THE INEQUALITY CONUNDRUM

In my book, ‘NEITHER HERE NOR THERE, A First Generation Immigrant in Search of American Exceptionalism’, I make the case that the inequality problem that has surfaced in the twenty-first century in America is the direct result of the flaws in the American political system and the resulting dysfunction in Washington D.C.

That position calls for some elaboration.

There is nothing more un-American than to see a good segment of the American populus excluded from the rising welfare and prosperity that this nation is still producing. Charles Murray, in his seminal 2012 book ‘Coming Apart’, was one of the first political scientists to vividly illustrate that America is coming apart along the lines of birthright. He writes that the fortunate have created their enclaves where they cluster together in high priced real estate, out of reach for the general population (Murray calls it,“Belmont”), and that the unfortunate get similarly bunched up in dilapidated, drug infested, and crime ridden neighborhoods (Murray calls it,“Fishtown”).

Only the children of the fortunate can afford to go to the top prep schools, colleges, and universities. They get the better education, get to mingle with the right crowd, and end up getting the better jobs. Their parents themselves are educated at the nation’s top schools and thus have an elaborate network and the connections needed to climb the ladder. For them money is never an object. Because of the environment in which they live in Belmont, they get exposed to cultural influences that are out of reach for the inhabitants of Fishtown. They get to travel abroad and widen their horizons in a way that children from Fishtown can only imagine. If children from Belmont get in any kind of trouble, drugs, sex, or crime, there are abundant, but expensive, remedies available that can nip the problem in the bud before it gets out of hand. Social pressure and vigilance will further help staving off potential misdirection. Not so much for children growing up in Fishtown. They have a better chance of ending up in jail.

The authoritative weekly magazine The Economist writes in its January 24^th, 2015 edition a cover article titled ‘America’s new aristocracy, Education and the inheritance of privilege’. In it the editors point to a remarkable consensus between politicians like Paul Ryan, Elizabeth Warren, Marco Rubio and Hillary Clinton, who agree about little else, that the chances of ordinary Americans rising to the top are not what they once were.

Under ideal conditions, social mobility is a two way divided highway: There is a lane open for people to move up the social ladder based on talent, hard work, and perseverance; and then, there is a lane for people to move down the social ladder based on the lack of these same attributes. Social mobility serves a nation optimally when it shows vibrant movement both up and down. Only then does it create a true meritocracy, where the most deserving (not the most privileged) reach the top and the least deserving (not the most under-privileged) hit bottom. But that appears to be missing in America today.

If America has indeed developed an inequality conundrum, the question should be asked: ‘Who is going to address it and how’. Reversing the trend of rising inequality will require a societal recognition that the acceptance of the separation between Belmont and Fishtown – and never the twain shall meet – is counterproductive to America’s chances to continue to lead the world in economic and social development. And it will be the task of the federal government to set the conditions for that societal recognition to take a hold. That should not be too hard, considering the political consensus that apparently already exists (according to The Economist).

The problems get more intransigent when it comes to figuring out how to reverse the trend and restore a functional level of social mobility. The first order of business is to accept that there is no single silver bullet solution to the problems. That the solution will have to come from dealing, systematically, with the shortcomings in some of the major building blocks of national strength like: education, immigration, healthcare, welfare, social justice, infrastructure, public finance and civic engagement.Unfortunately, the American political system as it operates today is utterly incapable of dealing with these big ticket items.        I contend that it is this very inability of Washington D.C. to address and effectively deal with the big challenges of our time that stands in the way of restoring the quintessential American notion that with hard work, frugal and clean living, a good education and perseverance anybody can rise to the top. It is the ineffectiveness of the federal government that has, if not created the current level of inequality, certainly contributed to it and it is that same ineffectiveness that stands in the way of addressing and solving the issue of inequality.

That brings the inequality conundrum in clear focus: The deficiencies in the major building blocks of national strength will not be addressed and removed unless our system of governance is restored to functionality and inequality will not be brought back to acceptable proportions unless these deficiencies are addressed and removed. It all hangs together and America’s destiny hinges on the linchpin of a functional system of governance.

BOUNCERS

I think that most of us know what needs to be done to underpin the economic recovery that is apparently underway in America but has a hard time throwing off benefits to the vast majority of Americans. And there is no reason to believe that our politicians in Washington are any different. If America is lacking in anything, it is not think tanks, which we have in any flavor of political persuasion, and these think tanks produce an endless stream of policy recommendations for dealing with the major ills this country has not yet conquered. Our representatives and their staffs are well aware of these recommendations, which are written to be put on their desks and pc’s. Somewhere in there they should be able to find solutions to this over-arching problem of our time: how can we assure that more Americans benefit from the national growth and prosperity this country is capable of. If they don’t act upon any of these recommendations, we need to ask why that is the case.

Now, there is no lack of think tanks who will make the case that government has little or no role to play in this process and that the best thing it can do is stay out of the way of the private sector and do nothing, These advocates will make us believe that gridlock is good, because it keeps the government from doing more harm than good.

This approach finds no sympathy with me. In the first place, I strongly believe that there is a role for government to play in the process of national progress and the equitable distribution of the fruits thereof. This role is best described as an ‘enabler’. The task of a national government is to create the conditions, the framework, and the structure under which its population can prosper. Second, someone has to be the arbiter of how resources are to be deployed for the common good. In a democracy that arbiter has to be the duly elected government. We can have a legitimate argument about the size and the scope of the government, but not about the need for a government in general, including the need for a government in the management of the national economy. We see in places like Libya, Somalia, Syria and Yemen where the absence of a national government leads. We don’t want to go there.

The first order of business for our government is to make sure that America keeps generating sustainable growth in a measure that keeps it competitive in the global context and allows its population to prosper. That should be paramount.

Logically, in order to achieve that mission, our government would operate on the basis of a national strategy that would establish policy priorities and implementation plans aimed at achieving the mission. The national strategy should include a funding plan that would identify what revenues would be required and how to generate these revenues. In our world of today it does not work that way. There is no national strategic agenda and no constitutional mandate to create one. We have our funding system backwards: we guess at what our revenues will be given the existing tax and revenue laws, then we divvy them up over the functions and departments we maintain within the government and we borrow if our expenditures exceed our revenues, which is almost always the case.

If we could start from a clean slate and had complete freedom of action, we would devise a tax system that could be tweaked from year to year to give us exactly the revenues required to pursue the national strategy and execute the implementation plan. Government borrowing would then be reserved to cover emergencies, catastrophes and to make long term investments. If we could start from a clean slate and had complete freedom of action, we would carefully reconsider which sources of revenue to tap into, given the civic and moral need for fairness, efficiency and optimum return. We would not just tinker at the margin of existing tax structures and play with populist redistribution principles. We would reconsider to what degree we want to rely on personal income taxes for revenue generation as opposed to corporate income taxes, consumption tax, user fees and asset taxes like property taxes. And we would want to rid ourselves from all the accumulated tax exemptions and deductions that have crept into our revenue code over the years. Simplicity, fairness, adequacy and certainty of indiscriminate collection should be the guiding principles behind our tax collection process. A fundamental rewrite of our tax code based on these principles would be a great first step in underpinning our nascent economic recovery.

But we cannot and will not start from a clean slate. What keeps us from doing so is the mortal grip that special interests have on our political process and our elected representatives. It is unthinkable, in the current constellation, to fundamentally alter our tax code and do away with all the exemptions and deductions that these special interests have inserted in the system over time. As long as our two parties and our elected representatives depend on these special interests to finance their re-election campaigns, fundamental reform – desirable as it may be - is just not in the cards.

Special interests are like bouncers, who, in the most vulgar ways based on brute strength, decide who can go in and who stays or goes out. Special interests have become bouncers of otherwise laudable legislative initiatives by allowing them, in addition to petitioning the government (lobbying), which is a fundamental, constitutionally guaranteed right, to become the financiers of the political parties and the candidates for elective office. That is where America made a crucial mistake that is now costing it dearly in terms of lost freedom of action when it comes to proper governance of the nation’s and the people’s business.

We hear so often, when people are fed up with the bickering in the Beltway: ”Let’s throw all the bums out.”  That would not do it. The next class of Congressmen would be as beholden to the special interests as the one we got rid of. The solution is in getting rid of the bouncers by transitioning to a system of public financing of election campaigns and taking the money influences out of our governance system.

SMALLER IS BETTER

Humanity has lived for aeons in a male dominated society (even when women were doing most of the work) in which the prevailing rule seemed to be: the bigger the better. We are obsessed with the urge to grow, first as a child that can’t wait to grow up. Then as an adult seeking to grow our income, our business, our family. We seem conditioned to be striving for big, a big job, a big house, a big car, a big future.

But just like male dominance begins to wane – and, where it does not wane it is associated with backwardness – the notion that bigger is necessarily better begins to lose much of the traction it once had.

In the animal world, including the human species, the male is typically larger than the female, often translating into superior strength, power and dominance. In a world where most results were achieved by muscle strength – which by and large was the rule before the industrial revolution – size mattered and gave men a natural advantage over women and larger, stronger men and advantage over smaller specimens. But that is no longer the world we live in. Results are now mostly achieved by applying brain power and technology. Size does not matter that much anymore.

There is change in the wind. We are beginning to wake up to the notion that, maybe, smaller is better. In fact, there are good reasons to believe that scaling things down may be the key to a better way of doing things and a better future for mankind. How so?

First there is the whole matter of nano-technology and micro-technology. It is counter-intuitive, but we find that we can make many compounds and instruments work more effectively if we can bring them down in size. Particle size reduction of compounds to nano-levels allows for more precise dosage, absorption and integration. And instrument or part size reduction improves application and penetration which lead to greater effectiveness and reduced logistical cost. This field is still in its infancy and it is not hard to believe that a great deal of innovation in the twenty-first century will come from this source.

Then there is the concept of micro-finance. If we can unleash the productive capacity of entrepreneurial people all over the world by providing them with access to enough working capital to get started, there is no telling where economic growth, employment opportunity and prosperity could go, first and foremost in developing countries but also in the developed world where access to capital holds back many good people and ideas. Our public and private financing system is too focused on the big bang and the silver bullet, on getting in early on the next Apple or Google rather than the many small seeds laying in the furrows, waiting for the capital drench to come in order to facilitate germination.

In business we have found out that effective management is much better applied in small units than in large organizations. The units may be bundled in one large corporation, linked together by common culture, strategy and policy, but the company has a much better chance of sustainable success when managed at the unit level rather than from the top of the organization down. Smaller business units are much more nimble, responsive to customer needs and agile than the organization at large.

We also begin to turn away from big government. While it is unrealistic to expect that people will want to give up on the entitlements and the safeguards provided by the welfare state, there is a strong aversion of the growing size of government and the grip that government has on our daily lives. A lazy, bloated bureaucracy spitting out endless regulation is not what the American people are looking for. Nor can they afford it, with fewer and fewer people of working age paying the bills. What the American public wants (and deserves) is a small but effective government. Just like computers have been reduced in size, weight and cost while becoming infinitesimally more powerful, our government needs to find a way to focus on the few things that really matter, with fewer but better qualified personnel and deal with these matters in an efficient and effective way. That is only possible if America unites behind a national strategy and pursues its goals by applying talent and technology.

A great future for our grandchildren requires a contrarian mindset to begin to prevail. It will be predicated upon America’s capacity to wean itself from the Texan premise that bigger is better and systematically ask the question: how can we do more with less? The Dutch have an expression for this approach: “Klein maar fijn”, which means “Small but Great”. That’s what we should be looking for.

MONEY SPEAKS

If you ever believed that throwing billions of dollars of private money at the national election campaigns is just the way things get done in America – evidence that we are a truly capitalistic country – and has no effect on the outcome of the legislative process, I recommend that you read two books, Act of Congress by Robert G. Kaiser and America’s Bitter Pill by Steven Brill. These authors argue persuasively that both the Dodd-Frank legislation and the Affordable Care Act left so many vital issues unattended, because special interest groups had made it clear what they would and would not accept.

A stark irony surfaces when the question gets asked: “What did all that campaign money buy us?” We all know the answer: Nothing of substance or value has been accomplished by our elected officials who have so diligently held out their hands to receive the money that has financed their election and re-election campaigns. The irony is that this is exactly what the moneymen intended. All that money (about $4 billion just for the 2014 mid-term elections) for no other result than that the Republicans strengthened their grip on Congress. We get exactly what the campaign donors were looking for when they wrote their large checks: nothing coming out of Congress: no tax reform, no tort reform, no debt reduction, no gun control, no comprehensive immigration legislation, no infrastructure investments, no climate control measures, no Arctic development and protection initiative, nothing to enhance America’s global position, NOTHING!

Nobody in America seriously believes that our elected officials are corrupt in the old-fashioned sense of the God-father (envelopes or briefcases with money under the table). If that happens at all, it is an anomaly and not at all representative of the system. But the system is corrupt in a more fundamental and damaging way. The moneymen and special interest groups have nestled themselves between the People and their elected representatives, making a mockery of our democracy as it was intended and designed by our founding fathers. 

A Congressperson, man or woman, Democrat, Republican or Independent, starts the day with a money raising breakfast, to move on to a fund raising lunch and finish the day with a fund raising dinner. The time in between is filled with meetings with lobbyists and phone calls to campaign contributors. There is no time left to do the People’s work and does anyone really believe that such agenda does not necessarily make these Congresspersons more beholden to their campaign donors than their constituents?

Former Senator Alan Simpson said it best when he testified in a campaign-finance court case: “Who, after all, can seriously contend that a $100,000 donation does not alter the way one thinks about—and quite possibly votes on—an issue?”

That is why, in my book NEITHER HERE NOR THERE, A First Generation Immigrant in Search of American Exceptionalism, I make the case for public financing of election campaigns, for limiting the duration of election campaigns and for reducing the frequency of elections.

How much more effective would our politicians be if they did not have to run around all the time to collect campaign contributions? Without campaign contributions from private citizens, corporations, interest groups, and Political Action Committees, how much less beholden would our representatives in public office be to anyone but their true constituency and the common public interest?

Supreme Court Justice Stephen Breyer, in his dissenting opinion in the McClutcheon case, hit the nail on the head when he wrote that, “The anticorruption interest that drives Congress to regulate campaign contributions is a far broader, more important interest than the plurality [of the Court] acknowledges. It is an interest in maintaining the integrity of our public governmental institutions.” And then he wrote: “Where enough money calls the tune, the general public will not be heard.” In his dissent he accuses the deciding majority of the Supreme Court of failing to recognize the difference between influence resting upon public opinion and influence bought by money alone.

As a public we can complain forever about how dysfunctional our political system has become, but we have to realize that one of the root causes of this breakdown in our democracy is that the moneymen have come between the citizens (voters) and their elected representatives. What counts is not what you and I think that needs to get done, what counts is what the large campaign donors want our representatives in Congress to say and do and what the influential special interest are supporting or not supporting. No-one gets elected to Congress anymore, unless the candidate is willing to cater and pander to the whims of the campaign donors and these special interest groups.

Only Congress itself can lift us out of this morass. It can do so by changing the election laws to only permit public financing of election campaigns and putting term limits in place. Not to speak of constitutional amendments changing the frequency of elections and the term of tenure for our elected officials. But that would require for the Congress to pull itself out of the morass by its own bootstraps, which—as we all know—is one of the hardest things to do. Admittedly, the hurdles for the members of Congress to effect the required change are phenomenal. First, it would have to muster the courage and moral fortitude to ignore what the moneymen and special interests want them to do. And, if they can pull that off, they would have to have the courage of conviction—in defiance of the Supreme Court— that cutting the moneymen out of the election process can be done without infringing upon citizens’ rights under the First Amendment.