In-Depth Essay -- CONCLUSION

Earned vs. Unearned Income

by Peter Barnes

Part Five -- CONCLUSION (Parts 1-4 are available here)

Often and quite consciously, the subsidy to wealth-owners is direct. The Joint Economic Committee last January published a rather astonishing study in which it is estimated that federal subsidies to private citizens or businesses, intended to alter their economic behavior, totaled more than $24 billion in 1970. These handouts were of two basic types: subsidies to consumers and subsidies to producers. The former included food stamps, grants to students and job trainees and a few other items; the latter encompassed everything from indemnities to beekeepers to cash payments to regional airlines.

The justification for subsidizing producers rather than consumers, and among producers, wealthowners rather than workers, is the old trickle-down thesis: (NOTE: trickle-down was old in 1971!!) if enough benefits are handed out to wealthowners, something will seep through to workers. Some consequences of this approach can be seen in two major federal subsidy programs - the section 235 and 236 housing assistance programs of the Department of Housing and Urban Development, and the farm subsidy program. HUD's section 235 and 236 programs were intended to stimulate the construction and rehabilitation of inner city homes and apartments. The idea was that if HUD subsidized lenders and developers by paying most of the interest cost on housing loans, more units for low-income families would be built. More units were built, but so many were overpriced and shoddy, and so many inexperienced buyers were cheated by subsidy-seeking speculators, that HUD has been racked by scandal and saddled with thousands of repossessions. Sadder, wiser and billions of tax dollars later, HUD Secretary George W. Romney now admits it would make a lot more sense to give money directly to poor families to buy or rent shelter in the regular market.

The farm subsidy program, when it began during the New Deal, was intended to keep impoverished small farmers and sharecroppers on the land. Since the 1930s, the program has been transformed into a windfall for the biggest owners of wealth. Payments are made to landowners to take acreage out of production, not to workers to work, or even not to work. In 1969, the wealthiest seven percent of farmowners received 40 percent of the benefits, while the poorest 50 percent got nine percent, and millions of landless farmworkers received nothing. In fact, by paying landowners to withdraw land from production, the program causes a hardship to many farmworkers, depriving them of the opportunity to earn income from labor. They then must apply for poor people's welfare, for which they are roundly excoriated by subsidized landowners.

The convoluted ethical posturing that surrounds the receipt of unearned income is one of the most curious aspects of this entire subject. Hard work, goes the litany, builds strong moral fiber. The distributive corollary is that no one is entitled to income unless he gets off his butt and toils for it. In point of fact, the notion that income ought to be related to labor is not without merit, but the righteous indignation that usually accompanies its assertion is pointed in the wrong direction. Certainly there are able-bodied persons whose characters are presumably being weakened by receipt of unearned income. But the more these recipients get, the more likely they are to think of themselves as deserving, upstanding leaders of the community. One thinks, for example, of Richard Nixon, a strong believer in "workfare, not welfare," and a man who has used the nation's highest office to extol the character-building virtues of mopping floors. What, one wonders, might have been the debilitating psychological effects of Nixon's bounteous legal fees at Mudge, Rose, Guthrie and Alexander, where he labored to preserve and expand the unearned income of wealthowners? And what grievous spiritual toll must he have suffered from the unearned increment he made in Florida real estate? The point is not that Richard Nixon is a parasite, but that the question of how our system rewards labor and nonlabor needs to be demystified and sensibly debated.

This essay is part of a series written by Peter Barnes for The New Republic magazine in 1971-72. We think you'll be pleased -- and perhaps shocked -- to see how timely and insightful the essays are for today. Each essay will be republished, in installments, by The Progress Report.