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The wages of luck

Republican icons Milton Friedman and William J. Bennett acknowledge the link between the birth lottery and poverty. Can their conservative brethren learn from them?

TODAY, WHEN IT comes to health care and education, wages and campaign finance, both Democrats and Republicans offer make-believe solutions to serious problems. It seems the rough popular parity of the parties has bred an unambitious "game of inches," in which both sides timidly court the center. Democrats fear being cast as "tax-and-spend" types or "weak on defense." Republicans display an enduring indifference to the disadvantaged, at least when it comes to solutions longer on cash than "compassion." Meanwhile, the national press sees its role as mirroring, rather than challenging, the boundaries of debate. American public life has become a game of charades.

Is there a way out? Can liberals and conservatives achieve a consensus on domestic priorities -- and how to pursue them? Oddly enough, a good place to start may be with an investigation into the nature of luck -- that is, the pre-birth lottery that determines the wealth, looks, talents, health, and family situation we inherit, the things that lie entirely beyond our control. On this topic, conservatives and liberals would appear to be far apart. Conservatives, worried that acknowledging the importance of luck would sanction a radical, economy-killing redistribution of resources, have typically ended up downplaying or ignoring it. Liberals may stress that the poor have been dealt a bad hand, but they have often failed to ease the burden of bad luck in ways that preserve the benefits of capitalist innovation and the virtues of individual responsibility.

Recently, I posed the problem of luck to two of the country's leading conservative thinkers, the free-market economist Milton Friedman and the best-selling moralist William J. Bennett. Their responses show why this liberal holds out hope that conservatives might be coaxed toward a consensus on domestic priorities.

In his Washington office, I asked Bennett which he thought was a bigger factor in determining where people end up: luck (by which I meant the pre-birth lottery), or personal initiative and character.

The normally voluble Bennett fell quiet.

"Genes are part of the first?" he asked.

"Yes."

"Parents are part of the first?"

"Yes."

"The first," he said. That is, luck.

Recalling his years as Secretary of Education under Ronald Reagan, he explained, "Having visited the schools, I'm convinced that you can change people's lives and people can change their own lives. But it's hard. Those things [genes, parents] matter hugely. They don't matter completely. But they matter hugely."

What should that imply for public policy? I asked.

Bennett cited the Marine Corps as proof of the "plasticity" of human nature, and of the potential for institutions to alter luckless lives for the better. Kids from the inner city come back from boot camp after 11 weeks and they're transformed, Bennett said, with new values, a new spirit, a new future. Mediating institutions -- family, churches, schools -- can create opportunities for people to "exercise autonomy and make a difference in their own lives. A lot of people aren't there because they're in crappy families, crappy schools, crappy neighborhoods."

Bill Bennett, I thought, meet John Rawls -- the late liberal philosopher who famously argued that public institutions should be designed to ameliorate the burdens of bad luck. Of course, Bennett might not think that pouring more money into troubled school systems is the answer, at least not without systemic reforms to ensure that the new money will be spent effectively. But here at least was a hint of common ground with liberals, a receptivity to the idea that it is government's role to make equal opportunity more real.

. . .

Milton Friedman, the most famous proponent of free-market economics in the 20th century, is himself a longtime student of luck.

I met with Friedman in his San Francisco apartment, which boasts a near-wraparound view of the city. I asked Friedman what role he thought luck played in determining one's place in life.

Early in his career, Friedman (the son of poor Hungarian Jewish immigrants) wanted very much to prove -- mathematically -- that luck isn't as important in human affairs as we instinctively presume. In a 1953 paper called "Chance, Choice, and the Distribution of Income," he argued that inequality of income results not merely from chance, but also from the choices, tastes, and preferences of individuals. People who have a taste for working less, for example, and for spending more time basking in the sun, earn less. It's their own choices -- not luck -- that helps shape the inequality of income.

Friedman chuckled as he recalled the article.

How old are you today? I asked.

"Eighty-nine," he said. "To use that phrase, I'm lucky. My genes are bad. My father died at the age of 49; my mother died at the age of 70. I had three older sisters all of whom died at ages below 70, so I'm very lucky, indeed."

"I think that luck plays an enormous role," he went on. "My wife and I entitled our memoirs, 'Two Lucky People.' Society may want to do something about luck. Indeed the whole argument for egalitarianism is to do something about luck. About saying, `Well, it's not people's fault that a person is born blind, it's pure chance. Why should he suffer?' That's a valid sentiment."

So what are the implications of luck for public policy?

"You've asked a very hard question," he said. In part, he added, because it's not clear that what we think of as luck really isn't something else. "I feel," he said, "and you do, too, I'm sure, that what some people attribute to luck is not really luck. That people are envious of others, you know, `that lucky bastard,' when the truth of the matter is that that fellow had more ability or he worked harder. So that not all differences are attributable to luck."

"I know it's not all luck," I agreed, but I added that it's legitimate to wonder whether it's luck, as opposed to personal initiative and character, that most accounts for where one ends up.

"That's right," Friedman said. "But that's luck, too." Was Friedman saying that character was ultimately a matter of luck? Where does luck stop and free choice begin?

"See, the question is. . . What you're really talking about is determinism vs. free will," he explained. "In a sense we are determinists and in another sense we can't let ourselves be. But you can't really justify free will."

Milton Friedman, the author of "Free to Choose," isn't sure about free will? I glanced at my tape recorder to make sure it was working.

This awareness of luck's role -- even if he wouldn't have put it quite this way as a younger man -- is what led Friedman to stress the importance of providing equal opportunity via education, and of keeping careers open to talent. Friedman also told me that it inspired his call for the provision of a decent minimum to the disadvantaged, ideally via private charity, but if government was to be involved, via cash grants that in the 1950s he dubbed a "negative income tax."

After several false starts in the political arena, his idea was eventually enacted in the late 1970s as the earned income tax credit (EITC), which today devotes some $35 billion a year to supplement the wages of low-income workers. On this score, Friedman's acolytes on the Wall Street Journal editorial page, who have glibly dubbed low-income workers "lucky duckies" because they're too poor to owe income taxes, haven't imbibed the decency of their mentor.

. . .

As these conversations suggest, if we took luck seriously we might forge a consensus across the political spectrum to support the millions of Americans who lack basics like health insurance, qualified teachers, or decent wages. One thing we might do is deepen and extend Friedman's negative income tax so that it covers millions of workers who do not now receive the EITC.

Such an initiative would also put an end to the largely symbolic politics of today's "living wage" campaigns. Living wage ordinances have now been passed in dozen of cities (including Boston), but despite all the fuss they've actually extended a living wage (say, $9-10 an hour) to fewer than 250,000 of the 25 million full-time workers who subsist on near-poverty-level incomes.

The problem is that while liberals are right about the injustice facing unskilled workers, they're wrong about the economics of fixing it. It makes little sense to mandate that private firms pay wages of $10 an hour for employees who, in economic terms, are "worth" only $6. Such mandates produce all sorts of perverse consequences that hurt the people you're trying to help -- for instance, employers may choose to lay off low-skilled folks in favor of more productive, $10-an-hour employees. In fact, city councils pass these measures only after sharply limiting their scope, usually by applying them to government contractors so the cost of the mandate can be borne ultimately by taxpayers.

A real solution would be a federal wage subsidy, like the one proposed by economist Edmund S. Phelps of Columbia University in 1997. Phelps would guarantee $9-10 an hour for full-time work via a sliding-scale tax subsidy to employers. The "grand bargain" here requires the left to stop trying to place the full burden of a living wage on employers while the right accepts the need to have government fund the rest -- to the tune of a fresh $85 billion a year. This may sound like a grand figure, but in fact it's less than 1 percent of gross domestic product, or 1 cent of every dollar washing through our economy.

Society as a whole benefits when workers make $10 per hour even when those workers' employers don't. It makes sense for taxpayers to make up the difference. The bottom line: If advocates on both the left and right took the wages of luck into consideration, our national conversation would become very different -- and before long, so would our public priorities.

Matthew Miller is a syndicated columnist and a senior fellow at the Washington-based Center for American Progress. His new book, from which this essay is adapted, is "The Two Percent Solution: Fixing America's Problems in Ways Liberals and Conservatives Can Love" (PublicAffairs).

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