The case for an American social wealth fund
How would you like to get an annual dividend of $6,400?
The ownership of American wealth is hideously unequal: The top 10 percent owns about 79 percent of it, and the top 1 percent alone owns about 39 percent — while the bottom half owns virtually nothing. And while that discrepancy used to be smaller back in the more equal New Deal days, it was still huge. The top tenth or so of society has always accounted for the overwhelming bulk of American wealth.
One proposal for equalizing this situation is to build up a social wealth fund, as I have proposed before, and Matt Bruenig lays out in a recent worked-out paper. The idea is for the government to accumulate a significant fraction of all the national wealth, and pay out the ensuing capital income with an annual dividend to all adult citizens.
Mike Konczal of the left-leaning Roosevelt Institute argues that this is an unnecessary and bad idea. Meanwhile, Kevin Drum has a more conservative objection, asserting without evidence that "government-run enterprises are almost inevitably run badly and government-controlled paychecks are almost inevitably corrupt beyond all imagining."
These objections fail. A social wealth fund is a good idea.
First of all, when talking about "wealth" we're talking about all assets: stocks, bonds, real estate, buildings, and so forth. Thomas Piketty et al. calculate that U.S. wealth is worth $71 trillion as of 2015, while the Federal Reserve puts it at $90 trillion today. Norway provides one example of how a fraction of this kind of wealth can be wielded for the benefit of everyone. The country has slowly built up a social wealth fund worth over $1 trillion (or over $190,000 per Norwegian) over the years. Through that and its state-owned enterprises, the Norwegian state now owns 59 percent of all the national wealth and 76 percent of the non-home wealth. Their fund was seeded with oil money, but there is no reason an American fund could not be seeded with a variety of ordinary taxes, as Bruenig proposes.
Konczal has two main objections to the social wealth fund. The first is that it's "not even clear how this fund would play out in terms of inequality," because purchasing stocks would bid up their price and give cash to rich stock owners when they are bought, thus increasing their wealth. Plus, you can't just buy private wealth like Koch Industries.
This point is unconvincing. For one, following the ideas of economist Roger Farmer, Bruenig proposes scooping up big quantities of stocks only when the market crashes — thus getting them at a relative bargain. Second, a steep inheritance tax is an even more important way of building up the fund, as 60 percent of wealth is inherited — which would indeed catch that private wealth as its owners pass away, Koch Industries included.
More fundamentally, any significant social dividend could not help but hammer down inequality. Let's imagine a fund considerably smaller than what you would get scaling up the Norwegian fund to American size — say, a third of the national wealth instead of over 50 percent. Thirty years of a 100 percent inheritance tax on estates over $1 million, a couple rounds of countercyclical asset purchases (meaning stuff like putting some of the $3.2 trillion the Federal Reserve printed to stabilize the financial sector from 2008-2014 to better use), and a moderate financial transaction tax ought to get there easily.
The resulting dividend per adult would be about $6,400. A two-parent household in the bottom quintile would see their income (as of 2015) increase by 102 percent, while a similar household in the top quintile would see only a 6 percent boost.
But that's not all. Because that capital income is distributed so unequally, the very wealthy would take a big hit sooner or later. As of 2014, the top 1 percent owned an average wealth of $16.1 million, which paid an average capital income of $765,000 — or 59 percent of their total income. Indeed, all of the income growth of the top 1 percent has come from capital income since 2000. A social dividend would be coming very largely at their expense.
A big dividend-paying social wealth fund would almost certainly be far and away the biggest act of redistribution in American history. It's worth noting also that Alaska has just such a social dividend program (usually paying out about $1,000-$2,000), and it is also the most or second-most equal state in the nation, depending on the measure.
Konczal's second and stronger objection is that the social wealth fund would entrench destructive shareholder capitalism. As I have written before, the American corporation has been radically transformed over the past generation into a machine that primarily spits out profits to executives and shareholders, while skimping on wages and even internal investment. Many a company has effectively committed suicide handing over its wealth to Wall Street buccaneers like Carl Icahn.
Thus Konczal imagines that the entire American population might become a whole bunch of mini-Icahns, demanding corporations disgorge the cash to keep the profits flowing. Citizens might even support union-busting efforts so as to keep their dividends safe.
This just doesn't seem plausible. For one thing, there is no way that regular schlubs are going to watch business news closely enough to even notice when, say, an airline decides to add a bit more legroom and thus erode profits by a quarter of a percent. But more importantly, this would be a gigantic portfolio — if we say a third of the national wealth as above, that's roughly $30 trillion spread over hundreds of millions of people. Unlike the classic shareholder story, interests would be radically dispersed in a social wealth fund. One company's workforce going on strike for, say, a 10 percent wage increase is going to have an infinitesimal effect on the resulting dividend. Again, I would strongly suspect that most people would not even pay attention.
However, the particular logic of why a social wealth fund would entrench shareholder capitalism is worth examining. "The value of a SWF is just the sum total of future corporate profits, and if we are worried about those profits being too large the SWF nudges us in the wrong direction," Konczal writes. An unstated premise here is that a high rate of corporate profits is so objectionable that we should preserve the grotesquely unequal distribution of wealth so it will be easier to knock them down. In my view, this priority is backwards. It would be worth tolerating a high share of corporate profits to strike a crushing blow against inequality.
Let's finally consider Drum's point (which is handily exactly what a Republican would say as well). The point of the social wealth fund is not for government to directly own and operate businesses. Instead the point is to scoop up that passive capital income that's being sucked up almost entirely by the rich and parcel it out to the whole population. Regular company management wouldn't change much. But also, the point about inherent corruption from state ownership is a bit mysterious — has Drum heard of the Post Office? Or taken a look around our private businesses today?
It's clear that something needs to be done about America's dystopian levels of wealth inequality. A social wealth fund might be one of the most radical solutions out there. But it's also one of the best.