Inclusive Capitalism: Economic Savior or Socialism in Disguise?
2015-02-13 · Guest: Sean McElwee (Demos) · 51:14
Inclusive Capitalism and Economic Inequality
Bob Zadek interviews Sean McElwee of Demos about “Inclusive Capitalism,” a movement aimed at reducing economic inequality through government intervention. They debate the merits of social insurance, baby bonds, and infrastructure banks, contrasting progressive goals of equal opportunity with libertarian principles of property rights and non-coercion.
Topics: Inclusive Capitalism, Middle-class Capitalism, Economic Inequality, Social Security, Baby Bonds, Wealth Transfer, Coercion, Infrastructure Bank, Financial Transaction Tax, Estate Tax, Land Tax
Speakers: Bob Zadek, Sean McElwee, Caller (Nick)
Defining Inclusive Capitalism [00:10]
Bob Zadek: Hello everyone, welcome to the Bob Zadek Show. I’m your host, Bob Zadek, every Sunday at 9:00 AM. We are the only live libertarian talk radio show on the air all weekend, the source for libertarian thought and opinion. Thanks so much for listening. I’m your host, Bob Zadek. 800-345-5639 to join the conversation at any time. We are proudly the show of ideas, not attitude.
Where were you on May 27th, 2014? While you were doing whatever you were doing, there was a conference held in London attended by over, quote, “220 leaders from the world of business and finance gathered in London to discuss the future of capitalism and how we may act to make our economic system more equitable, more sustainable, and more inclusive.” Listen to those buzzwords: equitable, sustainable, inclusive.
That was a quote from the website for the Conference on Inclusive Capitalism. Bill Clinton was the keynote speaker at that conference. The Duke of Wales was there. Anybody who was anybody in the world of anti-capitalism was there. And they were plotting, plotting to change the system that has served us so well for over 200 years.
What is inclusive capitalism? Sometimes it’s called middle-class capitalism. You may recall that President Obama, the follower-in-chief, jumped on the bandwagon and specifically mentioned and devoted some time to it in his most recent State of the Union message. What is inclusive capitalism? What does it seek to do? And what’s wrong with capitalism that requires it to change?
To help us understand this, I’m delighted to welcome for the first time on my show, Sean McElwee. Sean is a journalist over at Demos. Demos is a progressive think tank in Manhattan. They produce thoughtful, thoughtful pieces. All, as far as I can tell, everybody who works over at Demos is really smart and presents a very interesting argument for their point of view. Sean has written for Rolling Stone, he’s written in the Washington Post and the New Republic. Sean and I may not disagree, we will find out. Sean, welcome to the show this morning.
Sean McElwee: Oh, thanks for having me on.
Bob Zadek: Sean, now, inclusive capitalism, sometimes called middle-class capitalism, that philosophy, that economic approach, that series of changes, improvements if you will in the eyes of some to our economic system, is becoming, getting more and more attention. My question, Sean, to help our audience understand what the issues are: what’s wrong with capitalism as it is generally understood—certainly not as it’s practiced in this country, because we are far away from a free-market economy today—but as people generally understand capitalism, what’s wrong with it and what are the goals that those proponents of middle-class capitalism or inclusive capitalism, what are the goals that those proponents seek to accomplish? So, what’s wrong with capitalism and what are the goals?
Pro-Market v. Pro-Business [04:31]
Sean McElwee: Definitely. So, I think the first question that we’re talking about when we talk about pro-capitalism is that I like to make a distinction between pro-market policies and pro-business policies. And so a lot of what is pushed in Washington as pro-market is actually very pro-business type policies. And the way I think the best way to understand middle-out economics or middle-class economics is that it’s kind of a liberal response to what is I think been the dominant narrative of the economy, which is essentially you cut taxes for the wealthy and that wealth is then supposed to—this is the narrative—that wealth is then supposed to be used to invest and create jobs and then it’ll go and boost middle-class and lower-income incomes.
And I think most Americans aren’t seeing that happening. We’ve seen even under Obama five years now of kind of economic growth, and yet wages are still not getting up at the bottom. So middle-out economics I think is the—how do you respond to that? How do we get an economic system that doesn’t just lead to increasing incomes at the top 1% or 0.1%, but instead is broadly shared by the middle class?
Bob Zadek: Now Sean, what’s interesting is you start at a point when you and I are in total agreement, insofar as you mentioned that we have governmental policies that—and you didn’t use the words, but clearly I believe that’s what you meant, which is what has commonly been called crony capitalism, where governmental policies tend to favor a few, usually the rich and powerful, at the expense of the many, the unrich and the unpowerful. And in as far as that is concerned, you and I are in total agreement. And that the system is sick in that regard. So so far, thank you, but you started off where we are in total agreement. In identifying something to be fixed, we agree that ought to be fixed. We may disagree on how to fix it, but we agree on that is an evil of our system today, which of course is not free-market capitalism, it’s a perversion, but that’s where we are today. But thank you, Sean, please go on.
Sean McElwee: Yeah, so I definitely agree that broadly speaking what motivated my initial libertarianism and what motivates me today is there is a nexus with an elite that the government tends to favor with policy. I guess where I differ now is that I believe that government can be and in many cases has been a force for good. So I would say a program like Social Security, which has not eradicated but definitely reduced very dramatically poverty among the elderly. I think that is a very good success and I don’t see why we can’t have more policies like that.
Social Security and Compulsion [07:42]
Bob Zadek: Well, in so far as Social Security is concerned, we can look upon Social Security as—I can divide it into two policies combined as one. To some degree, Social Security accomplishes a bit of a wealth transfer. It takes from one group to give to another group. That doesn’t appeal to me all that much, in fact I oppose it. On the other hand, to the extent that it encourages people—encourages by force of law—to provide for their own retirement, encouragement is good, compulsion I’m not so sure. But the concept—what’s wrong with having people simply provide for their own retirement, indeed even encouraged to do so by government, but not forced to?
Sean McElwee: So I think the best way to think of Social Security is as an insurance program. This is why we talk about social insurance. The problem is if we have every individual prepare for their own retirement, there’s a high likelihood that some people will either be defrauded, fall upon hard times, not have enough income at any point in their life to pay for their retirement. And we know this isn’t a hypothetical, we know this is true because before Social Security, elderly poverty was a huge problem in this country. There were a lot of very impoverished elderly people. That still exists, but it was very much reduced by Social Security. Most people who retire at the height of Social Security had about 40% of their income replaced.
And there’s just the fact that if you don’t make young people save, a lot of young people won’t save. And the people who do save will be people who are more highly educated, people who come from wealthier families. And Social Security, it’s very important that one of the benefits of the program is that while it’s progressive, people who put in more still end up getting more money out. And so it does have that tenet of basic fairness that I think is what has provided its support for so long.
Baby Bonds and Equal Opportunity [10:21]
Sean McElwee: So the way I think about it is Social Security’s gone really great, so what’s an inclusive capitalist program to move beyond that? I would say a great example of this would be a baby bond program. So what this is is we talk about, you know, equal opportunity rather than equal outcomes in America. The problem is is that if you are born in a very poor environment, you have very little opportunity to start building up wealth. And so to equalize opportunities as much as we can without I think running into huge problems for liberty, a baby bond program would be something like a $1,000 to $2,000 to $3,000 grant to each child born in America. And that money is kept out of their hands until they’re 18, at which point they can then use that money to either start a business, pay for college education, you know, whatever they want to do with it. And I think that’s a program that really gets at a fundamental problem, which is lack of opportunity for a large portion of American children, and does it in a way that is as—that does not reduce liberty as much as some other programs to solve the problem.
Bob Zadek: Let’s—Sean, you mentioned one point I want to be sure the audience understands because I think it’s quite interesting to me. As you know, Sean, you were earlier in your life—not that much earlier, but earlier in your life—you were libertarian, you worked at Reason, a leading libertarian think tank and the publisher of Reason magazine, and you made the—a conversion from a purely libertarian point of view to one that at very least as far is far more nuanced if not just purely progressive. I don’t mean to put a label on it, but just help the audience understand what your intellectual background was, which is quite interesting to me and made me all the more so impatient to have you as a guest on my show.
And then you mentioned people—the lack of opportunity by people born in the lower economic quintile, the lowest 20%. I didn’t know what you meant by absence of opportunity. Why do they have less opportunity? Isn’t it true that in our relatively classless society, everybody is born with the same political opportunity? They start, they take a breath, and they’re off into the world. Everybody starts with disabilities and everybody starts with abilities. And some poor people can work their way out of poverty and some wealthy people can work their way into poverty. But while we can’t have pure identity of opportunity, in so far as government is concerned, doesn’t everybody have the same opportunity?
The Data on Economic Mobility [13:25]
Sean McElwee: I think that in answering the first question I’ll answer the second one. So yeah, I began at Reason, I also did some work at Stossel, John Stossel on Fox Business News. The libertarian community is very interesting and very—there’s a lot of different thinkers. I mean, it’s a movement that has about what, 6% to 10% support among the American population, but some of the leading—
Bob Zadek: It’s impossible to measure because people don’t self-identify as libertarians, but when asked about their views, they end up being libertarian without knowing it. So it’s hard to calculate.
Sean McElwee: Yeah, but and I certainly agree. You have Will Wilkinson at the Economist, you have Julian Sanchez at Cato. You have a lot of people who have very libertarian views that have a lot of influence. So it’s—and it’s a very interesting movement because there is so much debate about what it means to be libertarian. So it’s a very good intellectual climate.
So what led me to Demos is the opportunity question. I don’t like to go too into personal narratives, but you know what, I would go home from college and I would have friends who lived in public housing, who would, you know, be struggling to help their brothers and sisters. Very little opportunity, you know, they’d maybe be having a chance to go to community college, but even then you’re getting racked up with debt, working minimum wage jobs to pay for college. I had the privilege of not having to work during college and I was able to dedicate all my time to internships, either low-paid or unpaid, and reading. I didn’t ever really do really hard work while I was in high school, which gave me opportunity to go around the country doing academic debate.
And so my goal is to make it so that more people have the type of opportunities that I had. So to your second question as does everyone have the same amount of opportunity, we actually have relatively good data on that question. You can look at the report from Pew, you can look at the recent report from Raj Chetty, he’s at Harvard, just got the John Bates Clark Medal. And what they find is that where you are born in the income distribution does not determine where you will end up, but it does strongly predict it. So there are a lot of people who are born at the bottom and make it to the top, and that’s great. I think we should encourage that. But the fact is is that a lot of people who are born at the bottom stay at the bottom for their entire lives.
And so I’d like to have more of that. I’d also like to have more just absolute upward mobility, that is pulling everyone up. And I think the way that you get that is you have a very strong education system, an accessible healthcare system, accessible housing policy, and that gives everyone the opportunity, the basic skills to actually participate in capitalism as it currently exists. So that’s why I like the baby bond idea. I’d like to have everyone in that.
Leveling the Playing Field [16:56]
Bob Zadek: Sean, just one comment when you told a little bit of your own history. You described yourself as having more opportunity than others who you socialized with. And of course that’s obviously the case with everybody. You had more opportunity than some of your friends, but probably less opportunity than others. And we all have our own story. And we all come into this world and live in this world with advantages—a good home versus a bad home, a single parent, dual parent, ethnic background—we all come in with a potpourri of influences and things that affect our life. And everybody starts with advantages and disadvantages, some more than others. What’s wrong with that so long as people have the wherewithal—that is government doesn’t interfere with—the wherewithal to overcome the disadvantages or to exploit the advantages? And you cannot—it’s very hard to make it equal, it’s almost impossible intellectually to make it equal. We all come into this world, we get a shot. We start with advantages and disadvantages and we’re off and running. How can you legislate that away?
Sean McElwee: Two thoughts. One is I think it’s very difficult to think of a system in which the government is entirely out of the picture. And so to the extent that government is going to be involved to some extent of the distribution of opportunity, I’d like it to be involved in making a fair playing field. And what I mean by that is that I agree that we certainly come into this world with advantages and disadvantages. But much like I don’t think that measles should be a disadvantage that anyone should have to deal with and we eradicated that with a vaccination policy, I don’t think that not having access to preschool education, not having access to basic medical care—I don’t think that those should be obstacles that you can overcome. And to the extent that we can overcome them, I absolutely think that we should do that. And I think we can.
Bob Zadek: Now, so inclusive capitalism, obviously all of the goals or the goal of, as you said, leveling the playing field—you may not have used those words, but I think it’s a fair description to some degree, you can’t make it purely level, but certainly you advocate, it’s an accurate summary to say leveling the playing field as much as you can. That requires—that of course has a cost. And the money has to come from somewhere. So implicit in that approach is a wealth transfer. A transfer from those people who are—and I hate the phrase and I rail against it, but I’m going to use it because it explains it—those who are more fortunate, although luck has nothing to do with it or little, but those who are more fortunate are forced, coerced to pay for those who are less fortunate. Isn’t it true that implicit in your approach is forcing one segment of the economy to subsidize the improvement of another segment of the economy? There’s a coercive factor involved, isn’t there?
Sean McElwee: I mean, it’s certainly true that any sort of system is going to require taxation. We have a taxation system as it currently exists. The way I would approach this is how can we have a taxation system that raises revenues but does so in a way that does not disincentivize good behavior or incentivize bad behavior? And it’s worth noting that the countries, by the way, that many liberals look to, such as Norway, Finland, these countries have tax systems that do much more heavily tax the middle class than our system does. And that is part of the reason that these systems are so much more successful is because it feels like it’s something that everyone is paying for, everyone is a part of, rather than merely the people who are at the top 1%.
Bob Zadek: You say successful. That’s sort of a loaded word. I would argue they’re hardly successful at all. You can define success in a way that your point is accurate, but your definition of success and mine might be quite different. I just want to mention, Sean, to invite the audience, this is Bob Zadek, I’m talking to Sean McElwee. We are talking about a relatively new approach to economics called inclusive capitalism, sometimes called middle-class capitalism, mentioned by President Obama in the State of the Union address. What is it all about? What is the wealth transfer involved? 800-345-5639 to join the conversation with Sean. Sorry, Sean, before we go to break, we’re going to break in two minutes, but so the audience understands your point of view, tell us what you mean by in describing those Northern European countries as, quote, “more successful.” And we have two minutes till break. What did you mean by more successful?
Success in Scandinavia [22:48]
Sean McElwee: I’d say that the most—and I don’t think it’s always fair to just look at these other countries because they do have very much more homogeneous populations, they have different systems of government. I like to look here in the United States. We have places like Connecticut that don’t do it perfectly, but they do a good job of getting at this. The reason I say the Scandinavian countries are successful is because they have reduced in a way that is almost unprecedented the existence of child poverty. And I think child poverty is one of the most indefensible things that exists. These are children, they’ve never had the opportunity to succeed or fail, they’ve never actually made a bad decision. Their only fault was being born into the wrong household. In to an extent that is unprecedented, that doesn’t exist in these Scandinavian countries according to the data that we have. So that’s what I look at as success and that’s what I’d like to see more of in the United States. And we can talk about how I think that we could get closer to that in the United States.
Bob Zadek: We will talk about that right after we go to break. This is Bob Zadek, I’m talking to Sean McElwee. We are talking about inclusive capitalism, sometimes called middle-class capitalism, mentioned by President Obama in his State of the Union address. What is it all about? What is the wealth transfer involved? 800-345-5639 to join the conversation with Sean.
[Sponsor break]
Childhood Poverty and Responsibility [24:27]
Bob Zadek: As promised, I am right back. This is Bob Zadek, host of the Bob Zadek Show every Sunday at 9:00 AM. The only live libertarian talk radio show on the air all weekend, the show of ideas, not attitude. Thanks so much for listening. We are talking this morning on the subject, discussing inclusive capitalism, AKA middle-class capitalism, an economic movement, if that’s not too grand a term, designed to alter, to modify, maybe to eliminate, probably not, capitalism as we commonly understand it in order to make it, quote, “more inclusive.” I’m talking with Sean McElwee. Sean is with Demos. Demos is a highly respected, including by me, highly respected progressive think tank located in Manhattan, which advocates progressive economic and social ideas.
I’ll start this half hour, if I can, with a one-sentence quote from Milton Friedman. Professor Friedman said, quote, “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.” Professor Milton Friedman.
Sean, you mentioned right before break about the success of the Northern European countries of eliminating or coming close to eliminate early childhood poverty. And that strikes a very—to me, my response is this: a child is born into poverty for the most part because of the selfish and irresponsible acts of that child’s parents. The child’s parents caused a child to be born to satisfy their own purely selfish needs and desires without giving any thought to how this child, being born to satisfy their own needs, how this child is going to have the economic wherewithal to survive. So where is the personal responsibility of the parent? And more specifically, why must society clean up the mess caused by an irresponsible procreative couple who wanted to have a baby for whatever reason or did so out of ignorance how to avoid having a baby? Why do I have to, or why do we have to, pick up the mess from those parents?
Sean McElwee: I just—I think we as society take responsibility for many different things, including say the national defense. But I just—it strikes me that it’s hard for me to say that that child should have to bear the responsibility for the decisions of other people.
Bob Zadek: Agreed. Agreed.
Sean McElwee: And I think that we can solve child poverty and we can do it very less expensively than I think a lot of people think it would be. And I think we can do it in a way that does not reduce the incentives to innovate and does not give people the opportunity to become as successful as they can be. And another point is we don’t know which one of these children who is born to poor parents is going to be the person who comes up with the next Microsoft.
Bob Zadek: We’re in agreement, Sean. You and I are in total agreement, as we often will be I dare say, on the need to focus on the child. I wonder in your approach—your approach requires society to pick up after the irresponsible parents who out of pure selfishness, pure selfishness, sometimes ignorance, but pure selfishness, they brought a child into the world without giving any thought at all to how that child was going to get the basic necessities. Why must society pick up the pieces? Why must I be forced to pick up the pieces for that irresponsible behavior?
Sean McElwee: Let me approach it from your self-interest. So we don’t know which child is going to be the child that ends up creating the next Microsoft. For a very actually very low amount of investment, I think that we can give children access to healthcare, access to a stable environment, and an access to education. And I think that we should give each child access to that, as well as a modest amount of wealth at the age of 18, and see what happens. Because if we give each child that, there is a strong possibility that one of those children can end up creating an immense amount of things, especially with our capitalist society. If we don’t do that, then we’re putting one of our hands behind our backs because many of these children are going to end up growing up in very deficient environments that we know will prevent their brains from properly developing, that we know will not give them the tools that they need to be successful. And if we don’t do that, then you’re end up going to have a lot of people who end up turning to crime, end up on welfare, end up on all these sorts of programs instead of being productive people. So I think it’s in your self-interest to invest in these children.
Bob Zadek: I agree with a great deal of what you have just said. The question is why should I and you and listeners be compelled, compelled to do so? And a test also—we may differ on this, but I know you believed this at one time or probably still do—the test of whether government is behaving morally is whether or not a private party could do and be allowed to do what government does. If a private party could not point a gun at my head and force me to give my money to somebody who truly needs it, if that is illegal or immoral behavior, query why should government be permitted to do so only because 51% of the population says it’s a good idea? And that’s a—so the issue of coercion is a major area where we disagree. But Sean, before you even respond, we have a caller. I’d like to sort of take our callers if we can. Nick from San Carlos, welcome to the show this morning.
Caller: Creative Destruction [31:52]
Caller (Nick): Hello there, this is Nick from San Carlos. I like your show, it’s interesting. And to your guest, good morning. I have some questions. So after traveling the globe and being to many different places—Europe, Eastern Europe, Africa, Latin America—I think that your theory and model is great on paper.
Bob Zadek: When you say my theory, you mean Sean’s or Bob Zadek’s?
Caller (Nick): No, the guest’s. Talking about this or you can say sustained and inclusive economic growth, sustainable development. I mean, this is the big UN push for years that’s been going on. Europe has failed miserably. Right? Europe post-World War II has failed. There’s an interesting article that David Cameron penned in the Economist about innovation is dead, right, in Europe, period. Any good ideas come out and they’re sent to countries that are willing to innovate and have paradigm-changing support and then launch whatever that particular idea is. I truly believe that Schumpeter had a point that creative destruction creates new opportunities for people. I think I do agree that education is vital, access to healthcare. But more importantly, I think that the family and the environment in which those children grow up in—I cannot tell you the impact that has. I was—my father died very, very young, a mother raised us herself. You know, we were a WIC victim, food stamps. All of us went to the military, all of us went to university, grad school, etc., etc. But that was because my mother took the time to provide an environment where we could be successful. How can you or how can this idea of yours provide an environment for those children? You can read the book Dead Aid that was written about Africa. How much money you pour into Africa for infrastructure, and what has it helped those people to develop infrastructure? I would argue it’s failed.
Sean McElwee: Yeah, I think I’d like to table the discussion of developing countries because I think that the issues that they face are very different than the issues that we currently face. You don’t even have the governance structures to begin doing the type of stuff I’m talking about. So I’ll focus more on the question specifically to the United States. I think there’s two things here. One, I think family structure can be very important, and that is I think it’s important for children when they go home to have this sort of stable environment. But I think that the thing that really prevents that from happening a lot of times is poverty. And I think it’s great when people who are on different public assistance programs can provide a good environment, and I think that more robust public assistance programs can make that job that much easier for them. So I just don’t see why not just give families more of a chance by making sure that none of the families are ever faced with poverty.
Bob Zadek: Nick has disconnected, Sean, so we won’t get a response from Nick. But Sean, here’s a core question which will help our friends and listeners out there sort of understand the issue I think at its core. Instead of arguing “this would be good, good for the child, indeed perhaps even good for the country,” we start with a free market—the principles of free market and limited government and a government which is as uncoercive as it can possibly be. What is the core philosophical basis for the government transferring wealth and transferring value under the point of a gun from one person to another because somebody in government believes—and let’s say they’re right—somebody in government believes that it is good for everyone? What is the core principle that drives that economic approach? Is it just that it’s good for people, so take somebody’s money to give it to somebody else because it’s good for the person getting the money?
Property Rights and Taxation [36:15]
Sean McElwee: Well, I guess I just—the philosophical libertarianism arguments I think are very interesting. I prefer to begin with what we currently—our extant society is. But I would say, I mean, the idea of the concept of property can only exist because we have government and civil society protecting that property. If government didn’t exist and you said “this is my property,” well, you know, there’d be no way to prevent me from taking it. So let’s look at how we could get what I want to get in a way that I think is the most efficient. I think there’s three ways that you could do this.
One, I actually do agree with reducing the top income tax rate and closing loopholes. I think the way we use tax loopholes to incentivize and disincentivize behaviors is bad.
Bob Zadek: Of course it is. Of course it is. Total agreement.
Sean McElwee: It’s never been voted on, it’s just something that special interests have got in there. I like to joke I wish you had to go to a welfare office to pick up the mortgage interest deduction. So that’s one thing we can do is we can reduce all these tax credits and then we would have a much lower income tax base.
The second thing I think we can do is make more use of estate and inheritance taxes. Because your problem, right, is that we’re taking wealth from successful people and transferring it to less successful. Well, with this, those successful people are now dead. I grant that they should be able to pass on some of it to their children, but I think that we could make more use of inheritance and estate taxes to boost up people whose parents were less successful.
Bob Zadek: Sean, you just said “pass on some of their wealth.” The “some” is what caused me to perk up. Why pass on—if it’s somebody’s property, they are free to use their property in any lawful way that doesn’t harm another. If somebody has accumulated great wealth, it is their wealth to do with as they wish. Why do you give them the right to only dispose of some of it the way they want and not all of it?
Sean McElwee: Well, this is actually—I mean, estate and inheritance taxes have been advocated by Robert Nozick among others. I’m not trying to say you have to agree with everything Robert Nozick does, but I think there is a libertarian basis for this argument. I mean, you have to get revenues from somewhere, and I think the least coercive way is to get it from someone who no longer has any use for that wealth and it’s an investment in the next generation.
And the third way I’d get these sorts of taxation is taxing land. And the reason is is because land is something that can be developed. And if you tax land, then you have much more incentive to develop that land. Now, all of these taxes have downsides. I grant that. But all taxes will always have downsides. I think these are the taxes that have the least downside. And if you accept my premise that we should eliminate child poverty and increase opportunity and you want to do that, I think using those three sources of taxation are the best way to do it that I think limits freedom the least.
Bob Zadek: When you say “accept the premise,” I sort of accept the premise. I agree that childhood poverty is bad. We start there. The second issue is what to do about it and who should pay. Indeed, does government have any role in reducing childhood poverty? We can discuss that. Because the fact that something is bad doesn’t mean government should make it good. There are such things as private charities, and people ought to behave in a certain way in a society. Not compelled to do so, but should to live a moral, in my opinion, a moral life. It’s the compulsive factor that you and I may disagree. Because I may disagree with you on the degree to which childhood poverty requires attention as opposed to another evil, perhaps disease, finding a cure for cancer. It’s my money and it seems to me I am free to decide and to reorder priorities in society as I see fit with my money. It’s the coercive factor that you and I would probably disagree.
Sean McElwee: The problem with private charity—and I absolutely support the government spending far more money on medical research—and the reason is is because there’s a very big collective action problem here, which is everyone benefits from the research, so no one really has an incentive to put money into it. But going back to the private charity problem, the first is it’s counter-cyclical. So what I mean by that is when you need poverty reduction money the most is during a recession. But that’s also when people are going to spend the least amount of money towards private charity. So you have a huge problem there. And government can combat that counter-cyclical nature by running deficits.
The second problem is it’s another collective action problem, which is I think most people want to get rid of child poverty and want to give children the opportunity to grow and succeed and benefit all of us. Right? My whole premise here is that capitalism benefits everyone and I just want more people to be able to participate in it successfully. But then there’s the collective action problem, which is who’s going to actually pay to invest in these children?
Obama on Middle-Class Economics [42:31]
Bob Zadek: The cornerstone—when President Obama—and we can hear his own words—President Obama described middle-class capitalism or inclusive capitalism in his State of the Union message and he also described it in a very widely listened to interview on Fox. Raymond, can we play President Obama’s description of middle-class capitalism?
President Obama: Middle-class economics means helping workers feel more secure in a world of constant change. Making it easier to afford childcare, college, paid leave, healthcare, a home, and retirement. Middle-class economics means doing more to help Americans upgrade their skills through opportunities like apprenticeships and two years of free community college so we can keep earning higher wages down the road. Middle-class economics means building the most competitive economy in the world by building the best infrastructure, opening new markets so we can sell our products around the world, and investing in research so that businesses keep creating good jobs right here. And we can afford to do these things by closing loopholes in our tax code that stack the deck for special interests and the super-rich.
Bob Zadek: There’s President Obama’s very brief summary of inclusive or middle-class capitalism. Now Sean, when you and I spoke, you advocated a financial transactions tax, the proceeds to be used for infrastructure. Two issues that you had given some thought to and felt were certainly a step in the right direction. Explain briefly to our listeners how that approach would work. We’re running out of time regretfully, but we have about five minutes. Please explain that approach because it helps the audience understand what this approach is like.
Financial Transaction Tax and Infrastructure [44:05]
Sean McElwee: Yeah, I think again the reason for the financial transaction tax is that the financial sector as it is currently constituted, one, benefits from a very large implicit government subsidy in the form of being too big to fail.
Bob Zadek: We agree on that. We agree on that.
Sean McElwee: And contains a lot of rent-seeking in the form of things like high-frequency trading, which essentially allow people to use markets for arbitrage. That is, you’re making money not by putting money in a profitable investment, but rather just making money by shifting money around.
Bob Zadek: So-called financial engineering. Go ahead.
Sean McElwee: Yes. So to combat both of those, I’m proposing a modest financial transaction tax. And what that means is—this is we’re talking about basis points, we’re talking about .00 part of a percent on each financial transaction, just to make it so that you can’t make money by moving stuff—money around. That’s how we pay for the SEC, which makes sure that to an extent that it can, people don’t rig the markets. What we would do with that money then is put it into an infrastructure bank to pay for science, technology, improvements to roads, sewer systems, things that benefit all of us. Again, it’s not trying to—the goal is to make it so that if you want to make it in America, you have the tools that you need to do so. And I think a financial transaction tax takes from what is a very pro-business but anti-market and makes it now pro-market rather than just pro-big business.
Bob Zadek: And my comment is that that has, I must say, that has some initial—who can argue against it, one would say. But when you look under the hood a bit, Sean, the problem is that gives, I presume, to the federal government an enormous amount of money to spend on infrastructure. And a top-down management of a huge pot of money, as we both will acknowledge, invites the very rent-seeking and crony capitalism that you and I both abhor, we despise it. And to give the federal government this top-down, a bunch of wise men who are not so wise in Washington, allocating through the political process what roads and bridges get built and what bike paths get built, is the wrong way to have infrastructure constructed. Why give so much power to so few people in a system that we know is highly corrupt now, that is the road-building system?
Sean McElwee: Well, I would argue that first off, we did create the interstate highway, that was done by government. There’s a massive collective action problem if you’re going to try to do it solely through the private system.
Bob Zadek: What about the states?
Sean McElwee: I’m sure that if any sort of system that ends up passing through our Congress is going to end up having some sort of federalist bent to it. But I would say look at the publicly traded corporation. This is I think Hayek would gasp at the fact that you have a small CEO and board of directors making decisions that affect a massive publicly traded corporation. There’s the same sort of managerialist top-down sort of problem. So I’m just saying I think that’s a critique that libertarians should consider applying also to some privately traded corporations.
Bob Zadek: Although people can sell their stock. If they don’t like how management behaves, they can sell the stock. The prospect of having to move out of the country if you don’t like what’s going on in Washington is pretty extreme.
Sean McElwee: Or participate in political action, either at the state, local, or federal level. I think there’s a lot of opportunities available. And I just—I just think that the infrastructure bank, while it would certainly have limitations as all programs do, solves the collective action problem in a way that I truly don’t think you can solve any other way in terms of building infrastructure.
Bob Zadek: Do you have that much confidence in the integrity and the intellectual ability of a very few people living in Washington, DC to effectively and honestly control so much money?
Sean McElwee: Well, I mean, we have lots of checks on them. We have journalists who I think will provide to some extent a check on the government. You’re going to have I think you would have an independent commission to oversee that spending. That was what they did with the stimulus act. And I just historically speaking, there’s lots of evidence of government being able to create infrastructure, and I don’t see why that would change at all.
Closing Remarks [49:13]
Bob Zadek: Well, there you have it. Can the federal government be trusted—are they wise enough and honest enough to move around enormous sums of money for the collective benefit of the country? Indeed, is that an appropriate function of a free-market economy government? Is that the function, to itself decide who deserves somebody else’s money? Is it good for the collective of the country or does it violate first principles of taking from the rich at the point of a gun to give to those who are less fortunate?
That’s the issue for the day. Regretfully, as I told Sean when he and I spoke, we always run out of time with lots of work to be done on this fascinating topic. Sean, we have about a minute to go. Tell us about Demos and what work Demos does.
Sean McElwee: Absolutely. Demos mainly focuses on issues of economic inequality. We don’t do quite as much if at all on the social issues. The best place to stay up with our work and my work is probably on Twitter. So @Demos_Org is Demos and @SeanMcElwee—that’s S-E-A-N-M-C-E-L-W-E-E—is me. I write a weekly column at Salon and I write a monthly piece for Al Jazeera America, as well as occasionally contributing to the New Republic, the Atlantic, and Politico.
Bob Zadek: Sean, this hour was wonderful as I knew it was going to be. Have to promise to come back to share your wisdom again with my audience. This is Bob Zadek saying so long for now and special thanks to Sean McElwee for giving us his point of view. Thanks so much for listening.