Income Inequality: Is It Fair or Unfair?
Articles,  Blog

Income Inequality: Is It Fair or Unfair?


Thank you everyone very much for coming out
tonight. Um, my name’s Sam Adkison and I’m the president
of the Yale Federalist Society. To those of you watching with us here in the
auditorium, welcome. We’re glad to have you here for this important
conversation. Tonight, we’re here to discuss one of the
important political touchstones of our time, income inequality. The purpose of tonight’s event is to look
at any income inequality and ask a simple question, but important one. Is it fair or is it unfair? Joining us tonight are two of the best people
we could have to talk about that question. Uh, immediately to my right is Professor Markovits
and to his right is Dr. Yaron Brooks. The only time I’ll be to your right. I’m not-
(laughs) that is, that is true. That is true. (laughs) Give it up. Dr. Yaron Brooks is an entrepreneur, author,
and a former academic who currently serves as executive chairman of the Ayn Rand Institute. Uh, he was born in Israel, immigrated to the
United States, and became a citizen in 2003. He attended, uh, Texas where he received his
MBA and his PhD in finance. And after that, he went on to teach at Santa
Clara University before becoming a founding partner at a private equity firm and hedge
fund. He’s a co-author of several books, including
“Equal is Unfair,” “The Free Market Revolution,” and In “Pursuit of Wealth: The Moral Case
for Finance.” And Professor Daniel Markovits, who many of
you know here, is the Guido Calabresi professor of law at Yale Law School. He works in the philosophical foundation of
private law, moral and political philosophy, and behavioral economics. Professor Markovits has written articles on
contract, legal ethics, distributive justice, democratic theory, and other-regarding preferences. He earned his BA here at Yale in mathematics,
summa cum laude. Uh, and then he also, he received a Marshall
Scholarship where he was awarded an MSc in econo-, econometrics and mathematical economics
from LSE, and then a BPhil and DPhil from the University of Oxford before coming back
to Yale Law School, where he received his law degree. Tonight’s discussion, just so folks know what
the logistics look like, we’ll proceed in the following way. Each speaker will be given 15 minutes, uh,
to express their general views on the topics. They’ll then be given five more minutes, uh,
to share anything else they like. And then at that point, we’ll open this up
to audience question and answer. And we’d love to have your questions. There’ll be microphones on both sides of the
room, uh, put in the middle of the aisle. And so, once we get to the Q&A portion, we’d
love to have you line up and ask any questions you’d like. With that, please join me in welcoming Yaron
Brooks and Daniel Markovits to the stage. Thank you. Dr. Brooks. Thank you. (laughs) Thank you all for being here. Thank you to the Federalist Society for putting
on this, uh, this event. And thank you for all you people in the livestream. Um, and, uh, the sushi was good, right? So, inequality, is, is it, is it fair? Uh, obviously, over the last, uh, you know,
five, six, seven years, this is becoming a massive issue. Uh, inequality today is blamed for almost
every political social ill that exists in the world. From, uh, the, the stagnation of the poor,
the inability of, of poor people to rise up, from the, uh, from an eco-, uh, economic,
uh, growth being stagnant and, and, uh, economic growth, uh, uh, you know, the middle class
not growing very fast to cronyism, uh, at the top, all the way to terrorism. Almost everything today, if you read the New
York Times or almost every publication, is being blamed somehow on inequality. So, let’s be clear about what we mean by inequality. What we mean by inequality is the gap, is
the difference between how much people earn. And some way in the bottom, it could be in
the low middle class, it could be in, in the, in the lower regions, uh, to what people are
earning on, at the 1%, you know, somewhere at the top. That gap, that is income inequality, and that
we are told is a problem, and that we are told is unfair. So, let’s start by asking the question, what
do we mean by fair? What is fairness when it comes to income,
when it comes to wealth? What do we mean when we say something is fair
or unfair? Well, I think what we mean is, is it deserved
or isn’t it deserved? Do the 1% deserve to make as much as they
make? Do the people who make minimum wage deserve
to make minimum wage? Is it right for them to make that level? And then, of course, the question is, well,
how do you determine desert? How do you determine what people deserve in
terms of income? And I would say that you deserve your income
based on the value that you create in a marketplace. So, to the extent that the 1%, to the extent
that, that, uh, you know, CEOs in Silicon Valley or the Steve Jobs’ and the Bill Gates’
of the world, the really, really wealthy individuals at the very top. To the extent that they create massive amount
of value, I would argue that they deserve to keep that value. They created it. That’s the point. They create value. People who work at McDonald’s, indeed, don’t
create a lot of value. To take a couple of buns and to put a piece
of meat in, in it and some, some lettuce and tomatoes is, is value, it’s not zero, but
it’s certainly not the same as inventing an iPhone or building a company like Microsoft,
which literally changed the world. Because it’s, it’s interesting to ask the
question, because most of the, most the claims are towards the people at the very top. How do you become a billionaire? What’s the secret to success? What makes it possible to be a billionaire? Well, the only way to become a billionaire
in a free market … We’ll get to cases where you don’t have freedom. In a free market, the only way to become a
billionaire is to create something that people are willing to pay more for than it costs
you to produce. But not just some people are willing to pay,
millions and millions and millions, maybe even billions of people are willing to pay. And why are they willing to pay, I don’t know,
the $500 for an iPhone? Why, why is anybody willing to give up $500
to get an iPhone? Because they believe that their life will
be better off by giving up $500 and getting an iPhone. So, the only way to become a billionaire is
by creating values that other people care about, that other pe-, that improve the lives
of billions of people. Microsoft changed the world in profound deep
ways. Apple did the same. And almost every billionaire out there has
changed the world in profound ways, has created value for millions of people, have made their
lives, those millions of people, better off. But if you look at the inequality literature,
every time I buy an iPhone, I get $500 poorer and Apple gets $500 richer, and our inequality
has just expanded. I’ll give you an example that’s, uh, less
material that I, I, I find a fun example. How many of you read Harry Potter? I assume all of you. Hmm, this is the generation. So, my kids, uh, loved Harry Potter. I enjoyed Harry Potter. Um, so, every time a Harry Potter book would
come out, I would have to buy two copies, one for each one of my sons. And then, I’d have to buy a third copy in
audio for me because I wanted to listen to it. And, and so, I, I spent three. And then, I had to buy, I had to go to the
movies for the whole family would go to every single one of the moves. I figured out that I’ve spent about $3,000
on Harry Potter. According to Thomas Piketty and most economists
of inequality, I got poorer by $3,000. And guess what? J.K. Rowlings became a billionaire. How dare she? At my expense. But, of course, I didn’t become poorer by
$3,000. I became richer by much more than $3,000. You just can’t measure the way I became richer. I got richer in spiritual value. My life is more fun for having read Harry
Potter. My children’s life is better for having read
Harry Potter. And J.K. Rowlings made over a billion dollars. Good for her for making all of our lives better
and reaping rewards as a consequence of that. So, in my view, when people earn money by
creating value, who are we to then come and say, “We need to take your money away in the
name of what” to give it to somebody else who hasn’t created that value? We often hear this analogy of a pie. You know, you, you, you, a bunch of friends
get together and somebody brings a pizza and there’s a discussion about how you’re gonna
divide the pie. And the assumption is always you should divide
it up around equally because, you know, we’re all a bunch of friends and we’re all gonna
eat about the same, and that seems right. And we assume that wealth is a pie. And that we’re gonna divvy up, therefore,
it should be divvied up about the same. But why? First of all, the pie, it’s such a bad analogy. I hate the pie analogy. Because the pie is fixed. Wealth is created. Wealth is constantly growing through trade,
through creation, through production, through the provision of services. The pie is constantly growing. So, to assume that it’s fixed, and therefore
we should, we haven’t, we, we know exactly how to divvy it up is bizarre. But there’s even a more insidious problem
with the pie analogy, which everybody loves to use. And that is that there’s such a thing as a
pie, but there isn’t. There’s the pie you make and the pie I make
and the pie they make, that person makes over there. We each make our own pie. You don’t get to squish all the pies together
and create some kinda social pie and then decide how to divide it up. You don’t have a right to take my pie and
squish it into your pie and then split it equally. It’s my pie because I built it. I created it. And you created your pie and you have every
right to do what you will with your pie. I deserve the pie that I bake. You deserve the pie that you bake. Nobody has a right to take my pie away and
give it away to somebody else. So, the whole idea of, of this pie is, is
a, is a, is a ridiculous analogy. It’s the collectivization of wealth, but wealth
is not collective. There is no social wealth. There is no wealth of America. Yes, economists can add up all these numbers
and, and, and put them all together into an equation. But that doesn’t make it society’s wealth. Wealth is individual. Wealth is individual. It’s each one of us. We are responsible for our own lives. We are responsible for our own creation, for
our own work, for the energy, the effort, the intensity we put, the focus we place in
our work and what we do. So, you deserve the pie that you make. Now, let me say that there are other problems
that are attributed to inequality. Let me admit that they all really do exist. It’s just none of them has anything to do
with inequality. It is true that there is a real problem today
in America of the poor not being able to rise up as fast as we would like them to, as fast
as maybe in previous generations they could. It is true that the middle class is not growing
as fast as, as, as … It would be nice if it grew, if the economy was growing much faster. And it’s true that some people at the top
don’t actually create their wealth, but have found ways to rig the system through abuse
of government in order to accumulate wealth. All those are true and all those are problems. But the attempts to solve them by reducing
inequality make them worse. It is attempt to improve a lot of the poor
through redistribution of wealth and through all kind of protection mechanisms which keeps
people poor. The best example of this is the minimum wage. Raising the minimum wage to $15 an hour makes
middle-class Americans feel good. But it destroys the ability of young inner
city youth to get their first job and, therefore, advance in life. It destroys their ability to ever have a job
and to ever find work. And it’s true the economy is not going as
fast as I believe it could be growing. And that is because we suck so much capital
out of the economy in the way of, in the name of redistribution, and regulate and control
businesses to the extent that we do. And finally, it’s true that there’s cronyism,
and cronyism is a very bad thing. But cronyism is a phenomena of big government. It is a phenomena of a government that is
trying to manage and run our lives. It’s a phenomena of statism, of placing the
state above the individual and allowing government to take on more and more and more responsibilities. It is a phenomena of unlimited government. So, if you care about any of these issues,
the solution is the exact opposite solution of what those claiming that inequality is
a problem offer. The solution is more freedom. The solution is more limited government. The solution is getting government out of
our lives and letting a free market reign, a true free market, where your value is determined
by the real economic value, your value from an economic perspective, where your real economic
value … The economic value again is based on the economic value you produce. Let me make one final point. Uh, I think I got two minutes. There is only one sense in which equality
is a legitimate concept, because the fact is that in terms of outcome, which is what
we’re talking about, income is an outcome. In terms of outcome, inequality, your equality
is an impossibility. Equality is metaphysically impossible and
equality is a disaster when it’s attempted in terms of outcome. There is no such thing as equality of outcome. You just look around the room, it’s hard because
it’s dark, but I can still tell that all of you are different. You have different skills, different abilities,
different characters, different interests, different motivations. You’re different. And if I leave you free, if I don’t try to
manage and run your lives, if I don’t use force on you, if I don’t force you to be a
particular way, it is not shocking that if you’re left free, you’re all gonna produce
different amounts, different things. You’re gonna be, have different outcomes. And because life is not just about money,
we, it doesn’t really matter that those outcomes are different. We’ve chosen to be teachers knowing that we’re
gonna make less money than if we’d gone to Wall Street. We’re both pretty smart. I think we both would’ve done okay on Wall
Street. But we chosen to take less money because we
love teaching. We are gonna make different choices. That’s great. That’s wonderful. That’s what life … You know, life is so
rich because of the kind of division of labor that results when people are free and people
are different. There’s only one sense in which equality means
something politically. That is equality of rights, equality of freedom,
equality before the law, political equality. That is the kind of equality we should fight
for. We should fight for the idea that the government
does not have a right to discriminate between people. We should fight for the idea that we all have
the right to life, liberty, property, and the pursuit of happiness. Each one of us as an individual, no matter
what the economic circumstances of our birth, no matter our skin color, no matter our gender,
no matter anything like that, that kind of equality is what I think this country should
be about. And that’s the kind of equality I think we
should be fighting for. But you have to realize that that kind of
equality necessarily results in income and wealth inequality, because when you leave
people free, they produce different amounts, they produce different things. So, I think we should celebrate inequality
when it’s in a free market, because we should celebrate freedom. And inequality is just a feature, it’s not
a bug, it’s a feature of freedom. So, given that inequality is a feature of
freedom, I’m all for freedom. Thank you. Prof. Markovits: Well, I’m gonna start by
talking about something that is not at the center of our conversation today just to acknowledge
it because it’s important. And then, I’m gonna move on to the central
arguments that we’ve just heard. The first thought is that there’s a difference
between inequality and poverty. And how one thinks about poverty is a separate
issue. There’s a lot of poverty, including in a rich
country like this one. And there’s good reason to think, and we could
have another discussion about it, that the appropriate moral response to poverty in a
decent person, in a decent society is to relieve it, that human need states its own unanswerable
claim. At the same time, inequality is different
from poverty in the following sense. One can have a large gap between the rich
and the middle without there being very many poor. And in fact, historically in the United States
over the past 50 years, poverty has diminished, nevertheless remaining at unacceptably high
levels even as the gap between the rich and the middle has exploded. And we are called together today to discuss
that gap, whether that gap is warranted. Now, the argument in favor of the gap that
we’ve just heard has a very simple structure. People deserve what they create. And when people capture the economic value
of what they create, it’s better in general, because more of value is made. Both of those claims are mistaken. They’re not just morally mistaken, they’re
mistaken as a matter of the description of the world that we live in and of the relations
in which people act. Now, let me talk about desert a little bit
and then I’ll talk about the others. Desert can mean a couple different things. One thing that it can mean is that I am, in
some way, possible for being in the position in which I now am. We all recognize that there’s all the difference
in the world between finding the pot of gold yourself and being led to the pot of gold
and bending down and picking it up. The second person is not someone who deserves
what she gets. So, it’s important to try to understand what
makes people get ahead in this society here, now. And if you introspect, people in this room
have mostly gotten ahead. One thing you’ll see is that there are lots
of little instances in which you had an advantage by dumb luck, or maybe even by something like
smart luck, but the smart wasn’t a fair smart. So, we began here, some people said about
my degrees. A story about when I was a sophomore in college,
I was falling in love for the first time. My head was not in my books. I did not study for my mathematical economics
final exam. I failed it abysmally. Professor called me into her office, said,
“What happened?” I said, “I didn’t understand the material
and couldn’t answer the questions correctly.” She looked at me and said, “You’re a pretty
smart guy, right?” I said, “Well, maybe.” “So you get an A.” I walked out of the class
with an A, which was essential to my having a record that enabled me to get subsequent
advantages. Now, at the University of Connecticut, I do
not get an A, if that happens. The University of Connecticut, I get an F. There is no question about it. Now, ask, who ends up at a place like this
university? Well, there are more children whose parents
are in the top 1% of the income distribution than in the entire bottom half. There are six times as many children whose
parents are in the top quarter of the income distribution than in the next quarter, not
in the bottom half, in the next quarter. A university like this one, overwhelmingly,
is filled with children of immense privilege who undoubtedly work and work intelligently
when they’re here, but are sitting atop a mountain of privilege that’s unimaginably
high. Moreover, when they get here, an amount of
money is spent on their education and then on promoting their careers, which is incomparably
greater to anything that is spent not just on children from poor households, but on middle
class children. Furthermore, the rich children don’t actually
pay for what they are getting spent on them. At the richest universities in the United
States, the average student pays only 20 cents out of every dollar that’s devoted to her
education. At the poorest universities, the average student
pays 80 cents out of every dollar that’s devoted to her education. And the kids who don’t go to university pay
100% of every dollar that’s not devoted to their education. Moreover, those arrangements are facilitated
by collective decisions which favor the rich over everyone else in society. If I ask people in this room who are students
at Yale to raise their hand if their parents went to college, 85% to 95% of you would raise
your hand. And if I asked you how many went to a pretty
fancy college, 60% to 70% of you would raise your hand. Now, a university like Yale manages to make
ends meet because it has a business model which relies on its not-for-profit status. Its endowment grows without sub-, being subject
to taxation, and alumni can donate out of tax-deductible monies. At Princeton University in a recent year,
81% of its total budget came from those sources. And the endowment alone generated over $400,000
a year per student. All of that is tax subsidized. In a world in which the children who are at
those universities, the students are the children of graduates of those universities, the tax
subsidy doesn’t represent a public good. It represents a club in which the elite has
managed to get everybody else to pay for the goodies that allow each children to continue
to advance in the world. This is not a world in which anybody who runs
through these institutions is entitled to the results of their education. None of that is to impugn an individual person’s
morality. None of that is to impugn their effort or
their diligence. It’s just to say they are entering into a
system that is rigged in their favor. If you want a sense of the extent of the rightness,
if you took the difference between what an average family in the top 1% of the US distribution
spends on his children’s education and, and a middle-class family, the median household
in America, spends on its education. Just money, don’t pay attention to time, or
expertise, or connections, or all the other things that we know also advantage those who
are born lucky. Just money. And you took those sums, and you put them
in an investment account and invest them in the S&P 500, and gave them to the children
on the death of the parents, that would be $10 million per child. Now, I picked that experiment because the
way in which the old elite perpetuated itself dynastically was by giving bequests of money
to children who just happened to be lucky to inherit. The way in which this elite perpetuates itself
dynastically is by giving equivalently enormous lifetime training grants that enable the children
to get ahead. And there is no conceivable world in which
that is fair. Now, there’s a second part of this argument
that we’ve heard that simply is mistaken, which is that people deserve what they produce
because the market values it. There is no morally neutral sense of the market. Let me give you a, an example or a series
of examples and we can talk them through. I have a friend who was an extremely successful
woman, a one percenter, uniformly thought to be brilliant, capable, effective in the
world. I was once in the woods with her and an anthropologist. And we were throwing a boomerang, and he saw
her throw a boomerang. And he said to her, “Mira, in a society of
hunter-gatherers, you would be a gatherer.” The point is, what skills you have and what
is valuable isn’t a natural relation. It depends on what everybody else is doing
on how the society is organized. In a society which values certain forms of
work effort and intellectual and analytic ability, certain people do well. In a hunter-gathering society, other people
do well. Now, add that we live in a society in which
who does well is conditioned by inequality. We live in a society in which the fact that
some people are very, very rich determines whose skills are valuable Let me give you an example along those lines. At the moment, if you look at the 20 richest
people in the world, 14 of them owe their fortunes either to dealing with the super
rich or to dealing with the struggling poor. These are people who are in types of businesses
where they sell luxury goods or they sell goods on terms that only people who are economically
struggling would buy. 14 of the 20 greatest fortunes in the world
are dependent on inequality. If there were more equality, if there were
just a middle class, those people would not be rich, because the things that they specialize
in would not be valuable. That’s the difference with J.K. Rowling. J.K. Rowling is rich because she serves the middle
class, but most rich people do not. Take a look at the professions and the jobs
that make people in the United States members of the 1% today. If you look at finance, management, including
management consulting, law and elite medicine, you account for half to two-thirds of the
1%. Just numerically, counting jobs. Those are all businesses which have at their
financial core and their business model that they serve antecedent wealth. Finance is a nice example of this. Finance at mid-century until about 1975 was
neither more highly paid nor more educated or more skilled than the rest of the economy. What happened? Well, what happened was the United States
won the space race, and they talked with the Russians occurred, and we had a surplus of
physicists produced by our universities. They went in to finance. The first people in finance who started developing
derivatives and marketing them were called rocket scientists. The reason is they were rocket scientists. They restructured the way in which finance
operates. Since that time, fewer and fewer people worked
in finance. They are more and more skilled. And each of them makes a much, much higher
income. At the same time, the efficiency of the financial
system has gone down. If you ask the question, how much fundamental
risk stays with the individual? It is more today than it was in 1975. If you ask, what are the costs of raising
money? They are as high today as they were in 1975. This is what economists who are no enemies
of finance say. So, what you have is a financial sector which
has been restructured around enormous wealth and now makes people rich. But if we had a more equal economy, those
people with those skills wouldn’t get paid as much. Other people would get paid. That’s the story that we are living right
now. Let me close with a parable. Imagine a society in which there are warriors
and there are traders. And the society lives at peace with its neighbors. And both the warriors and the traders do pretty
well. Then, one day, one of the warriors starts
a skirmish with a neighboring society. The skirmish is reciprocated. There’s a war. The warriors choose a path of aggression. Soon, there are more and more border wars. Eventually, the society is in a constant state
of war. Now that the society is in a constant state
of war, the warriors claim all the wealth, all the power, and all the privilege. And when asked why they deserve it, they say,
“It’s because we are essential to our society’s protection. There’s nothing for you, traders, to trade. And our cunning and strength are necessary
for everyone to do well.” To which the traders can answer, “If you hadn’t
started the war, we wouldn’t be in this position.” And that’s the position that the middle class
is in in the United States today. Elites have, by concentrating training in
their children and producing a class of workers who have a very particular set of skills,
and then, in gross and in fine, restructuring the economy in the way in which things are
made and the way in which people are paid so that precisely those skills are valuable,
created a class of workers who make enormous sums of money and can then do the same to
their children, and the cycle continues. So, who deserves what? That’s not a well-formed question. The question is, what is a kind of society
that we can have in which we all live freely, respectfully, and flourish with dignity? And that’s a society in which education is
more equally distributed in which the forms of work that require enormous training are
reduced, and there are lots more jobs for mid-skilled people, and in which people engage
one another on equal terms. Not identical. Of course, not. That’s an absurd thought. Rather, on terms of rough equality so they
can each imagine the other’s lives, and so they can treat each other with respect as
equals. Now, in the conversation, I hope people ask
how we get there. I have thoughts about that, including concrete
ones, but I’ve said enough for now. Dr. Yaron Brook: Five minutes? Good. So, we disagree on pretty much everything. Um, let me, let me try to take some of the
arguments, uh, sequentially. Um, yeah, uh, if I work hard and if I dedicate
a lot of energy to trying to create some wealth for myself, I want my children to get a good
education. Absolutely. One of the reasons some of us work hard and
some of us try to make a lot of money is to be able to maximize the opportunities for
our children. It’s one of the things that motivates me and
I think motivates many parents in trying to achieve more. Now, I agree that the system, to some extent,
is rigged. I, the whole tax structure and the whole way
in which we finance education in the United States today is rigged in all kinds of directions
that benefit all kinds of ways and all kinds of people. And I would love to see, uh, you know, the
government get out of the business of, of financing and rigging the educational system
so that education can be a free market, wherein education, you have real competition and real
innovation and where prices can actually come down in education rather than accelerating
upwards like in any field that the government enters. Prices accelerate upwards. And, and, and this is what’s happening in
education. So, uh, yeah, the system is rigged by too
much government intervention and, and I fear that the solution is always more government
intervention. But, yes. Uh, there are going to be differences in education,
always. It’s part of what motivates you in life to,
to, to strive and succeed. But it’s also true that just because you get
a Yale education doesn’t mean you’re going to succeed. Uh, some of the richest people in the world
and, and by the way, the 14 out of the 20 richest people in the world, that is true,
because many of them live in countries that are not free where they are complete cronies
and where they indeed are exploiting the poor and exploiting other people in order to do
that. [crosstalk 00:36:47] Not true. Then, then, then, I challenge your statistic,
it’s just not true. If you look at the top 20, uh, American billionaires,
that is simply not true. All, almost all of them are, are dealing with
the middle class. And, indeed, what the doctors, lawyers, and
everybody else do and, and, well, we’ll get to the finance in a minute ’cause I actually
happen to know something about that. Um, people of all, from, from every, uh, realm
of, of the income distribution and for every university, as somebody who never went to
a Yale and to an Oxford, uh, you know, I, I don’t feel as privileged, I guess. But, uh, the whole notion of, of, of privilege,
privilege in a sense that somebody gave you a favor, privilege assumes kind of aristocracy,
kind of a government favor that you got. Yes, your parents worked hard, so you could
get a good education. And you know what? If you screw up your life, if you take that
education and don’t do something with it, you’re not gonna be as successful in life. It’s your life and then you still have to
do something with it. There are plenty of billionaires out there,
many of the billionaires in the top 20 who never went to school or who dropped out, and
they made the money. So, the fact that you’re at Yale doesn’t guarantee
you entry into a successful life, into a flourishing, prosperous life. Uh, people at the end of the day are responsible
for what they do with their own life. And, yes, some people have more advantages
than others. That’s, that’s obvious. That’s kind of obvious. Uh, some parents are more loving, some parents
are less loving. All of that is part of reality. The question is wh-, at that point, what do
we do with it? Are we free then to pursue our own values? Are we free then to make the most of our own
life? Or are we gonna have force used on us to tell
us what profession’s acceptable and what profession’s unacceptable? Are we gonna force not to be able to go to
Yale even if we can afford to go to Yale and be forced into a different school because
somebody else believes that that’s what’s good for society? I don’t believe in force. I, I don’t believe in coercion. I don’t believe in forcing people. Uh, I believe in leaving people free. And boy, as I said, we’re gonna be different. We’re gonna have different opportunities. We’re gonna have, uh, different starting points. We’re gonna have different ending points. But the idea that some central planner has
a better knowledge of what values we should pursue as individuals is, is, uh, insulting,
uh, to us as individuals. Uh, I, I’ll just say the story about finance
is, in my view, science fiction. Uh, uh, finance today primarily serves the
wealth that exists in pension plans and, and, uh, is primarily serving, uh, the middle class. Most investors in hedge funds and private
equity funds are so-called, you know, uh, uh, uh, is, is middle-class wealth. It’s, it’s, it’s, it’s pension plans. Uh, so, it’s not, it’s not as if, uh, these,
these are little clubs only, uh, you’re only allowed in if you’re, if you’re some gazillionaire. Uh, financial markets today, uh, given a globalization,
given the amount of risk that, that exists in the world today, the financial markets
today are far more efficient, far more productive, far more capable. Uh, the amount of production, the amount of
innovation, the amount of creativity today in the financial industry at least before,
um, uh, you know, the, what’s his name? Dodd-Frank. Before Dodd-Frank is just mind-boggling. Those, uh, physicists who created derivatives
did amazing work for the, for, for all of us. We benefit enormously from the fact, for what
they did. It’s no accident that Silicon Valley and the
progress made in Silicon Valley came when it did in the 1980s, uh, when finance was
robust and, uh, and effective, and productive and managed to reallocate massive quantities
of, of capital from industries that were failing to industries that were rising. Let me make one last point. 300 years ago, and certainly in the hunter-gatherer
societies, we were all poor, all of us were poor. I mean, there was a little bit of aristocrit-,
aristocrats up here who, relative to us, were still poor, but relative to their own societies
were, were rich. 95% of humanity, 95% of humanity lived on
$3 a day or less. We were subsistence farmers, we had nothing. It is the division of labor society that’s
just been criticized that made it possible for us to rise up from there poverty. It is the freedom and the capitalism that
started with the Industrial Revolution that made it possible for us, even half the middle
class. There would be no middle-class if not for
capitalism, if not for robust financial markets, if not for entrepreneurs, if not for the non-existence
of massive redistribution of wealth schemes. It is economic freedom that allowed us to
rise out of poverty, so that today only 8% of the population in the world lives under
$3 a day, 8% from 95% in 200 years. Capitalism, the, the, the, the, the kind of
system that creates these professions is what has allowed humanity to rise up from the ashes,
is what has allowed humanity to rise up from subsistence farming. It’s what’s more than doubled life expectancy. It’s what made life so amazing, even for the
poor in America relative to what poverty looks like anywhere else in the world. So, to be critical of the kind of division
of labor society we have today and, and to, to compare it to, to boomerangs, yeah, you
could, you could, you know, different people succeed in a boomerang society than succeed
today. Thank goodness we live in a society today,
because all of us, including the best boomerang throwers in the world during hunter-gatherers,
live a gazillion times better today on minimum wage than they did back then under hunter-gatherer
societies. So, hurray for the capitalism to the extent
that we’ve had it over the last 200 years. Thank you. The, the bo-, the boomerang, uh, is a joke
not an argument. (laughing) Okay. And as a general matter, to reject one extreme
isn’t to affirm the opposite extreme. Nobody is talking about central planning,
collective ownership of key industries. Rather, and I’ll say a little bit about what
I am talking about, it’s talking about a thoughtfully managed, mixed economy that serves the common
good. Now, there are a couple things that I just
wanna correct. For example, the richest 1% in United States
today own, depending on how one counts, between 26% and 42% of all the wealth in the country. They own over half of the equities in the
country. So, it is not true that finance principally
serves the middle class. In a literal sense, it principally serves
the very rich. Second, it is, of course, true that one can
have every advantage showered on you, and you can still screw it up. That’s not the question. The question is, what are your odds of success
if you don’t have the advantages showered on you? And at this moment, for example, 86% of the
partners at the most profitable law firm in America went to five law schools. The elite investment banks, five to eight
of them, recruit only at Harvard, Yale, Princeton, Stanford, and Williams. You don’t go to those places, you’re not getting
in. That’s not a question of, “Oh, it’s a little
harder or …” no, that’s the equivalent of a no. It’s an unfreedom. It’s a constraint. if one adds up those kinds
of advantages all throughout the system, one produces massive, not just economic difficulty,
but unfreedom for most people in the society. Here’s an example. At the moment, the gap in SAT scores between
children whose parents earn over $200,000 a year, that’s the top 4% of the distribution,
and the median child, is over twice as big as the gap in SAT scores, between the median
child and a child in poverty. That’s because the rich get their kids private
teaching. And you can’t get ahead in a competitive academic
system without the private teaching. Finally, this is not a system that serves
even the rich. And that’s important to say, too. It is true that you can get every advantage
and still screw it up. It’s not only true, it’s a constant fear among
the rich, because the competition has become so stiff, because the inequality has gotten
such a spiky fine point. That in a world in which 86% of the partners
at the most profitable law firm in the country go to five law schools, and that law firm
has 5 to 10 times the profits per partner of the 25th most po-, profitable law firm. The difference between going to the seventh
best law school and the first best law school over the course of your life is literally
$100 million. And so, you’re a privileged kid, and you’re
in second grade, and you’re wondering what to do, and your parents, maybe you’re in one
of these, and they know this. And so, you’re made unfree, too, because the
inequality has become so extreme that everybody at every level can fall off of what seems
to them a cliff. Now, there’s an honest response and there’s
an ideological response to this. The honest response is to say, “Hey, wait
a minute, something has gone wrong.” And what’s gone wrong is that we are differentiating
people in damaging ways, and we’re worshiping something that’s not actually valuable because
all it does is make a few lucky people rich rather than make everybody flourish. And the ideological response is to double
down on the idea of meritocracy, to insist that because it’s so hard to get something,
it must be valuable. That’s the ideological response. And then, to pursue it, all get out and blame
those who don’t have it. And that doesn’t serve anybody’s interests. Thank you very much, Professor Markovits. And, and thank you both for the spirited discussion. And so, at this point, we’re gonna move into
the Q&A portion of the event. And so, if I could have a couple of people
move the microphones into the middle of the aisles and turn them on, and if you have a
question, uh, please line up behind them. But, uh, I did wanna start off with a question
for both of you. And with most of these questions, we’ll try
and give both of you an opportunity to answer so long as you have something you’d like to
say. Uh, but the question I would pose to each
of you is, is you both have theories of, of inequality and you think that things in America
right now could be better in things in countries around the world. If you are going to implement two or three
policy suggestions, ways that society could change in ways that, that you think would
make lives better, what would those be? Thank you. Please. Two or three, huh? Um- Two or three. So, I would, I would go back to education
’cause I, I agree. I think one of the ways in which American
society today is, um, has turned its back on, on, on poor people in this country. One, one of the things that I think is a disgrace
is the quality of education that, uh, many people in, in our poorer neighborhoods, uh,
get. I mean, if you look at the kind of education
you get in the inner city of New York, it is, and, and it’s not an issue of money because
they spent a huge amount of money. $15,000 a year per child in the inner city
of Chicago, uh, on, on education and yet the quality of education is abysmal. It is beneath, uh, anything that, that should
be acceptable in a civilized society. So, I think the most important thing that
needs to be addressed is education. Now, uh, I think that on that point, we’ll
agree, and then from here, we won’t. And I believe the solution to that is to completely
and utterly privatize education, particularly at the lower grades and, and, and throughout
the K through 12. Uh, I would love to see entrepreneurship,
innovation, competition. I’d like to see the next entrepreneur, instead
of thinking about how to make the next stupid little andi-, Angry Birds app for the Apple,
think about how to start an educational institution, where at a, we at a cheap cost can provide
a great educational product. I’d like to see real competition and real
innovation in the field of, of education. I think education is way, way, way too important
to leave to politicians, to student, to, uh, teacher unions, uh, to government. Uh, I would love to see the market, uh, do
what it does in technology so well do in the space of education. And I think when you do that, all these, uh,
uh, advantages that the, and, and rich kids do get advantages ’cause they can go to private
schools. I’d like everybody to go to private schools. And, uh, therefore, I think we need to privatize
education completely and create the kind of financial incentives that make that feasible. I, I think the, uh, uh, uh, what do you call
it? Tax credit’s a, a good way to do it. There’s a, there’s tax saving accounts, uh,
that are being proposed, that’s an excellent way to do that so that everybody can be able
to afford to do that, um, as long as we still live in a mixed economy. Uh, there are a lot of different ways. But if there’s one industry that needs to
be taken from, uh, away from government, it is education and would have a profound impact
on that, on the, on the issue of poverty and the issue of the ability of poor kids to rise
up and, and, and to improve their lives, and in middle class case ’cause everybody would
get a better education. So, I’ll, I’ll just give one in the name of,
of time. Um, so, I agree about education as important,
but I disagree with Yaron. Of course. Yeah. Um, education is really hard. That’s the first thing to say. The reason it’s expensive to do it well is
not that people don’t innovate and don’t know how to do it. It’s that it’s intensive. If you look at, for example, the charter schools
that succeed, the KIPP schools, for example, they succeed by lengthening the school days,
shortening vacations, reducing teacher-to-student ratios, intensifying training, and effectively
reproducing the kind of hyper-intensive training that rich people give to their parents privately
in the school. So, it’s not easy to fix education, particularly
at the bottom or even at the middle, first point. Second point, I believe government has a very
powerful role in education, for two reasons. One is ideological, and I’ll own up to it. I believe that education is training for citizenship,
not just for private life, and government provides that. The second is non-ideological. If you look at the societies that are most
effective in education, Finland and Singapore, now a lot of free market and education in
those societies. Those are government’s that are producing
these educations. Now, you can’t, and the Finnish Minister of
Education, when he travels around the US says this all the time. He says, “Don’t think you can just follow
our education policy and get our results. You have to follow our social structure if
you wanna get our results.” And I’ll say something about that in just
a moment. With respect to education, it’s also important
to emphasize the top end, and massively to democratize the elite. So, if there’s one educational reform that
I could embrace, it would be requiring, and I can talk about how to require it, all private
educational institutions to double their class sizes and to take all the new students from
the bottom half of the distribution. How would you do that? You would say, if you don’t have two-thirds
of your students from the bottom half of the distribution, or if you wanna be a little
bit more relaxed, half your students from the bottom two-thirds of the distribution,
you lose your tax exemption. ‘Cause after all, the tax exemption is meant
to be there because you provide a public good. But if all your kids are from rich families,
you’re providing a club good. You don’t deserve the tax exemption. So, if you want it, you have to economically
diversify. And you bet, these institutions would take
more students, especially if there were state subsidy for they’re taking more, and don’t
let them say, “This is impossible.” Expenditure per student in the Ivy League
today is twice what it was in 2000. So, if the Ivy League doubled its student
bodies, it would be spending the same thing it spent per student in 2000, which was a
pretty good education. Now, the other reform that I would make is
to change the labor market to favor middle-class jobs. At the moment, in fact, the labor market disfavors
middle-class jobs, and it does so on account of regulation. Middle-class labor is the highest taxed factor
of production in the economy. Capital is barely taxed because of delay in
capital gains. Elite labor pays a slightly higher income
tax than middle-class labor. But because of the cap on the social security
wage tax, on the payroll tax, elite labor over $127,200 a year pays 10% less than the
first $127,000. So, get rid of the cap. That would produce an immediate incentive
to shift out super-skilled workers in favor of mid-skilled workers. Right here now, you hire one person at $2
million a year, you pay roughly speaking $80,000 in payroll tax. You hire 20 people at $100,000 a year, you
pay roughly speaking $280,000 in payroll tax. So, there’s a $200,000 penalty on the middle-class
jobs compared to the elite jobs. So, get rid of that. That raises immediately $200 billion in revenue. In steady state, according to the Congressional
Budget Office, it raises 1.1% of GDP in revenue. Spend half of that revenue on subsidizing
education for the middle class and spend the other half on a wage subsidy for employers
to hire middle-class workers. And you will, at a stroke, rebalance the economy
to favor mid-skilled work, not by creating distortions but by eliminating existing distortions,
and rebalance education to give literally millions of middle-class people an opportunity
to have the same kind of education that rich people now have. And I see a question on the right side of
the room. And just so folks know, the Q&A will end at
eight o’clock, and that’s when the event will wrap up. So, go ahead on the right and then we’ll go
on the left after that. Thank you so much for your arguments. You know, in both your arguments, you’ve focused
on individuals as individuals, may be rich, may be poor. But just diving deeper into that, what about
group identities? If I’m a single mother, uh, let’s talk about
historic groups do have dis-, different historical experiences. I’m a single mother. I’m a Christian. I’m an atheist. I’m a black family with 100th the wealth of
a white family, for example. How would your arguments change, if at all,
uh, if accounting, would you account for historical differences, which it persists to this day
between different social groups? Because we only talk about people, but people
don’t exist as islands and they exist in groups. So, how would you account for that? Why don’t you start this time? Sure. Um, I, I think I have, uh, two things to say. One at the high end of the distribution and
one at the lower end of the distribution, although, uh, these are not the only things
that could be said. The first is that the existing regime with
enormously skewed income places enormous social and economic pressure on elites, and especially
elite women, not to work outside the house. Because the way in which elites get these
massive salaries is they work, they work all the time. They work as a group of the top 1% of the
income distribution, works 20% harder now than they did in 1950. At law firms, average hours have doubled. It is simply impossible for a couple to have
a family and have both people work those hours. And given prevailing gender norms and discrimination,
it is undoubtedly the women who more often get pushed out of the workplace. And that’s something important. And notice, if you reduce income inequality,
you reduce gender inequality. And that’s true actually across civilizations. It turns out, if you look at countries, the
best reforms to produce an equal division of domestic labor to pro-, to embolden and
empower women and women’s rights is to diminish economic inequality. You see that in places like India and you
see it in places like Sweden. So, very different societies. So, that’s one important thing. The other important thing to say is that the
interaction between race and class is enormous right now. For reasons that nobody really understands,
African-Americans are getting relatively less wealthy compared to white Americans over time
in dismaying and shocking ways. And if you, uh, if you intersect that with
the size of economic inequality, you get absolutely atrocious outcomes. The rich-poor gap in education right now,
in educational achievement in the United States, is greater than the white-black gap was in
1955. That’s the year Brown against Board of Education
was decided. So, economic inequality is reconstructing
apartheid. And that’s an essential thing to combat. Redistribution will help, but it has to be
redistribution done with the separate axis of racial discrimination and racial hegemony
in mind. And that requires precise, detailed policies,
which we can talk about if we have more time. So, I think part of the problem in the world
today and part of the problem in our society today is that there’s way too much, that there’s
any really discussion of group and group identity. Uh, I, I think group identity is, is a road,
um, is a road to primitivism and it’s, it’s a disaster. I think it’s a, it’s a backward way of thinking. Uh, we spend way too much time talking about
race and what group you belong to, what subgroup you belong to, and who’s in a power structure
relative to whom, and intersectionality today and all this nonsense. Um, uh, I think this is, this is destructive,
uh, to, to what, what freedom really means. And, and to me, freedom is freedom from coercion,
not freedom of limited, not, not the issue of how many opportunities you have but, but
whether those opportunities are limited to coercion or not. And the idea was to maximize freedom. It’s to limit coercion. It’s to eliminate coercion, to get, get government
coercion out of the way, so that we can flourish ahead as an individuals. And I don’t think it’s an accident to, to
take, uh, uh, one group, if you will. I don’t think it’s an accident that, uh, the
rise in, uh, black middle class has, haw slowed down significantly since the War on Poverty
has begun and since, uh, affirmative action and since all of the, uh, the, the welfare
programs that we instituted in the 1960s. I think, I think welfare is destructive to
the ability of people to rise out of poverty. I think it is, it is a way of institutionalizing
people into poverty. I think it is, it is a horrible way to treat
people. Going back to education, I think, of course,
education is part of the reason why people don’t rise up. But this, in general, I think is, is, is the
way we treat poor people in this country. We treat poor people in this country horribly
and we treat rich people horribly as well. In many respects, we treat poor people horribly. We treat the ambitious poor. The, the, the, the, the, poor person who is
ambitious wants to rise up, wants to be successful, we create roadblocks upon roadblocks upon
roadblocks. Um, education is not about money, uh, you
know. We’ll disagree again. In the same city of Chicago where they spent
$15,000 per child, the, the archdiocese spends in exactly the same neighborhood $7,500 per
child and gets better results. You could shut down all of the public schools
in Chicago and hire the archdiocese to educate all the kids and save half the money and get
a better educational product. Uh, this is not purely about funding and about
money. Uh, this is about, uh, this is about the way
education was provided in a top-down kind of, kind of manner that does not place the
child at, at the center as we would if it was the, if it was a, if it was privately
run. But I think the whole group identity stuff
is, is, is, uh, is, is bad for this country. This is a, this, I, I, I believe in individualism. I believe in treating people as individuals
based on their character, not paying attention to the color of their skin or to their, or
to their gender, unless it’s relevant, right? Um, not paying attention to those factors
and, and treating people based on character. And in economic terms, treating people based
on their level of productivity and that people should get compensated based on the level
of productivity. Oh, thank you. Um, before I ask my question, which is directed
primarily to Dr. Brook, I wanna make sure that I’m understanding sort of two parts,
two presumptions that you’re making. The first is that, um, you presented Steve
Jobs and J.K. Rowling as two examples of individuals who
produced and earned wealth. And because they produced it themselves, and
they, the market, a free market has valued it, they’re entitled to reap all of that. And the second, the argument that I’ve heard
you’re making is that the government should stay out of production of wealth because they
inherently would mess it up, and they make it more difficult. So, I guess I’m wondering, how do you square
those two things when both J.K. Rowling and Steve Jobs owe a significant percentage
of their wealth to the fact that the state guarantees intellectual property rights, and
that the state is actually taking a very active role in ensuring that those two individuals’,
um, intellectual creations are given value in the marketplace rather than able to be
appropriated by other manufacturers, other authors, other publishing services? And so, how do you square intellectual property
rights, which is a collectivist state decision about what we wanna value in the market and
this idea that these individuals have generated all that wealth by themselves? Dr. Yaron Brook: So, I don’t buy the basic
premise of your argument. I don’t buy that intellectual pro-, in-, intellectual
property rights are any different than any other form of property rights. Indeed, uh, most property rights are fundamentally
intellectual. It is, it, what intellectual property rights
are protecting is the right of the producer, the rights of the creator, or the rights of
the innovator. Um, and it, it, it is a property just like
any other property. And, and I, and the, the role of the government,
indeed, in my view, the only role of the government in the realm of economics is the protection
of property rights. And intellectual property rights are a right
just like that the government should be there to protect, uh, your land from, uh, somebody
squatting on it or somebody, uh, stealing your purse. Uh, intellectual property rights are just
like your purse and just like your land. Indeed, they are more property in some senses
than your land or your purse, because intellectual property rights, you can actually show that
you have produced them. Now, intellectual property rights are, are,
are, you know, uh, because reason is the source of all our creativity, all, anything that
we produce, intellectual property rights are the purest form, a manifestation of that,
of that reasoning capability. So, three things, briefly. Sure. Um, two, I just don’t wanna let go ’cause
this is really serious and one, one has to get things right. First, it is simply not true, it is simply
not true that the poor have gotten worse off since the War on Poverty. The poverty rate fell by between half and
three quarters between the inauguration of the War on Poverty in 1975. It has been roughly flat since then, as after
the Reagan administration, the War on Poverty was pulled back. That’s a fact, first of all. Second of all, on the intellectual property
point, you know, the reason J.K. Rowling is so rich isn’t just that she has
intellectual property rights. It’s also that there’s a middle class which
can read her books. The middle class was created intentionally
by government policy, starting in the United States in particular with the schools movement
in the 1890s through the 1920s, which were government-run. In fact, public schools from the Puritan area
earlier. But it is a striking feature of the United
States that as recently as 1920, the Europeans thought that US American public schools were
wasteful because they gave an education also to dumb and lower class kids. And that was a commitment in the United States. And that’s what produced the middle class
that buys the books. And that’s government. A final thought on intellectual property rights. When you say intellectual property is a kind
of property, what you mean among other things is that the government will use its power
to prevent people from taking it. Now, notice, that’s true for money also. Money is not a thing, it’s a relation of constraint
and freedom. If you had a series of sheets of paper, and
on the slips of paper, it said a $5 sweater, and if you went and you had the slip of paper
and you got the sweater, you could have the sweater. And if you tried to get the sweater without
the sheet of paper, a man with the gun would come and put you in jail. Nobody would say that the slip of paper is
a thing. They’d say it’s an accounting mechanism for
telling how the government uses force against the citizens. Now, money is just a sophisticated accounting
mechanism for telling how the government uses force against its citizens. Moreover, because money is fiat money and
central banks make it, and when they set interest rates, they set the price of money. Money is an overtly discretionary and political
form of coercion. And in the last 30 years, if we had more time,
I could go through chapter and verse to illustrate how that form of coercion has been intentionally
and self-consciously deployed by the government in ways that are known to enrich the elite
and to make the middle class less well off. This is not a question of trying to get the
government out of our lives. It’s a question of acknowledging that the
situation we’re in is the con-, is the consequence of government policy, and that free markets
are the technique of coercion that the government is using. Thank you both very much. Um, so, my question is about the relationship
between ambition and drive and human flourishing. Um, so, Professor Markovits, uh, please correct
me if I’m wrong, but the way I understand your model is that there would be sort of
less of a premium on ambition and drive. Um, do you think that’s sort of a longer-term
issue as far as, um, cementing the divisions that exist under your system, because then
people will be less likely to move? Um, and, you know, I, I do, I take the point
that a lot of us at Yale Law School come from elite backgrounds, but many of us, you know,
myself included, are children of immigrants or come from poor families. So, um, I think that’s, that’s something that
would be good to hear more about. Um, and from Dr. Brook, um, do you think that,
uh, capitalism and this sort of endless drive to create the next, you know, big thing can
actually reduce human flourishing? Uh, maybe if we weren’t all trying to be elite
lawyers, we could be artists or poets, um, or, you know, statesmen, things like this. So, so, sort of thinking about, uh, what drives
people to be their best human beings. Uh, how do you both think about that? You wanna- Sure. I’m happy to. Uh, it is me-, I mean, it, that’s an interesting
question. But it’s capitalism that creates the wealth
that makes it possible for us to become consumers of poetry and art and music. It is no accident that the 19th century saw
a huge flourishing of art. Beethoven was the first composer ever to be
able to actually make money off of his music and wasn’t dependent on some aristocrat or
some church leader because he could put on a concert and sell tickets. That is what capitalism made possible. My, my children both went into entertainment,
right? Um, because I told them to follow their passion. And, and part of the reason is, is we live
in such a rich culture that many, many, many, many people are going to go into entertainment
because we have so much money and so much leisure time to be able to consume that entertainment
and those arts and those things. So, if anything, capitalism and the arts go
hand in hand. It is the wealth creation of capitalism makes
possible, that makes possible the flourishing in the arts. And, and I do have to comment on the three
points that you made earlier, quickly. If you look at poverty rates, fact, if you
look at poverty rates in the United States, they were declining way before the beginning
of, of the War on Poverty. They had started declining decades before
and continue to decline through the ’60s. The momentum sustained itself to ’75. ’75 is when the, the, the welfare state, the
War on Poverty really kicked in its negative incentives, and since then, it’s been flat. But if you’d, if you hadn’t had a War on Poverty,
poverty rates would have declined and continued to decline post-1970, uh, post-1975. Fiat money, fiat money is not a feature of
capitalism. Fiat money is government intervention. Fiat money is the mixed economy. I’m against fiat money. I would like to see money privatized so that
money isn’t just an accounting, it isn’t just a piece of paper, but actually reflects the
real value creation like it was when we had a gold standard or some other kind of real
wealth standard. So, I agree that fiat money over the last
30 years has dramatically distorted the economy, distorted distribution of wealth, and benefited,
to some extent, the people at the top because they own so much stock and the money has flowed
into the stock market and driven stock prices up. But that is a feature of the state, that is
a feature of mixed economies. So, it, capitalism does not produce fiat money,
capitalism produces bank-based, uh, gold or some, some kind of a standard-based money
that is not just an accounting entry and is not based on government coercion. Prof. Markovits: Let me say something about
the ambition point, um, which is a very, very hard point and, and one wants to be thoughtful
about it. And the reason it’s hard is one has to distinguish
between being ambitious for something that is actually worthwhile and being ambitious
in light of the system of economic reward that exists. And it’s cheap to say those are simply totally
different. That’s not right either because it’s worthwhile
to serve ends and interests that other people care about. And when you do that, you sometimes get rich. But at the moment, if you look at where our
in-, our system of inequality channels people’s ambitions, people who have a very good sense
for very short-term risk can get extremely wealthy. People who can design derivatives can get
extremely wealthy. People who interestingly have the capacities
of the individual cardiovascular surgeon or brain surgeon can get extremely wealthy. But notice this about medicine. We can transplant a heart or make an artificial
heart. Here’s something we don’t know the answer
to. What’s better for your heart health in the
long run? An hour of exercise twice a week, two hours
of exercise once a week, or 10 hours of, 10 minutes of exercise daily? We don’t know the answer to that question. The reason we don’t know the answer to that
question is that if you are a cardiovascular surgeon, because of the way in which you produce
your good, you get your marginal product, which is your average product. You get a very high share of the social good
you produce. If I figured out the answer to this other
question, I wouldn’t be rich. I can’t get intellectual property, in fact,
about how much you should exercise. It’s not legally possible and it wouldn’t
be practicable. Now, inequality is the cause of some of these
differences. And so, it’s partly something that drives
us to be ambitious, and that’s not to be neglected. But it also channels our ambitions in ways
that produce great private return and take away from the public good. And if we had less inequality, we would reduce
the incentive on the one hand but increase the accuracy of what the incentive is leading
us to on the other. And on balance, I think we’d all be better
off. Okay. One more question. Do you have time for one more question? I think. Okay. So, we have one, time for one quick question
and then we’ll end with just, uh, a couple of minutes for each of you to sum up your
remarks. Oh, okay. So, um, go ahead. Sure. So, I’ve got a question kind of aimed at both
of you. Uh, Dr. Brook, um, I’m curious, under your
system, I think one of the concerns would be that those are the very lowest levels of
society would have to work so many hours for their own subsistence that they wouldn’t have
any opportunities to advance. And you’d talked about how in modern society,
there is an issue with the poor being able to rise up. So, I guess I’m curious how you think that
these issues around, uh, poor people being able to rise through social strata could be
resolved, uh, in your system. Uh, Professor Markovits, I, I guess my question
for you is, I, I, I agree with a lot of what you said about, um, problems in society, but
it seems to me that the issue here isn’t actually income inequality. The issue is cultural. Uh, the issue is that we put so much value
on making, uh, $500,000 versus $60,000 in living, uh, in a middle-class neighborhood,
in a home with the, you know, the white picket fence. Um, so, is the issue that our country facing,
actually this cultural misappropriation of what we value, uh, rather than someone being
happy pursuing their own goals, and who cares what Bill Gates is buying, whether it be a
yacht or a mansion, uh, do you think it’s a cultural issue or is there something inherent
about income inequality? Thank you. Sure. Um, I need a question. Um, oh, what would happen to poor people in
my system ’cause they would have to work all the time? Um, I mean, the, the fact is that the only
system in human history, uh, to bring people out of poverty is, uh, uh, the free market
to the extent that it is, uh, practiced. Uh, over the last 30 years, one of the most
under-reported stories in the world is the fact that somewhere between one to two billion
people have come out of poverty not because of redistribution of wealth, not because of
charity, but because some countries have, have, have made it possible for free people
to actually go and work. And, and, and in a division of labor society,
whether it’s China, whether it’s India, whether it’s Thai-, Thailand, whether it’s the whole
area of Asia and even a few pockets in Africa. And, and what happens is that the productivity
of labor rises. As it rises, they get compensated more and
more. The ones who are the more, more ambitious
and, and, and who learn faster, uh, get to management jobs and, and can, and there’s
no limit to how far they can rise wi-, within the, their economic sphere. The only way in which to allow poor people
to rise up and, and to, you know, the, the ones who want to and to become middle class
and to become rich, uh, is through capitalism. And, you know, we, we talked about this, uh,
you know, the advantages you have if your family has wealth. But a lot of the entrepreneurs I talked about
and a lot of entrepreneurs, if you look at that list, take out the Walton family, if
you look at the list of the 400 richest people in America, many of those people did not come
from wealthy families, including Steve Jobs whose father was an immigrant from Syria who
would probably be banned by Donald Trump from entering. But, you know, uh, an immigrant from Syria
and, and, and didn’t try, didn’t grow up in a particularly wealth-, didn’t go to Yale
and, and so on. So, and, and indeed, uh, if you look at the
people who go to Silicon Valley, if you look at the people succeed in Silicon Valley, where,
which is an industry that is still relatively unregulated, still where the government has,
has, has stayed out of, uh, you see people succeeding from all walks of life. And you, you, you don’t have a limitation
in terms of, you know, where your pa-, parents went to school or where you went to school. The standard is not whether you got a house,
not like the law firms in New York. Standard is not whether you go to Stanford
or not. The standard’s whether you can program or
not. Even if you didn’t go to school, you can,
you can get a job. So, uh, I think the only way to allow, uh,
uh, poor people to rise up in a way that not just gives them money, because I don’t think
life is just about money, uh, but we also grants them the ability to create self, have
self-esteem and have pride and have the kind of human flourishing that I think all of us
are capable of producing, is by them working in a free market, increasing their productivity,
increasing their economic value, and, and making therefore more and more and more money. And that is the history of capitalism every
way you look. And, and it’s the history of capitalism in
the 19th century in America, which is what really created the middle class. Uh, I mean, uh, uh, after all, Karl Marx who’s
writing about the middle class in 1850s. There had to be a middle class in 1850 before
public education. Uh, there was a middle class from the beginning
of the capitalism. There were, there were people rising up into
a bourgeoisie, into a middle-class environment. Karl Marx writes about this in Das Kapital. So, you know from the Marxists even that,
that it is capitalism that produced the middle class. I mean, Karl Marx bemoans exactly that fact. Um, the question of ideals and ambitions and
culture is a hard one. One way to think about it is this. About 100 years ago, maybe 115 years ago now,
Thorstein Veblen wrote a book called “The Theory of the Leisure Class,” in which he
observed that in that social order, leisure made somebody high status. And what the rich sought were conspicuous
forms of useless activity, right? Falconry, jousting, knowledge of ancient languages. Veblen who wan an immigrant thought English
spelling, English is so hard to spell, he thought, because that way you could credibly
show by knowing how to spell that you didn’t have to work for a living. The whole idea was to show you didn’t have
to work for a little. Now, in that regime, an economic transformation
starts happening. And at that moment, what a bunch of idealists
think is that machines and technological innovation are gonna come, and they’re gonna relieve
the middle class and the working class of the need to work industriously and to work
hard. And then, the middle class and working-class
can get leisure and they’re gonna get dignified, status-conferring, useless activity. Karl Marx’s son-in-law writes a pamphlet called
“The Right to be Lazy” about exactly this idea, and Keynes makes a similar argument. What, in fact, happened is that as the technology
came, and as elites started training their children, and as the cycle that I described
earlier got going in which rich parents give super educations to their rich children who
then work even harder and become even richer based on their elite labor, leisure ceased
to be a sign of status. And business, industry became the badge of
honor. So, as everyone in this room knows, a typical
answer when you’re asked, “How are you?” in an elite office or hallway is “Oh, so busy.” That would have been a sign of self-disgrace
120 years ago. But now, it’s what you show off to show how
busy you are, how important you are, how much industry you have, how much your time is desired. And what’s happened is that the middle class,
because how we make things has been transformed, doesn’t have jobs. Machines and rich people are doing all the
work. I’m exaggerating, but that’s the structure. And the lack of jobs means that instead of
getting leisure, middle and working class people are condemned to enforced idleness,
which is a form of degradation. And what the middle of the country wants is
not a handout or just money. What they want is meaningful work, which is
like the same thing everybody in this room wants. But we’ve set up a kind of inequality which
makes there be no meaningful work for people in that position, because the people in this
room are taking up all the work. And that’s why something that expands education
and shifts the labor market away from super-skilled labor to mid-skilled labor is what one needs
to get the jobs to come back, so that then people can do the work and get the industry
and get the status and become once again the charismatic center of the American economy
in the American society, which is exactly what a just order requires. Thank you both. And thank, thank you both very much. And so, as we wrap this event up, we’d like
to give each of you a chance in, in just a couple of minutes to sum up any final thoughts
you have or share any final ideas that you have at this point. And so, uh, Dr. Brooks, you went first. We’ll let you go first now. And Dr. Markovits, we’ll let you finish things
off for us. Dr. Yaron Brook: So, uh, just to, uh, feed
off the last, uh, few comments. There was no shortage of work in the world
today. Uh, indeed, there are more people working
today than ever in human history. What many people unfortunately in the middle
of this country want is to have work which requires them not to move and have no competition
from people working very hard in China and other places. What they want is for the work to be provided
to them on a silver platter, at their convenience, where they are. If you go to Northwest Arkansas, there’s plenty
of work in Northwest Arkansas. There’s plenty of work for welders in California. There’s plenty of work in lots of places,
not in Southeast Ohio. So, get in your car and drive to where there
is work. They used to be what Americans did. But it is this claim that, uh, you should
resent the rich and you deserve and you’re entitled and you need, justify that we provide
you stuff. It is the entitled mentality of much of Middle
America, unfortunately, which is driving them to sit on their butts and to wait for the
work to show up for them on their doorstep instead of doing what Americans always did,
which is get up and create the work or go to where the work was. And this is, I think, what has happened in
this country. Since the War on Poverty and even really since
before that, we have generated, because of the welfare state, because of massive redistribution
of wealth, and because of the expectation that the government will, will meet every
need and that it is morally obligated to meet every need of the people, we have created
a mentality that is today driven more by envy of success than by ambition for success, more
driven by resentment than by love of work and ambition. And as a consequence, we’re getting the kind
of politics that we’re getting, and we’re getting the kind of mentality, I think, that
is a real problematic, a, a, a static mentality that never existed before in America. Uh, let me just say, what concerns me at,
at the end of the day is individual freedom, is individual liberty, is the ability of the
individual to live his life as he see fits, as he sees fit. Without a coercive government, a, a government
that tells him what he can and cannot do when he needs a license to practice, uh, to open
a nail salon, you have to pay $20,000 to open a nail salon, or to get a license from the
government of shampoo here in California. You wanna help the poor, you want to help
ambitious people everywhere, the solution is to get the government out of our lives
and to really change our moral code. Instead of waiting around for our needs to
be fulfilled by others, instead of expensive ex-, expec-, instead of morally expecting,
uh, uh, demanding that our needs to be fulfilled by others, we need to return to that individualism
that was, I think, much made up kind of the American character which was, you know, to
take care of one’s selves, to have personal responsibility over one’s own life. Personal responsibility in the deepest sense
to make your own life your own moral responsibility, to live your life, to flourish as an individual
human being no matter what your background is through your own effort, your own energy,
your own skill, your own ambition. To live as a human being, to live as an individual. Prof. Markovits: Let me say something about
work. And then, something about, uh, imagination. So, it’s bread and roses. Um, with respect to work, you know, I, I went
to an urban public high school. A couple years after I graduated, the police
station was put in the high school. Um, a lot of friends in high school, still
friends with them now, who, you know, got married or joined the military right after
graduation, did not get a college degree. Um, many of them are struggling. None of them is lazy. They want work. On the other hand, they reasonably want jobs
that will allow them to live the kind of life that, in a free and equal democracy, a respectable
stable family lives. That’s not an $8 an hour job. Just isn’t. An $8 an hour job leaves you below the poverty
line even though you’re working. If you look at what the economy has been providing
over the past 30 years, employment and wages are going up in the bottom tenth of the distribution
of the skill and wage distribution. And they’re going way up in the top part. And they’re going down in the middle because
those jobs are jobs that are being replaced by machines and computer algorithms that are
being designed by the people at the top of the distribution. And so, the jobs that people want are not
there. That’s the first point. And when they’re not there, the lives that
people, not selfishly or childishly or lazily, but reasonably would like to have, in the
same way in which all of us would like to have lives like this, are not available. And then, the question is “What to do?” Now, my diagnosis is that the reason those
jobs are not available is that elites are changing the way we work and make things to
their own advantage, and that those jobs could be available. It should be said. They’re available in a country like Germany
where, for example, capital deepening in an industrial sector, including in finance, is
associated with wage compression. So, when German companies invest in more machines
and computers, what they do is they invest in technologies of production that hire mid-skilled
workers. And there are more middle-class people. We don’t do that. We hire super-skilled workers, and there’s
a reason this is a choice that we make. And it’s a choice that we can unmake by changing
the way in which we educate people and by changing the way in which we regulate and
organize in tax production and labor. That takes me to the last point, which is
about imagination. The system that we have now has a dangerously
seductive character. In an old form of inequality, in which rich
people were born into rich families who had been rich forever and owned lots of land and
inherited the land and led lives of dissolution and idiocy, it was easy to see what had gone
wrong. But in the society we have now, in which rich
people are trained to within an inch of their lives from birth and work all the time and
are drilled and are constantly insecure of not getting the grade and not getting admitted
to the next place and then work all the time as adults and are not made happy by all the
material wealth they have because after all at some point the money doesn’t get you anything,
but the freedom would get you a lot, it’s very easy for the elite to say, “Well, I must
deserve this because I’ve sacrificed so much for it. And so, I must be entitled to it and those
who don’t have it must be resentful or lazy or trying to usurp me.” And this is a system that makes nobody well
and produces massive inequality. And so, the first imaginative leap is for
both sides to see, for the elite to see, “No, you don’t deserve it. It’s true you work for it, but you don’t deserve
it because you work for it under circumstances that were not of your own doing and because
you get it in a system that harms other people.” And then, for middle-class people to see that
rich people aren’t individually evil or venal. They’re in this system, too, and they’re as
much being ground up by this mill as we are. It’s just, you know, they’re exploiting themselves
as they, they’re ground up and then sleep an eiderdown, which is a much better thing
to do, but still doesn’t mean you’re well. And that’s the point at which a political
movement can arise that can change the way we make these decisions and the way in which
we structure education and labor and produce the kind of society that, in fact, people
on both sides of the divide want and were thriving. Thanks very much for coming, guys. On behalf of the Yale Law School Federalist
Society, Dr. Brooks, Professor Markovits, thank you very much for joining us for what
was a thoughtful, engaging conversation. For those of you here in the audience tonight,
thank you very much as well. And for those of you watching at home, thanks
for joining us. Have a great night. Thanks again.

45 Comments

  • Mitch Silver

    I have a parable…. I have a machine I want to make.. it will create unlimited renewable energy….band it will be cheaper than a 50" TV….. but I need $ 800 million to develop it……. well it's a good thing those evil wall streeters don't make as much money as a factory worker, so all the smart people are now in politics where they live high on the hog at everyone's expense….ooooh and my global warming saving devise never gets made….

  • Mitch Silver

    48:00 I disagree with my capitalist friend over here I think you need to start a little bit before education I think you need to start with the cost of living that is artificially High given government restrictions on various things one of those in particular happen to be the cost of housing which is way too damn High I like my man's said who is running for governor and fortunately he didn't understand economics he probably understood in economics as much as that commie bastard on stage school supply and demand the government restricts the Supply and the demand is high this is New York people are moving here this is where the jobs are there not in the Homeland as you would say and the housing stock is Duke rapid there are many people who are living in subsidized housing in the form of not government subsidizes a private individual subsidizing poor people because of Regulation rent control rent stabilization on a landlord and I see you know old people living in 5 bedroom apartments paying $900 a month in 2017 this is crazy the living there all by themselves and clearly these housing units could be much better we served by families who really need them understand old people they need to live someplace and but the way things are arranged now it's completely insane you've gotten politicians who think that they are God's and they're f**** retards those people literally need to f**** read a book on economics and not the ones that idiot on stages reading

  • Mitch Silver

    56:20 wow man I'm really starting to love this Connie f*** this guy he's f**** hilarious India and f**** Sweden man that's f**** awesome the two places with the most egregious rape problems in the f**** world yes that's what we want that's f**** amazing….. hilarious

  • Mitch Silver

    56:40 speak for yourself pale face but I think this is not that complicated I mean the damn government is subsidizing poverty and conditions that create poverty such as a single parent household on one hand we've eliminated the manufacturing Base by inducing ridiculously high taxes on the capitalist class you said f*** this s*** removing the s*** overseas man right and I have a bunch of unemployed people of color Kayla say people of color and then what we've done is we in reinforced fortified that poverty buy ridiculous laws that make it compelling to the poor person to stay in a state of poverty such as having multiple kids by multiple different fathers you know that's it function of law that created this this is nothing to do with rich people but I was rich people did not create this

  • Mitch Silver

    56:50 oh man damn it what's dismaying is is how inefficient government is how much money it costs and how unaccountable it is that's what's really insane the damn thing keeps getting bigger and bigger and bigger spends more and more and more money the private sector doesn't work that way if you do a s*** job in the private sector you have fired and the government more money how f*** up is that I really want to do a s*** job and make more money I would make more money I'm maybe I should just do a s*** job that's what I should do

  • Mitch Silver

    57:15 man do I have a question for that commie bastard okay yeah apartaid sucks right and since it's sucks so badly what we should do apparently what I'm getting from what this a**** is saying is that people who who don't contribute at all to factors of production in any way should make as much as the median of those who do produce that would be like….. I got an idea, I really have a good idea, I mean shit this is a great idea, what if Government didn't take taxes from anybody cuz it seems to me like the poor get hit the hardest man, if you look at taxes like real estate taxes that seems to hit the elderly the most I mean cuz once you're like 50 years old and retired, and should be retired it 50 right they keep raising the age on that but let's say 50 you were retired I mean why are you even paying real estate tax anyway u own it right… no that's right the government does u just rent it..in New York City like this bothers me is like real estate taxes for example are roughly $25,000 for s 12 unit building, you got to divide that amongst the tenants right and then divide it by the months in a year, that's what the government actually gettinng more than that like way more I don't want to get into actual numbers but if you look at all the taxes plus they're getting the corporate tax on the profits on top of that 15% , yes I can write off the 25k but I still gotta pay it..l paying the 15% corporate tax and then you still have the 200 f**** employees and s*** and you're paying f**** their f**** Taxman and it's f**** crazy I mean all this f**** tax man what the f*** and in all this s*** pushes up the price of housing and what do you get…….. apparently really shity public f**** schools

  • Shem Doupe

    I love the difference between these two. Yaron who is happy and content and smiling. ANDDDD then there is this other bitter, angry looking, resentful clown.

  • C O

    The quality of Yale law school students is abysmal. This is how dumb elites are produced, by dumb law school professors at elite law schools. Thank goodness I didn't got the YLS about 20 years ago. But I do agree with Daniel on his own institution: (a) he should've got an F and bear all the consequences of his own misbehavior, (b) we should take away tax deductibility status for the elite private universities in this country.

  • C O

    And Daniel Mokovitz got a lot of facts wrong, too, while having an arrogant demeanor in feigning authority on statistics. (a) the rise of the PHD quants on Wall Street was not to serve the super rich, but to serve the rise of institutional investors; it is precisely the aggregation of investable capital in large institutions(some of which is driven precisely by government regulations) that caused the change of finance from small stock investors to concentrated Investment Banks, private equity funds and hedge funds, whose largest clients are state pension funds, insurance companies etc. (b) the poverty rates actually was coming down in the US, until the war on poverty started, just look at this chart on wikipedia: https://en.wikipedia.org/wiki/Poverty_in_the_United_States. There are more, but let's just stop here.

  • Florida Man

    As land values increase rents increase. Wages must increase lest capital lose it's claim to surface value. An increase in the minimum wage has never resulted in substantial inflation within The U.S.

  • Florida Man

    Private capital can only exist with the support of the state. Thus, the more the rich have the more they must demand from the state to secure their "rights". Hence, a "free" market entices these moneyed Colossi little.

  • Stephen Jones

    A terrific, civil debate. We need more of these.

    Still, the reason Markovits seemed tamped down, more subdued and "bitter", I believe, was because he was impatiently seething a bit at Brook's painting a Libertarian paradise, if only government and bleeding hearts hadn't interceded. I laughed when Brook called for an unleashed free market so the abundant jobs could flow where nature intended. He neglects to remember that child labor was very natural and the children of the poor flowed freely to those jobs. Who needs minimum wage, five day work weeks and safety regulations anyway? Ah, those were the good old days. Also, today, free markets dictate that ALL jobs (and increasingly white collar jobs) flow to the global bottom. Today, if a CEO doesn't choose outsourcing she can be judged negligent by stockholders. I guess Brook would chastise us all for being too entitled to move to India if that's where the jobs are. How lazy of us.

    So, Brook is mostly right that the free market is a natural and low friction way to reward ambition (with a hefty bonus for innate privilege, family wealth and ability to exploit people…err…resources). However, it offers no guarantees at all about quality of life for most people and well-being of society at large. That's the main alarm being raised by discussion of income inequality, not that wealthy Fred makes more than lowly Jane (so we damn Socialists must take from Fred to give to Jane). Instead, the point is we need to apply reasonable correction to runaway inequality that has the top 1% sucking all opportunity (not just wealth) away from the bottom 99%. Having to climb a ladder to a better life is the American way. We just have to rebuild the rungs that have been rotted out of the middle of that ladder.

  • Chronokun

    1:01:00 girl with the red shirt and glasses asking the important questions forcing Yaron to give his first irrational answer and undermine his whole philosophy, nicely done. Intellectual property rights are violence and not real property at all – especially patents, the government guaranteed monopoly, the biggest most egregious form of regulatory capture and yet Yaron the ultra-individualist fails to call it out, shameful tbh.

  • Ken Marriott

    If you can’t beat them them, join them. It starts with multi-generational planning. Government many times makes things worst, by giving handouts and thus trapping people in poverty. People grow when rewarded for being ambitious. Welfare state and minimum wage reward people for being lazy. Giving people money won’t necessarily make them wealthy, but teaching the philosophy of wealth will. You don’t need college for this. This can be taught in elementary school.

  • Rob Thompson

    You also use the worlds resources which are finite; of which, money can not be the factor for how it’s distributed.

  • Rob Thompson

    You also rely on our labor to protect and secure your wealth. Most of the wealth the cops and soldiers protect is yours, so; you should pay more for protecting it. But, you want everyone else to pay for it.

  • Rob Thompson

    Then you have the delusion that inequality would burden you, that the masses want all of your shit. The truth is the laborers that make your shit have a right to a life for that labor. They have a right to a home, food, power without both providers needing multiple jobs to achieve it.

  • R S

    Somehow we have convinced ourselves that Jesus Christ was some kind of respectable man, a figure of solemn authority.
    But the cops and judges didn't crucify Jesus for being respectable.
    No, they crucified him because he was an outlaw, a revolutionary.
    They crucified Jesus because they were afraid he was gonna take power away from them and give it to the poor.
    We're living in biblical times again.
    There is a holy war in this country.
    The rich versus the poor it's the same war Jesus himself was in.

  • markv1

    I find it ridiculous the assumption, with no facts backing it, that is being pushed – that "elites" "created a class of workers of out their children" that society desires. If you go to any Ivy League school, you will find that majority of students are NOT elites. Majority are either middle class OR poor, who get financial aid. Many are first-generation immigrants or children of immigrants. So, this entire assumption that elites breed elites is simply factually wrong.

  • Rock On Bye

    Please!!!
    , all this talk about equality….. let's just stop the pontificating.
    Eguality can never be achieved, it's a unicorn.
    It's NATURE who's in charge, and that's why Equality can never be achieved.
    And nature isn't perfect.
    Every human being is born with strengths and weaknesses.
    Not everyone has the mental capacity (intelligence) to go to Yale or other elitist colleges.

    Not all Asians are intelligent. Not all Italians can cook.
    That's why we need the ones who can,help the ones who can't, by being, Doctors, Farmers, Business Developers….. others are helped by the stronger gifts of others .
    It all boils down to the the individual human and how he harnesses his own talents.
    Open market is the only way Humanity can move forward.
    And the power of Nature.

  • Maryia K

    The first guy is right. The government is the problem because it enables Ivy League schools and provides large contracts and subsidies to billionaires.

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