Review of the Book:
Unjust Deserts: How the Rich
are Taking our Common Inheritance by Gar Alperovitz
H. William Batt
[A review of Gar Alperovitz's and Lew Daly's book,
published in New York by The New Press, October, 2008. This review was
written in December, 2008]
The distinction between earned and unearned income goes back to the
beginnings of economics. It constitutes a central element in the
thought of Henry George -- what he and his disciples call the "unearned
increment." In recent years, however, the significance of the
distinction seems to have been lost, in as much as tax designers have
elected to levy similar rates on both such forms of income. But those
who look carefully know the return on such wealth secured by the well
positioned as the "free lunch," and many point out that such
income in recent years explains the widened income disparity in
America between the large majority and the top few percent.
Gar Alperovitz and Lew Daly together make the case for taxing
unearned income at rates far higher than at present. The book argues
that the preponderance of the wealth captured by most high-income
people really stems from the payback of past intellectual capital
which falls to them almost by accident. They further note that there
is no grounds for the argument that high rates of taxation hinder
capitalization -- in fact infrastructure investment largely financed
by taxes is likely to have greater payback than tax income forgone and
left in private hands. It follows that it is the public sector that is
today being deprived of adequate finance, yet investment in and by the
public sector creates most of our public and private wealth.
The book is divided into two sections, the first deals with how the
accumulated corpus of knowledge accounts for most invention
breakthroughs. The authors point out that most advances in technology
resulting in stupendous yields in wealth dividends likely would have
come about in any case given cumulating bodies of knowledge. They
argue that transforming technical achievements are in almost every
instance due to marginal investments, made by applying existing
information by fortuitously situated agents. This cumulative body of
information is part of what has been known classically as "the
Commons," and allowing individuals to reap the full gains from
what is essentially socially-created wealth calls for a rethinking of
society's financial rewards system.
The book is replete with examples of how misleading it is to identify
certain individuals as inventors of technologies that are really
explained by a whole history of past steps -- in this sense, Nobel
prizes themselves are misrepresentations. Arguably Bill Gates' wealth
should be shared with any number of identifiable creators of
breakthroughs and techniques as well as others that are not
identifiable. Gates himself has admitted as much. But to take a more
interesting but less well known case, Alexander Graham Bell is
identified as the "inventor of the telephone" only by virtue
of the fact that rival Elisha Gray arrived at the patent office with
his design a few hours later the same day. One could also note the
competition between Darwin and Wallace, and between the winning
Watson-Crick team and Linus Pawling who was also very close to getting
the "double helix" design. This book itself is successful in
good part because of the examples it is able to rely upon, taken from
Harold Evans' They Made America, and economic historian Joel
Mokyr's The Lever of Riches: Technological Creativity and the
Knowledge Economy and his later Gifts from Athena: Historical
Origins of the Knowledge Economy.
Part two of the book traces the intellectual and historical analysis
of unearned income, especially in treatments by Smith, Ricardo, Mill,
George, and Veblen. Then, in relying upon contemporary thinkers,
discussion moves to a recognition of the "knowledge commons"
and its importance for success in fostering further technical and
economic progress. By placing the locus of intellectual resources in
society, a moral claim is made for the recapture of the wealth that
stems from its ongoing applications. The authors quote Nobelist Joseph
Stiglitz in this regard, that "Just as the importance of land in
production changed dramatically as the economy moved from agriculture
to industry, so too does the movement to a knowledge economy
necessitate a rethinking of economic fundamentals." (p.139) The
implication is that our collective commons of knowledge is today more
significant than classical economists' appreciation of land as a
factor. One might quibble about the extent to which contemporary
wealth, both social and individual, is explained by the growth in
knowledge any more than it is, for example, by the intensive use of
fossil fuel energy sources. One might further argue that the knowledge
base that rightly ought to be regarded as common is being locked up in
patents that inflate their value and restrict and channel their use.
But in the main, the points addressed concerning the relationship
between knowledge and wealth are on target. Yet to claim that the
growth of the knowledge commons lessens the importance of land
requires further discussion.
The authors are undoubtedly right that the fortunes made by
entrepreneurs able to combine information with insights is unduly
rewarded. But apart from a general defense of the commons, public
sector enterprises, and of taxing unearned income, there is no
explicit discussion of the mechanisms by which such "unjust
deserts" should be reclaimed. Presumably, by inference, taxes
would somehow be imposed on the returns generated by investments and
royalties from knowledge resources. Or perhaps again by raising the
marginal rates on personal income. The moral grounds are convincing,
but the mechanisms remain unexplored. Here the Georgist philosophy can
offer insights that demonstrate its relevance today. Far from having
been superseded by the shift from agricultural and manufacturing
economies, the knowledge economy still arguably depends upon resource
rents with an inelastic supply -- namely "land." Knowledge
packets flow through the sites of market exchange just as always.
Spectrum use, geo-spatial nodes, and other means of access long
understood continue to have site value just as do mineral and energy
resources -- in this sense "land" in all its forms remains
no less important.
Professor Mason Gaffney's venerable acronym ATCOR -- all taxes come
out of rent -- continues to be relevant; regardless where and what the
locus of taxes are, they ultimately translate to flows of rent. It
remains true that by taxing the bases where rents exist, all the
economic inefficiencies and distortions that otherwise obtain are
thereby avoided. But it also remains to be demonstrated how much
knowledge bases harbor rents. The challenge of the Georgist movement
is to identify and quantify those flows of rent so that the unjust
deserts, of which Alperovitz and Daly so eloquently speak, can be
recaptured and returned for their proper application.
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