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Going Beyond Market Correction—A Commentary by Anne L. Alstott ’87

The following commentary was published in the Boston Review March/April 2012.

Going Beyond Market Correction
By Anne L. Alstott ’87

This article is part of What to Do about Inequality, a forum on correcting gross inequities in pre-tax income.

Like others on the American left, David Grusky would like to channel the raw outrage of Occupy Wall Street into a workable political idea. But market correction, while useful, is too light a tool to dislodge the inequalities that leave so many Americans with few options for a decent life.

Grusky begins with the proposition that Americans hate tax increases, even tax increases on the rich. Then he adds a normative claim: tax-and-spend redistribution stops in the shallows; it “makes sense only insofar as the institutions that generate wages and other income are treated as sacrosanct.” Instead, Grusky proposes, we should attack market failures that produce inequality in wages and employment opportunities.

Perhaps OWS ire on behalf of the 99 percent could be marshaled to combat corruption and cronyism in wage-setting and artificial bottlenecks in higher education. But, as Grusky candidly admits, establishing market failure isn’t straightforward: maybe CEOs are marginally productive enough to justify their wages. Maybe we have just the right number of openings at elite colleges. Compounding the difficulty, it isn’t at all clear what the relevant “market” is or how it ought to operate when, as in the case of education, the institutions involved are overwhelmingly nonprofit or state-run.

The deeper problem with focusing on market failure is that doing so apparently would leave untouched many of the institutions that create inequality and transmit it across generations. Grusky’s centerpiece projects—reducing CEO pay and expanding access to college—would do little to help the ordinary person. Reducing CEO pay to, say, $1 million per year would not alter the reality that the ordinary worker must purchase nearly all the primary goods in life—food, shelter, education, and security—out of very low wages. Extra college slots might help even out some inequality in the income distribution and might help a few more people climb the economic ladder. But what of those who won’t go to college?

Financial inequality replicates itself in nearly every sphere of life—health, leisure time, even marriage.

Generalizing the point, market correction falls short of an equality agenda for three reasons. First, even a perfectly competitive market generates substantial inequality in individuals’ life chances if the background distribution of resources and opportunities is unequal. Today, markets in the United States operate against a backdrop of unequal inheritance, unequal education, and minimal social provision. These conditions combine with factors such as changing technology and globalization to generate financial inequality.

Second, financial inequality replicates itself in nearly every sphere of life because the United States uses commodity markets to distribute nearly every primary good. The ordinary person’s wage must stretch to purchase not only food and shelter but also access to neighborhoods with good K–12 schools, college tuition, and retirement security. The result is that wage inequality produces unequal access to health, leisure time, and even family life: marriage to one lifelong partner is increasingly a luxury for the rich.

Finally, market correction cannot address inequalities perpetuated by the structure of the U.S. welfare state itself. The United States today provides economic security for workers in old age (via Social Security and Medicare) but very little to children, young adults, and anyone who spends their time caring for others rather than working for a market wage. The current recession has left young people, for instance, disproportionately unemployed, but the safety net often denies them unemployment insurance—because they lack a work history—and even public assistance if they have no children.

Far from shallow, tax-and-spend redistribution, which Grusky dismisses, can complement institutional reform at several levels. Taxes and transfers can mitigate inequalities in the wage distribution and thus redistribute access to primary goods. Reforms in the structure of transfers can better channel resources to the young and to others now facing especially precarious circumstances.

That leaves, to be sure, the political problem. The curious fact is that, in the United States, anti-tax sentiment coexists with fierce public loyalty to Social Security, the proverbial third rail of American politics. Even George W. Bush, who succeeded in slashing income taxes for the rich and nearly managed to repeal the estate tax, could not persuade the public to sign on to his plan to privatize Social Security.

The lesson for the left should be clear: we lose when we permit conservatives to caricature taxation as the pointless confiscation of “your money” for others’ ends or, worse, a mean-spirited attack on success. But we may win if we link taxation to redistributive programs that promise to deliver justice.