June 2018 Annual Labor Issue

0518cover--for-blog

Our May/June 2018 issue, which is our Annual Labor Issue, has been sent to subscribers, and we’ve posted several articles from it to our website, including David Bacon’s How Filipino Migrants Gave the Grape Strike
Its Radical Politics
, Ellen David Friedman’s What’s Behind the Teachers’ Strikes, and (posted today), the first installment of Jane Paul’s series “A Sustainable Economy Rises in Los Angeles,” Financing a Sustainable Economy in Los Angeles.

 

Here is the page-two editorial note from this issue:

Our New Annual Labor Issue

With this issue, we move our Annual Labor Issue from September/October to May/June—or, as we have been telling people, from the bosses’ Labor Day to where it belongs: near May 1st, which is celebrated almost everywhere besides the United States as International Workers’ Day.
Our cover story, by veteran labor organizer Ellen David Friedman, looks at the biggest story in the U.S. labor movement today—the teachers’ strikes that have caught fire in West Virginia, Oklahoma, Kentucky, Arizona, and Colorado. The strikes caught many people by surprise because they are happening in “red” states with relatively weak unions and labor rights. But GOP austerity policies in those states have squeezed public-sector workers, and teachers in particular, for years; the strikes are a response by teachers who have reached a breaking point. Friedman analyzes the insurgency as the last recourse teachers have when politicians and labor bureaucrats have failed them. But this “movement moment” also includes the growing democratic rank-and-file caucuses in the blue states, like the one that took over the Chicago Teaches’ Union, which are linking up with likeminded teachers in the red states.
Public-sector workers are about to feel yet another squeeze—from the expected U.S. Supreme Court ruling in in Janus v. AFSCME Council 31. That ruling, which could come by early summer, is likely to eliminate the requirement that workers who don’t want to join an existing union have to pay an agency fee for the collective bargaining services that the union provides. In his “Economy in Numbers” column in this issue, Gerald Friedman provides some background to Janus, including the precipitous rise of public-sector unions in the 1960s and ’70s; the steady rate of unionization in the public sector since then, even as the rate in the private-sector has fallen; and the fact that women, African Americans, and Latinos are disproportionately likely to work in the public sector and to be in public-sector unions. These groups will be affected most by Janus, but the ruling will also undermine the positive pressure public-sector unions have on wages and pensions for all workers.
As is the case in teaching, women are also represented disproportionately in the hospitality sector. Economist Ellen Mutari’s feature in this issue examines how that affects the dynamics of sexual harassment in the sector, with a focus on casino workers. Mutari emphasizes how intersecting institutionalized power structures of gender, race, and class are key to understanding workplace harassment and how it differs from sector to sector. Collective action, including militant action through unions and through organizations like the Restaurant Opportunities Center United, will be key to moving the #MeToo movement from a hashtag/media phenomenon focused on Hollywood to a robust social movement encompassing industries with lower-wage workers.
History holds important lessons about the importance of labor militancy. As Jane Slaughter noted recently in Labor Notes, the striking teachers in West Virginia wore red bandanas in homage to that state’s heritage of militant organizing among coal miners. Similarly, David Bacon’s feature on the role of militant Filipino activists in the history of the famous grape strike of the late 1960s credits the activists for keeping a legacy of labor militancy alive through another period of reaction, the Cold War.
Also in this issue: John Miller looks at the Wall Street Journal’s criticisms of Trump’s tariffs and the resulting trade war with China and outlines a progressive alternative to both Trump’s trade chaos and the Journal’s free-market trade policies; Arthur MacEwan responds to a reader’s question about what regional wage variations mean for the proposal to raise the minimum wage to $15/hour; we begin a new series by teacher and community activist Jane Paul on efforts to build a sustainable economy in Los Angeles; and more!
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We are very pleased to announce that Dollars & Sense has a new co-editor, Nick Serpe! Nick worked for several years as an editor at our comrade publication, Dissent magazine, and more recently did graduate work in economic history at Columbia University, where he studied the political economy of Silicon Valley. He brings extensive experience in editing and left publishing and also a passion for labor organizing and left political activism. Welcome, Nick!