On Entrenched Privilege and "Ill-Gotten Gains"

At the Atlantic, Conor Friedersdorf weighs in on the blogger stimulus program known as the Obama “You didn’t build that” gaffe. Of course the first point to make is that it wasn’t a gaffe at all. Here’s the full quote in question from the president’s speech:

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business—you didn’t build that. Somebody else made that happen. The internet didn’t get invented on its own. Government research created the internet so that all the companies could make money off the internet.

The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together.

This is mostly a very banal and self-evident piece of liberal boilerplate; the main point seeming to be nothing more than “civilization yay!”, a sentiment that is shared by all but the most anarchic among us.

But it has opened up a fascinating blogosphere debate about the nature of wealth and privilege in this country: Do the wealthy have built-in advantages which they can leverage in order to further perpetuate their privilege, prosperity, and influence? If this is the case, which of these gains can be said to be truly “deserved” or “earned” by the individual, and which are somehow ill-gotten and therefore illegitimate? What should public policy do about it?

Conor—a very sharp conservative—describes what he sees as a few of these built-in advantages:

It is beyond dispute that there is a huge amount of rent-seeking in the American system, that lobbying yields truly stunning returns on investment, that the complexity of our tax code benefits very rich people who employ extremely intelligent tax attorneys to reduce their tax burden, and that certain policies (like the Wall Street bailout) redistributes toward moneyed interests.

So yes, some of the rich did get there illegitimately. […] These illegitimate gains mostly spring from the fact that wealth makes it easier for people to game the system.

These themes of privilege and meritocratic decay and “gaming the system” are also the subject of Chris Hayes’ new book, Twilight of the Elites: America After Meritocracy. I saw Hayes discuss his ideas in a book talk a few weeks ago. His thesis is that the spectacular failure of so many of our elite institutions over the last decade is a result of the complete breakdown of the mechanisms of socioeconomic mobility; and that over time the very meritocratic system we have erected to select and elevate our elites inevitably and inexorably becomes corrupted and broken. Hayes writes, “Those who are able to climb up the ladder will find ways to pull it up after them, or to selectively lower it down to allow their friends, allies and kin to scramble up.” This further exacerbates inequality and makes a mockery of the ideal of “equal opportunity.”

What to do about this seeming inequity? Well there are two possible responses. You can take back some of the ill-gotten gains (along with some legitimate gains) in the form of higher marginal tax rates and then redistribute them in some welfare-enhancing manner. Or, you can try and root out and stop the ways in which the wealthy are able to game the system in the first place. Conor is for the latter method: “Progressives like Barack Obama would better serve the country’s interests if they focused on preventing ill-gotten gains from being got,” he writes.

I think the problem with this path is, how broadly do you to define “ill-gotten gains” and can you really target them effectively with policy? As examples of ill-gotten, Conor references rent-seeking, corporate welfare, influence-peddling; all easy cases for us to condemn. And certainly there are policy mechanisms that could mitigate these. Conor suggests meatier financial and lobbying regulations, for instance.

On the gaming of the tax system, Conor blames the president and policymakers in general for maintaining the dizzying complexity and loopholes of the tax code, which the wealthy are able to exploit. True enough.

But, importantly, Conor also blames rich people themselves for using their wealth to hire expensive attorneys to find ways to reduce their tax burden. He cites the tax issue as an example of an illegitimate gain which “mostly spring[s] from the fact that wealth makes it easier for people to game the system.”

I think if he expects policy to remove the ways in which “wealth makes it easier for people to game the system”, he is asking for an impossibility. Remember none of this behavior is illegal. Rich people will always have access to wealth-and privilege-enhancing services and opportunities not available to the rest of us. Even if you design a tax system that is air-tight and impossible for a tax lawyer to game, a wealthy person could still, say, hire a top equity manager who will give him access to investment opportunities the rest of us do not enjoy. How can you possibly remedy this?

Here’s my problem with Conor’s bottom-up approach of rooting out and closing off the sources of undue privilege, and why I think it’s more realistic to just expropriate the eventual gains from that privilege and redistribute it:

Arguably the largest source of societal inequality and embedded inequity is the privilege derived from accidents of birth and parentage.

Forget being able to shield your money from taxation once you’re already a millionaire. Forget being able to buy cheap into that IPO after you’re already rich and have Jamie Dimon on speed-dial. That’s small change.

How about being born to affluent parents who ensure enriching development in early childhood? How about access to private tutors and test prep and application prep to help you climb the meritocratic ladder with ease? How about being born to a few generation’s worth of college graduates and professionals and property owners, imbuing you with a set of expectations, ambitions, examples, talents; defining for you an expansive, limitless sense of the possible?

Maybe some of that is considered unfair and maybe not. Except for the most egregious cases of nepotism or trust-fundism, I don’t think we consider these sorts of advantages as illegitimate. Yet how consequential they are!

But in my experience the most pervasive and amorphous source of privilege for the meritocratic elite is simply social capital: one’s informal network of friends, extended family, colleagues, classmates, mentors, friends-of-the-family, along with the formal networks of alumni associations and professional organizations—all accumulated during the gentle slope up the ladder. This is how real opportunity and privilege get passed along and perpetuated throughout one’s life and down the generations.

Even more important, these social capital networks represent a sort of permanent insurance policy on your bad luck; they ensure you can only fall so far in this world. Such a floor can embolden one to take professional or personal risks (which will retroactively be ascribed to courage); to invest in one’s skills and human capital (which may or may not involve the incurrence of debt); to change careers, to not be unduly anxious over a layoff, or a divorce.

Of course none of this is illegitimate or gaming the system. That’s the point. It’s all really just another way of saying “civilization yay!” as the president did. But can it really be said that one has “earned” or “deserves” all the gains derived from such entrenched lifelong advantages? It’s an agonizing question. If you are not born into, or matriculate into, these sorts of privileges, your sense of the possible looks very different, and you likely have a very different view of words like “ill-gotten” and “entitlement”.

It is commendable that serious conservatives like Conor are addressing even a small sliver of the issue. But I think it’s woefully not up to the task to say that we ought to start addressing things at the point when this lifetime of accrued advantage shows up in the form of creative tax returns or outsized political donations. At the same time I don’t know where else to start either.

Nobody really has a great answer for this. I think it’s a tremendous social challenge which most people don’t even recognize as a challenge. Truly reckoning with it would have profound consequences for how we manage and direct public resources.

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2 Responses to On Entrenched Privilege and "Ill-Gotten Gains"

  1. You are so right to raise this. The desire to provide opportunity to one’s children must be close to an absolute universal. The opportunities for doing so are not equal and many are not even perceived by parents or children (social networks of parents and peers). One would think less of parents who tried to deprive their children of these “gifts of good fortune.” And with that, the contradiction begins for a society that values equality with respect of opportunity. The other items are important “accelerents” along the way that will affect the then parental generation’s “gifts of good fortune” to their children but the fire itself started with their parents.

    One of my roommates from military school often says that the smartest thing he ever did was choosing the right grand-parents and he is right. He is also very smart, hard-working and talented, a powerful but not unpredictable combination from the circumstances of his birth.

  2. Seth levine says:

    Great post, puts the twin dilemmas of ‘privilege by circumstance’ and the power to manipulate the system into clear focus as advantages of the wealthy that tend to self perpetuate. The words ‘illegitimate’ and ‘ill-gotten’ are ill-advised; perhaps ‘unfair’ would more closely describe them. Our tax code defines ‘earned income’ vs. ‘unearned income’. Maybe it would be fairer to tax ‘unearned income’ at a rate that gives those unfair advantages a higher cost. Obama’s premise that these advantages are a result ‘all of us’ pulling together ( ie gov’t) means it is fair to charge the beneficiaries for them

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