The Agenda

Elizabeth Warren’s Quote

The following is a quote from Elizabeth Warren, current favorite of progressive activists and a candidate for U.S. Senate in Massachusetts, which I found via MoveOn:

There is nobody in this country who got rich on his own. Nobody. You built a factory out there — good for you!

But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that maurauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea — God bless. Keep a big hunk of it.

But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

Notice that the force of Warren’s argument derives from the notion that other people paid for various public goods, and that the entrepreneur in question thus doesn’t have a claim to anything more than a “big hunk,” the size of which shall be determined by “us,” i.e., a committee of the people who paid for various public goods, of what she has earned.

Warren presents us with an interesting thought experiment, which, among other things, raises the question of the distribution of the tax burden. It is often said that virtually all wage earners pay the Social Security payroll tax, which is true. Yet the payroll tax is, at least in theory, linked to Social Security benefits, and not for various other government programs, though of course that hasn’t been the case in practice. 

The Tax Policy Center has published a guide to the progressivity of the federal tax burden. Though it is somewhat dated, it gives us a rough indication of how big a share of federal personal income taxes are paid by different groups of Americans. Tax units in the lowest quintile pay 0.4 percent, while those in the second, third (or middle), and fourth quintiles pay 2.3 percent, 7.7 percent, and 17.6 percent respectively.

The top quintile pays 71.9 percent. The top 10 percent pays 55.9 percent while the top 0.1 percent pays 12.3 percent.

If the relevant question is who pays for roads and protection against marauding bands, should we leave decisions to a committee composed of tax units in the top tenth of the income distribution, as they’ve paid the lion’s share when we leave aside Social Security, which can be understood as the purchase (at a steep discount, for now at least) of an annuitized income stream after retirement? That actually sounds kind of ridiculous. 

Granted, schools, police forces, and fire forces aren’t paid for out of federal coffers, and many state and local governments rely heavily on regressive sales taxes and property taxes. So if the relevant question is who paid for what, perhaps we can use some kind of assessment of lifetime net tax rates. Who on average is a net contributor and who is a net recipient? And once we’ve made this determination, which won’t be easy, shall we establish that only net contributors have a say as to who keeps how big a chunk of what they earn by virtue of having persuaded others to cooperate with them in building ventures that no individual could build on her own?

I assume that Warren would reject that proposition. 

I think it is very, very true that no one in this country, and indeed no one in any country, managed to become rich on her own. Some people become rich by virtue of being born into the right family, or by owning valuable real estate or some other legal entitlement, like a patent or copyright, protected by the state. And then there are people who, in various ways, become rich by serving other people, creating new and distinctive products and processes, etc. 

But does it follow that because people don’t generally become rich on their own that we should embrace Elizabeth Warren’s particular set of ideas regarding how much of our earnings we should be allowed to keep? 

There is the germ of a reasonable point in Warren’s statement, which is that a market economy is a system of cooperation and that maintaining a system of cooperation costs at least some money. In a society like ours, the system of cooperation costs considerably more money than the system of cooperation in a number of other countries, ranging from the chronically dysfunctional (say, Burkina Faso) to the spectacularly successful (Singapore).

The conservative argument, to overgeneralize, is that our system of cooperation doesn’t work as well as it might because the state — which, let us stress, is only one component of a larger system of cooperation, which involves other components, including shared norms and beliefs that can be undermined or strengthened in various ways — has taken on too many roles, including a number of roles that it hasn’t and perhaps can’t undertake terribly well. 

So yes: the entrepreneur in question may well have hired workers educated in taxpayer-funded schools. In some cases, however, and this is increasingly common, the workers in question received the bulk of their relevant education outside of taxpayer-funded schools, whether in independent schools, parochial schools, from parents, or from supplementary instruction, or after K-12 from a college or university or in the form of on-the-job training. For a large number of students, the time spent in school was not time well spent, and the main signal to employers of any value is the mere fact that the student in question had the stamina to endure being badly “educated” for countless hours — long enough to receive a diploma. This is an admittedly dark portrait of public education, and I don’t think that it applies to most students. What is clear is that many employers are profoundly dissatisfied with the quality of the training taxpayer-funded schools offer potential employees, and there are many entrepreneurs who are working to address this pervasive “state failure.”

Moreover, it is striking that a state like Massachusetts delivers a markedly better education, particularly to students from disadvantaged backgrounds, than a state like New Jersey, where public funding levels for K-12 are generally far higher. The rest of us in New Jersey paid to educate workers of the future. Somehow the rest of us in Massachusetts managed to pay less for a much better outcome, which introduces the possibility that that the much of the money that the rest of us are spending is wasted.

So when Elizabeth Warren allows the owner of a factory to keep a big hunk of what she earned, what exactly does she intend to do with the hunk that she has taken as part of the social contract? Will she spend it wisely? I’d submit that this actually isn’t an irrelevant question. We can accept the premise that there is such a thing as a social contract and that we should all do our part for the cooperative venture that is a civilized society. Yet should we then suspend judgment about what is done with Elizabeth Warren’s hunk, or can we take the view that the state is also a party to this social contract and that the state hasn’t been doing its part and that a great deal of evidence suggests that simply giving the state a bigger hunk of whatever we happen to earn in the course of freely and voluntarily cooperating with each other isn’t actually the best or the smartest way to get the state to do its work well?  

I think that we should care about the next kid to come along. We should care about her a lot. Here’s the thing: there is someone between the rest of us and that kid. There’s a big machine that somehow takes tax money in one end and imparts various public services at the other end. When we pump money into the box that gives us most consumer products, we get a pretty decent product on the other end, for all kinds of reasons. When we pump tax dollars into the box that is most governments in the United States, I’d argue that we actually don’t get a very good product at all. This is why it helps to look at the guts of the machine, and to see what is working well and what does not. 

But there are people who don’t want us to look inside the machine. They certainly don’t want machine to be transparent, to give the rest of us a close look at what actually goes on inside. Elizabeth Warren seems to think that the factory owner who wants to keep a bigger chunk of whatever she earned is the bad guy who needs a stern-talking-to. What if what we really need is to get in there and fix the machine — for the next kid to come along, and also for ourselves? 


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