Entrenched Rent-Seeking

I think I agree with Richard Reeves, if this characterization of his recent book at Democracy is in any way representative of the work:

Reeves opens Dream Hoarders with a story to illustrate his point. In January 2015, President Barack Obama proposed eliminating a college savings program called “529s.” The 529 program, put in place in 2001, allows families to set money aside that grows tax-free so long as it’s used only for higher education expenses. The 529 program is quite generous, but it mostly benefits upper middle-class families. Since he doesn’t provide the statistics, I looked into it and found that a parent can save up to $70,000 a year—or $140,000 for a married couple—for each child. Thus, families with the means to save such substantial sums can and do save much more than what the typical (median) U.S. family earns, which was $56,516 in 2015.
In Reeves’s view, what happened next threatens everything that makes America great and fully illustrates the “favored fifth’s” privileges and how they protect them. President Obama proposed replacing this program with a tax credit that would benefit taxpayers of more modest means. The public outcry among highly educated elites was immediate. After complaints from a few members of Congress—particularly representing upper middle-class districts—the Administration backtracked; the 529 plans would not be touched. Reeves argues this furor over the proposed elimination of an educational privilege for the upper middle class demonstrates their chokehold on access to opportunity. He uses this story as a touchstone throughout the book to build his case that the members of the favored fifth are wedded to their privilege.

To my eye here’s the kernel of the piece:

In the Progressive and New Deal eras, low- and middle-income workers created a coalition with upper middle-class professionals to push toward a new vision of government. To be sure, there were some downsides, such as mandatory assimilation—requiring new immigrants to adopt American lifestyles, including the Puritanical ethic of abstaining from alcohol—and some glaring omissions, such as when the otherwise-pioneering Federal Labor Standards Act of 1938 excluded the primarily African-American domestic and farm workers from the protections of the law. Still, there was a compact between the highly educated professionals and the communities they sought to serve that focused on improving living standards for the broad middle class. Frances Perkins, the first woman to lead the Labor Department and author of much of the New Deal, is emblematic of this bond. She was a graduate of Mount Holyoke College, the elite liberal arts school for women, who spent her evenings and weekends at Hull House, the first so-called settlement house, working within the working class communities she sought to serve.

In other words via rent-seeking professionals and a big chunk of what used to be thought of as blue collar government workers have managed to create a substantial gap between themselves and other workers. Just to use Chicago as an example, the median Chicago public school teacher, Chicago cop, or firefighter is in the top 20% of income earners (many teachers, police officers, and firefighters earn well into six figures). How the city can afford that in the long time with neither the power to impose a graduated income tax or retain high wage workers within the city is anybody’s guess. IMO it’s a flawed business model.

So the enormous incomes and power of the top .1% of income earners isn’t our only problem. The entrenched power of the top 20% of income earners is major problem and you need do no more than look at who spends the most money on lobbying to discern their business model.

Democracy and I part company here:

The path forward requires that we rebuild that coalition.

The path forward is to restrain what can be accomplished via rent-seeking. Otherwise the numbers just don’t add up. When you’re subsidizing 80% of the population you aren’t subsidizing anyone.