John Quiggin of Crooked Timber fame has a post on the Jacobin website today critiquing a recent article on socializing finance by Seth Ackerman. After Ackerman’s piece was published, I wrote two sympathetic posts (I, II) about the idea of socializing finance. Quiggin is skeptical.
In his response, Quiggin does not appear to take exception to the idea of socializing finance, just with the specifics of Ackerman’s proposal. He makes three objections. First, socializing finance is politically unfeasible because many individuals have retirement savings in financial assets, and they will not support being forced to sell them to the government. Second, owner-managed businesses would cause practical difficulties for the plan because capital and labor income in such businesses are blurred. It is not clear what exactly you would seize from them and whether that would be a good idea. Third, the public managers of the new socialized equity could behave just as badly as the private mangers do.
Quiggin goes on to offer somewhat related proposals that he thinks are better, but here I want to address his specific objections. And it can be done quickly: use a different socializing scheme. I don’t know how important the specifics of Ackerman’s socializing scheme are to Ackerman, but there are very easy ways to use a different socializing scheme that can escape these problems.
For instance, consider a socializing scheme where the federal government levied steep inheritance taxes and used the proceeds to buy up financial assets from voluntary actors. This is a popular proposal among the people who write about socializing finance. It effectively converts the assets of dead people into public assets. There are strong fairness arguments in support of this idea. Inheritance is unearned and tends to entrench wealth and privilege across generations. Why not use it for the benefit of all, instead of the benefit of birth lottery winners, as is often the case?
The philosophical justification aside, this sort of socializing scheme would easily avoid objections one and two of Quiggin’s proposal. First, nobody would be forced to sell any assets. Unlike Ackerman’s proposal, it would not be mandatory. The government will use the revenues it generates from the inheritance tax to buy up assets just like any other market actor and only from willing participants. The retirees and those not looking to sell have nothing to worry about. Second, the owner-manager problem disappears at least for some time. Under this scheme, the government would buy up equity gradually each year, starting first with equity stakes that are already on the market. It would take some time before it hit a wall and the only remaining equity out there was being held by owner-managers. And even then, there would be no mandatory selling under this scheme.
This proposal does not solve the last problem of corrupt public administration, but I am not sure anything will except perhaps strong oversight. We know that the public already manages huge funds and seems to do so reasonably well. I have not seen too many really damning stories about CalPERS or the Alaska Permanent Fund for instance. There are some, but not many. In any case, it is not clear why public administration would be any more corrupt and harmful than private administration, especially given what we have seen recently. Saying that the problem might persist is not a reason against making the change. It would wash out of the comparison if both types of administration have the defect.
So, in short, there are ways to socialize finance that don’t run into the problems Quiggin raises. I tend to like socializing finance through voluntary purchases funded by inheritance taxes. Since that scheme — and others not mentioned here — escape Quiggin’s proposed problems, we should just socialize finance that way.