Two Very Different Excuses for Government Intervention

Although I have a new book published today, let's put that aside, for what I feel is a vital topic. A way to put all of our "left-right" political wranglings into a much, much deeper and more calmly mature perspective. Get ready for some basics underlying it all.

Largely unspoken, amid hand-wringing over Donald Trump’s potential Republican nomination, is a scenario that could deeply discomfit GOP elders. Oh, Trump would battle Hillary Clinton or Bernie Sanders hard. But at some point in the summer and autumn debates, he is almost certain to say: “Of course the rich pay too little tax!” 

Moreover, with both nominees agreeing, on live TV, that needle would shift, hard. With almost a consensus sigh, Supply Side will be finished, precipitating the first of several convergences of left- and right- populisms.

At one level, this is only to be expected. Today’s American uber-rich are now paying their lowest averaged rate since income taxes began. The latest budget bill, passed by this GOP Congress, sweetened the deal even more, helping accelerate, as economist Robert Samuelson wrote the "hollowing out of the middle class."

And yet, the public rightfully frets over “interventions” to level the playing field. Government is inherently worrisome and “leveling” strikes a dissonant chord to American ears. We can argue over ways and means to improve both fairness and competitiveness. But is there a fundamental metric to differentiate among our options?

Two kinds of “meddling”

Americans have a tendency to differentiate between government interventions that increase opportunity versus interventions that aim at fairness in outcomes.

Step back a bit. Most of us fret about fairness to some degree. Social psychologist Jonathan Haidt and others have shown that human moral reasoning has an innate modularity divided into: Care, Fairness, Liberty, Loyalty, Authority, and Purity.

Progressives tend to stress the first two: Care and Fairness. 

Libertarians stress Liberty and Fairness, while conservatives stress all six more equally. Brain function scans show, for example, that conservatives tend to have a stronger sense of visceral revulsion to things they find distasteful (impurity), hence judging them morally, and we all know their stronger fealty towards authority. However, regardless of partisanship, all three groups overlap with a clear moral concern about fairness.

So, now let’s go back to why people differ between fairness of opportunity or of outcomes.

Types of fairness

The latter of these two – aiming to flatten or level economic results or wealth - would strike some as a "European thing." Which is, of course, ironic since oligarchy has always been (and in many ways remains) far more embedded in European life than in North America.


Even when well-motivated, outcomes-leveling can become a calcified, meddlesome process, providing sinecures for paternalistic bureaucrats. It can also - as bruited by conservatives and libertarians - foster dependency. 

Outcomes-equalization puts negative pressure on what Americans feel are positive sum games that, in order to function well, must remain competitive and thus have winners. Viscerally, they feel it undermines ambition, encouraging laziness and whining. We have all heard this story told, often in its nastier-prejudiced forms. And yet, there is some sound, underlying basis. 

Our spectacular successes - which created the wealth enabling us to do many good deeds - arose from positive sum competitive arenas: markets, democracy, science, courts, sports, and now, crudely, the Internet. These all require some degree of inequality of outcomes in order to spur creative vigor.

At one scale or another (subject to fierce argument) outcomes-intervention by the state could stifle these arenas. Americans tend to set the boundary farther to the "right" in that demands for government outcomes-intervention should face a burden of proof. 

Now mind-you, very few of my fellow citizens would express it in the way I just did, using five dollar words, game theory and such. Still, it is important to recognize this underlying motif of American sensibility. Some might attribute it to the long Frontier Experience, or to the “American founder” who never actually visited the continent, Adam Smith. There is a sense that equalizing outcomes is a self-defeating process that could kill the golden egg-laying goose – a reflex that has been manipulated skillfully by right-wing media.

To be honest, I share all of these reservations! Surprised? Given my denunciations of the madness that has taken over U.S. conservatism? And indeed, my harsh critiques of today's version of libertarianism? Well, there is a simple explanation. It arises when you look at the other modern approach to bringing economic fairness.

Opportunity

Things are very different when it comes to opportunity-equalization. 

Even most Americans see real value there, voting repeatedly over two centuries to build highways and schools that can be used by all, subsidizing research shared by all, expanding rights protection (albeit far too gradually) to all races and genders, and building the finest universities on the planet. To the extent that we have been failing in this mission -- e.g. the horrendous student loan scandal, and allowing even a single American child to lack nutrition and health care -- I tend leftward, just as I tend rightward regarding outcomes equalization.

In this disparity, I think most of my countrymen would agree, if only the choice were put to them plainly, as I just did here. Moreover, the distinction was made very clear as long ago as 1776, with publication of Adam Smith's founding document of western society, The Wealth of Nations, wherein he asserts that the state should take actions to increase the number of skilled and confident competitors, in order to stimulate a vibrantly competitive and creative capitalism. Investing in infrastructure and schools and sanitation would - Smith avowed - allow more children to rise up and participate in vibrant markets for goods, services and labor. 


The economist-idol who has been quasi-deified by the American Right - Friedrich Hayek - in fact said pretty much the same thing! Hayek deemed valid those taxpayer supported interventions that will clearly increase the number and fraction of citizens who are skilled and confident market participants. A fact that is now repressed by today's self-described "Hayekians."

(Indeed, to be even more ironic, this is an area of agreement between Hayek and Karl Marx.)

When a state action aims to address a clear and blatant disparity of opportunity - an inequality that limits the supply of new, capable competitors - then the burden of proof must fall upon those who object to the intervention.  The default should be to intervene in favor of opportunity, until challengers show that the problem can be eliminated by non-governmental means. Feed these children now! Save those bridges now! Improve schools now! Then show us how state programs can wither away.


The burden of proof shifts when it comes to outcome equalization, or leveling of wealth and income. Because we know that some substantial disparity in outcomes is necessary, as an incentive, in order for our competitive arenas (markets, democracy, science, etc.) to work at all. We also know that outcomes equalization - if taken too far - could lead to tyrannical horrors as awful as any conceived by Orwell. 

In illustration, let me cite Kurt Vonnegut's wonderfully chilling short story "Harrison Bergeron" which portrays a future in which the Handicapper General of the United States rigorously enforces actual equality of outcomes.  Ayn Rand's "Anthem" also portrays this extremum, though turgidly preachy and unrealistic.

Sure, make some outcomes more equal

 
Am I excluding all outcomes equalization, by demanding that they bear burden of proof? Not at all. Such burdens can be met! Those competitive arenas I mentioned do not maintain themselves. If we can glean one truth from six thousand years of varied human societies, it is that they will always tumble into oligarchic cheating and feudalism, unless kept in tune by careful regulation. Over time, wealth disparities always widen till they become outrageous, warping both politics and markets.

Clearly that has already happened in America and the world, when 62 near-trillionaires own as much wealth as humanity's entire bottom half. Conservative economist George Cooper reaches the same conclusion from a different direction in his recent Evonomics article “Piketty Debate Exposed The Failure of Economics. 5 Steps to Fix It.” Cooper shows that our civilization must continue a “circulation” pattern of government actions to stimulate the bottom while capitalist processes feed the top.


Up to this point my aim has been to make clear a dichotomy of twin generalities. And while in general, opportunity-levelers get benefit of the doubt, outcomes-levelers bear the onus to show clearly why it is necessary to reduce this or that caste's economic gains.

 That onus may be easy to satisfy, right now! Indeed, I deem it to be blatantly so. Still, it should still be kept clearly in mind, lest we tumble into the nightmare worlds -- the leveling extrema -- of "Harrison Bergeron," or even "Anthem."

It gets complicated

Now, these two notions - equalization of opportunity vs. outcome - do overlap!  When a competitor fails in the marketplace of labor or business, there should be a limit to how low they are allowed to fall. This wonderful civilization is not, as Tennyson put it, “Nature, red in tooth and claw.” We have a better version of creative competition than Nature, more cognizant and less wasteful. In a market, or in elections, or in science, this year's loser might come roaring back next year, with improved products, policies or data. Second and third chances come under opportunity enhancement, though the major effort must be yours.

The most controversial overlap comes in wealth redistribution, which certainly sounds like outcome equalization! But, as Gershwin reminds us, it ain't necessarily so. 




Let's go back to that earlier point and restate what is blatantly obvious, yet utterly ignored by mavens of the right. The worst destructive force that ruined flat-fair-open-creative markets and suppressed equality of opportunity across 60 centuries was inherited oligarchy and feudal overlordship. That was the normal system in most large-scale human societies. Feudal inherited oligarchy was the system of cheating despised by Adam Smith.

Indeed, partly influenced by Smith, the American Founders, in the 1780s, seized up to a third of the land in the former colonies, owned by aristocratic families, and sold or redistributed it to make the playing field more level. States also banned primogeniture and fiercely enforced equal inheritance so that rich family fortunes would break up among many heirs. The Founders' economic meddling and redistribution was thus vastly greater than ever attempted later, by either Roosevelt!

Today's inheritance tax has similar (if much smaller) effects, incentivizing wealthy families to create charitable foundations, rather than let the feds get their clutches on it. In practice, this limits the likely creation of neo-feudal castes, made up of kids who never produced any goods or services or earned the wealth and power they would then exert over the rest. And yes, a progressive income tax helped to foster the sense of general, middle class justice that today’s conservatives ironically yearn for, in the 1950s.

Wealth redistribution is thus a tricky middle ground. Equalization of opportunity (and maximization of competitive creativity) is impossible without some. On the other hand, some inequality of outcomes is absolutely required in order to maintain the kinds of incentives that spur creative people to take risks and develop great new things.  

This is one more area in which we need to again be a people capable of thoughtful negotiation and pragmatic compromise. But always bearing in mind what is fundamental: the incentive of some wealth-disparity is a necessary fuel to propel our competitive arenas to maximum effort. But those creative arenas will seize-up and grind to a halt, unless lubricated by maximized opportunity for all children -- all of them -- to confidently participate.

If we fail to enhance opportunity, we’re guaranteed to regret the outcome.

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Addendum: Here’s a cantankerously different take on the plusses and minuses of contemporary libertarianism and other oversimplifying dogmas: Models, Maps and Visions of Tomorrow. 

This article is reprinted from Evonomics.