A New David Brooks

I've been sad that David Brooks is now behind the NYT subscription wall. But now I have someone knew to concentrate by ire on- Sebastien Mallaby at the Washington Post. In a recent op-ed, Mallaby finally admitted that there is problem with the growing econonomic inequality in the U.S. Good, he's seen the light. But having recognized the problem, Mallaby then proceeds to eliminate the practical means for alleviating inequality: labor unions, minimum wage, protectionism. His arguments are pretty boring, actually: that labor unions would drive jobs overseas, the minimum wage would not help all that many people, and protectionism would cause more economic damage than it solved.

So Mallaby's solution? Why tax reform! Now one might suspect that, given his stated desire to reduce inequality, he is suggesting some kind of rampant re-distribution. Oh no - what he proposes is the elimination of tax deducations for home ownership, health insurance, and savings. Since the bulk of the benefits of these policies go to the affluent, getting rid of them would allow the government to cut taxes on the less well off.

Oh boy. Where do I start. Well first of all he is far too quick to dismiss the usual liberal array of solutions. An increase in the minimum wage would provide a critical margin of wealth for the working poor - y'know, the ones who work 40 hours a week and still are under the poverty line. His objection to labor unions seems to have more to do with international trade than unionization as such. What he fails to consider is that the major gap in incomes between the 1st and 3rd world, and the consequent "race to the bottom," means that even today's low wages are "too high." Without some sort of trade policy that protects middle class living standards in every country, every attempt to strengthen the middle class will be defeated before it starts. Which brings me to his attack on "protectionism," which in his ridiculous worldview is anything but totally open borders. Why is it so hard to accept the idea that the U.S. can have free trade with other industrialized democracies and managed trade with developing nations?

Okay, let's look at Mallaby's proposal. First, it is politically impossible - nobody is going to get rid of tax incentives for savings, home ownership, and health insurance. You'd have to be crazy to even suggest it. Second, even if these tax subsidies were eliminated, it is extremely unlikely that the money would go to middle class tax cuts - particularly when we have a gigantic budget deficit. Third, while the bulk of the benefits to the wealthy, many middle class people rely on them. Fourth, if he's so concerned with the regressive quality of these deductions, why not just cap them to family income? That way the middle class still gets the benefit, and we still have a pot of money to reduce the deficit or spend on the poor.

The biggest objection I have is that the re-distribution of wealth through the tax code is an unstable strategy. Without structural changes in the way corporate profits are distributed, the over-paid wealthy are going to perceive their salaries as "their" money. Once it's in their bank accounts, they will fight like demons to keep it. The only way to improve middle class living standards in any meaningful way is to alter the structure of the American economy so that benefits are distributed broadly rather than monopolized by the top. Anything else is a waste of time.