Sunday, February 12, 2017

Socialism Reconsidered - Part 2

This is the second post in an occasional series.  I should note at the outset that I have Rousseau's The Social Contract on my to do list for reading, but I haven't made much progress in it yet.  In lieu of that, here is the relevant paragraph from near the end of Part 1.

Another point, a bit more indirect, is to ask whether up-scale liberals can get out of the mindset of voting their pocketbook and instead take more of a perspective based on Rawls' Veil of Ignorance when determining what they want economic issue-wise.  I would call this shifting to a Rawlsian perspective being socially responsible.  Socialism, as I meant it in the title of this post, is an approach that takes a shared responsibility for every member of society. 

This is the focus in Part 2.   I view these posts as think alouds, formative thinking where the posing of questions is more important than the delivery of answers, but where information that is relevant is brought in to help bring perspective on the question.  Invariably in doing this, there will be a political dimension to consider.  If you asked which of the major parties might embrace a Veil of Ignorance or Social Contract view, at this point I think it safe to rule out the Republicans.  So the operative question on this is would the Democrats embrace these ideas and, if so, how will that come about?

On Friday, Timothy Egan had a column that speaks to this question.  It is called Democratic Party Sugar High.  The piece is scolding of the Democrats, because they are failing miserably politically even as they demonstrate solidarity, such as through the recent Women's March.  Here is a relevant paragraph.

Reliance on identity politics and media-cushioned affirmation, and a blind spot to the genuine pain of the white working class, is precisely what produced a President Trump. For the next year, Democrats should filter their policy initiatives through the eyes of the person Trump claims to speak for — the forgotten American.

I am pretty sure that most of the time scolding doesn't work for the recipient.  (I don't deny that it may very well be cathartic for those doing the scolding.)  I believe a gentler message is required, but it is a message that needs to be repeated sufficiently that the point does eventually come across.  Frank Bruni has a milder piece today, though I thought it more about message than about fundamentals.  In my view the messaging issues can't be addressed till the fundamentals are fully taken into account.  Below, I try to do this by looking at the household income distribution.

The Census Bureau provides a variety of tables to consider household income distribution.   Below is a snip from table H-1 for All Races.  I've massaged it some to compute the differences between consecutive entries in the table, which I believe helps to get the full impact of the information provided.  This is done for the years 2010 - 2015.  (I am not sure why there are two different lines for 2013 and what those numbers in parentheses convey, but I included them both so didn't throw away any information that was originally included in the table.)

Here are a variety of caveats to consider before getting to the analysis.
  • The average sized household has 2.6 people.  If you'd like to see where you match up, this should be accounted for.  Single people who will marry in the not too distant future to somebody with approximately the same earnings as themselves will see their household income double, according to this metric, while regarding material well being they may perceive little to no change, as their expenses are also apt to double.   
  • The data makes no allowance for location and cost of living adjustments based on place.  Much has been made recently of urban and rural income differences.  That is not in this table.  
  • Similarly, there is nothing on the age of household members.  Earnings normally do vary over the life cycle.  
  • One other rather important point to recognize is that this is income, not wealth.  For people whose income doesn't vary much over time, the two will likely correlate substantially.  But some people might bounce in their income from one year to the next.  That sort of variation matters to their well being, but isn't accounted for here.  
  • The last point I'll make here is that there is no consideration of publicly provided goods, schools and health insurance for example, and how valuable those are.   For the recipients, those are a kind of income.  Variations in publicly provided goods are not accounted for in this table.

The key message here is found by looking at a row of differences, say the row for the year 2015.  The differences themselves looks like an income distribution.  Each successive difference is larger than its predecessor.  Indeed, the growth in the differences accelerates.  The width of the middle quintile, $28,490 is larger than the maximum of the lowest quintile, $22,000.  The width of the fourth quintile, $45,001 is larger than the maximum of the second quintile, $43,511.  And the width of the ninth decile (each quintile is comprised of 2 deciles), $97,480, is substantially above the maximum of the middle quintile, $72,001.  The upshot is that as you move to the right in the income distribution you get further away from the rest of the population that has less income.

Wikipedia offers a more granular look at this information just for the year 2014.  Here the income bands are of constant width ($5,000) up to $200,000 of income.  Thereafter there is one band with width $50,000 and then all above $250,000 are lumped into a single income band.   In this look, starting at $160,000, which is close to the the lower boundary of the 90th percentile, the fraction of the population within each band declines with income. 

A Veil of Ignorance policy on income would argue for a Robin Hood approach - rob from the rich and give to the poor, except that (a) maybe it shouldn't be considered robbery for the rich to pay more in taxes but rather social obligation, (b) perhaps a good chunk of the rich will embrace this as they come to understand that it is needed to hold the entire system together, and (c) we take a broader look at what it means to be rich.  Occupy Wall Street gave us the rhetoric of the 99% versus the 1% and thus considered the issue entirely in terms of relative income.   We might embrace an alternative where we consider multiples of median household income.  Are you rich if your household has double the median income? triple the median income? quadruple the median income?  etc.?

I use some non-standard language to describe this issue.  I consider myself as belonging to "the professional class" whose members are highly educated and have household income in the top quintile of the distribution.  My sensibilities are distinctly the middle class sensibilities that I was raised on.  My parents came of age during the Great Depression and were poor growing up.  While that was a living memory for them, they have both passed on.  We moved to Bayside when I was a very young kid and lived a middle class lifestyle thereafter.  Further, now my household is able to save a decent chunk of income each year.  People in the professional class can do that.  Those with less income require much more discipline to save.  Before the housing bubble burst many in this category were actually accumulating debt (dissaving).  People in the professional class may describe their situation as comfortable.  For the most part their material wants are satisfied and they feel reasonably secure financially.  They may not consider themselves rich in an absolute sense.  Yet they are clearly much better off than households who are at the median in the income distribution.

I believe that people in the professional class have been co-opted by the Bush Tax Cuts and have come to be selfish, income-wise.  I wrote about this here, demonstrating how tax rates for people in the professional class were much higher under Clinton than they are now.  Those rates were higher still in 1985 under Reagan.  There needs to be leadership on this point.  Right now, I don't see such leadership.

It is easy enough to argue for increased benefits for those in the bottom 4 quintiles of the income distribution, such as making college tuition zero for those people.  Telling potential beneficiaries that their benefits will go up is not hard.  It is also easy to make the argument that the entire additional burden belongs on the uber rich.  In that case the members of the professional class are exempt and can focus on other things.

There are two reasons why this seems wrong to me.  First, we all need to have skin in the game.  This means we have a sense of social obligation.  We need to be talking about obligations more, a lot more.  Paying taxes is one way that we deliver on our social obligation.  This first reason, then, gives the ethical justification for why members of the professional class should be asked to bear a larger burden.

Second, there is the matter of efficacy.  If only the uber rich should pay more in taxes, so they face no pressure to do so from the professional class, won't they be able to avoid the additional taxes altogether say by bribing their elected representatives?  Indeed, isn't that what has been happening over the past several decades?  For efficacy, the number of households that bear a larger tax burden must be substantial.  There can be much progessivity in tax rates within the upper quintile.  In that sense the burden need not be equally shared within the group.  But that each bear some of the burden is crucial.  In other words, individual reluctance to contribute more can be countered when everyone else is making a contribution.

Being outspoken on such views regarding taxation might be political suicide.  I leave that for others to determine.  I want to consider something else here, which gets back at the issue of public goods.  Making modifications to the federal tax system in a Robin Hood manner is not sufficient.  A different idea is articulated in the Brown v. Board of Education Supreme Court Decision.  Separate but equal does not work.  A Veil of Ignorance approach to social justice would be wary of clustering of people, by race as much as by wealth. 

A full treatment of this issue is beyond me now, but I can tie some of it to matters of taxation and in that way relate the one issue to the other.  We live in the world of overlapping jurisdictions for taxation - federal, state, and local and have different types of taxes at each level.  Property taxes, which are a big deal in Illinois typically require the money to be spent in the same jurisdiction as where there the tax revenues are generated.   The result is something like - rich neighborhoods pay a lot in property taxes and thus have good public schools while for poor neighborhoods the reverse is true.  There is no sense of social obligation in this type of system.  There is selfishness built in. 

When I was in graduate school I took a course in Public Finance.  One of the things we studied was the Tiebout Model of local public goods, where different communities offer different packages of public good offerings and taxes and people opt for their preferred bundle by voting with their feet.   Presumably, this is an efficient way to allocate local public goods.  For example, you may prefer a community with beautiful parks, while I prefer a community that has very efficient snow removal.  To the extent that the Tiebout Model is about horizontal quality differences it makes sense to me.

But the quality of the schools issue is about vertical quality differences (good or bad) and using local property taxes to fund schools is a de facto way to violate the spirit of the Brown decision.

When my parents were retired they lived in community called Century Village, in the western part of Boca Raton, Florida.  It was a huge condominium complex.  While my parents did pay property taxes, they paid much more in condo fees - one for their little cluster of buildings called Ainslie, which had its own swimming pool, and one for the larger Century Village community.  The condo fees were an alternative to property taxes.  Those monies were devoted to the upkeep of the community for the benefit of residents and their guests.  Low tax states are apt to have local public goods privately provided in some other way than by the government, such as at Century Village.

We are so used to that approach that we don't question it from an ethical dimension.  If we did talk about it we might find the conversation rather unpleasant, for it would challenge many of our implicit assumptions.  Indeed, I'm finding it difficult to write about here.  It is easy enough to give lip service to increasing responsibility.  It is much harder to operationalize that notion into concrete actions that could be implemented with regard to local public goods.

Maybe this is why the politicians won't touch the stuff.  It is too volatile.  But that is why we should try to do it ourselves, finding where we can challenge our own prior beliefs and where we need to back off because we can't sustain our commitment to the ideal.  I don't know where such a conversation will end up.  But I'm convinced it is a conversation we need to be having.

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