A Liberal Manifesto in a Time of Inequality and Climate Change

(Bloomberg Opinion) -- It’s hard being a liberal these days. The world seems to want to go in the opposite direction. Authoritarianism is on the rise in China, mercantilism in the U.S., populism everywhere from Brazil to the Philippines, and an oxymoronic “illiberal democracy” in Hungary and Poland.

Liberals seem particularly irrelevant in the two biggest debates of our time: about inequality and global warming. The first has left-wing demagogues baying once again to soak the rich in a new round of class warfare. The second has spooked the loony right into denying the problem (and indeed science) and the loony left into flight-shaming, SUV-shaming and just shaming generally, reminiscent of France’s Jacobins in 1793 or China’s Red Guards in 1966.

What’s become almost inaudible in these two controversies is an older and more dignified voice: liberalism. By this I don’t mean its risible (and opposite) caricatures in the U.S. and Europe. In American usage, a liberal is a big-government lefty who sees society through the lens of identity politics. In left-wing European parlance, a liberal (or, worse, “neoliberal”) is a free-market fundamentalist.

Liberalism is neither. It’s a broad and flexible philosophy that values individual freedom. (Liber is Latin for free). That’s why liberals distrust concentrations of power that might oppress us. Often such power is found in the state, which is why liberals prefer limited government; other times, it’s found in companies, mafias or mobs, in which case liberals oppose those, with regulation and laws. But liberals are a pragmatic bunch too, rising to the new challenges of each era.

The liberal approach to inequality

It’s in fact liberals who’ve grappled at the highest intellectual level with inequality. If you want to think deeply about “justice as fairness,” you could do worse than open the book of that title by John Rawls. If you want the best answer to Rawls, read Robert Nozick, his former colleague and sparring partner down the hallway at Harvard University.

What liberals since John Locke, the patriarch of the tradition, have agreed on is that you need property to be free. Invariably, some people will end up with more than others. Rawls would say that’s fine as long as everybody benefits, including the worst off. Nozick would respond that it’s fine even if they don’t, as long as those who get more have earned it legitimately.

It’s a mistake, moreover, to look at the distribution of wealth or income only at one point in time. Yesterday’s haves could turn into tomorrow’s have-nots and vice versa, all as a result of life choices, luck, skill or effort. Inequality becomes problematic only when the same people, or the same families across generations, keep ending up at the top or bottom no matter what they do.

In a free and fair society, social mobility is therefore more important than the distribution of wealth; and equality of opportunity trumps equality of outcomes. That’s why some liberals can live with inheritance taxes, which are assessed a single time on an estate to prevent the accumulation of vast riches across generations. By contrast, they frown on wealth taxes, which now seem to be back in fashion. Not only are those intrusive and hard to assess year after year, they also miss the point, which is, as Jeremy Bentham put it in 1795, to make the poor richer, not the rich poorer.

In ensuring equal opportunity, however, there really is a lot of work to be done, at least outside of Scandinavia. That includes assuring equal access to education and health care. In both areas, the U.S. in particular has a problem, which is why it’s losing its reputation as a land of opportunity.

A fascinating twist is a new iteration of an old idea called the Universal Basic Income. The state could pay everybody, irrespective of achievement or need, a stipend. On the face of it, you’d expect liberals to be against that (and many are). Doesn’t it sound like big government? And wouldn’t people simply stop working?

But consider the full idea. A basic income wouldn’t complement but completely replace the existing welfare state, as it exists in its full bureaucratic insanity. No more fraud or endless administration, since everybody gets the benefit automatically. A basic income would thus radically simplify, and possibly shrink, the Leviathan.

A well designed basic income, moreover, would be too meager to allow recipients to live luxuriously. So you’d still need to earn your livelihood if it’s to be a good one. But the state-provided cash could get you through periods of sickness or education, including adult retraining as the economy becomes digital and seeks new skills. It could, to use the key word, free you to fulfill your individual potential.

Yet we need empirical data. How would people respond, and would they stop working? How much would it cost? Unfortunately, the few places that have conducted experiments have done it wrong. You can’t, for instance, just pay a few unemployed people, as Finland did, because that’s not a “universal” income. For now, the jury’s out.

From liberalism to planetism

Liberals have also thought deeply about climate change, long before it even became a threat. It’s just that they’ve used different names for that type of problem, such as “market failure” and “the tragedy of the commons.” If individuals use a resource they believe to be infinite because it doesn’t seem to have a price, they will overuse it until it’s ruined. This explains why people overfish the oceans, or why a public bathroom stinks whereas your one at home doesn’t.

Our atmosphere is in danger of becoming the most tragic commons ever. We keep consuming stuff without heed to the greenhouse gases we and our products emit along the way, because we cannot see the cost of the emissions we cause. The liberal answer is therefore to make that hidden cost of carbon visible and force all of us to pay it.

There are two ways of doing that, and in principle it doesn’t matter which you choose. You could set the price of carbon with a tax on it and observe how much that reduces the quantity of emissions. Or you could fix the quantity of emissions by selling allowances, then observe what that does to the price of carbon. This takes the form of an emissions trading system.

Several places already have such a system, including the European Union. But until now these markets haven’t covered enough sectors of the economy or restricted the allowances enough to make the carbon price really hurt. The biggest promise of the EU’s Green Deal now in the works is that it plans to expand its emissions trading and make carbon quite expensive.

The signal of a much higher carbon price would quickly percolate through the whole economy, influencing all our decisions. Companies would invest in technology to make their factories cleaner. Homeowners may find they can save money by retrofitting their heating systems. Businesspeople may take the train instead of the plane, or may Skype instead of traveling at all. I might even stop skiing, once I factor in the costs of my journey and of the (regrettably necessary) snow machines.

The advantage of this approach is that all these decisions would still be decentralized — that is, taken by free individuals. Other approaches out there, by contrast, involve different forms of central planning. And those are the bad ideas in Europe’s Green Deal.

These include subsidies to homeowners and companies, favoring particular technologies, and rationing, shaming or even banning specific behaviors, such as flying. Government isn’t good at deciding, say, whether future cars should run on fuel cells, batteries or something else, or whether electricity is best generated from wind, sun or something else. And central bankers certainly have no business steering money to greener uses. All such steps would distort the allocation of capital and deprive people of freedom.

Whether the topic is inequality, the climate, trade, migration, data privacy or almost anything else, it’s a pity that liberals and liberal parties don’t have a bigger voice in policy today. As others turn toward collectivism and the politics of resentment, whether it’s nationalism or socialism or green authoritarianism, liberals should be more confident in presenting our philosophy of freedom as the better alternative. It would be a liberalism adapted to the needs of our planet. For want of a better label, let’s call it planetism.

To contact the author of this story: Andreas Kluth at akluth1@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Andreas Kluth is a member of Bloomberg's editorial board. He was previously editor in chief of Handelsblatt Global and a writer for the Economist.

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