Who Is Really “Deserving”? Inequality and the Ethics of Social Inheritance

The start of the twenty-first century finds America in a perilous state that many consider to be a turning point in our history, one that could lead to a painful decline in living standards. According to recent polls, a majority of Americans believe that today’s children will not fare better than their parents did, and many will fare worse. Such pessimism is justified. Between the slow decline of average wages and benefits since the late 1970s, and the huge overhang of consumer and public debt, there seems to be nowhere to turn for prosperity. Much attention is focused on health care, education, and retirement, systems in deep crisis as the costs of these critical life-cycle needs have risen far beyond both the earning and saving capacity of average households and the spending capacity of government at current tax levels.

The notion of a systemic crisis of entitlements and other social goods is increasingly debated in our current fiscal circumstances. But that point of view, common in both major parties, depends on omitting other parts of the economic story of the last thirty years, most important, how virtually all of the economic gains in this period were captured by a small minority of households at the top. As of 2004, the top 5 percent of households controlled more than 50 percent of the entire net worth of the country, while the bottom half controlled less than 3 percent. The share of national income going to the richest 1 percent has more than doubled over the last three decades, even as the top marginal tax rate has been cut in half.

The fiscal impact of such distributional trends is rarely considered. For example, if average wages had risen with productivity gains over the last few decades, as they did in a ratio of nearly one-to-one in the three decades after the Second World War, the projected budgetary shortfall in Social Security would not exist today. Or take Ronald Reagan’s, and especially George W. Bush’s, program of tax cuts for the wealthy. What if we had spent that lost revenue on common needs, such as effective K-12 education programs, college financial aid, and research and incentives for a clean energy economy?

As the structures of general prosperity have been eroded in recent decades—with a flattening of the tax code, a steep decline in collective bargaining, diminishing college assistance relative to tuition costs, severe inequalities in health care coverage and quality, and on and on—economic growth in America has become a near zero-sum game between the increasingly few with extraordinary market power and the majority of everyone else. The income channeled upward by tax cuts for the wealthy, by soaring executive compensation (equaling roughly 10 percent of corporate earnings in recent years), and by other distributional trends has been drained away from critical social needs and average consumption. It is utopian to think that we can ignore the distributional changes and simply grow our w...