Economic inequality in the US has now marched upwards for nearly three decades. And there is nothing that suggests its engines will be running out of steam anytime soon. Yet the terms of debate are still the same old set of policies that constitute the modern tax and transfer system. Having trouble even thinking of what lies outside the box of the modern tax and transfer system? You are not alone.
In fact, you are in the majority. What passes for “debate” on economic policy today has become so narrow and so insular that its language prevents us from articulating its deepest problems and precludes us form speaking of a second way. This is not all too surprising. After all, if a whole discourse focuses only on one set of options, how can we expect its language to be useful when assessing creative, new alternatives?
To break out of this box, it is necessary to visit an imaginary island. It’s the same kind of island where you’ll find comprehensive human rationality and perfect competition—the fictions that economists must assume to make sense of our messy world.
Imagine all of the residents on this island play a game that has very high stakes. More points in this game that grant access to better food, more drinks, fancy vacations, and even a longer life expectancy. You see several rounds of the game and notice something strange. Certain people win and certain people lose over and over again. The outcomes are very predictable. To compensate for this, at the end of each round, the referee takes a certain fraction of the winners’ points and gives it to the losers.
After the game, you talk to some of the residents. Why, you ask, does the ref take some points away from the winners and give them to the losers at the end of the game? The residents say that they find the pre-adjustment outcomes would have consequences that are too cruel for their society to stomach. Besides, they say, the predictability of who wins and who loses suggests that there might be biases built into the game (this is an active topic of debate on the island). You agree—the raw, unadjusted outcomes seem neither fair nor just by any measure.
But why, you ask, do they address these clear problems only by shifting points in hindsight? It seems silly, you say, to see these wounds arise with regularity and focus on only on reapplying Band-Aid’s instead of preventing them in the first place. You do not disagree with shifting the points after the game. Rather, you think it is silly that people think this alone constitutes an adequate solution to the clear problem.
Your island companion becomes flustered. Unable even to conceive of ways to remedy the problem beyond the current point transfer system, he asks you what exactly you have in mind. You’re short on specifics. But you point out that certain rules seem to favor certain kinds of people over others. Modifying the rules governing play during the game, you say, may prevent points from accumulating so unevenly by its end.
Your island companion seems offended. The rules of the game, he says, are the rules precisely because that is the way they have to be. It is impossible to change them without inviting social catastrophe, according to him. Like laws of nature, he says, they are resisted only at such great human expense that they are effectively immutable.
To you, this seems ludicrous. You point out that the game as it currently exists requires the active enforcement of rules by the referees, and is governed by a complex set of rules and norms. Even if there was not one single author, you point out, ultimately human beings create and perpetuate the way the game is currently organized.
Imaginary though the island may be, it is unfortunately germane to the predicament of the United States today. Inequality in incomes and wealth continues to rise to alarming levels. Yet our only answer is to lean further on the tax-and-transfer system, to transfer purchasing power to the disaffected only after they have become the disaffected. Any economic reform that would modify the rules of the game to change who wins and who loses in the first place seems infeasible, even utopian.
We as a society continue to speak of “the market” as if it were this unchangeable and indomitable entity, rather than of a market economy that is in truth a complex collection of legal rules and social norms created and perpetuated by human beings. We must accept that we can preserve the basic virtues of an economic system of open exchange even as we change a few of the many rules that underpin our specific version of it. If we don’t, inequality in the US will continue to its violent march upward. We must acknowledge how feeble the tax and transfer system really is in the broader scheme of a society that produces these outcomes in the first place. Until we do, we will be unable to even conceive of real solutions to prevent rather than ameliorate the problem.
Alexis de Tocqueville noted that “what are called necessary institutions are only institutions to which one is accustomed. In matters of social constitution, the field of possibilities is much wider than people living within each society imagine.” It is time we take this to heart and bring the touch of the imagination back into our thinking about social and economic reform. With inequality growing ever wider and the terrain of debate ever narrower, never has the need been greater. A progressive tax code serves as a start—but it can never by itself bring us to the finish.