The Importance of Fairness: A New Economic Vision for the Democratic Party

By James Kwak

A lot has been written recently about the direction of the Democratic Party. This is what I think.

I have been a Democrat my entire life. Today, the Democratic Party matters more than ever because it is the only organization currently capable, at least theoretically, of preventing the Republicans from turning the United States into a fully-fledged banana republic, ruled by and for a handful of billionaire families and corporate chieftains, with a stagnant economy and pre-modern levels of inequality. Yet I cannot find anything to disagree with in Senator Bernie Sanders’s assessment:

“The model the Democrats have followed for the last 10 to 20 years has been an ultimate failure. That’s just the objective evidence. We are taking on a right-wing extremist party whose agenda is opposed time after time and on issue after issue by the vast majority of the American people. Yet we have lost the White House, the U.S. House, the U.S. Senate, almost two-thirds of the governors’ chairs and close to 900 legislative seats across this country. How can anyone not conclude that the Democratic agenda and approach has been a failure?”

A central shortcoming of the party is that, on economic issues, it has nothing to say to people trapped on the wrong side of our country’s growing inequality divide. Hillary Clinton won the “working class” (household income less than $50,000) vote, but by a much smaller margin than Barack Obama in 2012 or 2008—despite Donald Trump’s ardent efforts to alienate African-Americans and Latinos. Some people voted for Trump because of racism or misogyny. But Clinton was also flattened by Trump among voters who feel their financial situation was worse than a year before or who think that life will be worse for the next generation. She lost the Electoral College in the “rust belt” states of the Upper Midwest, whose economies have never fully recovered from the decline of American manufacturing.

The Democratic Party was once the party of working people. So why is it increasingly becoming the party of well-educated, socially tolerant, cosmopolitan city-dwellers? Because, in an age of stagnant median incomes and a disintegrating social safety net, Democrats have no economic message for the many people who are struggling to make ends meet, to pay for college, to stay in a home, or to save for retirement.

This impotence is the product of sweeping changes in the intellectual and political landscape of the United States. As I discuss in my recent book, Economism, contemporary thinking about economic issues is dominated by “economism”: the belief that simplistic models accurately describe the real world and should be the basis of public policy. (For example: The minimum wage is an artificial price floor in the labor market, therefore supply will exceed demand, therefore unemployment must increase.) This naive or disingenuous worldview, according to which unregulated markets produce the best of all possible worlds, is frequently invoked to defend policies that favor the wealthy and justify the vast inequality that results.

Economism was promoted by conservatives who sought to roll back the New Deal and restore a mythical libertarian paradise governed by free markets, with a minimal state and low taxes. Their vision became the platform of the Republican Party in the 1970s and the policy handbook for President Ronald Reagan and every conservative leader since. In response, Democrats have tacked to the right on economic issues. Since Bill Clinton, the Democratic Party’s economic vision has been that prudent management of macroeconomic factors would foster higher private sector growth, which would in turn create jobs and prosperity for working families. The central planks of this platform have included: cutting budget deficits to reduce interest rates; reappointing Republican Federal Reserve chairs who would control inflation; and even seeking a “grand bargain” that would reduce Social Security spending in exchange for modestly higher taxes. As the Republican Party has been taken over by charlatans who insist on cutting taxes and crippling government at every opportunity, Democrats have rebranded themselves as the moderate party of responsible economic stewardship.

But there are two problems with this approach. The first is that it is economism lite. While Republicans say, “Free markets solve all problems,” Democrats respond, “Free markets solve most problems, but markets sometimes fail, so sometimes they need to be judiciously regulated to produce efficient outcomes.” This may be more accurate, but it undermines Democrats’ appeal to people who have not benefited from overall economic growth—because they have the wrong skills, live in the wrong place, got sick at the wrong time, or otherwise got unlucky.

The second problem is that economism lite doesn’t work, at least not anymore. A rising tide might lift all boats, as President John F. Kennedy claimed; but, then again, it might not. Since Ronald Reagan was elected president in 1980, labor productivity—the amount that each person can produce in an hour of work—has grown by 94% (a modest but respectable 1.9% per year); real per capita gross domestic product—total economic output per person—has grown by 82% (1.7% per year). Over that same period, however, median household income has increased by only 16% (less than 0.5% per year). In other words, the country as a whole has become almost twice as rich, but the typical family makes only a little more money than in 1980. Where has all the money gone?

To the very rich, as can be seen in one chart:

US income shares.jpg

(If you compare the top 1% with the bottom 99%, or the top 10% with the bottom 90%, or the top 0.01% with the bottom 90%, you get the essentially the same picture.)

To be clear, the failure of overall economic growth to benefit the middle and working classes is not solely or even primarily the Democrats’ fault. The villain in that story is the Republican conservatives who weakened unions, undermined the social safety net, and slashed taxes on the rich. Globalization and competition from low-wage countries were another factor. But since the onslaught of the conservative revolution, Democrats have played defense by claiming the space once occupied by moderate Republicans. Recall the pivot to deficit reduction in 1993, welfare reform in 1996, the capital gains tax cut of 1997, the commitment to free trade agreements from NAFTA to TPP, and the bipartisan commitment to financial deregulation that helped produce the devastating financial crisis of 2008.

Barack Obama temporarily had a filibuster-proof majority in the Senate, and yet his principal accomplishments were an economic stimulus bill that was more than one-third tax cuts; a health care plan modeled on Mitt Romney’s Massachusetts reforms; a technocratic financial reform bill that neither reduced the dominance of the megabanks that caused the 2008 crisis nor, judging from subsequent experience, deterred them from serial lawbreaking; and a financial system rescue that kept the big banks (and their executives and shareholders) afloat while they fraudulently foreclosed on millions of homeowners. There were positives in Obama’s economic record: The recession would have been worse without the stimulus, millions of people got health coverage, and the Dodd-Frank Act included some steps in the right direction. Taken as a whole, however, Obama governed as what we called a moderate Republican only a few decades ago, and the only vision one can distill from his actions is that of prudently harnessing market forces to generate growth. (Perhaps the president and his advisers would have preferred more progressive policies in some areas such as health care—but they were constrained not just by the Party of No, but also by a Democratic caucus effectively controlled by its conservative wing.) For an unemployed recent graduate buried by student debt, or a factory worker laid off in middle age while underwater on her mortgage, or a retiree who saw her savings evaporate in 2008 and 2009, the argument that Hillary Clinton and the Democrats are not as bad as the Republicans was just not compelling enough.

One of the central themes of my book is that economism is an ideological worldview: a lens through which we see the world, which affects the way we interpret reality and serves the interests of certain groups. Logically, it can only be overthrown by another worldview. And so the book ends this way:

“Millions if not billions of people today hunger to live in a world that is more fair, more forgiving, and more humane than the one that we were born into. Creating a new vision of society worthy of that collective yearning—one that goes beyond the false promises of economism—is the first step toward building a better future for our children. That is the story that remains to be written.”

What the Democratic Party needs is an economic message that: addresses the real problems that many Americans face on a daily basis (instead of callously insisting that “America is already great”); and resonates with their very real frustrations and anxieties. Both politically and as policy, the idea that the rising tide of economic efficiency and growth would lift all boats has failed. It is time for something new.

Unfair World

Investment bankers and hedge fund managers work hard for long hours. They make millions, tens of millions, or hundreds of millions of dollars per year. Hotel housekeepers, retail store cashiers, fast food restaurant employees, and migrant agricultural workers also work hard for long hours. They often make less than twenty thousand dollars per year. Many work multiple jobs to make sure their families have enough to eat.

Homebuyers who were overly optimistic or who didn’t read their mortgage terms carefully are kicked out of their homes, their savings obliterated and their credit shredded. The banks and law firms that foreclosed on them, using false affidavits robosigned by fictional executives, escape with nominal monetary penalties. Their executives and partners go on with their lives, completely undisturbed.

For-profit universities entice students to take out thousands of dollars of loans, then fail to give them the education they need to get a job. The students face unshakeable debt burdens for the rest of their lives. University executives and shareholders enjoy large bonuses and rising stock prices.

Children born to well-off families have the full attention of two highly educated parents from birth. They go to private pre-schools from age two and then to economically segregated elementary schools where they are surrounded by equally fortunate peers. Their afternoons are filled with organized sports, music lessons, and other enrichment activities. Children born to poor families are often raised by only one parent who did not finish school and works long hours to make ends meet. They make do with haphazard child care arrangements until entering kindergarten at an underfunded public school, already years behind grade level.

This is the world we live in. There is a word for this world: unfair.

It doesn’t take a philosopher to convince you that things aren’t fair in contemporary America. Across society, people’s material rewards have little to do with how hard they work, let alone any measure of moral worthiness. People who harm their communities in different ways suffer vastly different penalties, depending on whether they wear suits to work and what kind of lawyers they can afford. Children face enormously unequal opportunities based solely on what families they were born into.

None of this is a surprise. The only shocking thing is how desensitized we are—how little we notice this ocean of unfairness that we swim in every day.

One of the great accomplishments of economism has been justifying this callous indifference. We know that inequality on our current scale is unfair, but we are told that it is the unavoidable price of material progress. Differences in rewards are the necessary incentive for work and innovation; according to the law of supply and demand, the amount that people earn is dictated by their marginal productivity. That’s just the way things are, in this best of all possible worlds.

This is a profoundly unnatural way of seeing the world. But like any great ideology, economism makes it seem natural. Extreme inequality is a fact. Through the lens of economism, however, its moral dimension vanishes. Instead, inequality appears as the unavoidable byproduct of something we are all supposed to want: an economic system that maximizes efficiency and therefore aggregate output.

But this is not the only way to see the world. Another way to look at the economy is to ask whether it is fair: whether children enjoy roughly similar opportunities to gain an education and job skills; whether people who provide goods and services for others take home a reasonable share of the value that they create; and whether the fruits of good fortune are shared broadly rather than being monopolized by a lucky few. The economic system of the contemporary United States clearly fails these simple tests.

It’s no surprise that conservative Republicans prefer efficiency to fairness. As I discuss in Economism, policies based on a simplistic notion of economic efficiency—such as cutting taxes, eliminating the minimum wage, forcing people to pay more for their health care, or deregulating the financial system—generally work out to favor the rich.

We Democrats, however, should embrace the lens of fairness. First, fairness is a category that human beings grasp intuitively and care about deeply. If you doubt this, just spend time with any young child. Even the Tea Party was motivated in large measure by the perception of unfairness—in particular, the idea that “other people” were receiving undeserved government handouts.

Second, going back to marketing first principles, fairness is a differentiated message. During the decades of economism lite, Democrats offered the public a more nuanced version of what Republicans were selling. The Republican line was, simply, “Markets good, government bad.” (House Majority Leader Dick Armey said, “The market is rational and the government is dumb” (The Freedom Revolution, p. 316).) The Democratic comeback was, “Markets are generally good, but government should correct for identified market failures.” This is better economics and will produce sounder policies. But, as marketing, it is a complete non-starter. When Democrats are forced to argue that they are actually better for economic growth because they will reduce deficits, lower interest rates, invest in infrastructure, and promote international trade, they may be right, but they are failing to give voters a clearly differentiated reason to pull the lever for them—especially voters who have trouble seeing how those policies have benefited them.

This is not to say that our party has wholly embraced efficiency and completely abandoned fairness. Some Democratic proposals are framed as increasing fairness—particularly that old stand-by, “middle class” tax cuts. But the message has been mixed at best: that competitive markets are the source of prosperity, with specific policies on the margins (social insurance programs, tax cuts, child tax credits, education tax credits, etc.) motivated by security or fairness. More often it has simply been muddled.

Third, fairness is the right goal to strive for today. Economists often cite a supposed tradeoff between efficiency and equality. Arthur Okun expressed the standard view this way:

“The contrasts among American families in living standards and in material wealth reflect a system of rewards and penalties that is intended to encourage effort and channel it into socially productive activity. To the extent that the system succeeds, it generates an efficient economy. But that pursuit of efficiency necessarily creates inequalities” (Equality and Efficiency, p. 1).

Recent empirical research, however, shows that this famous tradeoff may not exist; instead, higher levels of inequality are actually associated with lower levels of economic growth. In any case, fairness is different from equality. Most people are willing to tolerate unequal outcomes that do not violate their sense of fairness.

Most important, the fetishization of efficiency assumes that our primary goal as a society should be expanding the pie—increasing the total volume of goods and services available for consumption. This assumption is crucial to economism: the ultimate justification for unregulated markets is that they theoretically result in the production of more stuff.

At this moment in history, however, what a rich country like the United States needs is not more stuff. We need to share the stuff we have in a more fair, more morally acceptable way. In 1980, the bottom 90% of households owned 32.9% of all household wealth and took home 69.9% of national income; by 2012, those figures had fallen to 22.8% and 59.0%, respectively (see Saez and Zucman, Appendix Tables B1, B25). In other words, if we could restore the 1980 wealth and income distribution, the bottom 90% of households would enjoy a 44% increase in net worth and an 18% increase in income—an improvement in living standards that would take decades to achieve in our current economic system.

Even for the affluent, it’s not clear that having increasingly expensive toys is improving their well-being in any meaningful way. When economist Robert Frank went shopping for a new grill in the 1990s, he found that you could buy a perfectly good grill for $250—or you could pay $5,000 for a grill with a rotisserie, a smoker, and two 15,000-BTU range-top burners. A year later, the high-end model had grown a wood-fired pizza oven and cost $13,000. By the mid-2000s, you could buy a grill with a lobster steamer and a built-in 35,000-BTU wok, or you could pay $35,000 for an entire “cooking suite.” Rising inequality has fueled a consumption arms race in which the fortunate few pay ever-increasing amounts solely to have the “best” product in any category—ultimately benefiting no one except luxury goods companies.

We have turned the dial so far toward efficiency, for so long, that we have forgotten the point of a larger pie. As a society, we should value economic growth because it improves living conditions for every American. If the vast proportion of the gains flow to a small fraction of the population, the system has failed.

This may seem a controversial argument. After all, it is economic growth that gave us the world we live in today: with indoor plumbing, electric lighting, automobiles, airplanes, air conditioning, antibiotics, and everything else that makes the world far more livable than it was just two centuries ago. Those changes benefited virtually everyone.

But, as Robert Gordon shows in The Rise and Fall of American Growth, those epochal improvements in the the way we live all occurred between 1870 and 1970. Since then we have gotten brighter light bulbs, faster cars, cheaper plane fights, more efficient air conditioners, and more powerful antibiotics (in part because bacteria have developed resistance to the old ones)—but nothing as transformative as the public water supply or motorized transportation. As Peter Thiel likes to say, “We were promised flying cars, and instead what we got was 140 characters.” But even flying cars would represent much less of an advance over ordinary cars than the latter did over horse-drawn carriages.

Today, I think it is clear that there is much more potential to improve ordinary families’ standard of living (and general happiness) by more fairly sharing what we can already produce than by engineering new ways to make a bigger and fancier pie. We have the technological knowledge, resources, and productive capacity to provide everyone in our country with safe water, good food, comfortable clothing, decent housing, a quality education, and world-class health care (more on that last one in a moment)—yet millions of people lack one or more of these basic necessities. Lifting people out of poverty and protecting them from the anxiety caused by economic insecurity is a far more pressing goal than designing cars that fly or that drive themselves.

If there is any doubt about where the single-minded pursuit of economic efficiency has led us, consider the embarrassment that is the American health care “system.” We insist on treating health care as a set of goods and services for consumption, rather than thinking of health as a set of outcomes that we want to achieve. As a result, we have broken all world records in the production of health care (doctor’s visits, tests, procedures, prescriptions, and so on) while lagging behind most other advanced countries in actual health. Life expectancy is lower in the United States than in 22 out of the 28 European Union countries—and the other six were all members of the Soviet bloc.

No morally aware person thinks that whether you live or die, or how much you suffer, should depend on your bank balance. Nevertheless, most Democrats agree with Republicans that health care should be distributed by markets, whose motive force is consumers’ willingness to pay for different goods and services. I discuss this absurdity at length in Economism. But our health care system fails in yet another way: It doesn’t even allocate resources where they provide the most value—the very definition of economic efficiency. We know where we need to invest to improve aggregate health outcomes and save money in the long term: neo-natal care, preventive care, vaccines, nutrition, clean air and water, better management of chronic diseases, and end-of-life palliative care, to name a few. Instead, our medical-industrial complex—driven by the profit motive—overproduces specialists in expensive procedures, chases after blockbuster drugs to treat high-profile diseases (with little long-term success), and devotes princely sums to squeezing a few more days of life out of terminally ill patients.

There was a time, perhaps, when competitive markets helped spur the development of the drugs, procedures, and medical devices that are the hallmarks of modern medicine. As Robert Gordon shows, there was enormous improvement in both medical technology and health care outcomes in the middle of the past century—and not so much since then, despite skyrocketing expenditures. But today, the greatest potential for improving our overall health lies not in developing fancy new tools, but in making better use of what we already have. One might argue that health care is not representative of the economy as a whole. But health care today is almost one-fifth of the U.S. economy; saying that it is not representative is like saying that your legs are not representative of your body. And the problems of our health care system are evident, to greater or lesser degrees, throughout our economy.

Figuring out a way to more fairly share the fruits of our collective labor, without undermining the incentives that enable us to produce as much as we do, is not a trivial task. My point here is only that, as a society, we should be pursuing the goal of greater fairness in our economic system; if it comes at the cost of reduced efficiency, so be it. I am not calling for an end to capitalism, the economic system that made our country what it is and from which my family has benefited greatly. I am calling for a reorientation of the ends that we hope to achieve through our economic system. Much as I would like a self-driving car, I would rather drive myself to work if it means more people can live without worrying about how to feed their families until the next paycheck.

In summary, we Democrats should base our economic vision on the principle of fairness, rather than insisting that we are better architects of economic efficiency than the Republicans. Orienting ourselves around fairness is better politics, because it offers a differentiated message that is more likely to appeal to people left behind by the past four decades of economic “progress.” It is better policy, because ordinary families will be better served by a more fair distribution of the fruits and risks created by our economy than by squeezing out a few extra tenths of a percentage point of output growth.

Building a More Fair World

Fairness, like any moral category, has different meanings to different people. Some people think that fairness requires that each person be compensated in accordance with her marginal product—roughly speaking, you get to consume the same amount that you produce. I am not writing for those people.

I am writing for people who believe that a person’s opportunities should not depend on accidents of birth such as her skin color, national origin, how many parents she has, or how much money they make; that individuals should not have to bear the full cost of unforeseeable events such as illness, injury, layoff, or rapid shifts in the labor market; that the benefits of good fortune should not be concentrated on a lucky few; and that people who want to work hard and build a better future for their family are entitled to a decent standard of living and freedom from constant worries about their finances and their health. It is up to us to establish a definition of fairness in the political imagination and paint a picture of what it means in practice.

Fairness can serve as an organizing theme for many of the causes most dear to progressive Democrats. It is only fair that people’s life choices should not be constrained by factors beyond their control, such as race, national origin, gender, or sexual identity. This does not mean that society or the law must be “color-blind” in the narrow sense prescribed by the Supreme Court’s conservative bloc in recent decisions. For example, we know that both African-Americans and women face particular disadvantages for historical reasons and because of ongoing racism and sexism, whether explicit or implicit. Therefore, it is fair in principle to “level the playing field.” This may be tricky to achieve in practice, but it remains a legitimate goal to strive for.

It is incontrovertible that the justice system should be fair, yet ours falls far short of that ideal. Most obviously, because of the importance of lawyers in our adversary system, the amount of justice a person can secure often depends on how much money she has. In the wake of the financial crisis, banks illegally foreclosed on millions of people (see Chain of Title by David Dayen), yet the vast majority of homeowners did not have lawyers to protect them. This unfairness is particularly egregious in the criminal justice system, as documented at length by Matt Taibbi in Divided. State courts, often funded by counties and municipalities, systematically fail to provide poor defendants with the adequate representation required by the Sixth Amendment. Middle-class people charged with minor offenses make bail and walk free; poor people stay in jail, lose their jobs, eventually plead to time served in order to get out, and face a lifetime of hurdles because of their conviction record. (See Walker v. Calhoun, for example.) Contrast this with white collar executives who cause billions of dollars of losses and, if they are unlucky enough to be charged, benefit from the best defense money can buy. A fair system would ensure that more prosecutorial resources are targeted at crimes that cause the most damage to society, that people do not sit in jail because they are poor, and that all defendants are represented by motivated, competent attorneys.

Beyond civil rights and criminal justice, fairness is the common ground for what must be the central platform of the Democratic Party: addressing poor and middle-class people’s central economic concerns in the five crucial areas of education, housing, health, employment, and retirement.

Education: A minimum requirement of a fair society is that each child’s opportunity to gain an education and succeed in the world should not depend on her family background or financial circumstances. Public school funding should be based not on local property taxes, which are vastly skewed in favor of rich towns, but on educational needs. Recent research indicates that pre-kindergarten programs can have the greatest impact on children’s long-term educational and work outcomes, yet good pre-schools today are largely reserved for the rich. Instead, publicly funded school should begin at age three, with subsidies or tax credits to make paid child care accessible beginning at birth. More enrichment activities that well-off families currently pay for—athletics, arts, music, theater, and so on—should be provided during and after school. Only then will poor and middle-class children have even the slightest chance of competing with the scions of the rich. College students should no longer have to gamble that their degrees will be worth huge amounts of debt. Public higher education should be available at no cost for all students who graduate from high school, full stop. This is the least our society should provide in a world where a decent education is a necessary prerequisite to stable employment.

Housing: Soaring inequality has created a housing crisis for low- and middle-income families. Increasing wealth at the top end of the distribution has inflated the value of real estate, particularly in cities such as San Francisco, Boston, and New York, reducing the amount of affordable housing available for rent. Yet at the same time, our nation’s housing “policy” remains heavily skewed toward homeowners, who benefit from more than $130 billion in subsidies each year, including the mortgage interest tax deduction, the deduction for local property taxes, and the tax break for the sale of a primary residence. (Most of that $130 billion flows to the well off, because low-income homeowners typically do not itemize their deductions and therefore cannot benefit from the mortgage interest deduction.) At a minimum, the mortgage interest deduction should be phased out and replaced by a tax credit that can be claimed by renters as well as owners. More generally, our goal should be ensuring that all working families can afford a decent place to live, which requires programs that support the construction of affordable housing.

Health Care: Anyone with a conscience would agree that it is unfair for some people to die or endure extreme suffering simply because they are poor. Politicians of every party and ideology agree that decent health care should be universally accessible. But while we all believe that it is unfair to deprive some people of needed health care, as a society we nevertheless insist on distributing it via markets—more or less highly regulated, but markets all the same. The result is a doubly unfair system. Poor people start off with less generous health insurance, have less access to services, and pay more out of pocket when they go to the doctor or buy medications. And then people who develop serious or chronic illnesses, generally through no fault of their own, pay more than healthy people—often thousands or tens of thousands of dollars more each year. The underlying problem is that markets naturally want to allocate health care resources to rich people; contorting those markets to produce morally acceptable results is difficult if not impossible, as demonstrated by the heroic struggles of Obamacare. The most fair solution is to create a basic, universal health insurance plan open to all Americans and largely funded by general tax revenues. The most direct path to getting there is expanding Medicare to cover all people. This is the simplest way to stop punishing the poor for being poor and the sick for being sick.

Employment: Since 1980, labor productivity has almost doubled, but the primary beneficiaries have been companies and their shareholders, not the employees who do the actual work; hourly earnings for nonsupervisory employees, adjusted for inflation, have increased only 9% over the same period. To restore balance to our economy, Democrats should return to supporting workers, not just businesses. One reason for labor’s shrinking slice of the economic pie has been the decline of unions, once the bedrock of the Democratic Party, which have found it increasingly difficult to organize in the face of hostile employers, often backed by the National Labor Relations Board. Making it easier for workers to organize is simply a way of leveling the playing field between employers and employees. More generally, government policies should be explicitly aimed at fostering full employment, which will make it easier for people to find jobs and strengthen workers’ bargaining power, enabling them to claim a fair share of the value that they create.

Retirement: People who work hard for forty or more years should be entitled to enjoy a decade or two of comfortable retirement. Over the past few decades, however, most companies have shifted the risk of retirement onto their employees. As a result, too many Americans live in fear of not being able to retire or outliving their savings. Among people in the bottom half of the income distribution who have defined contribution retirement plans (either IRAs or employer-sponsored plans), the average balance was only $39,000 in 2013, down from $51,000 in 2007. Social Security is the only thing standing between many retirees and real poverty—and the average worker’s retirement benefit is less than $1,400 per month. Now is the time to protect and expand Social Security, not to reduce benefits as envisioned by Republicans and even agreed to by President Obama as part of the infamous 2011 “grand bargain.”

These are the core goals we must pursue to create a better economy—fairness in education, housing, health care, employment, and retirement. Some of the policies proposed above will cost money. We can find that money by reforming the tax code to more fairly distribute the cost of living together in society. In order to reduce the inequality created at birth, the estate tax should be replaced by a progressive inheritance tax, in which each person pays a percentage of the amount that she inherits. This tax should have an exemption amount around $1–2 million, to allow middle-class families to pass along modest fortunes free of tax, but should then be applied at a high rate of 50 percent or more, or even 90 percent for amounts over $1 billion. To prevent the continuing concentration of wealth in the hands of the super-rich (predicted by Thomas Piketty in Capital in the Twenty-First Century), the special tax breaks for investment income (interest, dividends, and capital gains) should be eliminated. Not only should investments be taxed at the same rate as labor, but gains on assets should be recognized as they accrue, not deferred until those assets are eventually sold, perhaps decades later. (For tax policy fans, this also means that step-up of basis at death should be eliminated.) Deductions and exclusions that massively favor the upper-middle class and the wealthy, such as those for mortgage interest, employer-sponsored health plans, defined contribution retirement plans, and charitable contributions, should be eliminated or converted into tax credits that benefit all taxpayers.

Finally, fairness toward future generations demands that we become more responsible about managing our environment and limiting the impact of climate change. All of humanity, from the past into the foreseeable future, must share one planet. Wreaking havoc on the environment so that we can consume more stuff than our ancestors, with potentially devastating consequences for our descendants, is colossally selfish—like one child eating a whole cake and not letting her siblings have any, only multiplied by a factor of a trillion. During our brief lifespans, we must care for our planet so that our grandchildren and their grandchildren can enjoy the natural resources and habitable climate that we experience today. One common counter-argument is that curbing greenhouse gas emissions will reduce economic growth and hence the standard of living of people alive decades from now. There is perhaps no more staggering example of the fundamental error of valuing efficiency over fairness.

None of the policy objectives outlined above will be easy to accomplish. Donald Trump is still president of the United States; conservative Republicans still control both houses of Congress, the Supreme Court, and a majority of state governorships and legislatures. Medicare for all, universal pre-school, and a carbon tax are still as far from becoming reality as they have ever been. The campaign to build a more fair society will be a long one. But the first step is to change the terms of debate.

Beginning in the 1950s, conservatives undermined and ultimately overthrew the New Deal consensus by putting forward a new vision of society based on individual liberty, small government, and economic growth powered by free markets. That vision dominates the political landscape today, with Democrats only adding a few qualifiers in the margins. If we want not only to regain political power but also to use it to create an economy that serves ordinary families, we first must offer a different image of what America can be. We must convince the electorate that it is fairness that matters, not a marginal percentage point of economic growth that will largely be skimmed off by those who need it the least (and then spent on nuclear-powered grilling stations). We must tell a story about a better world in which all people who work hard can enjoy a fair share of the bounty our economy can produce, one that emphasizes the way we relate to each other in society rather than the total pile of stuff that we collectively produce.

Fairness is not just a rallying cry. It is the unifying theme for fundamental policies that will improve people’s lives in the crucial areas of education, housing, health care, employment, and retirement, reducing inequality and improving the material standard of living of ordinary Americans. It also offers something new to the many people who feel left behind on the wrong side of the inequality gap, who have been told that economic growth will solve all their problems but whose own lives have only seen less job security, more debt, and higher health care costs.

This is not some revolutionary new gospel, but a return to the roots of the modern Democratic Party. In his 1941 “Four Freedoms” speech, President Franklin Roosevelt described the principles that Americans would soon be fighting and dying for in these words:

“There is nothing mysterious about the foundations of a healthy and strong democracy. The basic things expected by our people of their political and economic systems are simple. They are: Equality of opportunity for youth and for others. Jobs for those who can work. Security for those who need it. The ending of special privilege for the few. The preservation of civil liberties for all. The enjoyment of the fruits of scientific progress in a wider and constantly rising standard of living.”

These are the core principles of the Democratic Party. They describe the world that most people want to live in. Markets and economic efficiency are tools that may be used to achieve (some of) these ends, not ends in themselves. Ultimately, our goal must be the better, more fair society that Roosevelt envisioned three-quarters of a century ago.

19 thoughts on “The Importance of Fairness: A New Economic Vision for the Democratic Party

  1. It’s all kabuki theater, welcome to the new civil war, different from the old civil war. Instead of marching off in groups to fight and never return, each marches to his own tune, with their own time, tools, and transportation, and it promises to be a long and painful one to boot.

    People say you get the leaders you deserve, so as the quality of our representatives continues to sink, so does the collapse of it’s citizens, one at a time, passing the mirror up to judge your companions by the size of their bank account.

  2. The risk weighted capital requirements for banks de facto decree inequality.

    The Financial Choice Act proposes a 10% capital requirement on all assets (unfortunately not for all banks) that would not distort against the access to bank credit of the “risky” poor. So who is on the right side with that?

    Some republicans have also proposed a revenue neutral carbon tax…

    And so again, who is on the right side with that?

    And whatever the democrat do, they must learn to resist the siren songs of the Hugo Chavezes or the Nicolas Maduros of the world.

  3. Per, you are going to wear him out with all the questions. Unfortunately the piper is well on his way to the river and with extra baggage in tow I might add.

  4. No question you are right about all that’s wrong with the country. I wish you had spent more time (and words) on what you want to do about it. You said we need “fairness in education, housing, health care, employment, and retirement.” Ok. Now that you’ve said that the real question is how we are going to get there. I wish you had thought more about a possible road map.

  5. Thanks! I’ve relearned a lot from reading your books and Baseline Scenario. You’re right on regarding that Dems need to use fairness as the umbrella under which progressive policies should be espoused.
    It’s amazing how many “well educated” people think that the simple market model is an accurate view of reality.

  6. Very thoughtful piece, James — thanks for caring enough to take the time.

    I admit that my own compassion fatigue set in a while ago after decades in the trenches fighting for many of the “fairness” policies you mention. It just never resonated, never caught on with the voters who still need it most. So things continue to deteriorate.

    Perhaps this national political circus that we’re living these days will serve as a civics lesson for our hurting fellow citizens. But, if it didn’t happen after the malaise of Bush II and then the financial crisis (distant memories now,) it’s clear the system is already too skewed by the billionaire – corporate chieftain class.

    No harm in keeping the faith, for sure. But some of us are really tired of trying to help folks who vote against their own self-interests. Sadly, I’m building a big beautiful wall now — around my property.

  7. I’ve noticed a trend of the already-wealthy arguing for “future equality.” This essential cements their position on top of the wealth distribution as the brunt of the equality measures would fall upon current wage earners (i.e., those trying to get wealthy).

    Would you still support equality measures if they were paid for with wealth taxes as opposed to income taxes? Seems more fair than the alternative.

  8. That was already argued in congress Effem, it went in one ear and out the other which then lead to the permanent extension of the Bush tax cuts. Another example of the insane majority insisting on getting their way.

  9. Completely agree with the analysis and the thrust of your recommendations, with the exception of your omission of MMT in the future taxation / funding discussion. The only real question I have is, can the Democratic Party be radically transformed in the way that would be necessary to accomplish this, or must it be destroyed and replaced by a new party? If a “long fight” is a given, which path is the most-direct one? I wish I knew…

  10. Supporters of the Democratic Party no longer even know what it is. The younger generation votes for anyone with a “D” after their name, regards incivility as a virtue when it is a Democrat doing it, and now wants a person whose federal experience consists of five months in the Senate to run for President, because she is nasty, has an effective smirk and is female.

  11. Hey Per, what are your thoughts on capital controls? Say if they were loosened, would that bring the whole of the current system down, you know people wanting to “cash in” their capital, rather than having it “controled” by a corrupt system of gvt.

    If all those people wanted all their money back, and then the companies involved say they dont have that kind of discretionary moneies to pay all those claims, the value of those companys involved would drop quickly, as would their ability to finance their future endevors. That alone would be enough motivation to keep capital controls in place indefinitely or risk a compounded 1929 style crash where only the few at the top get out unharmed and where ever the removed capital goes, becomes the new target of corrupt gvt interest.

    Would be interesting indeed to see all those hedge fund derivatives scrambling for the few pennies left to scavenge and the CFO’s having to explain to shareholders where all their money went.





    “They know not what they do….”…??!!

    And the bottom line is:

    “They don’t care.”

    Well, I do not care that they don’t care. So now where are we?

    Look, it was the biggest heist in human history. Period.

    ALL of them in D.C. are the liars thieves and murderers who pulled it off.

    I STILL just want them outta my face. Forever.

  13. I am indeed nervous about what is going to happen when, in one or two decades from now, so many are going to try to collect the purchasing power they have accumulated.
    But, with respect to the short term, the faster we get rid of the capital controls that de facto the risk weighted capital requirements represent, the better are our chance of having a decent real economy in which we can exchange our assets for some purchasing power.
    Do I explain myself?

  14. Like a rock, Per. And Annie, you are funny as all hell, check in once and a while to join the linear fun but watch out for the advancing cliff, check your speed, the power brakes and reaction time and you might just get to see what it’s all about, you wont see it on the boob tube, I know that.

    As for fairness and everyone wanting the solution to so many of todays human ills, the deeper we look into the human being, the more problems we are finding.

    Beam us up Scotty, were almost done here.

  15. That internet back door was an assault on EVERY SINGLE HUMAN RIGHT.

    Pathetic how deep the River of DaNile has gotten…

    “66:8.2 (752.3) It should be noted that both Lucifer and Caligastia had been patiently instructed and lovingly warned respecting their critical tendencies and the subtle development of their pride of self and its associated exaggeration of the feeling of self-importance. But all of these attempts to help had been misconstrued as unwarranted criticism and as unjustified interference with personal liberties. Both Caligastia and Lucifer judged their friendly advisers as being actuated by the very reprehensible motives which were beginning to dominate their own distorted thinking and misguided planning. They judged their unselfish advisers by their own evolving selfishness.”

    Get outta my face.

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