First Letter from Tim Ferguson to Ganesh Sitaraman, July 2024

July 15, 2024

Dear Mr. Sitaraman:

“Every American needs to read this,” Elizabeth Warren said of your 2017 book The Crisis of the Middle-Class Constitution. We agree. Your research in parts I and II have supplemented our own work on the question to which we are devoted, which is fast becoming existential for our form of government: shall Americans govern themselves as a democratic-republic, or be ruled by insatiable plutocrats or populist demagogues?

We both hail from that political anthropology which places the answer to that question within in the realm of political economy. The principal lesson in the history of republican government is that the diffusion and re-concentration of wealth dictates the diffusion and re-concentration of power. Democratic and popular governments tend to come and go in great waves, existing only on the continuum of wealth distribution where it is found broadly diffused among an independent middle class. Viewing the course of our national experiment in republican government in that light clearly shows that while the Constitution so ably guaranteed the legal form of a democratic republic to a middling body politic, it is utterly powerless to preserve its political substance. The Constitution contains no provision obliging our government to protect the middle class upon which the republican model of government depends.

You so fully understand these principles – as well as the pessimism, polarization, faction, demagoguery, and authoritarianism following upon middle-class decline – that we can dispense with any further historical and theoretical diagnosis of the root causes of our present political distress. Our only suggestion is a rhetorical one: When it comes to describing the disease, we suggest abandoning the term “economic inequality” in favor of the more precise terms “wealth concentration” and/or “middling insecurity.”[1]

But, merely diagnosing the disease mortal to popular government as the middling insecurity arising from extreme wealth concentration takes us about as far as political science has so far developed. Because, although various societies have deployed palliatives and sedatives to ameliorate the symptoms of wealth concentration,[2] there’s never been a curative to eliminate its underlying causes.[3] That’s why John Adams complained to Thomas Jefferson: “While all other Sciences have advanced, that of Government is at a Stand; little better understood; little better practiced now than 3 or 4 thousand years ago.”[4]

The nearest political science has come to a corrective was a failed attempt to save history’s only other superpower republic: the Lex Sempronia Agraria of Tiberius Gracchus. Agrarian agitation was endemic in republican Rome, and proposals to subdivide the lands would return during the English Civil War, the American Revolution, and the American Civil War. However effective these and related measures like abolishing entails and primogeniture may have been in actually de-concentrating wealth, they are available only where there is enough land to appropriate or colonize, and only within the agrarian mode of economy.

It scarcely needs to be said that agrarian laws are manifestly an unsuitable corrective for an advanced commercial economy such as America has become. The proper form of corrective for a modern capitalist system such as the United States must instead be a rule or a technique of capitalism. And as we search the features of capitalism to that purpose, we find that the best tool is capitalism’s own device of the long-term incentive plan.

Well-designed incentive plans reward participants for achieving outcomes relative to some objective metric. Our national incentive plan is no different: We must simply design around the standard of success we wish to enhance. The prevailing benchmarks of national success, at least in the popular imagination, are value indicators like gross domestic product and market capitalization. While these metrics tell us something about total prosperity, they neither predict the relative internal distribution of prosperity, nor do they report whether gains are attributable to innovation, productivity, parasitism, or predation. If we could raise a single measure to rival the S&P and GDP as the standard of national economic success, it should be gains in the national median household net worth. This is the single best benchmark of middle-class health. Unlike income or purchasing power, the calculation of net worth accounts for the cumulative economic effects of all factors impacting the wealth of American households. That includes prices, taxes, savings rates, interest rates, debt, offshoring, immigration, unemployment, underemployment, automation, rentierism, monopolization, and inflation.

The simplest and most effective method to encourage and reward the increase of the relative value of the national median is median-top household wealth tethering at an efficient mathematical ratio. Anchoring those elite households which collectively possess market power to the national median such that their outcomes rise and fall lockstep in mathematical proportion to the national median requires them to raise the national median in order to enjoy any future gains. The underlying philosophy of this incentive plan is thus summarized: “No gains for the middle, no gains for the top.”

This median-top ratio would be enforced by taxing only a very few top households exceeding a multiple of the national median – say 10,000x to start – whose aggregate holdings imply market power. As the value of 10,000x floats upon the national median, this property tax would be assessed only in proportion to market failure, imposing no absolute limit on elite prospects. This 10,000:1 ratio today implies an initial wealth cap of ~$1.5 billion (based on last 4-year average reported national median), surpassed by about 670 American households by an aggregate sum of about $4.7 trillion.[5]

By anchoring the ceiling of our political economy to its foundation, this incentive plan rewards elites for positive-sum behavior: On the one hand, the greater the median gains, the greater the elite gains. Indeed, the only limit on elite outcomes is the limit of their genius in growing the entire national wealth pie. On the other hand, any elite gains extracted via negative-sum behavior – including rentierism, inflation, automation, and monopolization – would be clawed back at the shared expense of covered households, mobilizing moderate elites against those who would plunder the commons and thus, by operation of the ratio, injure the entire elite class.

Like a true incentive plan, this approach lets market actors determine how to raise the national median. Because it only targets a very small number of the top households, no new corporate taxes are required. And once this incentive plan acquires the force of custom, future legislators could adjust the ratio within a prescribed range to backsolve for a middle class of any prescribed target size. Since Classical Antiquity, the common intuition of mankind has held steady that the middle should own at least half.[6] Let that be our target.  

As you know, though you may not wish to say it, any federal property tax implemented through a mere statute wouldn’t survive Apportionment Clause attack. This requires its implementation through the legal form of a constitutional amendment. It’s also likely that Congress wouldn’t provide the requisite support to submit this measure to the States. But the States themselves could bypass Congress through an Article V Convention. To incentivize them to do so, such amendment could distribute all revenues raised by ratio enforcement in equal shares to each State which timely ratifies it.[7] With almost 100,000 public schools, 1,600 public colleges, 1,500 public hospitals, 18,000 police departments, 29,000 fire departments, 19 million state and local employees, 35 million retirement system beneficiaries, and $6 trillion held in pension and university endowments, the States can make efficient use of their respective shares. The States can use their shares, worth billions over time, according to the wishes of local constituencies, strengthening the principle of federalism.

To mitigate plutocratic fury and avoid the injustice of wealth confiscation, the amendment would grandfather preexisting fortunes to the extent located within American territory and provided their owners are not convicted of certain crimes, adding both repatriation and good behavior incentives to the underlying market and ratification incentivizes.

The demand for wealth taxes is increasing, in America and across the globe. We have no doubt that wealth taxes will eventually be adopted. And yes – just like the property taxes that ordinary Americans pay on their homes – such taxes will apply to unrealized capital gains. But, so long as these taxes are not computed in respect of middle-class outcomes, and so long as they are conceived merely to raise revenue, they can never induce voluntary wealth de-concentration and will thus never be curatives to the problem of extreme wealth concentration. They can in that event do no more than to fund another series of palliatives and sedatives. As it is our goal to rebuild an independent middle class and not merely sustain a dependent underclass, and as you will surely have a role in the policy debates to come, we ask that you consider this plan.  

Sincerely,

Tim Ferguson