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.
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