Will taxing the rich improve democracy?

Many people believe that income inequality in our society is too high. I generally don't agree (some of my reasons are here), but I'm open to arguments. However ... not the particular argument that Ian Ayres and Aaron Edlin made in the New York Times last week (and later added to at the Freakonomics site), that income inequality undermines democracy:

The progressive reformer and eminent jurist Louis D. Brandeis once said, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both."

Brandeis understood that at some point the concentration of economic power could undermine the democratic requisite of dispersed political power. This concern looms large in today’s America, where billionaires are allowed to spend unlimited amounts of money on their own campaigns or expressly advocating the election of others.

What we call the Brandeis Ratio — the ratio of the average income of the nation’s richest 1 percent to the median household income — [now stands at 36]. We believe that we have reached the Brandeis tipping point. It would be bad for our democracy if 1-percenters started making 40 or 50 times as much as the median American.

Enough is enough. Congress should reform our tax law to put the brakes on further inequality. Specifically, we propose an automatic extra tax ["Brandeis Tax"] on the income of the top 1 percent of earners -- a tax that would limit the after-tax incomes of the club to 36 times the median household income.

So, their idea is: some people have so much money more than the rest of us that they can disproportionately affect the outcome of elections. Therefore, we should tax them to make the income distribution more equal. That way, the rich will have less money, which means they'll spend less influencing politicians, and democracy will be stronger.

There are so many reasons to disagree with this that I won't list them all. But, the most obvious one: are the authors really saying, with a straight face, that a tax on the rich will make them less politically active? Would that work with any other group? "Hey, black people are starting to march on Washington. Let's put a special surtax on black people. That'll quiet them down!"

And that's not even the biggest problem. The biggest problem is that Ayres and Edlin don't own a mirror.

Think of the most important ways that the USA and Canada are different, in terms of government policy, than they were a couple of generations ago. If you were to ask me, the biggest changes are things like: The elimination of racial segregation. Women's Rights. Gay Rights. The Canadian Constitution and Charter of Rights. A more peaceful world. A better welfare system. Somewhat lower crime. Socialized medicine (in Canada).

Add your own. Then, ask yourself, how many of them have much to do with rich people giving money to politicians?

Take, for instance, racial segregation. How did that change? Did some rich black guy come along, slip a politician a couple of million dollars, and then, wham, suddenly everyone gets to eat at the same lunch counter?

Of course not. Racial progress happened by a change in the attitudes of Americans, not by the actions of politicians (who acted late, only in response to public demand.) What happened is that Americans fueled the process. They read the newspaper, and debated, and protested, and wondered, and marched, and argued, and pondered, and chatted at the water cooler, and gave speeches, and rode buses, and watched TV.

And, slowly, day by day, week by week, people's views changed.

It had nothing to do with where wealth was concentrated, and nothing to do with the richest 1% of Americans donating money to the right politicians. The "power" WAS dispersed; it was dispersed among millions and millions of citizen voters. The wealthiest black person in the country couldn't possibly have used political contributions to speed up the process much before its time.

Of course, some people had more influence than others, like Martin Luther King. And, the media: newscasters, and columnists, and reporters; TV, and radio, and newspapers. Someone writing for the New York Times, for instance, would get read by millions of people. One New York Times is the equivalent of thousands of water coolers.

That means that if you want to argue that inequality is undermining democracy, you shouldn't be thinking about money. You should be thinking about public discourse.

Let's suppose that over the last year, the Times has had five or six opinion pieces per day. That means that, at most, around 2,000 Americans got to have their voices heard in the op-ed pages of the New York Times. Many writers, of course, appeared more than once. For the sake of argument, let's say there were 1,500 different writers. The US population is 300 million, which gives us this shocking measure of inequality of influence:

The top 0.0005% of US writers wrote 100% of the New York Times op-eds.

Compare that to money: by my estimation, the top 0.0005% of US households earned less than 2% of the overall income.

By this measure, that means the concentration of op-eds is FIFTY TIMES AS HIGH as the concentration of income. Fifty times.

But that's not really fair, since the New York Times isn't the only place you can broadcast your influence. Let's suppose the top 100 venues -- newspapers, TV, or blogs -- have 100,000 different writers, and comprise 75% of the total political influence in the US. Compare that to the top 100,000 households in income:

0.03% of the population has 8% of the income.
0.03% of the population has 75% of the influence.

So, if democracy is compromised by the unequal distribution of income, how can you say it's not compromised by an unequal distribution of public access to opinions and influence -- especially when the latter inequality is EIGHT TIMES AS HIGH?

The fact is that Ian Ayres, with at least three other op-ed pieces in the New York Times in the past ten years -- 50,000 times as many as the average American -- has much, much more influence on public policy than your typical rich guy. And Paul Krugman, the Times economics columnist, writes around 100 columns a year -- fifteen million times as many as the average American.

"Enough is enough," indeed.

I propose a "Krugman Tax." Every year, we'll compute the "Krugman Ratio," the number of words the top 100,000 writers published, divided by the number of words the average American published. If it's more than, say, 40, those writers will be taxed just enough words to bring the ratio back down to 40 in future. That will ensure that everyone, not just the ultra-published like Ian Ayres and Paul Krugman, can influence American political decisions.

We'll do it for democracy.

Billy Beane: use sabermetrics to improve health care

In this New York Times Op-Ed, Billy Beane teams up with Newt Gingrich and John Kerry to suggest that a sabermetric approach could help save American health care.

"Remarkably, a doctor today can get more data on the starting third baseman on his fantasy baseball team than on the effectiveness of life-and-death medical procedures. Studies have shown that most health care is not based on clinical studies of what works best and what does not — be it a test, treatment, drug or technology. Instead, most care is based on informed opinion, personal observation or tradition ...

"One success story is Cochrane Collaboration, a nonprofit group that evaluates medical research. Cochrane performs systematic, evidence-based reviews of medical literature. In 1992, a Cochrane review found that many women at risk of premature delivery were not getting corticosteroids, which improve the lung function of premature babies.

"Based on this evidence, the use of corticosteroids tripled. The result? A nearly 10 percentage point drop in the deaths of low-birth-weight babies and millions of dollars in savings by avoiding the costs of treating complications."

I have no doubt that the authors are right. Baseball's "doctors" – sportswriters and broadcasters – believe that Derek Jeter is an above-average fielder, despite mountains of evidence and tens of studies pointing the other way. If experts can be so wrong, for so long a time, *despite* the statistical evidence, doesn't it seem like doctors are going to be just as wrong when there is *no* statistical evidence?

The authors recommend:

"Working closely with doctors, the federal government and the private sector should create a new institute for evidence-based medicine. This institute would conduct new studies and systematically review the existing medical literature to help inform our nation’s over-stretched medical providers."

Absolutely this is a good idea. But I think the process can be sped up. My suggestion: open the database to everyone, and offer prizes for the most significant findings, as judged by the new institute.

Why do I think this would work?

1. People are smart. The more people who work on this, the more knowledge is going to come out of the process. Sabermetrics wouldn't have happened if anyone had waited for "formal" baseball researchers to get to it. Linux wouldn't be as advanced as it is today if not for the open-source movement, and thousands of talented volunteers contributing continuous improvement.

2. People respond to incentives. The Netflix contest, where competitors scour a database of customer preferences to try to predict that customer's other preferences, attracted hundreds of competitors. That's very similar to what's involved here. People love an interesting challenge with recognition and prizes at the end of it.

3. You don't need to be a doctor. This is an exercise, mostly, in finding relationships in data. It's almost exactly what sabermetricians do every day. Sure, you'd need to know a bit of medicine. For instance, you'd need to know that corticosteroids are thought to improve the lung function of premature babies. Once you know that, then you take a look at whether the data show it. How do you find that out? Well, I'd bet there would be no shortage of "hints" like these, just as there is no shortage of advice on what companies to invest in, or tips on what third basemen are due for breakout seasons.

4. I'd bet that, often, doctors are unaware of many of the new findings in medicine. It probably takes a while for a good idea to become standard, as it takes time for more and more doctors to become aware of it. But with a big monthly prize, and the resultant publicity, any new knowledge that comes out of this process will be hard to ignore, especially if the medical establishment gets on board.

There is a certain mindset that if something is important, you need experts and academics and government to do it. That's true when you need extremely specialized knowledge or equipment. But when it's software development, or data analysis, there's no shortage of brilliant laymen willing to take a stab at it.

I think the lay public would help, enthusiastically, to figure this stuff out. Releasing the data could save a lot of lives.