The cat got her tongue when she was called before Congress to answer perfectly legitimate questions about the country's latest regulatory agency, the Consumer Financial Protection Bureau (CFPB), Elizabeth Warren's brainchild.
But let Ms. Warren get warmed up on another subject close to her heart–class warfare–and the word flow. You may be astonished by the rage in her tirade against wealth creators:
There is nobody in this country who got rich on his own. Nobody. You built a factory out there – good for you!
But I want to be clear. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that maurauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea – God bless. Keep a big hunk of it.
But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.
The fist thing that you notice is Ms. Warren's anger.
The second is her generosity: She will allow entrepreneurs to "keep a big hunk" of the wealth they have created, specifics TBA by government bureaucrats.
But Ms. Warren's hateful rhetoric rests on false premises. Reihan Salam points out what is wrong with her basic assumptions–and where her argument logically goes:
Notice that the force of Warren's argument derives from the notion that other people paid for various public goods, and that the entrepreneur in question thus doesn't have a claim to anything more than a "big hunk," the size of which shall be determined by "us," i.e., a committee of the people who paid for various public goods, of what she has earned.
Warren presents us with an interesting thought experiment, which, among other things, raises the question of the distribution of the tax burden. It is often said that virtually all wage earners pay the Social Security payroll tax, which is true. Yet the payroll tax is, at least in theory, linked to Social Security benefits, and not for various other government programs, though of course that hasn't been the case in practice.
The Tax Policy Center has published a guide to the progressivity of the federal tax burden. Though it is somewhat dated, it gives us a rough indication of how big a share of federal personal income taxes are paid by different groups of Americans. Tax units in the lowest quintile pay 0.4 percent, while those in the second, third (or middle), and fourth quintiles pay 2.3 percent, 7.7 percent, and 17.6 percent respectively.
The top quintile pays 71.9 percent. The top 10 percent pays 55.9 percent while the top 0.1 percent pays 12.3 percent.
If the relevant question is who pays for roads and protection against marauding bands, should we leave decisions to a committee composed of tax units in the top tenth of the income distribution, as they've paid the lion's share when we leave aside Social Security, which can be understood as the purchase (at a steep discount, for now at least) of an annuitized income stream after retirement? That actually sounds kind of ridiculous.
Of course, our public works belong to all of us-rich and poor-and we all use them. We are one country. But if you use Ms. Warren's logic of who paid for what, these public roads actually belong to the rich. But of course they don't and such an odious notion only comes up when we encounter some latter day Robespierre selling class hatred.
But Salam finds a smidgen of truth in Ms. Warren's statement:
There is the germ of a reasonable point in Warren's statement, which is that a market economy is a system of cooperation and that maintaining a system of cooperation costs at least some money. In a society like ours, the system of cooperation costs considerably more money than the system of cooperation in a number of other countries, ranging from the chronically dysfunctional (say, Burkina Faso) to the spectacularly successful (Singapore).
The conservative argument, to overgeneralize, is that our system of cooperation doesn't work as well as it might because the state – which, let us stress, is only one component of a larger system of cooperation, which involves other components, including shared norms and beliefs that can be undermined or strengthened in various ways – has taken on too many roles, including a number of roles that it hasn't and perhaps can't undertake terribly well.
So yes: the entrepreneur in question may well have hired workers educated in taxpayer-funded schools….
Moreover, it is striking that a state like Massachusetts delivers a markedly better education, particularly to students from disadvantaged backgrounds, than a state like New Jersey, where public funding levels for K-12 are generally far higher. The rest of us in New Jersey paid to educate workers of the future. Somehow the rest of us in Massachusetts managed to pay less for a much better outcome, which introduces the possibility that that the much of the money that the rest of us are spending is wasted.
Just for the record, Ms. Warren is not averse to wealth creation-as long as the wealth comes from a Harvard salary (academic salaries are sort of the clean energy of wealth creation–socially acceptable, unlike building a factory that employs workers, which is just so vulgar).
The Boston Globe reports:
Warren is teaching only one class, contract law, twice a week this fall. Records show she was paid $350,000, plus $182,000 in royalties and consulting fees, before she took leave a year ago to establish the Consumer Financial Protection Bureau on behalf of the Obama administration.
Some Republicans have questioned the propriety of Harvard's paying Ms. Warren's salary while she runs for the Senate. (Her opponent, of course, will be Scott Brown, and, if there is one thing you can say about the upcoming race, it's that it should be a clarifying moment in Massachusetts history.)
If you read Ms. Warren's diatribe, you know who the real marauding band is: the government, which, by Ms. Warren's lights, should be empowered to confiscate the earnings of others. As troubling as Ms. Warren's ideas may be, the energy she puts into her denunciations is perhaps equally troubling.