Monday, April 15, 2019

Perennial article about plutocracy and managed capitalism

We've all noticed, those of us denizens of twitter, commenters on newspaper comment spaces and the like, that any time a vague and distant hint arises that the rich in America might be oh, oh, slightly too… rich in some newspaper column, expressed by some leftleaning politico, etc., twitter, comment section, and pundit spaces in the NYT are reliably flooded by screeds against socialism and for the American way.

It makes me long for a snappy way to point out that capitalism was not abolished in the U.S. in the fifties, nor was the Reagan tax cut on the wealthiest the second coming of Adam Smith in the eighties. What is funny about the rabid defense of the wealthy is that I imagine it often comes from the non-wealthy. It isn’t like billionaires are into making comments in comment boxes. Or even, save for Elon Musk and Trump, tweeting themselves - they've got factotums for that.  But what they are defending is, of course, absolutely against their interests. It is the great American paradox: the almost saintly disinterestedness of the American householder in defense of systematic greed.

There are a number of ways to redistribute wealth down. Imagine, for instance, that unions had been strong enough, back in the eighties, to peg earnings to the ratio between upper management and the lowest paid functionaries in a company. Back then, the ratio was about 70 to 1 – today, it averages something like 300 to 1. If the unions had done this and the CEO level had succeeded in extorting the pay packages they had today, we would be living in a utopia in which the merest entry level receptionist would be taking home 150-200 thou. This would be excellent – except of course that corporations would no longer make profits. Instead, they’d be pouring all their cash into paying their workforce. Still, at the 70 to 1 ratio, upper management’s efforts to increase their compensation packets would have significantly pulled the earnings up of the entire workforce.

Unfortunately, when you don’t have powerful unions, you have to rely on the countervailing powers of the state. You have to work, then, to raise the taxation on the upper tier considerably. You have to do this not only because you need to pay for public investments, but because there is a macro good to great income equality. For one thing, it discourages economic activity that is, in reality, mere churning. Looking at the mortgage mess, one can see more and more clearly how the fantastic, Pirenesian structure of false economic activity has worked since 2001. It has allocated money not to the most productive, but to the most churnful. For another thing, more equality now means more equality latter. As the gap widens between the resources of the rich and the not-rich, it becomes exactly what we socially reproduce. Those non-rich who, for instance, decided that the death tax, otherwise know as the estate tax, was just terribly unfair to their children actually screwed their children terribly, because they are not leaving the kids fortunes, whereas the fortunate few are – thus aggravating the already unfair structure that separates rich from non-rich children. The cost of abolishing the estate tax is borne by the non-rich in such areas as trying to get their kids into top schools and the like.

But what most impresses me about expropriating a good share of the wealth of the wealthy is its environmental impact. As anybody with the eyes to see can see, the last twenty years have been years of great GDP growth in many countries. In fact, the whole Tom Friedman-esque economy is oriented towards steroiding GDP. Why? Because if you are going to have increasing inequality, growth is the way that the middle income sector – the vastly more numerous non-rich – can, at least, maintain their lifestyles. But GDP growth could also be called the Diminishing Environmental Return. DER is the natural result of overexploiting a system that is limited in many ways. Put up a zillion towers for cell phones, and you can say bye bye to songbird populations – make your McMansions of tropical wood, and strew them with the kind of wiring that gives you 24/7 instaconnectoinstamaticinstatubelivegirlsxxxxpronomatic action, and you can say bye bye to the environment of Sumatra. Down the intertubes it goes. It is an incredible waste of resources, which is the total result of the elite decision to grossly exacerbate the wealthiest’s share of the wealth. With a greater equality of income, of course, GDP doesn’t have to grow as fast. The drift of our current society into endless war, endless stupidity, an endlessly degraded public sector, the unwinding of all those hard fought democratic gains of the last one hundred years, is the direct result of a simple arithmetic ratio. To repair this – to go back to the managed capitalism, as Kuttner calls it, of the past – isn’t socialism – it is the self interest of the vast mass of American citizens.

Unfortunately, all of these arguments keep coming up against the odd argument that the rich "earn" their wealth. And the answer is always - no, in capitalism, wealth is created by the producers, i.e. the workers. 
Which is why arguments that tend to go to sports stars or musicians are really besides the point. The same amount of work and ingenuity can be valued by the "market" - or by the various devices by which one gets into the market - in wildly differing ways. Ayn Rand's Fountainhead was refused by a number of publishers, and she was about to let it go into the desk drawer, when some editor at Bobbs Merrill decided he'd fight to get his company to publish the book. Unpublished or published, it was the same book. What we call earning is a social act. It is, of course, not a one to one act. I may eat my spinach by myself - the eating and digestion are individual. But I never earn money by myself - it is an infinitely mediated act.
All of which is a philosophical point that is besides the point. If a countervailing power to plutocracy exists within a state that can cause the levying of a heavy, heavy tax on the wealthy - it should do so pronto. There is no enjoyment people get from money they aren't using to live on - the enjoyment is in the power it gives them. And the power it gives their children and allies. Fine. In the power struggle, the vast majority can use democracy to severely limit that power.
The economic effects of this we can observe empirically. Is it really the case that a high marginal tax rate on the wealthy keeps the wealthy from fullfilling the roles that they are lauded for - investing and managing? Will the middle class or the working class or the poor be hurt because the wealthy are divested of a considerable part of their wealth? Empirically, the answer is obviously no. The only argument the wealthy have is that the economy grows quicker when they are allowed to retain their wealth. I think this is a very poor argument.
Robert Reich has an excellent idea: instituting a 70 percent marginal tax on those incomes over a million per year. Do it! This, too, will become full of holes - and the holes will have to be plugged up. Taxation is not a one time only process. But there is ample proof that a high tax rate does work on expropriating wealth from the wealthy. It is for this reason, of course, that the wealthy oppose it. 

No comments: