Class, Economic Inequality, and American Dream? Adam Smith: Progressive Income Tax (last revised?Feb. 23, 2018)
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Copyright?2016-2018 Ronald David Greenberg. All rights reserved.
Class, Economic Inequality, and American Dream? Adam Smith: Progressive Income Tax
Ronald David Greenberg
Contents:
I. Class
II. Social Class
III. Meritocracy
IV. Egalitarian; Corruption Free
V. Economic Inequality, Social Mobility, and Social Class
VI. Adam Smith: Income Inequality and Progressive Income Taxation
VII. Equality and liberty
VIII. Conclusion and the American Dream
IX. What would Adam Smith prescribe for income inequality?
X. Redistribution v. Progressive Income Tax
See also, in the LinkedIn articles on this site, America (last revised July 16, 2017).
I. Class
Some expressions or words may require extra care in their use. The word “class” is a good example, as in "middle class" versus "middle income".
Sometimes the word "class" is not meant to imply an inherited social class attributed to persons with high social status. See, e.g., Katy Waldman, Don’t Stay Classy, SLATE (Dec. 17 2014 2:00 PM) (emphasis added), https://www.slate.com/blogs/lexicon_valley/2014/12/17/against_classy_the_adjective_is_classist_vague_and_should_be_retired.html
"Phrases like “class act” and “she’s got class” further conflated worth and privilege. While the Urban Dictionary calls classy a “deeper, more meaningful word for ‘cool,’ ” it’s really just a narrower one: . . . . "
"As an adjective for superior or upscale, classy grew more common in the 1910s and ’20s, tapered during the ’40s and ’50s (while an increasingly splintered society dreamed that it was more unified than ever), and took off again from the late ’60s into the aughts."
In other cases "class" -- as in social class -- the term is intended to mean inherited social standing. See, e.g., Types of Social Classes of People, CLIFFS NOTES, HOUGHTON MIFFLIN HARCOURT (2016) (emphasis added), https://www.cliffsnotes.com/study-guides/sociology/social-and-global-stratification/types-of-social-classes-of-people
"Social class refers to a group of people with similar levels of wealth, influence, and status. Sociologists typically use three methods to determine social class: The objective method measures and analyzes “hard” facts. The subjective method asks people what they think of themselves. The reputational method asks what people think of others. Results from these three research methods suggests that in the United States today approximately 15 to 20 percent are in the poor, lower class; 30 to 40 percent are in the working class; 40 to 50 percent are in the middle class; and 1 to 3 percent are in the rich, upper class."
See also, e.g., classification, MERRIAM-WEBSTER DICTIONARY (2016), https://www.merriam-webster.com/dictionary/classification (classification: systematic arrangement in groups or categories according to established criteria).
Thus, the term “class” can be ambiguous, even misleading, and should be used with care because it can refer, among other possibilities, either to a person’s social standing or to a person’s economic position. If the criterion for classification by the writer or speaker is social standing in referring to a systematic arrangement of groups of persons, then such terms as upper class, middle class, and lower class may be appropriate. If the criterion for classification is economic standing measured by income, then such terms as middle income, upper income, or lower income are appropriate to avoid ambiguity.
II. Social Class
If America was founded on principles of a classless society, then this care in the use of the term “class” is important. The history of America would seem to underline the importance that this distinction be followed.
#IncomeInequality #Redistribution #ProgressiveIncomeTax
Some basic principles over which the Revolutionary War with England was fought are contained in the founding fathers’ underlying documents such as, e.g., the Articles of Confederation and the Constitution, which relate to social class (e.g., titles of nobility (or of any other title) and republican form of government. See, e.g., André Munro, Republic government, BRITANNICA (last updated June 27, 2016), https://www.britannica.com/topic/republic-government (“Republic, form of government in which a state is ruled by representatives of the citizen body “).
See Articles of Confederation, Article VI (no state could grant a title of nobility (nor would Congress); U.S. Constitution Article I, Section 9, Clause 8 (No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince or foreign State); U.S. Constitution, Article I, Section 10, Clause 1 (No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility); U.S. Constitution, Article IV, Section 4 (The United States shall guarantee to every State in this Union a Republican Form of Government).
The Federalist Papers, however, contain references to the term "class" -- sometimes as in social class apparently (e.g., Federalist 1, at 3rd par. ("certain class of men"); Federalist 6, at 3rd par. ("Men of this class"); Federalist 10, at 7th par. ("A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests, grow up of necessity in civilized nations, and divide them into different classes, actuated by different sentiments and views") ; Federalist 35, at 5th par. ("House of Representatives is not sufficiently numerous for the reception of all the different classes of citizens"); Federalist 60, at 8th par. ("mercantile class"); Federalist 60, at 9th par. ("landed class"). The Federalist Papers (last visited Dec. 12, 2016), https://www.congress.gov/resources/display/content/The+Federalist+Papers. This usage may indicate that a certain degree of class distinction was recognized at the founding of the nation.
But see, e.g., Paul Maidment, America, The New Class-Society, FORBES (Oct. 9, 2007 6:00PM) (emphasis added), https://www.forbes.com/2007/10/09/america-class-society-ent-dream1007-cx_pm_1009class.html:
"Today, America appears more classless than ever. That is deceptive."
"Certainly, the public markers of class–dress, behavior, school, occupation, clubs, culture, connections–have blurred. But social mobility in America, the latest research shows, is less than it was, and considerably less than most Americans believe. In fact, there is some evidence that mobility is actually in retreat in the land of opportunity."
. . . .
"Class in America is determined predominantly by wealth. And in an information-based capitalistic economy, wealth is largely determined by educational attainment. That is taken as a difference from European societies, where inherited privilege, and particularly noble birth, is seen as predetermining a person’s starting point in society."
. . . .
"In America, the problem is amplified by widening income inequalities. The rich are simply getting richer so much faster that social mobility can’t keep up."
See also, e.g., Editors, Social class social differentiation, BRITANNICA (last updated Aug.. 21, 2009), https://www.britannica.com/topic/social-class
"Social class, also called class, a group of people within a society who possess the same socioeconomic status
"The term class first came into wide use in the early 19th century, replacing such terms as rank and order as descriptions of the major hierarchical groupings in society. This usage reflected changes in the structure of western European societies after the industrial and political revolutions of the late 18th century."
Still, for example, too often today various writers and speakers, whatever their field of work or interest do not appear to observe this distinction in the use of the word "class" as a modifier. For example, many, probably most, authors, politicians, citizens, scholars, commentators, speakers, and others, refer to -- classify -- America’s various economic groups each as a “class” implying, or even intending, that the class to which they refer is social class.
Therefore, the reference to “class” usually is not clear. When the use of the term “class” is meant to refer to social standing, as, say, in the class system in England, which arguably was one of the motivating forces of the American Revolutionary War, the ambiguity may not matter. But if the speaker or writer means to refer to the amount of income of a person, then the statement should be modified accordingly for clarity. A word choice different from “class” is probably more accurate in any event, such as, e.g., classification, stratum, component, segment, group, income, or wealth, as in, e.g., middle stratum, middle income, or middle component. See, e.g., class, MERRIAM-WEBSTER (2016) (emphasis added), https://www.merriam-webster.com/dictionary/stratum (“a socioeconomic level of society comprising persons of the same or similar status especially with regard to education or culture”).
Some Americans who have opined on this subject refrain from the use of the word “class” to describe an American’s income level or status. See, e.g., Jesse Ventura, Clinton & Bush, The Dual Monarchy, JESSE VENTURA'S OFF THE GRID, ORA TV (April 13, 2015) (emphasis added), https://www.ora.tv/offthegrid/article/2015/4/13/jesse-ventura-clinton--bush-dual-monarch (“I think that we fought the revolutionary war against the British for no good reason. Clearly, we have a dual monarchy here. You have to be from these chosen bloodlines [i.e., of a high inherited social class] in which to govern the United States of America.”).
Cf. also, e.g., Editors, Social class: social differentiation. Alternative Titles: class, class distinction, BRITANNICA (last updated Aug. 21, 2009) (emphasis added), https://www.britannica.com/topic/social-class
Cf. also, e.g., T.N. Madan, caste: social differentiation. Alternative Titles: caste system, social caste, BRITANNICA (last updated Mach 1, 2010) (emphasis added), https://www.britannica.com/topic/caste-social-differentiation:
"Caste, any of the ranked, hereditary, endogamous social groups, often linked with occupation, that together constitute traditional societies in South Asia, particularly among Hindus in India. Although sometimes used to designate similar groups in other societies, the “caste system” is uniquely developed in Hindu societies."
Cf. also, e.g., John Peterson, Class Struggle and the American Revolution, SOCIALIST APPEAL (Nov. 5, 2011) (emphasis added), https://socialistappeal.org/analysis/us-history/978-class-struggle-and-the-american-revolution
"[T]he American Revolution was far more than the War of Independence. It contained within it both external and internal components: the anti-colonial, national struggle against the British Empire; and a struggle within the colonies between the classes for a more democratic and egalitarian order."
But see, e.g., Ideology in The American Revolution, SHMOOP UNIV. (2016) (emphasis added), https://www.shmoop.com/american-revolution/ideology.html:
"Nor were all Loyalists rich. That fact alone is very telling, for if it were true that all Loyalists were rich, then it would indicate that the American Revolution truly was radical, and based on class divisions. But these generalizations do not square with the evidence, and the matter of who took which side was more complicated than the question of personal wealth, as we will see in the case of Virginia.
And even most recently, contrary to the American espoused ideals of a classless society, class seems to creep into the literature.
See, e.g., Joan C. Williams, White Working Class: Overcoming Class Cluelessness in America, Harvard Business Review Press (May 16, 2017) (emphasis added), https://hbr.org/product/white-working-class-overcoming-class-cluelessness-in-america/10159-HBK-ENG. See also, e.g., https://www.amazon.com/White-Working-Class-Overcoming-Cluelessness/dp/1633693783:
"Editorial Reviews
"Review
“The people Joan Williams describes are my people, for better or for worse...buy her book, White Working Class. It’s very practical.” ― Rod Dreher, The American Conservative
“Recommended reading: At least a dozen good books have come out on why the white working class turned so powerfully against Democrats…. The most insightful of these include Joan Williams' White Working Class: Overcoming Class Cluelessness in America ...” ― Robert Kuttner for NPR’s Truth, Politics and Power
“Making an admirable and research-driven effort to see things from the point of view of her subject, author Williams unpacks exactly how the white working class (WWC) viewed the election, and how their history-making choice made a lot of sense given their concerns.” ― New York Post
“…will undoubtedly be another best-selling book…” ― New York Magazine
“Joan C. Williams is on a post-Trump mission to explore the ‘broken’ relationship between America’s liberal elite and the white working class” ― The Financial Times
"Advance Praise for White Working Class:
"Anne-Marie Slaughter, President and CEO, New America―
“Joan C. Williams has an uncanny knack for striking at the core of complicated issues, first gender and now class. No one should have an excuse for ‘class cluelessness’ after reading this book―and everyone should read it.”
"Arlie Russell Hochschild, Author, Strangers in Their Own Land: Anger and Mourning on the American Right―
“Joan C. Williams has written an urgently needed Men Are from Mars, Women Are from Venus for the professional elite and the white working class, only better. Each chapter illuminates a core source of misunderstanding, and together they chart a way to bring the country together without abandoning the values of the minorities in the coalition. Read this highly important book and let’s get to it.”
"Tony Schwartz, Author, The Way We’re Working Isn’t Working; CEO, The Energy Project―
“In this blunt, compelling, tightly argued manifesto, Joan C. Williams sets out to truly understand the white working class, whose raw anger was so evident during the recent presidential race. Williams provides deep insight into why the working class resents the nonworking poor, and often admires the very rich; feels treated unfairly by the government despite the services it provides; can’t easily move to cities where there are more jobs; and feels increasingly demonized, displaced, and devalued by what she calls the ‘professional managerial elite.’ I felt shame and gratitude reading this book, and a new appreciation for the complexity of people’s lives.”
Instead of “white working class” being used in writings, a more appropriate term to use in America might be “white working income group” or “white working middle income component.” Cf, e.g., Jesse Ventura: Clinton & Bush, The Dual Monarchy, JESSE VENTURA'S OFF THE GRIDON (April 13, 2015) (emphasis added), https://www.ora.tv/offthegrid/article/2015/4/13/jesse-ventura-clinton--bush-dual-monarch:
"Jeb Bush versus Hillary Clinton: jeez, that’s like bringing back Hulk Hogan against Andre the Giant.
I think that we fought the revolutionary war against the British for no good reason. Clearly, we have a dual monarchy here. You have to be from these chosen bloodlines in which to govern the United States of America.
I am a true independent and as a true independent I don’t vote for Democrats or Republicans. I do not pick the lesser of two evils. I will pick the Libertarian candidate or some other candidate that catches my fancy who thinks the way I that think. I will pick a candidate that supports the Constitution and the Bill of Rights because we need to get back to those documents. They are the founding documents of our country and they are non negotiable.
-Jesse Ventura"
Thus despite protestations to the contrary, the concept of social class is seen still to be found in current American literature.
III. Meritocracy
Thomas Paine saw the great potential in the American people. See, e.g., Ideology in The American Revolution, SHMOOP UNIV. (2016) (emphasis added)(footnotes omitted), https://www.shmoop.com/american-revolution/ideology.html:
"Thomas Paine's pamphlet, Common Sense, published in January 1776, helped to articulate revolutionary ideology in an easily understandable, accessible fashion that appealed to the masses who avidly read it (see The Political and Ideological Origins of the American Revolution for more on Common Sense). As the Revolution progressed, the masses quickly came to understand the radical potential of the new society they were helping to create. As historian Woody Holton has written, " The central thesis of Common Sense, hinted at in its title, was that the common people possessed enough sense to govern themselves." Though many colonial elites did not exactly understand the Revolution this way, many colonists did. They fought for a new society where people would not be born into a fixed social rank, where they were expected to remain for the rest of their lives. Many elites—most of the "Founding Fathers" among them—supported some version of this theory, but assumed that the "better part" of American society—that is, the wealthy men who had the time and ability to obtain an education and who possessed the independence that came with property ownership—would naturally continue to shape the laws and fill the elite offices that governed everyone else.
"The colonists had long thought themselves loyal subjects of the British monarchy, and significantly, there was no entrenched aristocracy in place on American soil. There were certainly social gradations of rank in the colonies—though the modern concepts of upper, middle, and lower class did not really exist before the Industrial Revolution—but as John Adams wrote in 1761, "all Persons under the Degree of Gentleman are styled Yeoman," including laborers and people who did not own any property. Because of this unique social infrastructure, Adams commented that "an idea of equality...seems generally to prevail, and the inferior order of people pay but little external respect to those who occupy superior stations." In short, the colonies developed a more egalitarian society than Europe. As historian Gordon Wood has written, "Although eighteenth century society was much tighter and less permeable than American mythology would have it, the topmost ranks of the social hierarchy certainly remained more permeable and open to entry from below than in the mother country. Claiming the rank of gentleman in America was easier." If this sense of equal opportunity could be enshrined in the government itself, then people from the lower rungs of society would have some chance of climbing the ladder upwards, which was—on the whole—more than had ever existed in European society up to that point.
"The principle of meritocracy later grew into what came to be known as the Horatio Alger myth (named for the author of several popular nineteenth-century novels): that if a person exhibited aspects of Christian morality, thrift, virtue, and hard work, he could expect to move up in the world. Hard work had not historically been associated with success; it was, instead, understood up until this point as the "inevitable consequence of necessity and poverty that most people still associated...with slavery and servitude," as Wood has explained. Suddenly, in the American conceptualization, hard work could be seen not merely as the punishment for poverty, but as the vehicle by which one could elevate his social position, or elevate the rank of his children. The prospects of self-rule and social uplift motivated many American farmers and mechanics to mobilize against the British."
Thus, early in America the creation of a "more egalitarian society than Europe" and a "sense of equal opportunity" pursuant to a "principle of meritocracy [that] later grew into what came to be known as the Horatio Alger myth."
The ability to obtain special education and training is an important element in the establishment of a meritocracy in the work force. For example, the Southern Westchester Board of Cooperative Educational Services (SWBOCES) (2017), https://www.swboces.org/about_us , has been imbued with the job to "support the work being done in schools by providing services and supports they are not able to provide for themselves." Southern Westchester BOCES, Spring & Summer Adult Education, Workforce Preparation , Advance Your Career, CENTER FOR ADULT AND COMMUNITY SERVICES (2017) (emphasis added), https://www.adulted.swboces.org:
The Southern Westchester Board of Cooperative Educational Services (SWBOCES) was established in 1948 by the New York State Commissioner of Education and the Board of Regents to provide shared educational and management services to schools and school districts in our geographic region. From those beginnings, SWBOCES has grown to offer hundreds of cooperative, cost-efficient services to school districts in the region, encompassing 187 different schools, 104,000 students, and more than 650,000 adults who live and work here.
SWBOCES prides itself on providing high quality resources ranging from technology assistance to special education and occupational education programs. It specifically assists school districts by:
- Introducing and responding to program requests and initiatives both from local districts and from the state Education Department.
- Providing services, facilities and personnel to meet mutual needs identified on a regional cooperative basis.
- Determining ongoing educational trends and challenges, and preparing districts for what lies ahead.
- Receiving and administering grants for a broad array of services for students, staff members, and community residents.
. . . .
Our seven Centers provide an array of more than 70 services to help school districts, teaching and administrative professionals, students, and the public with needs in the areas of special education, career and technical education, transportation, interscholastic athletics, adult and community services, technology, and professional development. In addition, our Human Resources department sponsors a Regional Career Fair and provides a Regional Certification Service. Services not offered by SWBOCES can be obtained through Cross-Contracts with other BOCES.
IV. Egalitarian; Corruption Free
The colonists had the vision to establish a strong democracy government that would be egalitarian and free of corruption. See, e.g., Ideology in The American Revolution, SHMOOP UNIV. (2016) (emphasis added), https://www.shmoop.com/american-revolution/ideology.html:
"The colonists had initially reacted against the perceived tyranny of Parliament, but once they embraced the concept of independence, their struggle against oppression also became a fight to establish a new society. They envisioned an independent, democratic government that would provide safeguards against corruption, but they also viewed that government as the instrument through which a more egalitarian system could prevail."
See also, e.g., Robert J. Delahunty, [Titles of Nobility] and Emoluments Clauses, THE HERITAGE FOUNDATION (last visited Nov. 27, 2016 (2012)) (emphasis added), https://www.heritage.org/constitution/#!/articles/1/essays/68/emoluments-clause:
"The prohibition on federal titles of nobility—reinforced by the corresponding prohibition on state titles of nobility in Article I, Section 10, and more generally by the republican Guarantee Clause in Article IV, Section 4—was designed to underpin the republican character of the American government. In the ample sense James Madison gave the term in The Federalist No. 39, a republic was "a government which derives all its powers directly or indirectly from the great body of the people, and is administered by persons holding their offices during good behavior."
"Republicanism so understood was the ground of the constitutional edifice. The prohibition on titles of nobility buttressed the structure by precluding the possibility of an aristocracy, whether hereditary or personal, whose members would inevitably assert a right to occupy the leading positions in the state. Further, the prohibition on titles complemented the prohibition in Article III, Section 3, on the "Corruption of Blood" worked by "Attainder[s] of Treason" (i.e., the prohibition on creating a disability in the posterity of an attained person upon claiming an inheritance as his heir, or as heir to his ancestor). Together these prohibitions ruled out the creation of certain caste-specific legal privileges or disabilities arising solely from the accident of birth.
"In addition to upholding republicanism in a political sense, the prohibition on titles also pointed to a durable American social ideal. This is the ideal of equality; it is what David Ramsey, the eighteenth-century historian of the American Revolution, called the "life and soul" of republicanism. The particular conception of equality denied a place in American life for hereditary distinctions of caste—slavery being the most glaring exception. At the same time, however, it also allowed free play for the "diversity in the faculties of men," the protection of which, as Madison insisted in The Federalist No. 10, was "the first object of government." The republican system established by the Founders, in other words, envisaged a society in which distinctions flowed from the unequal uses that its members made of equal opportunities: a society led by a natural aristocracy based on talent, virtue, and accomplishment, not by an hereditary aristocracy based on birth." Capacity, Spirit and Zeal in the Cause," as John Adams said, would " supply the Place of Fortune, Family, and every other Consideration, which used to have Weight with Mankind." Or as the Jeffersonian St. George Tucker put it in 1803: "A Franklin, or a Washington, need not the pageantry of honours, the glare of titles, nor the pre-eminence of station to distinguish them.... Equality of rights... precludes not that distinction which superiority of virtue introduces among the citizens of a republic.”
Cf., e.g., Sarah Chayes, It Was a Corruption Election. It’s Time We Realized It: American politics is profoundly corrupt. Until we come to grips with that fact, the populists will keep winning, FOREIGN POLICY (Dec. 6, 2016) (emphasis added), https://foreignpolicy.com/2016/12/06/it-was-a-corruption-election-its-time-we-realized-it-trump-united-states/?utm_source=Sailthru&utm_medium=email&utm_campaign=New%20Campaign&utm_term=%2AEditors%20Picks:
"But consider current realities: Networks that weave together public officials and business magnates (think the food or energy industries, pharmaceuticals, or Wall Street) have rewritten our legislation to serve their own interests. Institutions that have retained some independence, such as oversight bodies and courts, have been deliberately disabled — starved of operating funds or left understaffed. Practices that, while perhaps not technically illegal, clearly cross the line to the unethical, the inappropriate, or the objectively corrupt have been defended by those who cast themselves as bulwarks of reason and integrity."
. . . .
"What is the definition of corruption when a bank defrauds millions of customers without losing its license?"
Cf. also, e.g., Andrea Kendall-Taylor and Erica Frantz, How Democracies Fall Apart Why Populism Is a Pathway to Autocracy, FOREIGN AFFAIRS (Dec. 5, 2016) (emphasis added), https://www.foreignaffairs.com/articles/2016-12-05/how-democracies-fall-apart?cid=nlc-fatoday-20161206&sp_mid=52929673&sp_rid=aW1vbnRldmVyZGlAZWFydGhsaW5rLm5ldAS2&spMailingID=52929673&spUserID=MjEwNDg3MDc4NTIyS0&spJobID=1061142239&spReportId=MTA2MTE0MjIzOQS2:
"Populism is gaining ground."
. . . .
"The objectives of contemporary populists are not new. Like most of their historical predecessors in Latin America and Europe, today’s populist parties extol the virtues of strong and decisive leadership, share a disdain for established institutions, and express deep distrust of perceived experts and elites. But the tactics that today’s populists employ to implement their vision of iron rule have evolved. Rather than orchestrating sudden and decisive breaks with democracy, which can elicit domestic and international condemnation, they have instead learned from populist-fueled strongmen such as Venezuela’s Hugo Chávez, Russia’s Vladimir Putin, and Turkey’s Recep Tayyip Erdogan."
"Post–Cold War populists such as Chávez, Putin, and Erdogan took a slow and steady approach to dismantling democracy. These leaders first come to power through democratic elections and subsequently harness widespread discontent to gradually undermine institutional constraints on their rule, marginalize the opposition, and erode civil society. The playbook is consistent and straightforward: deliberately install loyalists in key positions of power (particularly in the judiciary and security services) and neutralize the media by buying it, legislating against it, and enforcing censorship. This strategy makes it hard to discern when the break with democracy actually occurs, and its insidiousness poses one of the most significant threats to democracy in the twenty-first century."
"The steady dismantling of democratic norms and practices by democratically elected leaders, what we call 'authoritarianization,' "
Cf., e.g., authoritarianization of the Turkish regime under AKP rule, DAILY NEWS (2016), https://www.hurriyetdailynews.com/authoritarianization-of-the-turkish-regime-under-akp-rule-.aspx?PageID=238&NID=83370&NewsCatID=429. (noting the difficulty: “to summarize the entire process of how Turkish regime has become increasingly authoritarian”; to overcome that the “economy has been taken under the tyranny of government oligarchs”; to act on the “need to be more decisive and creative in order to end an authoritarian regime and to strengthen democracy.”). Cf. also, e.g., authoritarianism, Oxford University Press (2016), https://en.oxforddictionaries.com/definition/authoritarianism (“Authoritarianism . . . The enforcement or advocacy of strict obedience to authority at the expense of personal freedom.”).
V. Economic Inequality, Social Mobility, and Social Class
The gradations of income among Americans would appear to be show an increasing income inequality in the nation. See, e.g., Nicholas Fitz, Economic Inequality: It’s Far Worse Than You Think: The great divide between our beliefs, our ideals, and reality, SCIENTIFIC AMERICAN (March 31, 2015), https://www.scientificamerican.com/article/economic-inequality-it-s-far-worse-than-you-think/:
"According to Pew Research, most Americans believe the economic system unfairly favors the wealthy, but 60% believe that most people can make it if they’re willing to work hard. . . . .Sure, we love a good rags-to-riches story, but perhaps we tolerate such inequality because we think these stories happen more than they actually do."
"We may not want to believe it, but the United States is now the most unequal of all Western nations. To make matters worse, America has considerably less social mobility than Canada and Europe."
See also, e.g., Natalie Kitroeff & Ben Casselman, Lowest Ever Black Jobless Rate Is Still Twice That of Whites, N.Y. TIMES (Feb. 23, 2018) (emphasis added), https://www.nytimes.com/2018/02/23/business/economy/black-unemployment.html?emc=edit_th_180223&nl=todaysheadlines&nlid=180839350223
The unemployment rate for black workers hit its lowest point on record recently. But even a strong labor market has limits in spreading opportunity widely.
. . . .
Nationwide, the typical annual pay for a black person working full time was just under $40,000 in 2016, compared with $52,000 for a white worker.
No amount of education alters the imbalance. Black workers with a high school diploma take home 22 percent less than whites with the same credential. Those with graduate degrees fall nearly as far behind their white peers.
Cf., e.g., 25 Inspirational Rags To Riches Stories, LIST25 (Posted by David Pegg, Updated on August 13, 2014), https://list25.com/25-inspirational-rags-riches-stories/3/:
11 Ursula Burns
Ursula Burns grew up in a housing project in Manhattan’s Lower East Side, a hub for gangs. She was raised by her Panamanian-immigrant single mother who ran a daycare center at her home and ironed shirts for a fee so that she could send Ursula to Cathedral High School. She earned her Mechanical Engineering degree at NYU and became an intern at Xerox. Ursula Burns became the first African-American woman to . . . lead a Fortune 500 Company and the 14th most powerful woman in the world.
21 Chris Gardner
Born without knowing his real father, he was driven out of his home by his abusive stepfather. He enlisted in the Navy and later became a medical supplies salesman. Due to the slump in his job and with his own family to support, he became interested in stock broking after seeing a stockbroker with a Ferrari. His travails of sleeping in a subway station bathroom, being homeless, passing the licensing exam for stockbrokers, and becoming employed by Bear Sterns was documented in his memoirs, “The Pursuit of Happiness,” which became a hit movie as well.
24 Oprah Winfrey
Born to unwed teenage parents in Mississippi, this media mogul wore dresses that her grandmother made out of potato sacks. After being molested, she ran away at the age of 13 and became a mother at 14, but her son died in infancy. Sent to live with his father, a barber in Tennessee, she got a full scholarship in college, won a beauty pageant and was discovered by a radio station. Her empire is now worth $2.7 billion which she shares with the world through her philanthropic works.
See also, e.g., Karin Kamp, Class in America and Donald Trump, BILL MOYERS (Aug.1, 2016) (emphasis added), https://billmoyers.com/story/class-america-donald-trump/ (“In her new book, White Trash: The 400-Year Untold History of Class in America, Nancy Isenberg rips apart the myth that the United States is a class-free society where hard work is rewarded by social mobility. She examines a piece of America’s social fabric that is older than the nation but is often ignored and even hated.”)
Most writers, however, almost all, do not distinguish “class” from “income” in their writings using “middle income” and “middle class” interchangeably or do not say whether ‘middle class” is meant to mean one’s social status or income level.
Equality, or inequality, is related to social class. See, e.g., Dorling Kindersley, Social Equality, FACT MONSTER, INFORMATION PLEASE (2007 (last visited Nov. 29, 2016)), https://www.factmonster.com/dk/encyclopedia/social-equality.html:
"Sociologists have shown that all societies are stratified or divided into layers, based on caste, class, gender, or race. As a result, some people in a society have greater advantages than others, leading to social inequality."
See also, e.g., Richard V. Reeves, The dangerous separation of the American upper middle class, BROOKINGS (Sept. 3, 2015) (emphasis added), https://www.brookings.edu/research/the-dangerous-separation-of-the-american-upper-middle-class/ (noting, e.g., “American upper middle class is separating, slowly but surely, from the rest of society” and “we will examine the state of the American upper middle class”).
See also, e.g., Rakesh Kochhar and Richard Fry1, 5 takeaways about the American middle class, PEW RESEARCH (Dec. 10, 2015) (emphasis added), https://www.pewresearch.org/fact-tank/2015/12/10/5-takeaways-about-the-american-middle-class/:
"Americans in middle-income households have lost significant ground since 1970, according to a new Pew Research Center analysis of government data.
"The middle class has long been the country’s economic majority, but our new analysis finds that’s no longer true. Meanwhile, the middle class has fallen further behind upper-income households financially, which now hold a larger share of aggregate household income than ever before in the 44-year period examined.
. . . .
"Americans without a college degree stand out as experiencing a substantial loss in economic status since 1971, as do young adults ages 18 to 29. Hispanics overall are also more likely to be in lower-income households than in 1971, a change driven by the increasing share of immigrants in the Hispanic population in the past four decades."
Cf., e.g., Anna Brown, What Americans say it takes to be middle class, PEW RESEARCH (Feb. 4, 2016) (emphasis added), https://www.pewresearch.org/fact-tank/2016/02/04/what-americans-say-it-takes-to-be-middle-class/:
"The concept of a “ middle class” can be measured in different ways. For example, when looking at economic measurements, we often group people by household income, defining the middle class as households with an income that is between 67% and 200% of the overall median household income, adjusted for household size. For our surveys, however, we ask respondents which of the commonly used names for the social classes – upper, upper-middle, middle, lower-middle or lower – they would say they belong in."
Cf. also, e.g., Steven Greenhouse, What Unions Got Wrong About Trump, N.Y. TIMES (Nov. 26, 2016) (emphasis added), https://www.nytimes.com/2016/11/26/opinion/sunday/what-unions-got-wrong-about-trump.html?emc=edit_th_20161127&nl=todaysheadlines&nlid=18083935:
"Yet with each new step weakening unions, organized labor will become less of what John Kenneth Galbraith called a “countervailing power” to balance corporate might. Labor won’t be able to put up as big a fight to raise the minimum wage or prevent cuts in Medicare and tax cuts for the rich. Jacob S. Hacker, a political-science professor at Yale, said the shrunken movement, which represents just 6.7 percent of private-sector workers, faces “an existential crisis.”
“ 'There’s an irony here,' he said. 'Unions are probably the most consistent voice for the broad middle class of any organization today, yet the voice of the middle class was seen as an important part of Donald Trump’s victory. The further decline of labor is going to hurt many members of the middle class.' ”
VI. Adam Smith: Income Inequality and Progressive Income Taxation
Adam Smith makes clear that taxpayers should pay taxes “in proportion to the revenue which they respectively enjoy under the protection of the state.” SMITH, WEALTH OF NATIONS, supra note 24 at 777 (Book V, chap. II, part. II, par. 25 (1776) (emphasis added), available at https://www.econlib.org/cgi-bin/searchbooks.pl?searchtype=BookSearchPara&id=smWN&query=in+proportion+to+the+revenue+which+they+respectively+enjoy+under+the+protection+of+the+state:
"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expence of government to the individuals of a great nation is like the expence of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate." SMITH, WEALTH OF NATIONS, at 777 (Book V, chap. II, part. II, par. 25 (1776) (emphasis added).
But Smith states unambiguously that “the rich should contribute to the public expence, not only in proportion to their revenue, but something more than in that proportion.” ADAM SMITH, WEALTH OF NATIONS, at 793-794 (Book V, chap. II, part. II, par. 71 (1776) (emphasis added). Id. ((emphasis added) (“a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess.”). This tax is paid as a form of quid pro quo for the "revenue which they respectively enjoy under the protection of the state." SMITH, WEALTH OF NATIONS, at 793-794 (Book V, chap. II, part. II, par. 71 (1776).
Professors Blum and Kalen conclude that progressive income taxation is not paid as a form of quid pro quo for the "revenue which they respectively enjoy under the protection of the state" à la Smith but as a "means of reducing economic inequalities." Walter J. Blum & Harry Kalven, Jr., The Uneasy Case For Progressive Taxation, 19 UNIV. CHICAGO L. REV. 417, 520 (1952) (emphasis added). They reach this conclusion even though
"The position of Adam Smith is at least as ambiguous as that of Mill. While he said 'the subjects of every state ought to contribute toward the support of government, as nearly as possible in proportion to their respective abilities, that is, in proportion to the revenue which they respectively enjoy under the protection of the state,' Smith, IV Wealth of Nations c. 2 (1776); he also stated: 'It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more [than] in proportion.' V Wealth of Nations c. 2, pt. 2 (1776)."
Id. at 466, footnote 127.
However one reads or interprets the "something more [than] in proportion" in footnote 127 -- simply "more in proportion" (re revenue) or "more [than] in proportion" (re quid pro quo protection) -- as a typographical mistake or a substantive error in their reading of Smith, Blum and Kalven conclude that a progressive income tax is defensible, though they do not give "more than" its due interpretation (re quid pro quo) that Smith intended as the measure for the "rich" to contribute.
VII. Equality and liberty
Equality is not only related to class but also is at the same time would seem to be related to liberty. See, e.g., CHARLES FRIED, MODERN LIBERTY AND THE LIMITS OF GOVERNMENT 53, 54, 183 (2007) (emphasis added):
"Equality is liberty’s closest competitor and nearest relative. It is a manifold and elusive concept, like liberty itself. We have asked and continually will ask, Liberty to do what, when, and why? In a like way we ask, Equality of what, and measured how?" [at 52]
. . . .
"Equality expresses the notion that we are all in the same boat, that we all have the same moral worth." [at 53]
. . . .
"Yet an egalitarian liberal community does have a common purpose, a shared ideal that not only constrains but trumps the individual goals of its members. The common purpose is equality itself – and the community that equality expresses and creates." [at 54]
. . . .
"Behind the embrace of equality as an ultimate end is a conception of the worth of persons. Persons are infinitely various in appearance, individual and group history, capacity, disposition, wishes, desires, but … they all share that which makes them count as persons, and all of those differences are overwhelmed by that shared character." [at 54]
. . . .
"[I]ndividual liberty cannot be definitively resolved by any formula or deduction from first principles. General principles can carry us only so far; they are like an architect’s drawings for an elegant skyscraper. . . ." [at 183]
"These details are what constitutions, laws, traditions, and practices supply." [at 183]
. . . .
"Lawyers, judges, legislators, and economists are the engineers who will work out these unglamorous details." [at 183]
"[Our responsibility is] to see if we all, the architects, have built in the spirit of liberty and the maintenance crew have kept it in that spirit." [at 183]
VIII. Conclusion and the American Dream
Compare freedom of the mind or self-ownership to a person's state of income inequality. Persons who have these traits can be thought to enjoy equality vis-à-vis others despite any income inequality. They also have the corresponding liberty notwithstanding whatever their income bracket resulting from income inequality.
Yet so long as the United States is considered to be a truly class-free society that rewards work with a degree of social mobility that tolerates a certain degree of income inequality, the nation's inhabitants, nevertheless, may well justifiably believe in the American Dream. This dream may be a strong motivating force for the members of a society given a widespread held belief in the ability of its citizens to close any inequality gap by benefitting from the perennial "rags-to-riches" scenario.
The elements of the American Dream are probably the most important cogs in the complex somewhat fortuitous factors and requirements for realizing success in America. See, e.g., American Dream, OXFORD DICTIONARIES (2016) ) (emphasis added), https://en.oxforddictionaries.com/definition/us/american_dream (noting "ideal that every US citizen should have an equal opportunity to achieve success and prosperity through hard work, determination, and initiative"); American Dream, CAMBRIDGE DICTIONARY (2016) (emphasis added), https://dictionary.cambridge.org/us/dictionary/english/american-dream (noting “belief that everyone in the US has the chance to be successful and happy if they work hard”); American Dream, MACMILLAN DICTIONARY (2016) (emphasis added), https://www.macmillandictionary.com/us/dictionary/american/the-american-dream (noting “idea that the U.S. is a place where anyone can become successful if they work hard enough”); American Dream, MERRIAM-WEBSTER DICTIONARY (2016) (emphasis added), https://www.merriam-webster.com/dictionary/american+dream (noting “American social ideal that stresses egalitarianism and especially material prosperity”).
Has the American Dream lost its allure? See, e.g., Marianne Cooper, The Downsizing of the American Dream: People used to believe they would someday move on up in the world. Now they’re more concerned with just holding on to what they have, THE ATLANTIC (Oct 2, 2015) (emphasis added), https://www.theatlantic.com/business/archive/2015/10/american-dreams/408535/:
"Surveys continue to show that Americans, in large numbers, still believe in many of the tenets of the American dream. For example, majorities of Americans believe that hard work will lead to success. But, their belief in the American dream is wavering. Between 1986 and 2011, around 50 percent of those polled by Pew consistently said they felt that the American dream was “somewhat alive.” However, over that same time period, the share who said it was “very alive” decreased by about half, and the share that felt it was “not really alive” more than doubled.
. . . .
"The majority of Americans once thought the playing field was more or less level. No more. Back in 1998, a Gallup poll about equal opportunity found that 68 percent thought the economic system was basically fair, while only 29 percent thought it was basically unfair. In 2013, feelings about fairness had reversed: Only 44 percent thought the economic system was fair, while 50 percent had come to feel it was unfair. Another 2013 poll found that by an almost two-to-one margin (64 to 33 percent), Americans agreed that “the U.S. no longer offers an equal chance to get ahead.”
Cf., e.g., DAN RATHER, THE AMERICAN DREAM: STORIES FROM THE HEART OF OUR NATION (William Morrow Paperbacks May 7, 2002):
"At a time when we are once again talking and thinking about the meaning of America, bestselling author and award-winning journalist Dan Rather provides a powerful look at Americans who struggle to achieve their desires and ambitions. With the stories of ordinary men and women accomplishing the extraordinary, Rather demonstrates how the American dream brings us together and guides us, as it has for more than 200 years."
"For some, the American dream is simply to own a home or rise out of poverty. Some wish to serve God, country, or community. There are those who want to learn to read or run their own business. Still others simply wish to exercise fundamental American rights: to openly practice their religion and to speak what is in their minds and hearts."
"Stirring and provocative, The American Dream illustrates that the basic American desire for "life, liberty, and the pursuit of happiness" is alive and well. It also confirms what our founding fathers always believed: that we are a country of visionaries, in ways big and small."
Cf. also, e.g., Robert J. Shiller, The Transformation of the ‘American Dream’: It once meant mutual respect, equality of opportunity, and freedom, not material success, N.Y. TIMES. (Aug. 4, 2017) (emphasis added), https://www.nytimes.com/2017/08/04/upshot/the-transformation-of-the-american-dream.html:
“The American Dream is back.” President Trump made that claim in a speech in January.
. . . .
Mr. Trump and Ben Carson, the secretary of housing and urban development, have suggested it involves owning a beautiful home and a roaring business, but it wasn’t always so. Instead, in the 1930s, it meant freedom, mutual respect and equality of opportunity. It had more to do with morality than material success.
. . . .
Mr. Carson has explicitly said that homeownership is a central part of the Dream. In a speech at the National Housing Conference on June 9, he said, “I worry that millennials may become a lost generation for homeownership, excluded from the American Dream.”
But that wasn’t what the American Dream entailed when the writer James Truslow Adams popularized it in 1931, in his book “The Epic of America.”
Mr. Adams emphasized ideals rather than material goods, a “dream of a land in which life should be better and richer and fuller for every man, with opportunity for each according to his ability or achievement.” And he clarified, “It is not a dream of motor cars and high wages merely, but a dream of a social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and recognized by others for what they are.”
. . . .
Ever since humans began making stone tools and pottery, they have needed a place to store them, he says, and the potential for intense feelings about our homes has evolved.
But the last decade has shown that with a little encouragement, many can easily become excessively lustful about homeownership and wealth, to the detriment of our economy and society.
That’s the wrong way to go. Instead, we need to bring back the American Dream of a just society, where everyone has an opportunity to reach “the fullest stature of which they are innately capable.”
Query to what extent has the Financial Crisis of 2008 had an effect on the public’s perception of the American Dream? Do crony capitalism and oligarchy in fact render much of the competitive free market of Adam Smith ineffective? Is the U.S. economy, and the world's economy, continuing to feel the effects of the crisis? Have the figurative sequelae affected nations worldwide? Would free market capitalism of Adam Smith in accordance with both his WEALTH OF NATIONS and his MORAL SENTIMENTS be an effective remedy for the current economic problems of our nation? Other nations?
Has American capitalism’s reputation suffered from the financial crisis? Equally important has the wellbeing of the peoples of the world suffered at the hands of capitalism – “invisible hands” as they may be?
IX. What would Adam Smith prescribe for income inequality?
Has the reputation of American capitalism suffered from the financial crisis? Equally important has the wellbeing of the peoples of the world suffered at the hands of capitalism – “invisible hands” as they may be?
On these issues Nobel Laureate Muhammad Yunus has said:
"Capitalism is in serious crisis. Even so, no one is calling for it to be abandoned in favor of some other system, such as socialism, because everybody is convinced that, with all its faults, capitalism is still the best economic system known to humanity. As every student knows, Adam Smith provided the conceptual framework of capitalism. It has been improved and elaborated throughout its long history, and though the world has changed enormously, the fundamentals described by Smith have remained largely intact."
"The need for reviewing the basic structure of capitalism has seemed appropriate on many occasions, but never so clearly as it is today. Indeed, in light of the current global economic crisis, there is strong support for a major overhaul of the system. In my view, one major change in the theoretical framework of capitalism is necessary – a change that will allow individuals to express themselves in multi-dimensional ways and address the problems left unsolved or even intensified by the existing conceptual framework. And although my proposal may be viewed as a significant change in the structure of capitalism, it is actually very consistent with what Adam Smith elaborated so brilliantly in his Theory of Moral Sentiments in 1759. Some 250 years later, however, some of Smith's lessons still have not been learned adequately.
"Until the current economic crisis, observers around the world shared a remarkably optimistic view of the future of civilization. In the early years of the twenty-first century, we were living in a time of unparalleled prosperity, fueled in part by revolutions in knowledge, science, and technology. This prosperity had dramatically improved the lives of many; yet billions of people still suffered from poverty, hunger, and disease. In the developed world, a handful of economists and social scientists had been clamoring to draw attention to their plight. Many people, however, took a complacent view, assuming that the spread of free markets would bring eventual prosperity even to the world's poorest peoples."
. . . .
"Even if we can overcome the immediate crises we face, we will still be left with fundamental questions about the effectiveness of capitalism in tackling such unresolved problems as persistent poverty, lack of access to health care and education, and epidemic diseases. In my view, the theoretical framework of capitalism that is widely accepted today is a half-built structure--one that prevents Adam Smith's "invisible hand" from operating as he believed it should, transforming the pursuit of individual gain into general social benefit through the workings of the marketplace."
"In a sense, we have chosen to disregard half of Smith's message. His landmark book, The Wealth of Nations, has drawn all the attention, while his equally important Theory of Moral Sentiments has been largely ignored."
"The present theory of capitalism holds that the marketplace is uniquely for those who are interested in profit only. This interpretation treats people as one-dimensional beings; but people are multi-dimensional, as Adam Smith saw so clearly two and a half centuries back. While we have a selfish dimension, we also have a selfless dimension. The prevailing theory of capitalism, and the marketplace that has grown up around the theory, makes no room for the selfless dimension of people. If the altruistic motivation that exists in people could be brought into the business world, there would be few problems we could not solve."
"Smith took the view that people are born with a moral sense, just as they have inborn ideas of beauty or harmony. Our conscience tells us what is right and wrong. That conscience is something innate, not something given to us by lawmakers or by rational analysis. And to bolster it we also have a natural tendency to care about the well-being of our fellow men and women, an apparently universal feeling which Smith calls "sympathy." Between them, these natural senses of conscience and sympathy ensure that human beings can and do live together in orderly, beneficial social organizations."
"With these ideas in mind, we can see that Smith's Wealth of Nations has generally been misinterpreted. His thesis in that book is generally summarized as an argument that all will be well if people are allowed to follow "self-interest," which has been equated with selfishness and profit maximization. But with human beings as they are--driven by conscience and sympathy as well as the desire for profit--"self-interest" includes both profit maximization and social contribution. The Theory of Moral Sentiments, which attached great importance to justice and other moral virtues, is thus an important corrective to the widespread but simplistic understanding of Smith's intentions in The Wealth of Nations."
Yunus persuasively argues Smith intended that the concept of self-interest embraces both profit maximization and social contribution.
The Nobelist in Economics Amartya Sen in the Introduction to Smith's Moral Sentiments (Penguin 2009 edition) notes “Smith's inclination -- indeed, longing -- to believe in the equal potential of all human beings.” Professor Sen also noted that "Class divisions, Smith argued, reflect . . . inequality of opportunity, rather than indicating differences of inborn talents and abilities." Professor Sen recognizes that "The Theory of Moral Sentiment is a global manifesto of profound significance to the interdependent world in which we live. . . . [A] book of amazing reach and contemporary relevance."
A restoration of the discipline of a Glass-Steagall regime to cope with, among certain other issues, conflicts of interest, crony capitalism, and oligarchy power in banking coupled with the progressive income tax regime prescribed by Smith (see supra at VI. Adam Smith: Income Inequality and Progressive Income Taxation), the chronic issue of government debt to GNP would be kept at more acceptable levels, not to mention other issues that would be sensibly managed by the participants in a competitive free market à la Adam Smith, the father of capitalism.
See, e.g., Post by Ronald David Greenberg| (April 21, 2011 at 02:25 AM) at Reinstate Glass-Steagall: Roubini says yes, ECONOMIC DREAMS -- ECONOMIC NGHTMARES (last visited July 14, 2016 (May 13, 2010)) (correction added), https://forestpolicy.typepad.com/economics/2010/05/reinstate-glasssteagall-roubini-says-yes.html?cid=6a00d83451b14c69e2014e87f93ae9970d#comment-6a00d83451b14c69e2014e87f93ae9970d. #GlassSteagallReinsrtated #GlassSteagallCronyCapitalism #GlassSteagallBankingOligarchy
"Thanks for the above information. These other measures mentioned above could have had a weighty effect but apparently did not for a combination of reasons mentioned above as well. I agree, in any event, with Roubini generally, and your comments to my post. A lingering question for me is that competition (with, e.g., all 'too big-fail banks' being smaller) coupled with deposit insurance might impart necessary discipline. And, further, Glass-Steagall should be reinstated, in a fairly strong form, with or without covered bonds usage (for all financial institutions) or securitization (for investment banks only, not depositary institutions (banks, credit unions, et al.)). You appropriated my usual thunder 'But what do I know.' Economics is not an exact science (like present-day physics (!) with its string and other exotic (?) theories). Banking is critical to the health and wealth of worldwide society. Dodd-Frank and other measures (e.g., in England) may be effective. In addition I hope that the general tone and culture found in the financial system tends to emphasize its historic (on the whole) honorable, along with its profit, dimension.
Cf., e.g., Eduardo Porter, History's Dimension for Humanity: Stark Inequality or All-Out War, N.Y. TIMES (Dec. 7, 2016), at B1, available at Eduardo Porter, A Dilemma for Humanity: Stark Inequality or Total War (Dec. 6, 2016), https://www.nytimes.com/2016/12/06/business/economy/a-dilemma-for-humanity-stark-inequality-or-total-war.html:
"Is there nothing to be done about galloping inequality? . . . ."
"[T]he Tea Party — whose rabid opposition to government redistribution still shakes American politics. . . . ."
"The point is that delivering deep and lasting reductions in inequality may be impossible absent catastrophic events beyond anything any of us would wish for. . . . ."
"History — from Ancient Rome through the Gilded Age; from the Russian Revolution to the Great Compression of incomes across the West in the middle of the 20th century — suggests that reversing the trend toward greater concentrations of income, in the United States and across the world, might be, in fact, nearly impossible. . . . . "
"Many social scientists — not to say left-leaning politicians — would like to believe that there are ways to push back: higher minimum wages, perhaps a universal basic income [see https://www.nytimes.com/2016/06/01/business/economy/universal-basic-income-poverty.html] (e.g., redistribute upward?)]to help curb poverty; sharply higher income tax rates for the rich along with a wealth tax; a weakening of intellectual property rules, curbs on monopolies and coordination of labor standards around the world; maybe a dollop of capital given to each citizen [redistribution?] so all can benefit from the high returns on investment.
Cf. also, e.g., Patricia Cohen, Research Shows Slim Gains For the Bottom 50 Percent, N.Y. TIMES (Dec. 7, 2016) at B1, available at Patricia Cohen, A Bigger Economic Pie, but a Smaller Slice for Half of the U.S., N.Y. TIMES (Dec. 6, 2016), https://www.nytimes.com/2016/12/06/business/economy/a-bigger-economic-pie-but-a-smaller-slice-for-half-of-the-us.html.
X. Redistribution v. Progressive Income Tax
The rationale of a progressive income tax is not to take from the rich to give to the poor. Such a transfer would seem to violate constitutional property rights. It would also be unnecessarily provocative of class warfare, unwise, and unnecessary inasmuch as the rationale can be described more accurately as to impose a progressive income tax on income earned by the persons enjoying the various government benefits in earning that income (quid pro quo) in accordance with Adam Smith views.
See supra at IX. What would Adam Smith prescribe for income inequality?
The free-body diagram below of the flow of funds is an attempt to add perhaps further clarification. The diagram is straightforward in taking into account various forces, in a figurative sense, at work in government finance and a government budget:
--------------------------------------------------------------------------------------------------
FREE-BODY (FUNDS-FLOW) DIAGRAM: GOVERNMENT BUDGET
Society
Taxpayers → Progressive income tax → Revenues→ Sources
Government
Expenditures → Projects/Beneficiaries → Protection/benefits → Uses
----------------------------------------------------------------------------------------------
N.B., the rationale behind the above diagram is straightforward in taking into account the following factors at work in government finance and a government budget:
Revenues (sources) are determined economically as a function of progressive income tax rates to reflect the various benefits of government protection enjoyed by members in each tax bracket plus any other benefits;
Expenditures (uses) are determined politically by Congress in accordance with its preferences and priorities on projects that benefit preferred beneficiaries
The diagram is not intended to illustrate that the progressive income tax is to overcome income inequality. That is to say, the rationale of the progressive income tax is not, e.g., to take from the rich to give to the poor - – as stated above -- a crude, divisive, and inaccurate portrayal of proper government policy. Such a formulation would suggest class warfare. It has nothing to do with class warfare or income inequality.
On the revenues side, the diagram is intended to depict figuratively that the purpose of a progressive income tax is to recognize the respective benefits of government protection enjoyed/received by the entire range of taxpayers. The measure of the tax would also take into account whatever other benefits enjoyed/received by taxpayers from government expenditures.
On the expenditures side, the diagram is intended to depict figuratively the various Congressional goals/projects on which it spends, which are in protection and for the benefit of society. The diagram on the expenditures side emphasizes that what each segment of society receives is for Congress to decide. Thus, Congress may spend foolishly, e.g., on projects exclusively for a particular segment (say, for only the rich, or the poor, to pick extreme examples), or more reasonably, spend wisely (say, as allocated productively in the wisdom of Congress among the high-income, middle-income, and low-income segments). All expenditures are in the nature of, and contribute to the, protection of society.
Congress is presumed in this model to act in accordance with our Constitution and democratic principles pursuant to a competitive free market devoid of significant/any cronyism. Basically it reflects an Adam Smith and John Stuart Mill model, among other authorities, that underpins our Constitution envisioned by the founders.
See, e.g., SMITH, WEALTH OF NATIONS (Modern Library 1965), at 793-794 (Book V, chap. II, part. II, par. 71) (emphasis added), available athttps://www.amazon.com/The-Wealth-Nations-Modern-Library/dp/0679424733.
"The inequality with which a tax of this kind might fall upon the owners of different ground-rents would arise altogether from the accidental inequality of this division. But the inequality with which it might fall upon the inhabitants of different houses would arise not only from this, but from another cause. The proportion of the expence of house-rent to the whole expence of living is different in the different degrees of fortune. It is perhaps highest in the highest degree, and it diminishes gradually through the inferior degrees, so as in general to be lowest in the lowest degree. The necessaries of life occasion the great expence of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expence of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expence, not only in proportion to their revenue, but something more than in that proportion."
In connection with taxes, what Adam Smith has wryly stated about funding wars should be of interest to the current Congress:
"The ordinary expence of the greater part of modern governments in time of peace being equal or nearly equal to their ordinary revenue,when war comes they are both unwilling and unable to increase their revenue in proportion to the increase of their expence. They are unwilling for fear of offending the people, who, by so great and so sudden an increase of taxes, would soon be disgusted with the war; and they are unable from not well knowing what taxes would be sufficient to produce the revenue wanted. The facility of borrowing delivers them from the embarrassment which this fear and inability would otherwise occasion. By means of borrowing they are enabled, with a very moderate increase of taxes, to raise, from year to year, money sufficient for carrying on the war, and by the practice of perpetually funding they are enabled, with the smallest possible increase of taxes, to raise annually the largest possible sum of money. In great empires the people who live in the capital, and in the provinces remote from the scene of action, feel, many of them, scarce any inconveniency from the war; but enjoy, at their ease, the amusement of reading in the newspapers the exploits of their own fleets and armies. To them this amusement compensates the small difference between the taxes which they pay on account of the war, and those which they had been accustomed to pay in time of peace. They are commonly dissatisfied with the return of peace, which puts an end to their amusement, and to a thousand visionary hopes of conquest and national glory from a longer continuance of the war."
. . . .
"When a nation is already overburdened with taxes, nothing but the necessities of a new war, nothing but either the animosity of national vengeance, or the anxiety for national security, can induce the people to submit, with tolerable patience, to a new tax."
SMITH, WEALTH OF NATIONS (Modern Library (1965)) at 872-873 (Book V, chap. III Of Public Debts) (emphasis added).
The above “Free-Body (Funds-Flow) Diagram: Government Budget” is analogous to a free-body diagram used in engineering and physics to analyze the forces on a body/structure. The above diagram instead has been applied hypothetically/figuratively to a government budget in a society in which the diagram depicts the “forces” (revenues and expenditures) “acting” on the government. A balanced budget would be when the “forces” of revenues and expenditures are equal -- with no net “force” to unbalance the budgetary equilibrium.
The progressive income tax is not imposed to redistribute income from the rich to the poor. The rationale is to impose a progressive income tax on income earned by the persons enjoying the benefits from various government protections, and resulting from the substantive, and sometimes ultimate, sacrifices of fellow citizens -- quid pro quo.
The array of government benefits that are enjoyed is a political matter for Congress to decide. Smith refers to the protection by the government enjoyed by individuals, but his idea would seem to include all benefits enjoyed in earning the income (e.g., courts, roads, schools, and so on, as well as the military might, of the nation) because he also discusses all the benefits that would enable, and enhance the ability of, the individual to earn the income. Where to draw the line between a capitalistic state and a welfare state may not be a matter of precision, but though a capitalistic state may have elements on social goals, it is not welfare state with a socialistic economy. The matter is one of degree and not given to a characterization as a slippery slope away from Adam Smith laissez faire capitalism. See, generally Kant; Smith.