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Why Doesn't Michael Tanner Understand Structural Inequality?

David Callahan

If you ask Cato's Michael Tanner, inequality is a non-issue for a bunch of reasons, including because it has nothing to do with unfairness. Tanner writes:

most wealthy Americans earned their wealth through talent and hard work. Roughly 80 percent of millionaires in America are the first generation of their family to be worth that much — they didn’t inherit their money.

In Tanner's world, we shouldn't be punishing the rich. We should be thanking them for taking risks and creating more wealth for everyone:
These are people who earned their money by providing the rest of us with goods and services that we desire. In effect, their desire to rise above the rest — to contribute to inequality, that is — has helped make our lives better.
But here's the thing: Just because you behave virtuously as an individual, doesn't meant that you're not also part of an economy and polity that distributes rewards unfairly. 
For example, let's say in Scenario A I create an online business collecting financial data in a novel way that is super valuable to investors. And because of high unemployment among college grads -- a structural economic factor that has nothing to do with my virtues -- I can hire analysts for chump change and pay them no benefits. Or, better yet, I can hire smart college grads in Mumbai thanks to the Internet and sites that facilitate outsourcing, like Elance and ODesk. And as a result of my ability to command cheap labor -- an ability that, again, has nothing to do with my particular talents --  I'm able to build a business that I later sell for many millions. 
Also in scenario A: I pay low income taxes on my earnings and then low capital gains taxes when I sell my business. 
But let's say that we turn back the clock, in Scenario B, and it's a tight labor market in the 1960s before the invention of the Internet. To build my company, I have to pay college grads top dollar. And there's no way I can outsource this work. As a result, I still do pretty well in business, but I don't get nearly as rich. And in this scenario I pay higher taxes on my winnings. 
In Scenario A, I'm very smart and hard working, but factors external to my virtues allow me to keep far more of the wealth I and my workers create and become a multimillionaire. Meanwhile, those American college grads who help create my wealthy may just scrimp by on the meager pay I pay them -- or not get jobs at all if I choose to hire people in Mumbai. 
In Scenario B, I'm equally virtuous, but economic factors allow my employees to grab a bigger of the pie we all create together, while tax policy compels me to put more money back into the collective pot -- say to pay for public universities that assure that college grads don't have much debt. 
This basic analysis could be repeated in one sector of the economy after another. Structural factors, like globalization, technology, and new outsourcing options (both domestic and overseas) heavily favor capital over labor. And so do political factors as wealth gets translated into power that tilts tax and regulatory power toward the rich. Individual virtues still count for a lot in this environment, but aren't actually the key determinant of how rich people get. Or how poor they end up, in many cases. Dismissing inequality because the rich are virtuous and the poor aren't, as Tanner seems to do, misses the complex world in which we live. This isn't a hunter gathering society where how well you eat is directly correlated with how well you as an atomized individual hunt or locate berries. 
Tanner writes, correctly, that "Entrepreneurial capitalism has lifted more people out of poverty, and improved the lives of more people, than any other force in history."
But the history of capitalism is also filled with moments when the system doesn't do a good job of distributing the wealth it creates -- often because of a combination of both economic and political factors. And moments where individual virtue becomes disconnected from reward levels. We are living in one of those moments right now. The solution is not to kill this golden goose, and progressives aren't suggesting that. Rather, it is to challenge and alter some of the conditions that allow the owners of capital to benefit so handsomely while so many people do so poorly. Because the truth is that both the winners and losers are often equally virtuous and hard working, and it's not okay -- at least in a modern non-feudal democratic society -- to consign the losers to deep insecurity. 
That is what today's inequality debate is all about. And far from being a "misguided focus," as Tanner writes, this conversation is the most important one we could have right now.