Embrace the ownership society

Rising inequality in the U.S. and Europe generates plenty of commentary nowadays, but not so many compelling prescriptions. I’ve a simple theory for why this is. The left really cares about the issue, but bars itself from considering effective remedies. The right could come up with some effective remedies, but doesn’t really care.

The left’s main problem is its endless fascination with the very rich. In one way, admittedly, it’s justified, because the increase in inequality is concentrated at the very top of the income distribution: Once you exclude the top fraction of a percentage point of high-income households, the change is less dramatic.

This makes it plausible to focus, as progressives like to, on raising taxes on the very rich. The problem is that the very rich are good at avoiding taxes and, if worse comes to worst, they’re mobile - as Gerard Depardieu has been explaining to Francois Hollande, president of France.

Granted, the U.S. tax authorities, noted for their totalitarian instincts, reserve the right to collect taxes from U.S. citizens living and working abroad. (Renouncing U.S. citizenship - and I say this as somebody seeking it - remains a possibility if the tax burden gets too punitive.) But the basic point stands: Governments can drive down inequality only so far by piling on the superrich.

Lifestyles of the rich and famous should anyway be less of a concern than the stagnating earnings of representative households. America’s great postwar success was in creating an enormous and upwardly mobile middle class, extending further down the income distribution than was usual in Europe. That wide center is no longer advancing. This should be the focus of concern, and of action.

A recent Bloomberg View editorial looked at one cause of stagnating middle incomes - automation in factories and in offices - and suggested remedies that concentrate on promoting a better-trained and more adaptable work force.

I’d like to suggest an additional line of attack, one that both left and right neglect, because, as I say, it brings a solution conservatives might love to a problem that only liberals really care about.

Unfortunately the label for this approach - “the ownership society” - is so badly tainted it will be difficult to reclaim. But here goes.

One of the forces pressing on the middle class is what might be a persistent shift of income from labor to capital. Policies to raise earnings by encouraging participation in the labor force, and by better-equipping workers to succeed once they’re in it, are essential. But they should be complemented by policies that give ordinary Americans a bigger stake in the wealth that the economy keeps generating.

In a recent Bloomberg View op-ed, Mike Konczal of the Roosevelt Institute went so far as to advise conservatives to abandon their interest in the ownership society - the misguided basis, he argued, of all their bad economic and social-policy ideas.

My first reaction was, if only conservatives were as interested as Konczal seems to think. My second reaction was, why aren’t liberals interested?

Konczal’s mistake was to equate ownership with risk. In the ownership society he envisages, instead of getting a pension from the government when you retire, you get the accumulated value of private investment in stocks and bonds. But stock markets can crash, so that’s risky.

Instead of getting guaranteed health care financed out of taxes, you get a voucher that you use to go shopping in a private health-care market. But the voucher might fall short and the health-care market is a jungle, so that’s risky, too.

A squeezed middle class can’t handle more risk, he says. When it comes to risk, it’s already maxed out. More ownership is the last thing it needs or wants.

Well, I’d say that depends. It’s true that conservatives’ standard proposals for privatizing Social Security and voucherizing Medicare would shift risk onto beneficiaries - but this plainly isn’t a necessary consequence of the basic principle.

I agree with Konczal that adequate insurance against economic risk, underwritten by the government, is essential. I also agree that most conservatives aren’t interested in providing that guarantee. That’s exactly why liberals ought to take up the ownership society themselves.

Ownership entails risk, it’s true, but insurance can minimize it. Ownership also provides control, independence and self-respect - things it wouldn’t hurt liberals to be more interested in. And when it comes to inequality and stagnating middle incomes, ownership can give wage slaves a stake in the nation’s economic capital.

Done right, an equity component in government-backed saving for retirement could be the best idea liberals have had since the earned-income tax credit (oh, sorry, that started out as a conservative idea as well).

The insurance component shouldn’t be neglected, but recasting the Social Security system so that it provides workers with a growing fund of equity over the course of their working lives - an investment that they own - would directly counter the drift of income from workers to capital.

Everyone a capitalist. It’s an idea progressives should love.

*The author is a Bloomberg View columnist.

By Clive Crook