By Matt Zeitlin
Arthur Brooks, the president of AEI, has a big think piece in today’s Outlook section of the Post arguing that, contrary to what one might think, the naive materialists who think that income is all that matters to people are egalitarian liberals and it’s conservatives — especially tea partiers — who realize that happiness and fulfillment come from honestly earning the money you make. Or, in his words:
Earned success involves the ability to create value honestly — not by inheriting a fortune, not by picking up a welfare check. It doesn’t mean making money in and of itself. Earned success is the creation of value in our lives or in the lives of others. Earned success is the stuff of entrepreneurs who seek value through innovation, hard work and passion. Earned success is what parents feel when their children do wonderful things, what social innovators feel when they change lives, what artists feel when they create something of beauty.
Even though this isn’t the regular justification you see for conservative economic policy, that’s exactly what Brooks’ piece calls for. But we always talk about why conservative economic policy is bad, so let’s talk about this new justification! Basically, where Brooks’ argument totally goes off the rails is in accounting for the real existing structure of America’s income distribution. Here’s a graph we’ve all seen before from Emmanuel Saez:
It’s very hard to make a serious argument that the top 1%’s skyrocketing income has been due to the “creation of value in our lives or in the lives of others” and that they have been creating so much more value in the 00s than they were 30 years ago. This point becomes stronger when you realize that many of the top 1% or the top .1% are in finance, a field whose exploding profits seem to be closely linked to the subsequent destruction of so much value in the national and world economy. And, to lay it on a bit thicker, there’s interesting research from Robert Gordon — who, full disclosure, was my intro macroeconomics professor earlier this year — that a good portion of increasing income inequality within the top decile has been due to increases in CEO pay which have very little relationship to the creation of value in the sense Brooks is talking about:
The most contentious question regards the third category, top executives in public corporations. The core distinction is that CEO compensation is chosen by their peers in a system that gives CEOs and their hand-picked boards of directors, rather than the market, control over top incomes. The idea that managers, rather than stockholders, control directors goes back to Berle and Means (1932). This idea that the principal-agent control of stockholders should be reversed has been applied fruitfully by such authors as Bebchuk and Fried (2004). They argue that managerial power lies behind some of the outsized gains in CEO pay.
Sure, it’s probably true that money doesn’t buy happiness and that the best way to make it so people are not immiserated and have a meaningful amount of pride in their life is to try to increase employment as much as possible, especially for the poor. But if you really thought that was true, you would probably promote an agenda that called for more inflation to bring down unemployment and higher taxes on the rich in order to, at the very least, decrease the deficit. Oh yeah, and punitive estate taxes to better fund early childhood education. Needless to say, I don’t think that’s what Brooks supports.