Making the rich less rich is not socialism

I’ve become a reader of Floyd Norris’ blog over at the NYT. I’ve noticed, with some amusement, that any time a vague and distant hint arises that the rich in America might be oh, oh, slightly too… rich, the comments section is 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 trolling blogs. 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.