The recent doubling of the stock market has added some $2 trillion to personal wealth. While millions of middle-class families and pensioners have benefited, the lion's share has further enriched the already rich--leading to astronomical compensation bonuses for CEOs, overnight entrepreneurial billionaires, and a new gilded age. Since wealth is far more highly concentrated than income--half the population holds no stock--the runup compounds our economic extremes.
This conundrum recalls Sir James Meade's classic of three decades ago, Efficiency, Equality, and the Ownership of Property. Sir James, a Nobel laureate, noted that a market economy has three ways to achieve a socially tolerable income distribution. First, it can contrive a redistributive welfare state. This works for a time, Meade wrote, but the state must strain ever harder to temper the markets' extremes of wealth and income. That act, in turn, requires ever higher tax rates and social outlays. Eventually, the scheme reaches its fiscal and political limits; stagnation and rebellion ensue. Sir James was prescient indeed.
JEFFERSONIAN NOTION. Second, wrote Meade, a capitalist democracy can rely on strong unions. These promote equality by bargaining for a share of capital's rising wealth. But the risk is that unions get too strong. Industry appeases them with wage increases that outstrip productivity growth and cause inflation. Here, Sir James mistakenly extrapolated from class-riven Britain in the 1960s. Inflationary wage settlements may have characterized unions in their heyday, but the opposite dilemma now applies. Most unions are too weak to be serious counterweights to rising inequality.
The third remedy was Meade's favorite. He called it "a property-owning democracy." If property wealth is broadly distributed, we get a more stable political democracy, and we need less economic redistribution after the fact. (This thought had also occurred to Aristotle and Thomas Jefferson; Meade's contribution was to apply it to the modern welfare state.)
In Jefferson's day, of course, most wealth was land. A property-owning democracy was simply one of yeoman farmers. Not that this wasn't controversial: Fierce political battles raged over whether federal land should be sold wholesale to speculative real-estate companies or parceled out to farmers who would actually work the land. Jefferson, advocate of the freeholder, won that battle. The ideal resonated half a century later when the Lincoln Administration championed the Homestead Acts and Reconstructionists promised freedmen 40 acres and a mule.
But how to achieve a property-owning democracy today, when less than 3% of Americans are farmers? Looking back at the New Deal/Great Society era through Meade's lens, it wasn't all redistribution. Many measures aimed at economic uplift relied on Jeffersonian wealth-broadening.
BLUEPRINT. For example, programs promoting first-time home ownership, the GI Bill, expanded public education, tax-favoritism for pensions, mutual life insurance--all were in the spirit of Jefferson and Meade. Building on that tradition, if we conceive of human capital endowments as the Information Age equivalent of 40 acres, then lifetime learning broadens democratic property wealth. Moreover, the ideal of a "stakeholder" corporation, in which employees are not just wage-workers but co-property owners with definite rights, is nicely Jeffersonian.
The New Deal and Great Society both broadened wealth and redistributed income. Today, the more redistributive aspects of that era are under siege. I would continue to defend Social Security and Medicare as remedies for market failure, and also unionism. But clearly, if liberals like me are to get off the defensive and resume progress toward a more egalitarian democracy, it won't be via further redistribution but through wealth-broadening in the spirit of Jefferson and Meade. This approach appeals to many conservatives, too. Who could be against more universal home-ownership, or broader distribution of shareholding, or a better-educated, flexible workforce?
One can debate the details. Some ideas parading under this banner (tax-favored private savings for a variety of purposes and excessive privatization) would throw everything on the individual--social Darwinism in new form. Conversely, public subsidies to give stakeholders their start may strike some conservatives as disguised tax-and-spend. But the nature of a property-owning democracy offers a more constructive debate than one over redistribution. Jefferson, happily, is one figure we can all claim as our own.