by Robert Reich
by John Lawrence
Argentina is the latest country to suffer at the hands of US vultures. Paul Singer of the Elliott Management hedge fund will reap a huge sum based on his purchase of Argentinian bonds in 2001. His firm has about 300 employees, yet it has managed to force Argentina, a nation of 41 million people, to its knees. Hedge funds like Singer's play a big part in the financialization of the global economy, making money off of money with no productive labor involved. They are making the inequality gap between the wealthy, the 1%, and the rest of us, the 99%, even bigger. Singer's money will be deposited into the account of one of his subsidiaries in the Cayman Islands, a tax free jurisdiction, which means he will pay no US taxes on his windfall.
During the Argentine Great Depression from 1998 to 2002, Argentina took on a lot of debt from US bondholders. The economy shrank by 28 percent from 1998 to 2002. After Argentina defaulted on its bonds, Singer and others snatched them up for pennies on the dollar. Singer will get back $2.28 billion, equal to about 369% of the face value $617 million in principal, under the terms of a settlement announced February 29, 2016. However, Singer bought the bonds for pennies on the dollar and then insisted in being paid back full face value in US Courts which agreed with him. So his return on investment is more likely around 2000%.
Argentina tried to restructure or write down its debt in 2005. While most investors agreed to receive less than full face value, Singer was a holdout demanding he be paid 100 cents on the dollar for full face value for bonds he had purchased for pennies on the dollar. Most of the speculators who had purchased these bonds agreed to a 76% payout, but not Singer. He saw a chance to make a killing. By 2013 his NML affiliate in the Cayman Islands (a no tax jurisdiction) had spent about $49 million for Argentinian bonds which had a face value of perhaps $250 million.
A second debt restructuring in 2010 brought the percentage of bonds out of default to 93%, but Singer was still a holdout. Bondholders, who participated in the restructuring, accepted repayments of around 30% of face value and deferred payment terms, and began to be paid punctually. On the other hand Singer sued in New York federal court to get full face value of the bonds he owned plus accrued interest and expenses amounting to $832 million. Because the bonds were denominated in dollars, as part of the restructuring process, Argentina had agreed that repayments would be handled through a New York corporation and governed by US law. So Argentina had to accept this federal court's jurisdiction whether it liked it or not.
Clever lawyering on the part of Singer and the other holdouts noticed that Argentina had omitted to provide for holdout situations and had instead deemed all bonds repayable on pari passu (equal) terms. This is fancy lawyer lingo that prevented preferential treatment among bondholders. The holdout bondholders therefore sought, and won, an injunction in 2012 that prohibited Argentina from repaying the 93% of bonds that had been renegotiated unless they simultaneously paid the 7% holdouts their full face value for the bonds they possessed as well.
According to Michael Hudson in his book Killing the Host - How Financial Parasites and Debt Destroy the Global Economy:
These funds are called "vultures" because they feed on "dead" bonds in default. Complaining that "these hedge finds who have bought the bonds at 20-30 cents to the dollar ... now want to be repaid in full citing contractual obligations," Argentine Minister of Economics Axel Kiciloff pointed out that the vulture funds had bought the bonds "with the sole purpose of obtaining a favorable judgment [from a US court in order] to make an exorbitant profit."
In addition to demanding 100% of the bonds' full face value, Singer asked for twelve years of accrued interest (compounded), punitive damages, and reimbursement for the legal expenses incurred in his approximately 900 attempts to embargo and seize Argentine assets in any countries that would recognize his claim.
Singer's ploy had worked before. In 2008 British Courts had awarded his fund full face value principle plus interest on Congo debt. Since that time Britain has passed laws protecting highly indebted countries from being attacked by Singer's modus operandi. The US, however, has no such protection.
After failing to seize Argentine assets, Singer's lawsuit came before Second Circuit Court Judge Thomas Griesa. It was his lucky day because Griesa agreed with him that he should be able to stop Argentina from settling with 92.4% of its bondholders until Singer was paid full face value for his bonds. In 2012 Griesa directed the Bank of New York Mellon to stop disbursing Argentina's payments to the vast majority of its bondholders which had agreed to accept lower than face value for the bonds they possessed.
Even though international law has outlawed the pari passu principle, Judge Griesa insisted on it thereby placing Argentina in what amounts to a position of debt servitude and forcing them to default on the bonds they had already renegotiated with the 93%. Financial Times columnist Martin Wolf called Griesa's ruling "extortion backed by the USA judiciary."
Even though Argentina appealed to the US Supreme Court, it was of no avail as the conservative majority led by Justice Scalia ruled in favor of subjugating a government power - Argentina - to Wall Street. Scalia insisted that Singer could go after Argentina's assets if it couldn't pay up treating it just like a debtor who couldn't pay his mortgage or credit card debt.
Furthermore, the Supreme Court ruled that Argentina had to provide Singer's hedge funds with a list of assets it possessed anywhere in the world so Singer could go after them and Argentina would be responsible for his legal bills in so doing. Even after Argentina deposited money in the Bank of New York Mellon to pay interest due on June 30, 2014, Judge Griesa directed the bank to return the money and ordered Argentina to send representatives to New York to negotiate with Singer.
In an article in the New York Times, Argentina Finds Relentless Foe in Paul Singer’s Hedge Fund, it was reported:
“We’ve had a lot of bombs being thrown around the world, and this is America throwing a bomb into the global economic system,” said Joseph E. Stiglitz, the economist and professor at Columbia University. “We don’t know how big the explosion will be — and it’s not just about Argentina.”
As a hedge fund, Elliott’s pursuit of Argentina is motivated by a desire to make money. Having bought its Argentine bonds for well below their original value, the firm stands to make a killing if Argentina pays the bonds in full. Legal filings indicate that the face value of its Argentine government bonds was around $170 million, but the firm most likely acquired many of them for much less than that. Elliott and other investors are now seeking more than $1.5 billion, which includes years of unpaid interest.
Michael Hudson commented:
As shaped by Judge Griesa, the Court of Appeals and the US Supreme Court, current US law forms a financial vise to prevent countries from escaping from debt deflation, rentier serfdom and seizure of their assets by creditors. Griesa's ruling threatens that without restructuring onerous foreign debts, entire economies will be driven into depression, unemployment and emigration of young labor, capped by pressures for insider privatization.
In the summer of 2014, over 400 banks, bond investors and debtor countries worked via the International Capital Market Association to limit the ability of vulture hedge funds to block settlement and compromises using the pari passu principle. Judge Griesa's ruling would be rendered obsolete and the pari passu would be defined to mean "equal treatment but not equal payouts for bondholders."
Judge Griesa's rulings had made it impossible for any debtor country to renegotiate its debts down to within its ability to pay. Any vulture fund could demand to be repaid full face value even if the majority of bondholders are willing to negotiate and receive less. Argentina's President Cristina de Kirchner called the holdouts "vultures" and "financial terrorists."
Is it any wonder then that the BRICS countries are forming their own fund from which countries could borrow in other than dollar denominated assets carrying with them the restriction that any negotiations would have to go through the US judicial system controlled by conservative judges and a conservative Supreme Court. Thankfully, Scalia is no longer there to squeeze every penny out of debtor countries for the benefit of Wall Street.
So why was Argentina able to settle now? It has not been able to borrow more money in the bond markets because of this long running situation and it is hurting. The new administration of President Mauricio Macri has taken a more conciliatory tone than did the Kirchners who called Singer a vulture and a financial terrorist. Macri decided that, rather than be forced out of the bond markets, he would rather borrow the money to pay off the vultures as long as they could then get back into the business of borrowing even more money to run the country. On Feb. 19, Judge Griesa dealt the holdouts a setback by agreeing to lift an injunction that had prevented Argentina from raising new money in bond markets or paying its creditors which led to the settlement with Singer and the other vultures. One caveat: Argentina's legislature still has to approve the deal.
However, by borrowing even more money to pay its debts, Argentina is being led down the road to insolvency and debt deflation. Borrowing money to pay off debts amounts to a huge Ponzi scheme which, when it eventually collapses, will allow the vultures to profit even more off of Argentina's carcass.
So what will Paul Singer do with his ill gotten gains which will force Argentina into debt servitude? Will he use the money for philanthropic purposes? Hardly. Currently, he's supporting Marco Rubio for President. Here's what Rubio wants to do:
1. Rubio wants to repeal Obama’s executive order to expand background checks and close gun sale loopholes.
2. When asked about closing down mosques, Rubio said he wants to shut down “any place radicals are inspired.”
3. He denies humans are responsible for climate change.
4. His tax plan gives the top 1 percent over $200,000 in tax cuts every year. That’s as bad as Donald Trump’s tax plan.
5. He wants to cut $4.3 trillion in spending, including funds from Medicare and other programs, essentially freeze federal spending at 2008 levels for everything except the Pentagon.
6. He wants a permanent U.S. presence in Iraq, and would end the nuclear deal with Iran, putting us on a path to war.
7. We have no way to know where he is on immigration because he’s flip-flopped — first working on legislation to regularize citizenship for undocumented immigrants, and now firmly anti-legalization.
8. He wants to repeal Obamacare.
9. He’s against a woman’s right to choose, even in cases of rape and incest.
An excerpt from Paul Singer's New Bible:
Commandment 1: Thou shalt PAY UP.
Commandment 2: (If you disobey Commandment 1,) Thou shalt relinquish thine property.
Commandment 3: Thou shalt have no mercy for debtors.
These are the precepts to live by that take precedence over every other consideration such as "Love your neighbor as yourself" and "Do unto others as you would have them do unto you." These commandments apply both to individuals and nations. Bankruptcy is getting more difficult for both individual debtors and nations, easier for corporations. Case in point - next to impossible for student loan debtors. The goal is perpetual debt servitude presided over by a rent extracting parasite class - the 1%. In the vulture class's sights: Greece, Brazil, Spain, Italy and finally American college graduates.
The game plan is for the Fed and the European Central Bank to encourage more debt by going to negative interest rates. This is the only way they can think of to get consumers to borrow and spend more (and go into more debt) in order to keep GDP going up. US GDP consists of 70% consumer spending. Once the debtor is unable to pay, then seize or privatize (as the case may be) their assets, erect a toll booth and charge rent. This turns neighbors into beggars, provides austerity for all and allows private corporations to profit from providing essential services like water as is the case in Detroit.
by John Lawrence from the San Diego Free Press
Income Inequality is Getting Worse
Income and wealth inequality is only getting worse. It's not hard to understand why. Certain corporations have a lock on economic activity throughout the world. Mom and Pop operations have been forced out of business or have merged with the Big Guys. Artificial intelligence, automation, robots and computers have taken over many menial but used-to-be-better-than-minimum-wage jobs like check-out clerks, bank tellers and customer service operators. Other jobs have been off shored to cheaper labor jurisdictions.
The rest of us, college graduates included, have been reduced to being expendable appendages of the large corporate machines to be sucked in and spit out at their pleasure. When our skill sets are outmoded, we will be laid off and fresh talent will be acquired. The job pool is shrinking because the number of necessary jobs is shrinking. Today, there are approximately 1.2 million fewer jobs in mid-and higher-wage industries than there were prior to the 2008 recession, while there are 2.3 million more jobs in lower-wage industries. According to the Bureau of Labor Statistics most jobs in the next decade won't even require a college education. They are jobs that can't be done by robots: care givers, nurses, house cleaners, gardeners, retail.
Another reason for income and wealth inequality is that the US Federal Reserve's quantitative easing policy screws savers who get zero interest on their life savings while injecting money into the largest Wall Street banks. This money is siphoned off by wealthy investors and hedge funds. It never enters the real economy. It only encourages the average Joes and Janes to take on more debt. Ninty percent of the money supply is created by private banks who loan money into the economy through their policy of fractional reserve banking. As the money supply increases, so does debt.
Wall Street Banking Giants Create Most of the US Money Supply
Fractional reserve banking is a simple concept that has become more complicated and convoluted as it has evolved over the years. In its simplest terms, if a bank takes in a deposit of $100 from 10 people or $1000 total, it loans out $900 of that keeping $100 back as a reserve in case someone wants their deposit back before the principal and interest on the loans start flowing in. Their premise is that not everyone will demand their deposit back at the same time. If, however, everyone does want their money back at the same time, there could be a run on the bank unless the bank can borrow the money from some other entity like another bank or the Federal Reserve
Thus money is created by the bank with a few keystrokes on a computer and is fed into the economy as debt. The banks are at the top of the food chain since they create the money and loan it out on interest. Thus the US economy is a debt based economy. Bad things happen when people all demand their money back at the same time or collective debt becomes so big and untenable that it can't be paid back. This is what happened in the 2008 financial crisis when mortgages were given to people who couldn't pay them back and hence defaulted. Eventually this whole financial structure, which was a house built upon sand instead of a rock, to use a Biblical metaphor, collapsed.
It is to be noted that when a bank creates money, it is not backed by gold. Nixon took us off the gold standard in 1971. Money not based on anything but the government's say so is called fiat money. Thus all money created by private banks is fiat money, and, although the government says it is all good, it is the private banks that actually create it, not the supposedly democratically elected government.
The Federal Reserve has also been involved in money creation recently with a process called quantitative easing (QE). When the government needs money beyond the revenues it takes in by means of taxes, it goes into debt by issuing bonds. Sometimes those bonds are bought by Joe and Jane Average Investor or sometimes by other countries like Japan. However, much of the time they are bought by Wall Street banks. Then the Federal Reserve turns around and pays cash for those bonds taking them off the hands of the big banks. The result is that the banks end up with more money and the loans disappear on the Federal Reserve's balance sheet which is sort of like a black hole. Effectively, the government never has to pay those loans back.
Quantitative Easing for the People
There is another way that money could be created and injected into the economy. It might be called quantitative easing for the people (PQE) as Britain's Leader of the Labor Party, Jeremy Corbyn has termed it. He proposes to give the Bank of England a new mandate to upgrade the economy to invest in new large scale housing, energy, transport and digital projects. The investments would be made through a National Investment Bank set up to invest in new infrastructure and in the hi-tech innovative industries of the future.
The money creation (or printing if you like) would entail the government issuing a bond that a National Investment Bank would buy. Then the central bank would take that loan on its balance sheet in return for cash that the bank would then use to pay for infrastructure. The end result is that the government would owe the central bank the amount of the loan, but because the central bank is a financial black hole, it would never have to pay.
In Addition to Pocketing the QE, Wall Street Bankrupts Cities
The City of Los Angeles is paying a Wall Street bank $200. million annually in fees just to manage its money. The Huffington Post revealed:
LOS ANGELES, CA- At a lively downtown rally in front of the Bank of NY Mellon in Los Angeles, the Fix LA Coalition unveiled a groundbreaking research report, entitled "No Small Fees: LA Spends More on Wall Street than Our Streets," revealing that Wall Street charges the City of Los Angeles more than $200 million in fees. Coalition members called for action to reduce the high fees and put that money back into neighborhood services. After the rally, Fix LA Coalition members delivered the report to elected officials in City Hall.
In addition LA like a lot of cities that have gone bankrupt (Birmingham, Alabama for instance) has been snookered into interest rate swaps that end up costing much more money than if they had kept the original loan at the original rate. Then to get out of these toxic deals, they have to pay a substantial "termination fee."
Lisa Cody, SEIU 721 Research Analyst and report co-author stated: "Based on what we know, there are some concrete steps we can take to save LA millions. For example, we can start with Mellon Bank to renegotiate a 'swap' deal that was supposed to save the city money, but is instead costing LA almost $5 million a year. To fix this toxic deal, the bank wants $24 million more in fees. In 2012, NY Mellon charged the city $26 million in termination fees for another swap they had sold us that turned out to be a terrible deal for LA."
LA is not the first and probably won't be the last to be tricked into engaging in a fancy derivative deal that was way over the heads of the city employees that were talked into it by Wall Street hit men. If they had formed their own Public Bank of Los Angeles, they could not only have avoided being ripped off, but they could have actually made money and then be in a position to fix all those potholes they've been screaming about. And they could have created their own money supply the way Wall Street does it: fractional reserve banking.
Los Angeles Becomes Largest U.S. City to Take Action on Toxic Bank Deals; Unanimous Vote Requires City to Renegotiate or Terminate Multi-Million Dollar Interest Rate Rip-Off on Behalf of Taxpayers
Unanimous City Council vote sends strong message to Bank of NY Mellon, Wall Street: LA is not your ATM
The Los Angeles City Council voted 14-0 Wednesday to renegotiate or terminate without penalty a toxic swap deal the City entered into with two Wall Street banks, Bank of New York Mellon and Dexia. The measure, advanced by Fix LA, a coalition of clergy, unions and community groups aligned to restore city services and expand middle class jobs in the public sector, could save the City as much as $138 million. The International Business Times, noting the significance, reported that Los Angeles is now the largest city in the nation "to challenge ballooning Wall Street levies that accompany similar interest rate swap deals throughout the nation."
The motion further calls on the banks to return unfair profits and fees paid since 2008, estimated at more than $65 million to date. The deal costs taxpayers $4.9 million annually.
Los Angeles is now spending $290 million a year in financial fees or more than the entire city budget for maintaining its vast array of streets and highways. LA isn't the only sucker to enter into an interest rate swap in 2007 which was essentially a bet that interest rates would not fall below 2%. Then when the Federal Reserve, with its policy of QE, lowered interest rates to zero, LA and many other jurisdictions found themselves on the wrong end of a bet and were forced to shell out much more than they would have if they had kept the interest rate on the original loan.
The next sucker: Puerto Rico. Puerto Rico ran itself into debt and then tried to make up for it with interest rate swaps. Recent credit downgrades allowed Wall Street to demand hundreds of millions more in short-term lending fees, credit-default-swap termination fees, and higher interest rates. Between 2012 and 2014, Puerto Rico paid nearly $640 billion to terminate swaps in addition to $12 million annual swap payments. As a result Puerto Rico is in the same situation as Greece - borrowing money in order to make debt payments which is the same as borrowing money on one credit card to make the payments on another.
The Chicago Public School Teachers' Pension and Retirement Fund has brought suit against 10 of Wall Street's biggest banks including Goldman Sachs, JPMorgan Chase, Citigroup and Bank of America for colluding to prevent the trading of interest rate swaps with the result that it cost the Fund more money.
If these jurisdictions - whether they be cities, counties or states - formed public banks as the state of North Dakota did, there would be no outflow of cash to Wall Street. Money would stay at the local level and could be used to support local businesses and create jobs repairing and building infrastructure.
An Infrastructure Bank Would Mean Good Jobs in a Much Needed Enterprise
If the government creates money and puts it in an infrastructure bank, that money would be spent into the economy by creating jobs to build and repair infrastructure. Thus good jobs would be created at the low and middle parts of the economic spectrum. This money would have a multiplier effect as the job holders would spend their paychecks on the necessities and luxuries of life. American GDP is based on 70% consumer spending so that would go up. Thus the democratically elected government - not private banks - would be in charge of creating the money supply and it would be to the advantage of average workers not high end financiers. Since the big banks are the current recipients of the QE largesse, that money goes into the pockets of billionaires in various ways and drives wealth and income inequality.
Or the government, instead of the private Wall Street banks, could create money itself directly and inject it into the economy in a variety of ways as Abraham Lincoln did when he had the American government create and spend greenbacks into the economy. This money, therefore, does not create debt as money created by private banks and loaned into the economy does. It's a bottom up rather than a trickle down method. Problem is that most money created today does not trickle down into the real economy.
Australian blogger Prof. Bill Mitchell agrees that PQE is economically sound. But he says it should not be called “quantitative easing.” QE is just an asset swap – cash for federal securities or mortgage-backed securities on bank balance sheets. What Corbyn is proposing is actually Overt Money Financing (OMF) – injecting money directly into the economy.
Mitchell acknowledges that OMF is a taboo concept in mainstream economics. Allegedly, this is because it would lead to hyperinflation. But the real reasons, he says, are that:
It cuts out the private sector bond traders from their dose of corporate welfare which unlike other forms of welfare like sickness and unemployment benefits etc. has made the recipients rich in the extreme. . . .
It takes away the ‘debt monkey’ that is used to clobber governments that seek to run larger fiscal deficits.
So the government could just create money and inject it into the economy in one of two ways: directly to the people in the form of a basic guaranteed income or through an infrastructure bank that creates jobs. In the first instance money would be transferred directly to people to bolster consumption. In the second case jobs would be created that would get needed work done. Or a combination of both could be used.
A third way of reducing income inequality would be to redistribute money from the 1% to the 99% through the tax code. This is the method that Bernie Sanders advocates. Taxes on wealth and financial transactions would provide additional monies which could be transferred to the 99% through social programs such as Medicare-For-All, or it could be given directly in terms of a deposit to checking accounts as was done in the Economic Stimulus Act of 2008. Money was deducted from tax liabilities or deposited directly to American citizens.
The Concept of a Basic Guaranteed Annual Income
The concept of a Basic Income in the U.S. goes back to Thomas Paine, one of the driving forces for independence and reducing inequality during the American Revolution. More recently, it’s been supported by very non-liberal individuals like Fredrick Hayek, Milton Friedman, and Richard Nixon. This would eliminate poverty in one fell swoop. All the anti-poverty programs could be rolled into one with much fewer administrative costs. Just as Medicare-For-All would simplify and reduce medical costs, a basic guaranteed income would amount to Social-Security-For-All. The state of Alaska already has such a program called the Alaska Permanent Fund which hands out money to each resident on an annual basis. In 2015 each man, woman and child received $2,072.00. For a family of four that was a nice basic income of approximately $8000. Sweet!
In the Netherlands a number of cities are experimenting with a basic income after the city of Utrecht announced that it would give no-strings-attached money to some of its residents. Tilburg, a city of 200,000 inhabitants close to the border with Belgium, will follow Utrecht’s initiative, and the cities of Groningen, Maastricht, Gouda, Enschede, Nijmegen and Wageningen are also considering it. A recent study conducted in 18 European countries concluded that generous welfare benefits make people likely to want to work more, not less.
In Switzerland, the necessary 100,000 signatures have been obtained for holding a referendum on whether Swiss citizens should receive an unconditional basic income of €2,500 per month, independently of whether they are employed or not. Other countries such as Finland and Catalonia are also moving in the direction of a no-strings-attached guaranteed income. This would do more to reduce inequality and poverty than perhaps any other measure.
If Tilburg’s basic income project gets the green light from Netherland’s state secretary of social affairs, the town will provide an extra paycheck to a pilot group of 250 people starting in January 2016, Tillburg officials said. The city has not confirmed the amount of the stipend, but in Utrecht checks will range from around €900 ($1,000) for one adult to €1,300 ($1,450).
Although the classic basic income theory proposes universal payments across the population, the two Dutch experiments will only focus on residents who are already recipients of social assistance. Those in the program will be exempt from the severe job-seeking requirements and penalties in Dutch law.
Authorities aim to test how citizens react without that sword of Damocles over their heads. Will the money encourage them to find a job or will they sit on their couches comfortably?
A guaranteed income could be means tested. Why not? Rich people don't need an extra $1000. a month. It would reduce poverty, increase consumption and bolster GDP. Rich corporations would probably increase the price of staples as people had more money to buy them causing inflation. That's why the behemoth world wide franchise operations need to be broken up so they don't collude to raise prices on staples thus defeating the purpose of the basic income. With fiat money entering the real economy instead of the billionaire economy, inflation could become a concern.
Hyperinflation is always a concern when fiat money is created. When that money is spent by consumers, it will still wind up in the hands of a few major corporations, and that would be a problem. They could just keep raising prices. That's why breaking up those large behemoths by using the Sherman Anti-Trust Act is important. Money can also be pulled back by the government by taxation if inflation threatens to get out of hand.
As Ellen Brown says: "Thus there are many ways to recycle an issue of new money back to the government. The same money could be spent and collected back year after year, without creating price inflation or hyperinflating the money supply."
However, when fiat money ends up in the pockets of billionaires as has been the case with QE, inflation is not a concern because it doesn't enter the real economy and prices don't rise. Income inequality though becomes a major concern as does the influence of big money on the political system. Billionaire money has bought and paid for the political system through lobbying and campaign donations with the result that the US is effectively no longer a democracy but a plutocracy.
Trickle Down Economics Trickles Up Instead
As the article The Case for Universal Basic Income states:
What’s really scary is the general acceptance of a status quo in which most people are getting poorer and poorer, even while recent studies demonstrate that so-called “trickle-down” economics actually means an upwards flow of income until it stagnates as hoarded wealth. This stymies wealth creation in the economy, as the Institute for Policy Studies concluded after using standard economic multiplier models to show that every extra dollar paid to low-wage workers adds about $1.21 to the US economy. If this dollar went to a high-wage worker it would add only 39 cents to GDP. In other words, if the $26.7 billion paid in bonuses to Wall Street punters in 2013 had gone to poor workers, GDP would have risen by some $32.3 billion. ...
One of the main advantages of a universal basic income is that it would free people from the tyranny of the job market in which they are mere commodities by guaranteeing the most basic human right of all, that of material existence.
With inequality increasing some way or ways must be found to redress the balance. The alternative is to wake up and find ourselves in a neo-feudal society controlled by a few behemoth corporations employing only a few high level people at good wages. The rest of the population would be employed in low level service type jobs and live in relative poverty. What money they had would be spent in the troughs of the giant corporations and end up in the pockets of the 1%. Even if the 99% were given money to spend, it would still end up there - in the pockets of a few. An infrastructure bank funded by government created fiat money would provide people with decent jobs in which workers could maintain a sense of dignity and improve the quality of the nation's infrastructure at the same time.
In addition recipients of a basic income should have to give something back in terms of creating a better life for poor people around the world. Instead of armies with guns and weapons which have cost trillions and produced mainly negative results, a Peace Army could help poor people around the globe attain at least a minimally acceptable lifestyle in terms of clean water and sanitation, adequate nutrition, energy and education.
Installing solar around the world will not only provide energy for people who don't have anything but the most primitive kind while cleaning up the environment at the same time. The commitment of rich nations to help poorer nations convert to renewable energy could be manifested by funding unemployed and underemployed Americans to help build such infrastructure around the world.
It's not good for people to be idle. If they have no other job, they should at least be required to perform community service. If they have another job so that the basic income is just a supplement, this would be the ideal situation.
Income inequality will only increase as long as Wall Street banks control the money creation process, and the rest of US citizens keep going into debt whether it be with mortgages, student loans, car loans or credit cards. Local jurisdictions should take back the money creation process from Wall Street by creating their own public banks. Then the people will have the say in who gets the QE.
by John Lawrence from the San Diego Free Press
Peter Singer has written a book The Most Good You Can Do: How Effective Altruism Is Changing Ideas About Living Ethically (Yale University Press, 2015). Singer has been called "the world's greatest living philosopher" and is currently a Professor at Princeton so we must take his work seriously. Yet I'm bothered by the implications of his work as condensed in an essay: How You Can Do the Most Good: It's Not as Simple as You Think.
He tells about one of his students who, though caring to extreme about the plight of poor people in the world, nevertheless, chose to go to work on Wall Street when he graduated. His reasoning was that he could help the most poverty stricken by dedicating a large amount of his considerable salary to helping them rather than going to work as a volunteer working directly with them in Africa, for instance. A huge amount of money contributed to the right charities would alleviate the conditions of more people than would be helped by a person of meager resources who devoted his working efforts to their cause.
The utilitarian part of me can't argue with this approach to helping the poor. However, I'm bothered by the fact that this guy went to work for the Evil Empire (pardon my hyperbole) in order to do good for others. This isn't exactly the Robin Hood approach. Robin Hood didn't go to work for the devil; he stole from him. To my way of thinking this is an ethically better approach.
I consider many occupations to be unethical including working on Wall Street. To say that a greater good can be accomplished by taking ill gotten gains after contributing to an enterprise's evil activities can't be justified by saying that, on a utilitarian basis, more good can be accomplished than bad created. Singer is saying that those who go into teaching because their passion is helping children would do better by going into a profession in which they could earn far more money and then using a portion of that money to help the uneducated. This is pure nonsense. When taken to extremes he justifies the sacrifice of some people for the greater good of saving a larger number.
For example, suppose you were faced with the proposition that you could earn a million dollars by killing someone. With that million dollars you could help 100 poor children escape poverty. Does that justify killing one person? I don't think so.
Should One's Life Work Be Ethical?
I consider one's life work to be something that should be considered from an ethical viewpoint. There are jobs and occupations which, although legal, are from my viewpoint unethical. Take for example petroleum engineering. There are very high salaries for college graduates in this field and jobs are readily available. But in an age where climate change is being exacerbated by the burning of fossil fuels, I consider it unethical to go to work for the fossil fuel industry.
There are other jobs and professions I consider to be unethical and others that I consider ethical. This is just my own personal assessment. Others would disagree, but I consider working for the military-industrial complex unethical because it supports the war industry instead of putting time and energy and money into the Peace Corps and AmeriCorps. I consider working in the advertising industry unethical because it exists to convince people to part with their money for the enrichment of corporations while pretending to be concerned about the welfare of the individuals they seek to influence. It promotes "unbridled consumerism" as Pope Francis has said.
The pharmaceutical industry which charges what the market will bear for life saving drugs is clearly unethical. The drug, called Daraprim, was acquired by a former hedge fund manager. The price was immediately raised to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars.
I consider teaching, care giving, nursing, providing services to the local economy such as those provided by tradesmen or craftsmen to be ethical. Factory farms I consider to be unethical; organic farms I consider to be ethical. I could go on creating two lists: ethical and unethical jobs and occupations but I won't.
Other people can make up their own lists. Most Americans would probably consider any legal job or occupation to be ethical. I disagree obviously.
Here is Singer's very persuasive argument:
I met Matt Wage in 2009 when he took my Practical Ethics class at Princeton University. In the readings relating to global poverty and what we ought to be doing about it, he found an estimate of how much it costs to save the life of one of the millions of children who die each year from diseases that we can prevent or cure. This led him to calculate how many lives he could save, over his lifetime, assuming he earned an average income and donated 10 percent of it to a highly effective organization, such as one providing families with bed nets to prevent malaria, a major killer of children. He discovered that he could, with that level of donation, save about one hundred lives. He thought to himself, “Suppose you see a burning building, and you run through the flames and kick a door open, and let one hundred people out. That would be the greatest moment in your life. And I could do as much good as that!”
Two years later Wage graduated, receiving the Philosophy Department’s prize for the best senior thesis of the year. He was accepted by the University of Oxford for postgraduate study. Many students who major in philosophy dream of an opportunity like that—I know I did—but by then Wage had done a lot of thinking about what career would do the most good. Over many discussions with others, he came to a very different choice: he took a job on Wall Street, working for an arbitrage trading firm. On a higher income, he would be able to give much more, both as a percentage and in dollars, than 10 percent of a professor’s income. One year after graduating, Wage was donating a six-figure sum—roughly half his annual earnings—to highly effective charities. He was on the way to saving a hundred lives, not over his entire career but within the first year or two of his working life and every year thereafter.
Should One Sell His Soul to Wall Street in Order to Do Good?
So Singer apparently considers working for Wall Street a more ethical job than being a professor. I don't think so. He doesn't stop to consider the ethically corrupting influence that Wall Street will have on Wage himself who may at any time decide his money will be better spent on his own noncharitable predilections or may decide that selling his soul to Wall Street, even for a good cause, is something he can no longer do.
He doesn't stop to consider how much evil Wage will be participating in simply by doing his job. He doesn't consider the corrosive influence that working in a toxic environment will have on Wage's soul. He doesn't consider that Wage might not be able to tolerate working in that environment for more than a short time like many young people who went to work on Wall Street right after college. In short Wage is selling his soul for a mess of pottage, pottage to be sure that he intends to give away to help others, but pottage gained by losing his soul, his humanity and his integrity nevertheless.
Singer's argument suggests that it's up to rich people to save the world. In fairness rich people do a lot of good through their charities. But it's not an unmitigated good. The Bill and Melinda Gates Foundation has done much good in the world which wouldn't have been possible without the success of Microsoft Corporation. The Gates Foundation is not without controversy, however, including their support for GMOs and charter (privatized) schools. Gates and other rich people who have gotten rich off of technology naturally feel that there's a technological solution for every problem.
So is it up to billionaires to do the most good in the world because they possess the most resources? We also must consider that not all billionaires are up to doing good with their money. Many of them use their considerable resources, instead of helping people, to maintain a system of oppression over people lest those people take their resources away from them. That's why we can't trust that billionaires are going to save the world. Many of them are up to making it worse, particularly the plight of the least well off.
An article in Salon says it better:
As H.L. Mencken writes, "The urge to save humanity is almost always a false front for the urge to rule. Power is what all messiahs really seek: not the chance to serve." While some philanthropists support good causes (like Bloomberg’s fight against Big Tobacco), other pet causes are not so humanitarian. While we may applaud the work of Bill Gates, many philanthrocapitalists, like the Adelsons and the Kochs, have decided that their philanthropic venture will be empowering the Ted Cruzes of the world to wreak havoc. Wealth is power, and concentrated wealth is concentrated power. The most benevolent inventions are also the cruelest.
A better approach might be to limit the economic power that can be accumulated by corporations which then ends up in individual hands. Some billionaires do a lot of good in the world; some do bad, but not everyone can be a billionaire. Everyone can aspire to working in an ethical job or occupation. A system that results in the accumulation of economic power by the 1%, no matter how much resultant good comes with it, is not ethical especially when that means that the plight of the lower classes worsens from year to year. A good society would distribute economic well being more equitably and democratically. Then we all wouldn't be so dependent on the noblesse oblige of the rich.
Charity is Good But What About Justice?
Some make a distinction between charity and justice. Charity deals with the immediate needs of desperate people. Justice deals with setting things up so that they don't become desperate in the first place:
Justice directly confronts the challenge of preventing people from ending up in vulnerable situations. What causes over 15 million children in the U.S. to go to bed hungry each night? Why don’t we have universal public health care? Why aren’t public colleges and universities tuition-free like high schools in the U.S. and [colleges in] most western European countries? Why are our public works crumbling and creating unnecessary obstructions for disaster relief (reaching people stranded after hurricanes)?
It is advocacy promoting justice that seeks the prevention of the causes that lead to so much misery, institutional harm, poverty, and the loss of human life and potential. Repairing the wreckage of wars places huge demands on charity. Waging peace and negotiating arms control agreements places huge demands on justice.
Singer says, "Living a minimally acceptable ethical life involves using a substantial part of our spare resources to make the world a better place." You can't argue with that, but that applies to everyone in the economic spectrum not just to rich people. And many are so hobbled economically that they don't have any spare resources. They need an inflow of charitable or societal resources just to make ends meet. They should not be contributing to charity at all.
If society provided more opportunities for people to do good i.e. by transferring resources from the war machine to the Peace Corps for instance, more people could work in ethical occupations and pull themselves and others out of poverty at the same time. Too often, however, what the American society provides is opportunities to work in unethical occupations which are rewarded handsomely while working in ethical occupations is rewarded minimally or not at all. If the budgets of the military-industrial complex and those of the Peace Corps were transposed, a massive movement of those working in ethical occupations would provide a greater force for good than the combined forces of ethical billionaires.
Reliance on billionaires to do good in the world is a return to feudalism where kings were the only forces for good or bad in the world depending on whether they were enlightened despots like Catherine the Great and Frederick the Great or just plain despots like Ivan the Terrible or Caligula.
We must consider whether a society which creates "opportunities" for some people to become obscenely wealthy, even though they can then supposedly turn around and use their money to do good, is as good a society as one which creates opportunities for most people to work in ethical occupations and do good at the same time.
Singer's world view is one where everyone is well off and gives to charity without sacrificing any of their own self-interest at all. They needn't do that because after all they are billionaires and have much more money than they ever could spend on themselves. It's not the real world. It applies to a small fraction of rich people - those who want to use their money for good purposes. They barely, if at all, offset the rich who use their money to perpetuate bad purposes.
Perhaps Wage will find out that he cannot sacrifice his own soul to gain the world even if he gives half of it away.
In an article in Salon Sean McElwee says : Charity is great, but it won't bring real change — and worse, it perpetuates the myth that we need the ultra-rich:
Think of the planet’s best human being. Who are you thinking of? Pope Francis? Your parents? Justin Bieber? According to Business Insider, it’s Mark Zuckerberg. Why? Because he’s planning to donate $1 billion (less than 5 percent of his massive fortune) to charity. While it’s certainly welcome, philanthropy is far more insidious than it appears at first sight. It tends to lead to fawning press coverage, but little in the way of good reform. Worse, it perpetuates the myth that society’s problems can be solved by the rich and powerful. ...
There’s a very real sense in which it would be hard for Zuckerberg to have done less for the poor. After all, he and his rich Silicon Valley friends regularly use their wealth to lobby for policies that would make them even richer — even if in the guise of social responsibility.
Billionaires Do Not Always Use Their Money for Good Purposes
And that's the rub. The rich in addition to their charitable endeavors also use their money to perpetuate the system that made them wealthy in the first place even if that system fosters subjugation and oppression for the vast majority. McElwee writes: "In charity, the rich approach the poor not as equal citizens but rather [as] benefactor and serf. It perpetuates a class society, where the poor and middle class are dependent on the wealthy."
We must also consider the rationale and ethics of a society that makes some people insanely wealthy for inventing things of questionable and even trivial value. For instance, take Snapchat. Snapchat has made its corporate owners, Evan Spiegel and Bobby Murphy fabulously wealthy. Using the application, users can take photos, record videos, add text and drawings, and send them to a controlled list of recipients. These sent photographs and videos are known as "Snaps". Users set a time limit for how long recipients can view their Snaps after which Snapchat claims they will be deleted from the company's servers.
The main purpose of SnapChat is so users of the application can take pictures of their "junk", send them out and then not have to worry that a prospective employer might view them. In June 2013, Snapchat raised $60 million in a funding round led by venture-capital firm Institutional Venture Partners. According to Forbes, Snapchat’s chief executive Evan Spiegel and co-founder Bobby Murphy, have made it to the 2015 Forbes 400 list. Mr. Spiegel, who is 25, is now the youngest billionaire in the world and currently his net worth sums up to $2.1 billion. Don't tell me that we live in an ethical society when a piece of crap like SnapChat can raise $60 million, make Spiegel a billionaire and poor kids go hungry.
In addition it turns out that Spiegle didn't even invent SnapChat. It was invented by former "friend", Reggie Brown, who was subsequently shut out of the company. This is reminiscent of Facebook's Mark Zuckerberg who shut out the Winkelvoss twins, who actually invented Facebook, and later settled with them for $65 million, a large amount to be sure, but not the $35.7 billion Zuckerberg is worth. Long story short, people screw their friends over huge amounts of money. This is an ethical society when things like this can happen and people can make huge amounts of money for crapola?
On May 9, 2013, Forbes reported that Snapchat photos do not actually disappear, and that the images can still be retrieved with minimal technical knowledge after the time limit expires. The Electronic Privacy Information Center consequently filed a complaint against Snapchat with the Federal Trade Commission, stating that Snapchat deceived its customers by leading them to believe that pictures are destroyed within seconds of viewing.
Snapchat eventually settled with the Federal Trade Commission over allegations it deceived users over the amount of personal data it collected and was responsible for a security breach that impacted 4.6 million customers. It will face privacy monitoring for 20 years.
That's the story in a nutshell. Unethical people making huge sums of money in unethical enterprises while the poor and people striving in ethical professions such as teaching and caregiving starve to death. Capitalism, especially as it is currently conceived, manifested and practiced, is unethical. Make no mistake about it: capitalism is not some absolute thing-in-itself that has always existed from time immemorial. It is a moving target, continuously being reinvented and updated to advantage the already rich with every new wrinkle that some financial expert can come up with.
In other words, it evolves and not necessarily in benign ways. Its original purpose, to develop pools of money that could be used in enterprises which would benefit society, has long been forgotten. It allows for despoiliation of the environment, the granting of huge rewards to insiders who come up with stuff that only degrades the culture and the complete neglect of the kinds of enterprises that are necessary to make peace in the world and build a better and stronger society.
by John Lawrence
The American Dream is the ideological underpinning of the middle class. Now that the middle class is disappearing, it no longer makes sense as historically defined. Thom Hartmann (Rebooting the American Dream) and Hedrick Smith (Who Stole the American Dream) have defined the American Dream as a good job at good wages plus benefits. They bemoan the fact that this has pretty much gone by the wayside in today's world. Well, it's time to get over it because the conditions that gave rise to middle class prosperity in America from 1945 to 1980 are not coming back.
The era in which the economic rewards from rising productivity were widely shared between workers and owners is over. Those good jobs resulted from the fact that unions put pressure on corporations. Private sector union membership reached a peak of about 35 percent of the labor force in the 1950s. Today union membership, especially in the private sector, has fallen off to less than 10%. The decline of the middle class mirrors the decline in union membership. Today in a globalized economy, corporations employ workers wherever in the world they can get them for cheapest.
During the heyday of the middle class, it was possible to own a house, a car, eat out once a week, take a vacation once a year, send a child to college without going into debt, have health care and a pension that would pay out monthly benefits for life - all in a one job family in which the wife could stay home with the children and make pies and cakes. Then Reagan was elected President in 1980 and the War on the Middle Class began. Taxes that had been progressive during the middle class era became regressive. Instead of the transfer of tax money from rich to poor, the opposite started to occur. According to Thom Hartmann this was the single biggest factor in impoverishing the middle class.
When we had heavily regulated and taxed capitalism in the post-war era, the largest employer in America was General Motors, and they paid working people what would be, in today's dollars, about $50 an hour with benefits. Reagan began deregulating and cutting taxes on capitalism in 1981, and today, with more classical "raw capitalism," what we call "Reaganomics," or "supply side economics," our nation's largest employer is WalMart and they pay around $10 an hour.
This is how quickly capitalism reorients itself when the brakes of regulation and taxes are removed - this huge change was done in less than 35 years.
The deunionization of America, a globalized work force and regressive taxation have all combined to decrease the middle class and undermine the American Dream. There is no use trying to get the conditions back that supported that dream. It ain't going to happen. However, it is possible to develop a new Weltanschauung or world view that doesn't have anything to do with trying to recreate the conditions that led to middle class prosperity in the past. This involves letting go of many of the assumptions that were productive in the past but today are completely dysfunctional.
One of these assumptions is that, if we prepare ourselves as students for a job, some benign employer will hire us. Under this assumption it's the employer's job to provide jobs for us, the employees. I call this employee consciousness wherein most people aspire to be employees, to work for somebody else. Today most employers have no responsibility whatsoever to their employees. Employees are hired "at will" which means they can get rid of you for no reason at all. So rather than get laid off at the age of 50 because some whippersnapper can do a better job than you can at half your pay rate, you're better off being self-employed from the start of your career. Create your own job. It'll be harder at first, but, as the years go by, you'll be much better off especially if you gear yourself from the very beginning to be your own boss and not delegate the job of bossing you to someone else.
Another assumption is that a college education is essential to a middle class lifestyle. No longer true. Today a college education is just a precursor to a lifetime of debt. Instead of starting off life debt free which was the case for most college students from World War II until Reagan's election, college students today start off life with a debt equal to a first mortgage. Better to start a career just out of high school and not waste four years in college for what amounts to a worthless piece of paper.
There are many jobs that can be done with just training acquired either at high school or during the high school years that end up paying more than those that require a college degree and which can be easily outsourced. Think local service type jobs rather than jobs with national or global pretensions. Plumbers, electricians and many other service jobs are more remunerative in the long run than jobs for which you need a college degree, and, instead of being laid off at the age of 50, you will have an asset - your business - which is salable at the age of 50.
The only good non-self-employed jobs are unionized jobs in the public sector. For instance New York City sanitation workers make around $90,000 a year. Becoming a garbage man is the most coveted job in the city. Over 90,000 people applied last year for the job of carting away NYC's garbage, but they only hire about 500 a year. It's actually harder to become a sanitation worker in New York City than it is to get into Harvard. Starting salary is about $34,000, but with overtime it averages about $47,000 the first year. After 5.5 years the salary jumps to an average of $89,000. This compares with an average salary for New York teachers which is $68,000.
Since sanitation workers also operate New York City's snow plows, there is ample opportunity for overtime pay. They also get 10% more for night shifts, double time for Sundays, 25 vacation days a year and unlimited sick leave. Sanitation workers in NYC have a very good health care plan and excellent pension benefits. And it's all because they have a very strong union. You can retire in 20 years. 71% of all government workers in New York state are unionized. That's the difference that unionization has made, and it explains the lack of wage growth in the deunionized private sector.
For those unwilling or unable to be self-employed or unable to win the lottery to become a NYC sanitation worker, consider a two year associate's degree from a community college which by the way President Obama wants to be free. Good luck with that. If wishes were horses, then beggars would ride. There's a wave of people with two year degrees in applied science earning as much or more in their first year after graduation than four year college graduates. According to collegemeasures.org, these two year degrees from a technical college are worth more in the job market than bachelor's degrees. In Texas the earnings difference between 2-year technical college graduates vs those with a bachelor's degree was on average $11,000. In Virginia it was $2000 and in Colorado it was $7000.
In Colorado the community college tuition is about $3600 per year, but the median wage for graduates in their first year of employment is $53,000, a significant cost/benefit advantage over four year colleges. Red Rock Community College near Denver has a water quality management program which almost guarantees graduates a good job since the City of Denver needs 1800 water quality workers in the next few years.
That portion of the American Dream that promised a lifetime pension after working for 30 years has been totally vitiated. The defined benefit pension which promised a fixed monthly amount for life has been replaced by the defined contribution pension or 401(k) in which the employee funds and manages his own retirement account. This might as well be called the undefined benefit pseudo pension as there is no guarantee that the amount of money in your account on retirement will last a lifetime. So what good is it if you find at the age of 85 that you've run out of money. We'll be seeing a lot of 85 year olds reduced to living on the streets since corporations have pulled the rug out from under the defined benefit plans. Now the employee, not the corporation, takes all the risk in the stock market.
401(k)s are do-it-yourself pensions. You invest your own money in the stock market in the hopes that your expertise in managing your portfolio will result in an adequate pension. Unfortunately, most employees have little expertise in that area. Hedrick Smith writes:
[The advent of 401(k)s] was a monumental transformation for the American middle class. "When the 401(k)s came in, there was a sea change, a huge shift in who was paying for retirement,"observed Brooks Hamilton. "In the old system, employers put up most of the money - 89%. The employees contributed 11%. Those figures are from the Department of Labor. Fast-forward to the 401(k) system and today, employees are paying more than half - 51% - and the companies, 49%. So there was a huge shift in costs from employers to employees - hundreds of billions of dollars."
The average employee has far less in his or her 401(k) than what will be needed over a lifetime especially if he or she lives into their 90s which is becoming increasingly common. The typical nest egg of those in their 60s with a 401(k) who are nearing retirement is around $79,000 according to The Center for Retirement Research at Boston College. This is far less than required to live a middle class lifestyle for the average life span.
Hedrick Smith sums up:
Retirement specialists like Brooks Hamilton and Alice Munnell question whether, in this turbulent economy, the task of financing retirement is too fraught with risk and too complicated for most average Americans, especially the millions who are gun-shy about financial markets.
So one of the advantages of employeehood, a secure retirement, has been taken away. Rather than live off a fixed sum of money at retirement, you need to do what the rich do: live on the return from your investment not the investment itself. It's up to you to acquire your own wealth from which to pay yourself a monthly stipend from the return on that wealth. That's the only way it will last as long as you need it. If you have a fixed pot of money like that which the 401(k) provides and you live off of it, you will be consuming your own seed capital. On the other hand if you own a rental which pays you $1000 a month in rent, that goes on in perpetuity and you can will that asset to your heirs. In other words you will never run out of money. Most of those depending on 401(k)s have the middle class mindset that you live off your life savings. This mindset and assumption needs to be changed. They will run out of money at some point unless they die quickly after retirement.
It is better to acquire property development skills like carpentry, plumbing, electrical etc in high school so that you can add value to a piece of property and rent it out thus acquiring a life time cash flow. You can't add value to a stock portfolio and it is subject to the vagaries of the market including bubbles and subsequent crashes. That's where self-employment in the building trades is invaluable. You can build wealth by adding value. And all the learning tools are readily available in the library or on the internet. The ancillary benefit of learning one or more trades is that you can build wealth on the side in addition to earning a living.
Thom Hartmann and Hedrick Smith are good analysts but their solutions amount to wanting the Federal government to bring back the good old days by creating good jobs at good wages. Yeah, it would be nice to have the Federal government put up $2 trillion to repair or rebuild infrastructure. It's just not going to happen. The Federal government and a lot of state governments have been captured by rich billionaires and corporations that have more economic power than most countries and they don't want it to happen. It would be nice to tax the rich and transfer money to the poor. It's not going to happen. So despite the imprecations of Bernie Sanders, Elizabeth Warren and other voices crying out in the wilderness, their solutions are just pipe dreams.
Wishing does not make it so. We're in a totally different environment than the one after World War II when veterans could go to college and buy houses with veterans' benefits. Today most jobs are being reduced to Wal-Mart type service jobs. But you can still make good money in a service job providing it's a self-employed service job and you're servicing the local economy.
Forget about STEM (Science, Technology, Engineering, Math) jobs. A few short years after graduating from college, skills in those areas will be obsolete and corporations will let you go because you will be deadwood. They want recent college graduates. Cutting edge skill sets don't benefit America as some would suggest. They only benefit American corporations which have absolutely no loyalty to their employees or in fact to America. They are doing everything they can including moving their headquarters out of the US to avoid paying taxes. Instead of being concerned about global competition and America's winning, be concerned about the local economy and contributing to it while at the same time earning a living and creating wealth for yourself. If an enterprise requires a number of workers to make it viable, form it as a cooperative and share the profits.
by John Lawrence from the San Diego Free Press
Alaska is a land of rugged individualists - Republicans all the way. However, a little known fact is that Alaska taxes the oil and gas corporations operating there and distributes the proceeds on an annual basis equally among every man, woman and child living in the state. The biggest farce of all is that Tea Party touter, Governor Sarah Palin, slapped an excess profits tax on the state's oil companies in 2008, the year she ran for vice-President alongside John McCain, so that every person in Alaska received a dividend of $3269 that year. That was a pretty good haul for a family of four: $13,076. For Palin's family - husband Todd, sons Track and Trig and daughters Bristol, Willow and Piper - it came to an even better haul - $22,883!
Let me be clear. I am totally in favor of institutions like the Alaska Permanent Fund and think they should be extended to the entire US which would guarantee every American citizen a basic income which would come from things we all own in common like oil and mineral deposits, the electromagnetic spectrum and the air we breathe. But someone like Palin, who presided over a plan that taxed corporations and distributed the proceeds to each citizen of Alaska while at the same time taking humungus speaking fees to egg on the Tea Party with anti-tax, anti-socialist and free market rhetoric, is nothing but a super hypocrite, someone beyond the pale - in.
Jay Hammond, the Governor of Alaska from 1974 to 1982 is the father of Alaska's Permanent Fund. He conceived and then persuaded voters and legislators in a state of rugged individualists to adopt the world's first dividend paying fund of the sort that American forefather Thomas Paine envisioned. Paine in his pamphlet Agrarian Justice proposed a guaranteed basic income, a precursor of Social Security. Although supposedly ideologically opposed to such a plan, Alaskans approved it and it has proved to be a big success and very popular despite the state' s supposed rugged individualistic ethic. They thought it was a pretty good idea to get a check for over $1000. in the mail every year or, as is done today, a direct deposit wired into their bank account.
Since 1980 the fund has grown from $900 million in assets to over $44 billion today. It has paid yearly dividends to Alaskans that have regularly exceeded $1000. As Hammond conceived it, it enabled Alaskans to benefit from the many natural resources they owned in common rather than let private corporations, who are in the business of exploiting those resources, be the only beneficiaries.
The dividends from Alaska's fund have stimulated the economy from the bottom up rather than from the top down and have virtually eliminated poverty within the state. Alaska is economically one of the most equal states in the union.
But Palin is such a hypocrite. When asked by Sean Hannity about the inconsistency of her actions as Governor and her rhetoric as the queen bee of the Tea Party, Palin said "What we're doing up there is returning a share of resource development dollars back to the people who own the resources. Our constitution mandates that as you develop resources, it's to be for the maximum benefit of the people, not the corporations, not the government, but the people of Alaska." Very well, but then why all the rhetoric that extolls private over public interests and lowering as opposed to raising taxes on corporations?
Contrast this with what Palin told a Tea Party crowd on September 4, 2011: "So, to make America the most attractive and competitive place to do business, to set up shop here and hire people here, to attract capital from all over the globe that will lead to an explosion of growth, instead of chasing industry offshore, I propose to eliminate all federal corporate income tax." I suppose this doesn't include the Alaska Permanent Fund user's fee because it is not strictly speaking a tax. It's a user's fee! The fees charged the oil and gas corporations operating in Alaska are owed to the owners of the resource who happen to be the citizens of Alaska. This defies those like Tea Party activists who would privatize everything. But Palin would privatize everything as long as it was not her ox that was being gored!
Palin's rhetoric extolling the free market economy and lowering taxes on corporations flies in the face of the reality in her own state of Alaska. Her mouth is disconnected from her reality on the ground. The fact of the matter is that Alaska's reality should be extended to all citizens of the US who are the true owners of America's resources. There should be a permanent fund which collects monies owed to the American people and distributes them to every man, woman and child. Right now public resources rightfully owned by the American people are being privatized and profited from by large corporations feeding an ever increasing inequality. Royalties from the extraction industries are not anywhere near as high as they should be. They should go into a people's fund. Norway imposes a 50% tax on oil extraction which is put into its sovereign wealth fund which provides pensions and benefits for the Norwegian people. Of course, fossil fuel resources should be left in the ground in order to forestall global warming but that's a subject for another day.
The disconnect between right wing rhetoric and left wing reality is seen not only in Alaska but in Kentucky where the Kentucky version of Obamacare known as Kynect is hugely popular for what it accomplishes for the citizens of Kentucky. But on the rhetorical level Kentuckians all hate Obamacare. Mention Obamacare and they will lapse into a dither of denunciation. It is pretty pathetic that people will get so worked up over a name while loving a service provided as long as you call it by a different name.
As Peter Barnes points out in his book, With Liberty and Dividends for All, nothing is realized for the benefit of the people from the electromagnetic spectrum which is given away free to corporations. Nothing is realized for the co-owners of the system (us) that protects intellectual property and supports the financial system. A financial transaction tax (or user's fee if you prefer) could partially fund a dividend for the American people. Money creation, supposedly the province of the Congress, has been delegated to private banks who do it by the process of fractional reserve banking and for their own private profit. It should be done by the representatives of the American people, as specified in the Constitution, with the profits going to the American people via a sovereign wealth fund instead of to the private banks.
Co-ops and other forms of common ownership by worker/owners should make a portion of profits directly payable to worker/owners instead of holding the profits or spending them in common for them. This spreads the wealth rather than holding it in trust. A public bank could distribute its profits as dividends to the public that owned it instead of all the profits from banking going to Wall Street.
Rich people live off of dividends paid to them in one form or other from their accumulated wealth. Public wealth is owned by the citizens of the US collectively. To receive a dividend from their co-owned wealth would tend to ameliorate the growing inequality of wealth ownership in the US and supplement middle class incomes. Every citizen should be in a position of deriving at least a part of their income from co-owned wealth, especially since income from jobs is going downhill due to automation and outsourcing. It would eliminate poverty, provide a basic income guarantee, stimulate the economic system from the bottom up and restore the middle class.
by John Lawrence
Thomas Piketty's new book Capitalism in the Twenty-first Century begs comparison with Karl Marx' Das Kapital written in 1867. The two books are alike in the sense that they both point out the incredible centralization and concentration of wealth in fewer and fewer hands. They are unlike in the sense that Marx' book is more exhortatory while Piketty's is more of a massive collection of historical data presented in the form of numerous graphs and charts. While Marx was more of a "workers of the world unite, you have nothing to lose but your chains" kind of guy, Piketty is a Dragnet's Sergeant Joe Friday's "The facts, ma'am, just the facts" kind of guy. While Marx's solution to the dilemma of inegalitarianism was revolution and the dictatorship of the proletariat, Piketty's is a global tax on wealth, something that even he concedes is unlikely to happen.
Piketty's main theme is that up until the advent of the First World War, wealth was concentrated in the hands of the upper decile (upper 10%) and particularly in the hands of the upper centile (upper 1%). In 1910 the top decile held about 90% of the wealth in Europe and 80% in the US in what was known as the Gilded Age in the US and the Belle Epoque in France. The dislocations of WW I, the Great Depression and WW II tended to equalize wealth and incomes so that the period from roughly 1914 to 1975 was the era when the middle class made its greatest advances in both wealth and income. Since 1980, however, the age of Reaganism and Thatcherism, the upper decile and centile have taken off in wealth and income so that at the present time their wealth accumulation is approaching the same level as it was during the Gilded Age. As of 2010-2011, the upper decile in the US owns 72% of America's wealth while the bottom 50% owns just 2%.
Piketty points out that what happened in 1980 under Reagan and Thatcher was that income tax on the upper income brackets was drastically reduced. While the top marginal income tax rate was 70% under President Clinton, it was reduced to 28% under Reagan. Taxes on capital gains were also drastically reduced while FICA (social security) taxes affecting mostly the middle class and poor were raised. This incentivized the pay of CEOs to skyrocket to the point where some CEOs today in the fast food industry are making over 1000 times what the average fast food worker is making. While income taxes are largely progressive, FICA taxes are flat affecting incomes at the same rate all the way down to zero dollars of income with no deductions and no exemptions.
Karl Marx, on the other hand, was not quite as anal retentive in his collection of data regarding the inegalitarianism of the late 19th century. His main point was that capitalism entailed the exploitation of workers by expropriating their labor in the form of profits that went to the capitalist. As he sat writing Das Kapital in the British Museum, industrial workers were living in conditions of misery, a fact noted in many of Charles Dickens' novels. According to the labor theory of value, promulgated by David Ricardo and largely accepted by economists of the time including Adam Smith, the value added to raw commodities by the laborer should have gone to labor in the form of wages instead of to the owner of the means of production, the capitalist. This dynamic is what produced the wealth of the capitalist class and the impoverishment and immiseration of the workers.
Marx also believed in historical determinism and thought that it was inevitable that the next stage in history was a revolution that would lead to the dictatorship of the proletariat. In that stage workers would have overthrown the capitalists and would reap all the rewards of their labor instead of having them siphoned off by the capitalist parasites. However, the Soviet experiment didn't work out quite as Marx had envisioned. If nothing else it proved that nothing is historically inevitable. The Soviet state expropriated all private wealth and held it on behalf of the workers. In the Soviet world the government held 100% of the wealth of the society and privately held wealth was zero just the opposite of historical wealth accumulation prior to 1917. Elsewhere in the world the share of wealth privately held by the upper decile diminished after WW I and the share held by the middle class, mainly in the form of real estate, increased.
Prior to 1917 privately held wealth represented approximately 100% of national wealth in most countries and government held net wealth was close to zero similar to the situation that exists today in the US and most European countries. To the extent that national debt represents money owed by citizens to bondholders, it can be seen primarily as a transfer of income from the middle class to the rich. Thus the wealthy supply the funds necessary to run the government not by means of taxation but by loaning the government the money from which they get paid interest. Norway which has a sovereign wealth fund is the exception. Norway puts profits from its oil extraction industry into a fund from which it pays Norwegians' pensions among other things. Norway's government enjoys a position of net wealth whereas the US government has a net position of zero.
From the point of view of wealth accumulation, the Soviet experiment turned out to be an historical aberration. Piketty is quick to point out that no distribution of wealth and income is historically inevitable putting the lie to the doctrine of historical determinism. I say Good Riddance. No workers' paradise will come about as a result of historical inevitability nor will it come about as a result of benign tendencies within the capitalist system. In fact the liklihood is the opposite: the 1% will keep getting wealthier while the 99% will keep losing ground. The Trente Glorieuses, the 30 years when the middle class prevailed from 1945 to 1975, is over.
Modern economic growth and the diffusion of knowledge have made it possible to avoid the Marxist apocalypse but have not modified the deep structures of capital and inequality - or in any case not as much as one might have imagined in the optimistic decades following World War II. When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twentyfirst, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.
So while Marx believed in the expropriation of the expropriators by the working class, Piketty points out that the wealthy are only increasing their share of national wealth while the 99% are losing both income and wealth. The owners of capital are increasing the percentage of national and world wealth that they own while the value of labor is decreasing. Piketty doesn't, however, give an analysis of why a bigger share of income is going to capital and a smaller share to labor. The overriding dynamic is that there is less of a need for labor as robotization and automation take over more and more of the tasks involved in creating consumer products. By the law of supply and demand, the fewer workers that are needed, the more the owners of capital can bid down their services. Since the only way most of the middle class can earn income is from their labor, there is a greater and greater return to the owners of capital and less and less to labor - particularly the labor of the former middle class and poor - the lower nine deciles.
Where Piketty and Marx agree is that capitalism is a system which tends to concentrate income and especially wealth into fewer and fewer hands. Thus inequality tends to increase, not decrease, as time goes on. The period between the two world wars and the Trente Glorieuses was an exception to the rule because of the dislocations caused by war and the Great Depression.
The long sought for utopian goal of a world in which labor is performed mostly by machines and the average person would have a life of leisure and material comfort is contradicted by the fact that, for the 99%, their only form of income is from their labor. As the need for their labor diminishes, so does their income so that instead of a life of material comfort without the need for labor, they have a life defined by unemployment and diminished means of acquiring material goods. This is the contradiction of advanced capitalism. As Piketty points out, there are two types of income: income from labor and income from wealth. If wealth were more evenly distributed, the 99% could derive part of their income from wealth instead of a diminished income from labor. I have pointed out elsewhere how this might be possible.
The cooperative movement might also be an antidote to the perverse situation we find ourselves in that, as our labor is less needed to produce the material means of a comfortable life, our income to purchase those things is also diminished. In a cooperative like Mondragon, workers acquire a position of ownership so that profits go to worker/owners and not just to the owners of capital. In Mondragon capital is withheld on behalf of workers in order to pay for pensions rather than being accumulated individually by workers which may or may not be preferable on a long term basis.
The Mondragon Corporation is a ... federation of worker cooperatives based in the Basque region of Spain. It was founded in the town of Mondragon in 1956 by graduates of a local technical college. ... It is the seventh-largest Spanish company in terms of asset turnover and the leading business group in the Basque Country. At the end of 2012, it employed 80,321 people in 289 companies and organizations in four areas of activity: finance, industry, retail and knowledge.
At Mondragon, there are agreed-upon wage ratios between executive work and field or factory work which earns a minimum wage. These ratios range from 3:1 to 9:1 in different cooperatives and average 5:1. That is, the general manager of an average Mondragon cooperative earns no more than 5 times as much as the theoretical minimum wage paid in his/her cooperative. [Compare this with the 1000 to 1 ratio between CEO salaries and worker salaries in the fast food industry in the US.] In reality, this ratio is smaller because there are few Mondragon worker-owners that earn minimum wages, because most jobs are somewhat specialized and are classified at higher wage levels. The wage ratio of a cooperative is decided periodically by its worker-owners through a democratic vote.
[The financial area] includes the banking business of Caja Laboral, the insurance company Seguros Lagun Aro, and the Voluntary Social Welfare Body Lagun Aro, which had an asset fund totalling €4.2 billion at the end of 2009. The yield obtained from this fund is used to cover long-term retirement, widowhood, and invalidity benefits, complementary to those offered by the Spanish social security system.
While Mondragon's capital assets are used in a laudable manner, if it were put to a vote in the US, I would wager that most citizens would prefer to own wealth in their individual accounts rather than having it held for them by a cooperative, no matter how benign. The one main benefit of individual ownership is that wealth can be passed on to heirs whereas wealth held in the cooperative account will not be.
Piketty's notion of a global tax on capital is not realistic since capital seeks out secretive banking services in Switzerland and elsewhere. A Financial Transactions Tax is more realizable. Any tax on wealth needs to be taken at the point of contact with the financial system, just as income tax is deducted directly from a worker's paycheck, in order to make it practicable.
Property taxes also represent a tax on wealth since, as Piketty points out, wealth in the developed world is held about 50% in real estate and 50% in financial assets. Real estate is taxed at a flat rate in the US. Property taxes are very practicable as taxes on wealth since they have been in place for many years. They need to be made progressive, however, in order that the middle class can gain a greater share of wealth and income. A Federal property tax could be simply added onto the local property tax keeping it low for the middle class and higher for the wealthy. Thus there are various ways to practicably tax wealth without having to access bank records. A progressive property tax could allow seniors to remain in their homes instead of having to sell because they can't afford their property taxes.
Corporate income and capital gains taxes, which were slashed under Reagan and Thatcher, need to be raised and made more progresssive in order to reduce inequality. Progressivity will reduce inequality. FICA taxes, flat taxes which affect mainly the middle class and poor, need to be made progressive and the cap needs to be raised. Right now the rich pay effectively no FICA taxes since the cap on income which can be taxed is $117,000. Reagan and Alan Greenspan increased FICA taxes (doubling those of the self-employed) while reducing taxes on high incomes, corporations and capital gains. Carried interest, which is a loophole that only benefits hedge fund and private equity managers, needs to be abolished so that these guys pay their fair share. There are many other ideas about how to lower taxes on the middle class and the poor and raise them on the rich. Tax policy is an effective tool to reduce inequality.
If the 1% were taxed at the same levels they were taxed at during the Trente Glorieuses, inequality could be reduced and the middle class' share of national wealth could be increased. Government policy also could encourage wealth formation in the lower deciles of the population through micro loans and loans for small business start-ups among other things. This is more likely to happen if states and cities create public banks. Of course a public bank could be established at the national level to replace the Federal Reserve which is privately held by its shareholders, mainly Wall Street banks.
As Piketty points out, if the rate of wealth creation exceeds the rate of income going to labor, the system very soon gets out of whack. A good example of this is the fact that Bill Gates, the richest man in America, earned $9 billion last year from doing nothing or rather, to be more precise, Bill Gates' wealth earned $9 billion last year. Even though he's given an astounding $38 billion to his charitable foundation, he keeps getting richer year after year. Obviously, Bill Gates can not spend the $9 billion which was last year's income from wealth (his income from labor was zero) so it just gets added to the $67 billion pile he had already accumulated.
by John Lawrence from the San Diego Free Press Leave comments there.
Now that Thomas Piketty has clued us in in his book Capital in the Twenty-First Century that the upper one percent is making all the money and that the middle class is getting screwed, as if we didn't already know that, the question remains what should we do about it. Paul Krugman seems to think that government should redistribute money from the wealthy to the poor, and this would be a good solution, one that is achieving good results in Europe, but, since the US government is owned by the wealthy, one that is unlikely to be manifested here any time soon. Piketty points out that income is derived from two sources: labor and return on capital or wealth. Capital and wealth are essentially synonymous by the way. Here's Lesson #1: capital or wealth is not static; it generates income all by itself in the form of interest, dividends or rent.
The good news is that you don't have to be “wealthy” to derive at least part of your income from wealth. The more income you derive from wealth, the less you have to derive from your labor. The average American, however, is not aware of this truth. Lesson #2: you don't have to be "wealthy" to derive some or all of your income from wealth. Neither do you have to be an exceptionally talented person and/or start a Fortune 400 corporation like Bill Gates (Microsoft) or Irwin Jacobs (Qualcomm) to derive part or all of your income from capital.
The problem is that most middle class Americans have been programmed to derive all of their income from labor, and they have been programmed to spend all of their income on consumer items. That's the paradigm that needs shifting. The conventional wisdom is that everyone should go to college. (This piles up student loan debt payable to Wall Street.) Next buy a house. (This comes with a mortgage payable to Wall Street.) Next buy a car. (Make that payable to Wall Street.) And then to make your lifestyle complete, spend to the max on your credit card. This lifestyle makes you poor and Wall Street rich. Over the course of a lifetime, perhaps as much as two thirds of all your expenditures will be interest payments to Wall Street via their local store fronts - Bank of America, Wells Fargo and Citibank.
To suggest, as I'm doing, that there is an alternative lifestyle of low consumption and wealth creation for the average Joe is revolutionary in and of itself because the American GDP is 70% consumption. The big corporations can't survive if everyone consumes say 30% less and puts that money into wealth creation for themselves instead of wealth creation for Wall Street.
The middle class dream of a good job which comes with a pension and a comfortable retirement is passe. The premise is that you will work all your life till retirement and then you will get a pension till you die. But pensions have gone by the wayside having been replaced with an even more insidious bag of worms: the 401k. First let me tell you why even pensions are a sick form of wealth creation for you. Your money was set aside in a separate account presided over by a pension fund manager. The income stream from the wealth that that created was used to pay your pension.
The wealth or capital itself, however, was owned by the corporation or government so that, when you died, the capital in and of itself went to the corporation or government and not to your heirs. Again you were used to create wealth for a corporation not for yourself. Secondly, pension funds have been raided by corporate raiders and hedge fund managers for years. Financier Ronald Perelmen took over Revlon in 1985, shut down its pension plan and got control of more than $100 million in surplus pension assets. Charles Hurwitz took over Pacific Lumber, closed down its pension and used $55 million in surplus pension assets to help finance his buyout.
Recently, public workers in Detroit have had their pensions slashed after the city went bankrupt. Wall Street has also duped pension fund managers with interest rate swaps and other derivatives with the result that many pension funds have lost huge amounts of money. The biggest victims of interest-rate swaps have been local governments, universities, pension funds, and other public entities. More and more pension fund money is going to pay the exorbitant fees charged by the Wall Street firms managing the pension money.
If you took the same amount of money that was put in a pension fund and invested it yourself, not only would you derive the income stream generated by the resultant wealth, but, when you died, the principal amount could be passed on to your heirs and they could derive the income stream in perpetuity. Lesson #3: Generate your own wealth. Don't depend on a corporation or the government to do it for you.
As exploitive as the pension system is, the 401k is even worse. First, there is no guarantee that you will be able to even derive an income stream from it at all which will afford you a comfortable lifestyle after you "retire." That means that you will essentially consume your asset instead of consuming an income stream from it that leaves your asset intact. And what will you do if it's gone before you die? Second, Wall Street managers are milking your 401ks, siphoning off huge amounts for themselves. Forbes says management fees are the "last great rip-off in retirement saving". Third, since the money is invested on Wall Street, you don't know when the next financial cataclysm is coming that will make the bottom fall out of the stock market like it does periodically. The big guys, the high frequency traders and front runners, will sell short and make big profits. The average person with a 401k will see its value plummet perhaps just prior to retirement. The US economy consists of bubbles which are inflated by government policies and then burst leaving the little guy in the lurch. The bursting of the stock market bubble in 2000-2001 and the housing bubble in 2007-2009 left the middle class poorer while the upper 1% only garnered a huger share of national income and wealth. Check out Piketty's book if you don't believe me.
So what I recommend is to accumulate wealth without resorting to a pension or a 401k, wealth that will allow you to derive part or all of your income from it at any age regardless of the rules about when you can or cannot "retire". Lesson #4: The objective is to replace income derived from your labor with income derived from your wealth. Again you don't have to be “wealthy”, you don't have to be a millionaire, to replace income derived from labor with income derived from wealth. And you don't have to have a “wealthy” lifestyle, you don't have to own a big house, a yacht, a big car etc to be living off an income stream derived from capital. In fact you can lead a comfortable middle class lifestyle and derive all your income from wealth. Such is the nature of retirement.
The “wealthy” person with a huge house, several luxury cars and an ostentatious lifestyle may not be deriving any income from wealth at all. She may have a huge salary and spending every bit of it on mortgage, car, credit card and student loan payments, most of this going to Wall Street. She is in fact just a mega consumer and is probably house poor. Far from being a repository of wealth, a huge house is an income sink because of mortgage payment, insurance, maintenance and property taxes. The plumber with a couple of rental units may be deriving more of his income from wealth than she is. Lesson #5: Ostentatious consumerism has nothing to do with deriving an income stream from wealth.
What I'm proposing is to stay away from Wall Street both as a consumer and an investor, not lead a life of conspicuous or ostentatious consumption and gradually over time replace income derived from labor with income derived from capital. Piketty points out that capital is almost evenly divided between real estate and financial instruments. Lesson #6: Avoid financial assets that mainly accrue to the benefit of Wall Street and invest in local real estate instead. The current stock market bubble will burst sooner or later leaving the little guy with a 401k broke.
I grew up in a town of 1500 people and two guys that I knew accomplished this objective without being particularly entrepreneurial or talented. Irv Treiser was an optometrist, and I imagine he wasn't busy full time with his optometry business. He had the time and energy to buy fixer uppers, fix them up and rent them out. He thus created wealth and derived an income stream from the rents he received. Thus he could work or not as he chose. He wasn't absolutely dependent on his own labor because he had an alternative income derived from wealth. Art Siegle, the plumber who lived next door to Irv, did the same thing. Joe Albright, the barber, did the same thing. If they needed a loan, they went to see their neighbor, Paul Grau, at the local Farmer's National Bank in town, a bank that was not affiliated with Wall Street.
Or, alternatively, take the $25,000. that you would invest in a college diploma and invest it instead in a piece of farmland and start an organic farm. Then at least you have an asset from which you can derive an income from both your own labor and the capital represented by the farm. For example Susie's farm is a local farm producing organic crops for the people of San Diego. This is from their website:
Suzie’s Farm is a 140-acre USDA-certified organic farm located thirteen miles south of downtown San Diego. We grow over 100 varieties of seasonal vegetables, herbs, flowers, and fruits, year-round. Our Suzie’s farm-ily includes 85 employees, a handful of happy farm dogs, and a fleet of 300 egg-laying hens.
One of the exciting possibilities inherent in organic farming is CSA (Community Supported Agriculture) in which members of the community sign up for a box of produce at intervals of time and in effect become shareholders in the farming project.
There are many other ways to lead a healthy lifestyle while building wealth and serving the local community, combining sweat equity with a capital asset. Lesson #7: You can lead a productive life doing something you enjoy, serve the local community and build wealth at the same time. You can have a comfortable lifestyle devoid of ostentatious consumption while allowing you the free time to do whatever it is you really want to do whether that is surfing, skiing, traveling, playing golf or composing poetry. And you don't have to reach "retirement age" in order to enjoy it. Unlike a pension, when you leave this earth, you can pass on your assets to your children.
The American lifestyle is so consumed by work that most people don't have the energy to create wealth after work. Most people work eight hours with a one hour commute and a one hour lunch. They have no energy to do anything else but flop in front of the TV when they get home and run up their credit cards. You really need to have your own business like Art, Irv and Joe and work part time in order to have the energy to create your own wealth. Lesson #8: Have your own business and work part time. This allows you the time and energy to build wealth in local real estate or anything else. It's important to be self-employed and not be an employee of somebody else. For example, I make 5 or 6 times as much money per hour being self-employed as I would doing the exact same work as an employee. This allows you to meet basic living expenses without working full time. And you have to underconsume, putting your money not into savings which yields zero interest these days, but into building wealth by other means. It also helps to acquire carpentry, electrical, plumbing and other skills preferably in high school so that you can put sweat equity into building wealth instead of acquiring the worthless knowledge foisted on you in order to get a sufficiently high SAT score to get into college. Remember Einstein said that if he had it do over again, he would have been a plumber. And he could have been a plumber and worked out his Relativity Theory in his spare time.
Let's give Thomas Piketty the last word:
Today around 10 percent of domestic production in the rich countries is due to nonwage workers in individually owned businesses, which is roughly equivalent to the proportion of nonwage workers in the active population. Nonwage workers are mostly found in small businesses (merchants, craftsmen, restaurant [owner/workers], etc.). For a long time this category also included a large number of independent farmers, but today these have largely disappeared.
On the books of these individually owned firms, it is generally impossible to distinguish the remuneration of capital: for example, the profits of a radiologist remunerate her labor and the equipment she uses, which can be costly. The same is true of the hotel owner or small farmer. We therefore say that the income of nonwage workers is "mixed," because it combines income from labor with income from capital. This is also referred to as "entrepreneurial income."
Capitalism’s new critics take on an economics run amok.
Thomas Piketty (Photo: Emmanuelle Marchadour)
Marxists were not the only ones convinced that revolution was imminent. A remarkable series of transformations—the corporation’s rise, an unprecedented growth in productive capacity, the knitting together of what a few people had started referring to as a world economy—were redefining social life and what it meant to be a socialist. Restraining monopolies, bolstering labor movements, nationalizing land, instituting progressive taxation, establishing a welfare state—these were no longer the province of a radical fringe. By the end of the nineteenth century, laissez-faire’s obituary had been written so often that William Harcourt, former chancellor of the Exchequer and one of Great Britain’s most influential politicians, could proclaim that “we are all socialists now.”
Harcourt’s socialism was not Marx’s; it was, for example, intended to foil a revolution, not to foment one. At a time when a profusion of competing socialisms vied with each other for prominence, many bore little resemblance to what Marx had sketched (though, with the master dead, what Marx would have preferred also became grounds for dispute). Yet Marx’s successors had at least won an intellectual victory. Talk of a more equitable society had become ubiquitous and, along the way, “capitalism” slipped into the vocabulary, too.
Many, especially on the right, balked at the term. They claimed that “capitalism” was too precise, or not precise enough, or that it put an exaggerated emphasis on the role of capitalists in a system that was larger than any one group, no matter how powerful. Others accepted the word but gave it new meaning. By 1918, one German estimate tallied more than 100 ways of defining capitalism. Even then, it was still a rarity compared with the 1930s, when the Great Depression shoved capitalism—frequently assumed to have entered its final days—into the spotlight.
By the twentieth century, capitalism often seemed less the name for a specific mode of production than a more general way of describing a modern world perpetually overturning itself. With society gripped by changes that were routinely characterized as unparalleled in history, capitalism appeared about as faithful a designation for the new order as any. Yet Marxists never relinquished their proprietary claim to the label. As one of Marx’s translators observed in 1898, “It was the Marxists who forced the discussion of the question, and it is they who are most active in keeping it up.” The German economist Werner Sombart reiterated the point a few years later when he noted, “The concept of capitalism and even more clearly the term itself may be traced primarily to the writings of socialist theoreticians. It has in fact remained one of the key concepts of socialism down to the present time.”
Doubts about capitalism’s analytic utility, however, were not confined to the right. As the historian Howard Brick has demonstrated, throughout much of the twentieth century a substantial contingent of thinkers on the left believed that capitalism was either in the process of giving way to a more advanced mode of economic organization, or that the conversion to a postcapitalist order had already taken place. This perspective enjoyed its greatest prominence in the aftermath of World War II, a period viewed today as the golden age of capitalism but that at the time was also portrayed as the dawning of postcapitalism. States endowed with new powers by wartime victories seemed like they might be on the verge of uncovering a course beyond capitalism and socialism, where the good of society would supersede the exigencies of economics. Marxists flirted with speculations along these lines, too, before the onset of the Cold War hardened previously fluid divisions. Academics continued the debate in the 1960s when proponents of convergence theory argued that both sides of the Iron Curtain had moved toward a common model where bureaucratic efficiency trumped clashing ideologies.
With the riddle of prosperity solved, many on the left assumed that the time had come to address loftier questions: eliminating poverty, expanding civil rights, protecting the environment, and more existential concerns like nurturing individuality in a bureaucratized society. No wonder radicals in the 1960s could insist that “capitalism” wasn’t large enough to capture their critique. Paul Potter, former president of Students for a Democratic Society, complained that the word summoned images of an old left mired in archaic battles from the Great Depression. For Potter, “the system” was larger than capitalism, and “rejection of the old terminology” was “part of the new hope for radical change.”
In the 1970s, visions of a society beyond capitalism or socialism melted away, along with the robust growth rates that had made them plausible. Economic questions returned with a ferocity that made the prophets of postcapitalism appear deluded about the impediments they faced, and the once-imposing schema detailed by social theorists like Talcott Parsons came to seem flabby when contrasted with the remorseless clarity offered by an ascendant economics profession and its corps of mathematicians. Capitalism, now stripped of its explicitly socialist connotations, became a staple in the rhetoric of both left and right. By the end of the decade, it was easier to deny the existence of society—as Margaret Thatcher famously would—than to challenge capitalism’s pre-eminence as a category of analysis.
Socialists might have enjoyed watching the triumph of an idea they had concocted if they had not been busy combating growing dissent within their ranks. These difficulties seemed manageable in the 1970s, when Western governments had many fires of their own to put out. Ten years later, capitalists had regained their footing, while the socialist project continued to decay. Francis Fukuyama’s advertisement for history’s denouement was still on the horizon, but the habits of thinking that would undergird his thesis had already sunk deep roots. Marxism was built upon faith in revolution, but in the West revolution seemed more implausible than ever, and in Eastern Europe the continent’s only widespread revolution had Marxism in its sights. The collapse of communist governments that began in 1989 revealed that history had readied one last twist of the knife: nothing did more to entrench the acceptance of capitalism than the demise of the movement that had invented the concept.
* * *
Socialism and capitalism seem like natural antagonists, but their rivalry is Oedipal. To many, the relationship appears straightforward. Capitalism, they would argue, created the modern industrial working class, which supplied the socialist movement with its staunchest recruits. This story, variations of which reach back to Karl Marx, has been repeated so often that it seems intuitive. But it gets the lines of paternity backward. Capitalism did not create socialism; socialists invented capitalism.
The origins of capitalism could be dated to when someone first traded for profit, though most historians prefer a shorter time line. Even so, scholars tend to agree that something usefully described as capitalism had materialized in parts of the world by 1800, at the latest. But the idea of capitalism took longer to emerge. The word wasn’t coined until the middle of the nineteenth century, and it didn’t enter general usage until decades later.
By that point, socialists had been a familiar force in politics for almost a century. Yet socialism’s founders—figures like Henri de Saint-Simon and Charles Fourier—did not intend to overthrow capitalism. Their aspirations were, if anything, grander. They planned to launch a new religion grounded in principles revealed by another recent discovery: social science. Each half of the formulation—the social and the scientific—mattered equally. For most of the nineteenth century, socialism’s chief opponent was individualism, not capitalism. According to socialism’s pioneering theorists, society was more than a collection of individuals. It was an organism, and it had a distinctive logic of its own—a singular object that could be understood, and controlled, by a singular science. Socialists claimed to have mastered this science, which entitled them to act in society’s name. One of their first tasks would be to replace Christianity, liberating humanity from antiquated prejudices that had undermined revolution in France and could jeopardize future rebellions in Europe.
Socialism, though, was only the latest attempt to grapple with a deeper problem. With the lonely exception of ancient Greece some 2,000 years prior, democracy had been a marginal concept in political debate throughout history. But it returned to life at the close of the eighteenth century, no time more prominently than when Maximilien de Robespierre announced that “the essence” of revolutionary France’s democratic experiment was “equality”—a leveling spirit that could, in theory, be extended to every sphere of collective life.
One year later, Robespierre was dead, and equality’s proselytizers were in retreat, but they would advance again. Egalitarian impulses took many forms, and some of the most fervent acolytes believed they had altered the original model enough to justify a new title for their utopia: socialism. The details of this evolution were complex, but they were captured in the career of a single pamphlet, scribbled by the radical journalist Sylvain Maréchal in the last days of the French Revolution and tucked away in his papers for decades. After finally seeing daylight in 1828, the work became one of the key texts in socialism’s founding. It was named, appropriately, Manifesto of the Equals.
* * *
Though a descendant of rabbis, Marx never fancied himself the leader of a religion. But the prospect of a social science yoked to a political movement that promised a revolution of the oppressed? That warranted a manifesto of its own. Marx wanted to craft a vision of socialism that responded not just to the French Revolution, but also to what historians would later call the Industrial Revolution. It took time for capitalism to become the center of his critique. The Communist Manifesto doesn’t use the word at all, instead reserving its ire for “bourgeois society.” Capital assumed greater importance for Marx as he read deeper in political economy, but he preferred to speak of a “capitalist mode of production,” his label for a system in which labor power was sold like any other commodity and production for markets at a profit had become the rule. Eventually, though, capitalism would assume the place in Marxist thought that society had occupied for the early socialists. The scientific aspirations of the earlier varieties of socialism carried over, but the object of inquiry had shifted. By Marx’s death in 1883, the word had become popular enough that Wilhelm Liebknecht could eulogize Marx as the originator of the social science that “kills capitalism.”
From the beginning, the idea of capitalism was a weapon. Marxists used it to bludgeon their adversaries on the left, whom they could dismiss as utopian dreamers blind to the realities of life under capital’s rule. As Marx’s son-in-law Paul Lafargue would declare, communists were “men of science, who do not invent societies but who will rescue them from capitalism.” But the Marxist interpretation of capitalism was also the product of a particular way of thinking. “Totality” and “dialectics” were the key words of its philosophy, and its politics concentrated on revolution. Together, they promised a complete overhaul of society. Focusing on capitalism helped guide attacks on a bourgeois status quo that might otherwise have seemed impervious to change. Visions of the cohesive socialism to come nurtured the belief that there was a fixed and antithetical entity in the present to oppose. All that socialists needed to seal their victory was a revolution, which capitalism’s contradictions would deliver to them.
Thomas Piketty, professor at the Paris School of Economics, isn’t a household name, although that may change with the English-language publication of his magnificent, sweeping meditation on inequality, Capital in the Twenty-First Century. Yet his influence runs deep. It has become a commonplace to say that we are living in a second Gilded Age—or, as Piketty likes to put it, a second Belle Époque—defined by the incredible rise of the “one percent.” But it has only become a commonplace thanks to Piketty’s work. In particular, he and a few colleagues (notably Anthony Atkinson at Oxford and Emmanuel Saez at Berkeley) have pioneered statistical techniques that make it possible to track the concentration of income and wealth deep into the past—back to the early twentieth century for America and Britain, and all the way to the late eighteenth century for France.
The result has been a revolution in our understanding of long-term trends in inequality. Before this revolution, most discussions of economic disparity more or less ignored the very rich. Some economists (not to mention politicians) tried to shout down any mention of inequality at all: “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution,” declared Robert Lucas Jr. of the University of Chicago, the most influential macroeconomist of his generation, in 2004. But even those willing to discuss inequality generally focused on the gap between the poor or the working class and the merely well-off, not the truly rich—on college graduates whose wage gains outpaced those of less-educated workers, or on the comparative good fortune of the top fifth of the population compared with the bottom four fifths, not on the rapidly rising incomes of executives and bankers.
It therefore came as a revelation when Piketty and his colleagues showed that incomes of the now famous “one percent,” and of even narrower groups, are actually the big story in rising inequality. And this discovery came with a second revelation: talk of a second Gilded Age, which might have seemed like hyperbole, was nothing of the kind. In America in particular the share of national income going to the top one percent has followed a great U-shaped arc. Before World War I the one percent received around a fifth of total income in both Britain and the United States. By 1950 that share had been cut by more than half. But since 1980 the one percent has seen its income share surge again—and in the United States it’s back to what it was a century ago.
It’s a remarkable claim—and precisely because it’s so remarkable, it needs to be examined carefully and critically. Before I get into that, however, let me say right away that Piketty has written a truly superb book. It’s a work that melds grand historical sweep—when was the last time you heard an economist invoke Jane Austen and Balzac?—with painstaking data analysis. And even though Piketty mocks the economics profession for its “childish passion for mathematics,” underlying his discussion is a tour de force of economic modeling, an approach that integrates the analysis of economic growth with that of the distribution of income and wealth. This is a book that will change both the way we think about society and the way we do economics.
What do we know about economic inequality, and about when do we know it? Until the Piketty revolution swept through the field, most of what we knew about income and wealth inequality came from surveys, in which randomly chosen households are asked to fill in a questionnaire, and their answers are tallied up to produce a statistical portrait of the whole. The international gold standard for such surveys is the annual survey conducted once a year by the Census Bureau. The Federal Reserve also conducts a triennial survey of the distribution of wealth.
These two surveys are an essential guide to the changing shape of American society. Among other things, they have long pointed to a dramatic shift in the process of US economic growth, one that started around 1980. Before then, families at all levels saw their incomes grow more or less in tandem with the growth of the economy as a whole. After 1980, however, the lion’s share of gains went to the top end of the income distribution, with families in the bottom half lagging far behind.
Historically, other countries haven’t been equally good at keeping track of who gets what; but this situation has improved over time, in large part thanks to the efforts of the Luxembourg Income Study (with which I will soon be affiliated). And the growing availability of survey data that can be compared across nations has led to further important insights. In particular, we now know both that the United States has a much more unequal distribution of income than other advanced countries and that much of this difference in outcomes can be attributed directly to government action. European nations in general have highly unequal incomes from market activity, just like the United States, although possibly not to the same extent. But they do far more redistribution through taxes and transfers than America does, leading to much less inequality in disposable incomes.
Yet for all their usefulness, survey data have important limitations. They tend to undercount or miss entirely the income that accrues to the handful of individuals at the very top of the income scale. They also have limited historical depth. Even US survey data only take us to 1947.
Enter Piketty and his colleagues, who have turned to an entirely different source of information: tax records. This isn’t a new idea. Indeed, early analyses of income distribution relied on tax data because they had little else to go on. Piketty et al. have, however, found ways to merge tax data with other sources to produce information that crucially complements survey evidence. In particular, tax data tell us a great deal about the elite. And tax-based estimates can reach much further into the past: the United States has had an income tax since 1913, Britain since 1909. France, thanks to elaborate estate tax collection and record-keeping, has wealth data reaching back to the late eighteenth century.
Exploiting these data isn’t simple. But by using all the tricks of the trade, plus some educated guesswork, Piketty is able to produce a summary of the fall and rise of extreme inequality over the course of the past century. It looks like Table 1 on this page.
As I said, describing our current era as a new Gilded Age or Belle Époque isn’t hyperbole; it’s the simple truth. But how did this happen?
Piketty throws down the intellectual gauntlet right away, with his book’s very title: Capital in the Twenty-First Century. Are economists still allowed to talk like that?
It’s not just the obvious allusion to Marx that makes this title so startling. By invoking capital right from the beginning, Piketty breaks ranks with most modern discussions of inequality, and hearkens back to an older tradition.
The general presumption of most inequality researchers has been that earned income, usually salaries, is where all the action is, and that income from capital is neither important nor interesting. Piketty shows, however, that even today income from capital, not earnings, predominates at the top of the income distribution. He also shows that in the past—during Europe’s Belle Époque and, to a lesser extent, America’s Gilded Age—unequal ownership of assets, not unequal pay, was the prime driver of income disparities. And he argues that we’re on our way back to that kind of society. Nor is this casual speculation on his part. For all that Capital in the Twenty-First Century is a work of principled empiricism, it is very much driven by a theoretical frame that attempts to unify discussion of economic growth and the distribution of both income and wealth. Basically, Piketty sees economic history as the story of a race between capital accumulation and other factors driving growth, mainly population growth and technological progress.
To be sure, this is a race that can have no permanent victor: over the very long run, the stock of capital and total income must grow at roughly the same rate. But one side or the other can pull ahead for decades at a time. On the eve of World War I, Europe had accumulated capital worth six or seven times national income. Over the next four decades, however, a combination of physical destruction and the diversion of savings into war efforts cut that ratio in half. Capital accumulation resumed after World War II, but this was a period of spectacular economic growth—the Trente Glorieuses, or “Glorious Thirty” years; so the ratio of capital to income remained low. Since the 1970s, however, slowing growth has meant a rising capital ratio, so capital and wealth have been trending steadily back toward Belle Époque levels. And this accumulation of capital, says Piketty, will eventually recreate Belle Époque–style inequality unless opposed by progressive taxation.
Why? It’s all about r versus g—the rate of return on capital versus the rate of economic growth.
Just about all economic models tell us that if g falls—which it has since 1970, a decline that is likely to continue due to slower growth in the working-age population and slower technological progress—r will fall too. But Piketty asserts that r will fall less than g. This doesn’t have to be true. However, if it’s sufficiently easy to replace workers with machines—if, to use the technical jargon, the elasticity of substitution between capital and labor is greater than one—slow growth, and the resulting rise in the ratio of capital to income, will indeed widen the gap between r and g. And Piketty argues that this is what the historical record shows will happen.
If he’s right, one immediate consequence will be a redistribution of income away from labor and toward holders of capital. The conventional wisdom has long been that we needn’t worry about that happening, that the shares of capital and labor respectively in total income are highly stable over time. Over the very long run, however, this hasn’t been true. In Britain, for example, capital’s share of income—whether in the form of corporate profits, dividends, rents, or sales of property, for example—fell from around 40 percent before World War I to barely 20 percent circa 1970, and has since bounced roughly halfway back. The historical arc is less clear-cut in the United States, but here, too, there is a redistribution in favor of capital underway. Notably, corporate profits have soared since the financial crisis began, while wages—including the wages of the highly educated—have stagnated.
A rising share of capital, in turn, directly increases inequality, because ownership of capital is always much more unequally distributed than labor income. But the effects don’t stop there, because when the rate of return on capital greatly exceeds the rate of economic growth, “the past tends to devour the future”: society inexorably tends toward dominance by inherited wealth.
Consider how this worked in Belle Époque Europe. At the time, owners of capital could expect to earn 4–5 percent on their investments, with minimal taxation; meanwhile economic growth was only around one percent. So wealthy individuals could easily reinvest enough of their income to ensure that their wealth and hence their incomes were growing faster than the economy, reinforcing their economic dominance, even while skimming enough off to live lives of great luxury.
And what happened when these wealthy individuals died? They passed their wealth on—again, with minimal taxation—to their heirs. Money passed on to the next generation accounted for 20 to 25 percent of annual income; the great bulk of wealth, around 90 percent, was inherited rather than saved out of earned income. And this inherited wealth was concentrated in the hands of a very small minority: in 1910 the richest one percent controlled 60 percent of the wealth in France; in Britain, 70 percent.
No wonder, then, that nineteenth-century novelists were obsessed with inheritance. Piketty discusses at length the lecture that the scoundrel Vautrin gives to Rastignac in Balzac’s Père Goriot, whose gist is that a most successful career could not possibly deliver more than a fraction of the wealth Rastignac could acquire at a stroke by marrying a rich man’s daughter. And it turns out that Vautrin was right: being in the top one percent of nineteenth-century heirs and simply living off your inherited wealth gave you around two and a half times the standard of living you could achieve by clawing your way into the top one percent of paid workers.
You might be tempted to say that modern society is nothing like that. In fact, however, both capital income and inherited wealth, though less important than they were in the Belle Époque, are still powerful drivers of inequality—and their importance is growing. In France, Piketty shows, the inherited share of total wealth dropped sharply during the era of wars and postwar fast growth; circa 1970 it was less than 50 percent. But it’s now back up to 70 percent, and rising. Correspondingly, there has been a fall and then a rise in the importance of inheritance in conferring elite status: the living standard of the top one percent of heirs fell below that of the top one percent of earners between 1910 and 1950, but began rising again after 1970. It’s not all the way back to Rasti-gnac levels, but once again it’s generally more valuable to have the right parents (or to marry into having the right in-laws) than to have the right job.
And this may only be the beginning. Figure 1 on this page shows Piketty’s estimates of global r and g over the long haul, suggesting that the era of equalization now lies behind us, and that the conditions are now ripe for the reestablishment of patrimonial capitalism.
Given this picture, why does inherited wealth play as small a part in today’s public discourse as it does? Piketty suggests that the very size of inherited fortunes in a way makes them invisible: “Wealth is so concentrated that a large segment of society is virtually unaware of its existence, so that some people imagine that it belongs to surreal or mysterious entities.” This is a very good point. But it’s surely not the whole explanation. For the fact is that the most conspicuous example of soaring inequality in today’s world—the rise of the very rich one percent in the Anglo-Saxon world, especially the United States—doesn’t have all that much to do with capital accumulation, at least so far. It has more to do with remarkably high compensation and incomes.
Capital in the Twenty-First Century is, as I hope I’ve made clear, an awesome work. At a time when the concentration of wealth and income in the hands of a few has resurfaced as a central political issue, Piketty doesn’t just offer invaluable documentation of what is happening, with unmatched historical depth. He also offers what amounts to a unified field theory of inequality, one that integrates economic growth, the distribution of income between capital and labor, and the distribution of wealth and income among individuals into a single frame.
And yet there is one thing that slightly detracts from the achievement—a sort of intellectual sleight of hand, albeit one that doesn’t actually involve any deception or malfeasance on Piketty’s part. Still, here it is: the main reason there has been a hankering for a book like this is the rise, not just of the one percent, but specifically of the American one percent. Yet that rise, it turns out, has happened for reasons that lie beyond the scope of Piketty’s grand thesis.
Piketty is, of course, too good and too honest an economist to try to gloss over inconvenient facts. “US inequality in 2010,” he declares, “is quantitatively as extreme as in old Europe in the first decade of the twentieth century, but the structure of that inequality is rather clearly different.” Indeed, what we have seen in America and are starting to see elsewhere is something “radically new”—the rise of “supersalaries.”
Capital still matters; at the very highest reaches of society, income from capital still exceeds income from wages, salaries, and bonuses. Piketty estimates that the increased inequality of capital income accounts for about a third of the overall rise in US inequality. But wage income at the top has also surged. Real wages for most US workers have increased little if at all since the early 1970s, but wages for the top one percent of earners have risen 165 percent, and wages for the top 0.1 percent have risen 362 percent. If Rastignac were alive today, Vautrin might concede that he could in fact do as well by becoming a hedge fund manager as he could by marrying wealth.
What explains this dramatic rise in earnings inequality, with the lion’s share of the gains going to people at the very top? Some US economists suggest that it’s driven by changes in technology. In a famous 1981 paper titled “The Economics of Superstars,” the Chicago economist Sherwin Rosen argued that modern communications technology, by extending the reach of talented individuals, was creating winner-take-all markets in which a handful of exceptional individuals reap huge rewards, even if they’re only modestly better at what they do than far less well paid rivals.
Piketty is unconvinced. As he notes, conservative economists love to talk about the high pay of performers of one kind or another, such as movie and sports stars, as a way of suggesting that high incomes really are deserved. But such people actually make up only a tiny fraction of the earnings elite. What one finds instead is mainly executives of one sort or another—people whose performance is, in fact, quite hard to assess or give a monetary value to.
Who determines what a corporate CEO is worth? Well, there’s normally a compensation committee, appointed by the CEO himself. In effect, Piketty argues, high-level executives set their own pay, constrained by social norms rather than any sort of market discipline. And he attributes skyrocketing pay at the top to an erosion of these norms. In effect, he attributes soaring wage incomes at the top to social and political rather than strictly economic forces.
Now, to be fair, he then advances a possible economic analysis of changing norms, arguing that falling tax rates for the rich have in effect emboldened the earnings elite. When a top manager could expect to keep only a small fraction of the income he might get by flouting social norms and extracting a very large salary, he might have decided that the opprobrium wasn’t worth it. Cut his marginal tax rate drastically, and he may behave differently. And as more and more of the supersalaried flout the norms, the norms themselves will change.
There’s a lot to be said for this diagnosis, but it clearly lacks the rigor and universality of Piketty’s analysis of the distribution of and returns to wealth. Also, I don’t think Capital in the Twenty-First Century adequately answers the most telling criticism of the executive power hypothesis: the concentration of very high incomes in finance, where performance actually can, after a fashion, be evaluated. I didn’t mention hedge fund managers idly: such people are paid based on their ability to attract clients and achieve investment returns. You can question the social value of modern finance, but the Gordon Gekkos out there are clearly good at something, and their rise can’t be attributed solely to power relations, although I guess you could argue that willingness to engage in morally dubious wheeling and dealing, like willingness to flout pay norms, is encouraged by low marginal tax rates.
Overall, I’m more or less persuaded by Piketty’s explanation of the surge in wage inequality, though his failure to include deregulation is a significant disappointment. But as I said, his analysis here lacks the rigor of his capital analysis, not to mention its sheer, exhilarating intellectual elegance.
Yet we shouldn’t overreact to this. Even if the surge in US inequality to date has been driven mainly by wage income, capital has nonetheless been significant too. And in any case, the story looking forward is likely to be quite different. The current generation of the very rich in America may consist largely of executives rather than rentiers, people who live off accumulated capital, but these executives have heirs. And America two decades from now could be a rentier-dominated society even more unequal than Belle Époque Europe.
But this doesn’t have to happen.
At times, Piketty almost seems to offer a deterministic view of history, in which everything flows from the rates of population growth and technological progress. In reality, however, Capital in the Twenty-First Century makes it clear that public policy can make an enormous difference, that even if the underlying economic conditions point toward extreme inequality, what Piketty calls “a drift toward oligarchy” can be halted and even reversed if the body politic so chooses.
The key point is that when we make the crucial comparison between the rate of return on wealth and the rate of economic growth, what matters is the after-tax return on wealth. So progressive taxation—in particular taxation of wealth and inheritance—can be a powerful force limiting inequality. Indeed, Piketty concludes his masterwork with a plea for just such a form of taxation. Unfortunately, the history covered in his own book does not encourage optimism.
It’s true that during much of the twentieth century strongly progressive taxation did indeed help reduce the concentration of income and wealth, and you might imagine that high taxation at the top is the natural political outcome when democracy confronts high inequality. Piketty, however, rejects this conclusion; the triumph of progressive taxation during the twentieth century, he contends, was “an ephemeral product of chaos.” Absent the wars and upheavals of Europe’s modern Thirty Years’ War, he suggests, nothing of the kind would have happened.
As evidence, he offers the example of France’s Third Republic. The Republic’s official ideology was highly egalitarian. Yet wealth and income were nearly as concentrated, economic privilege almost as dominated by inheritance, as they were in the aristocratic constitutional monarchy across the English Channel. And public policy did almost nothing to oppose the economic domination by rentiers: estate taxes, in particular, were almost laughably low.
Why didn’t the universally enfranchised citizens of France vote in politicians who would take on the rentier class? Well, then as now great wealth purchased great influence—not just over policies, but over public discourse. Upton Sinclair famously declared that “it is difficult to get a man to understand something when his salary depends on his not understanding it.” Piketty, looking at his own nation’s history, arrives at a similar observation: “The experience of France in the Belle Époque proves, if proof were needed, that no hypocrisy is too great when economic and financial elites are obliged to defend their interest.”
The same phenomenon is visible today. In fact, a curious aspect of the American scene is that the politics of inequality seem if anything to be running ahead of the reality. As we’ve seen, at this point the US economic elite owes its status mainly to wages rather than capital income. Nonetheless, conservative economic rhetoric already emphasizes and celebrates capital rather than labor—“job creators,” not workers.
In 2012 Eric Cantor, the House majority leader, chose to mark Labor Day—Labor Day!—with a tweet honoring business owners:
Today, we celebrate those who have taken a risk, worked hard, built a business and earned their own success.
Perhaps chastened by the reaction, he reportedly felt the need to remind his colleagues at a subsequent GOP retreat that most people don’t own their own businesses—but this in itself shows how thoroughly the party identifies itself with capital to the virtual exclusion of labor.
Nor is this orientation toward capital just rhetorical. Tax burdens on high-income Americans have fallen across the board since the 1970s, but the biggest reductions have come on capital income—including a sharp fall in corporate taxes, which indirectly benefits stockholders—and inheritance. Sometimes it seems as if a substantial part of our political class is actively working to restore Piketty’s patrimonial capitalism. And if you look at the sources of political donations, many of which come from wealthy families, this possibility is a lot less outlandish than it might seem.
Piketty ends Capital in the Twenty-First Century with a call to arms—a call, in particular, for wealth taxes, global if possible, to restrain the growing power of inherited wealth. It’s easy to be cynical about the prospects for anything of the kind. But surely Piketty’s masterly diagnosis of where we are and where we’re heading makes such a thing considerably more likely. So Capital in the Twenty-First Century is an extremely important book on all fronts. Piketty has transformed our economic discourse; we’ll never talk about wealth and inequality the same way we used to.
Posted on Apr 18, 2014 by truthdig
Photo by Robin Holland / Spiegel & Grau
To see long excerpts from “The Divide” at Google Books, click here.
“The Divide: American Injustice in the Age of the Wealth Gap” A book by Matt Taibbi
Matt Taibbi has come a long way since the 1990s, when he co-edited a riotous expatriate newspaper in Moscow. For five years, Taibbi churned out the Gonzo, Slavic style, mixing satire and pranks with scathing opinion and analysis. Although he also played in the Mongolian Basketball Association, his time abroad wasn’t all fun and games. In the early 1990s, the Russian government began auctioning off shares of state enterprises, which Taibbi described as “the biggest thefts in the history of the human race.” He noted the calamitous effects of privatization on average Russians and scorned the American consultants who descended on Moscow to coordinate the auction. “Looking at their bright, happy faces,” Taibbi wrote, “you’d never guess that these were the people who’d had the balls to tell millions of Russians that their jobs and benefits needed to be sacrificed for the sake of ‘competitiveness.’ ”
Rather than lament the evils of neoliberalism, Taibbi chose to mock the carpetbaggers. “There was no point in fighting fair against people like this,” he claimed in his first co-authored book, “The Exile: Sex, Drugs, and Libel in the New Russia” (2000). “Humorless lefties like Ralph Nader had been doing that for decades, much more effectively and with greater attention than we ever could, to very little result.” He decided to “loathe the corporate henchmen not for what they did, but for who they were.” His goal was to “embarrass them socially, pick on their looks and their mannerisms and speech, expose them as people.”
In 2002, Taibbi returned to the United States with his attitude intact. When an alternative weekly hired him to cover the 2004 Democratic primaries, he struggled to find a satisfactory way to report on the absurdities he witnessed. He began showing up for work on mushrooms or in a gorilla suit; at one point, he played the hunger artist, forgoing food for a week and taking careful notes on what the other reporters were ingesting. Toward the end of his fast, he dropped two hits of acid, donned a Viking costume and tried to interview a campaign staffer.
Again, the Gonzo influence was unmistakable. Taibbi’s first solo book, “Spanking the Donkey: On the Campaign Trail With the Democrats” (2005), was an updated version of Hunter Thompson’s “Fear and Loathing: On the Campaign Trail ’72,” which was praised as the least factual and most accurate account of that presidential race. Taibbi even itemized the contents of his car trunk, as Thompson did at the beginning of “Fear and Loathing in Las Vegas.” It was therefore fitting that Rolling Stone magazine, which helped make Thompson a cultural icon, hired Taibbi as a contributing editor.
Having documented America’s political and cultural atrocities in “Smells Like Dead Elephants: Dispatches From a Rotting Empire” (2007) and “The Great Derangement: A Terrifying True Story of War, Politics & Religion at the Twilight of the American Empire” (2008), Taibbi turned his attention to Wall Street, whose greed, negligence and fraud helped crater the global economy. In some ways, that story was a return to the rapacity he had witnessed in Russia, but Taibbi was even more outraged by the effect of the crash on average citizens—this time, his compatriots. In July 2009, Rolling Stone published his exposé of Goldman Sachs, the investment bank that Taibbi described as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” A few business press regulars challenged the story’s details, and others were put off by its extravagant style. In the end, however, their criticisms were surprisingly weak, attempts to defend Goldman Sachs were risible and subsequent reporting confirmed Taibbi’s basic claims.
Given the number of serious publications that cover Wall Street, it was remarkable that Taibbi’s piece appeared in Rolling Stone. His critics may have hoped the story’s provenance would make it easier to dismiss, but Taibbi cleaned their clocks in print and on television. It was another reminder that Rolling Stone has never been an ordinary music magazine. Before launching it in 1967, Jann Wenner and Ralph Gleason worked at Ramparts magazine, the legendary San Francisco muckraker that ran high-impact stories on Vietnam and the CIA. Taibbi’s piece proved that Rolling Stone knew how to apply the old Ramparts formula, which Adam Hochschild, another alumnus of that magazine and co-founder of Mother Jones, put this way: “Find an exposé that major newspapers are afraid to touch, publish it with a big enough splash so they can’t afford to ignore it, and then publicize it in a way that plays the press off against each other.” The Goldman Sachs story helped revive Rolling Stone’s political coverage, and the magazine has been on a tear ever since, landing two George Polk Awards for investigative reporting in the last four years.
In his next book, “Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America” (2010), Taibbi broadened his attack on high finance. One of his targets was former Federal Reserve Chairman Alan Greenspan, whom business reporters had long revered. When the stock bubble popped in 1999, Time magazine cast Greenspan as a member of the “Committee to Save the World.” Taibbi felt no such reverence; in fact, he regarded the Fed chair’s penchant for deregulation, low interest rates and Wall Street bailouts as an important source of the bubble in the first place. Characteristically, Taibbi made his critique personal. Greenspan was a “gnomish bug-eyed party crasher” who “flattered and bullshitted his way to the top,” and then turned the Federal Reserve into “a permanent bailout mechanism for the super-rich.” But Taibbi did more than impugn his targets; he also explained the intricacies of Wall Street’s labyrinthine hustles to general readers. That combination of bombast and clear explication made his claims increasingly difficult to ignore or refute.
Eventually the SEC and Justice Department began to stir. The same year “Griftopia” appeared, Goldman Sachs paid $550 million to settle charges that it misled investors about a subprime mortgage product. It was the largest SEC penalty ever paid by a single firm. Two years later, Citigroup paid $590 million to settle similar claims, and last year, JPMorgan Chase settled with the Justice Department for $13 billion, including a $3 billion penalty for its role in selling low-quality mortgage-backed securities. Despite the immense scale of the subprime grift, none of the major offenders faced criminal prosecution.
The Goldman Sachs story dramatically raised Taibbi’s media profile. But where would he go next? Given the government’s refusal to prosecute Wall Street bankers, it was perhaps natural that he would turn his attention to the legal system. In his latest book, “The Divide: American Injustice in the Age of the Wealth Gap,” Taibbi explores why Wall Street bankers are seemingly exempt from criminal prosecution, even as New York City targets petty crime—much of it manufactured by police in minority neighborhoods—more aggressively than ever. He cites statistics to make his argument, but mostly he reports on specific cases. One involves a working-class black man who finally decided to fight a misdemeanor charge for blocking pedestrian traffic—that is, standing on the sidewalk in front of his home. Taibbi also considers the zeal with which government agencies investigate and humiliate welfare recipients and undocumented residents for trying to provide for their families during hard times—times made all the harder because of unprosecuted crimes at the top of the economic food chain.
Everyone knows the rich receive special treatment in this country, especially in court. But Taibbi concludes that the government now offers a sliding scale of civil and criminal protection to U.S. residents. At one end of the spectrum, the very rich are virtually beyond accountability, no matter how massive and destructive their crimes may be. At the other end, the nation’s most vulnerable residents face unremitting investigation and prosecution by bureaucracies determined to find them guilty of something.
Taibbi also surfaces a new set of targets: Justice Department prosecutors who seek settlements for even the most outrageous white-collar scams. Many of them are recruited from law firms whose clients include the largest Wall Street banks. Lanny Breuer, who headed the department’s criminal division when the financial meltdown occurred, is Taibbi’s poster boy for this conflict of interest. Both he and Attorney General Eric Holder were partners at Covington & Burling, which represents JPMorgan Chase, Bank of America, Citigroup and Wells Fargo. All too often, Taibbi argues, the prosecutors have continued to behave like defense attorneys. When Holder was a Clinton administration official, for example, he wrote a memo arguing that prosecutors should consider “collateral consequences” when determining whether to charge persons or corporations. If a criminal prosecution would unduly harm innocent shareholders and employees, the logic went, it made more sense to settle. But once bankers realized they were beyond criminal prosecution, the incentives to transgress increased dramatically.
Taibbi illustrates the Justice Department’s “complete regulatory surrender” by briefly recounting the Hong Kong and Shanghai Banking Corporation case of 2012. HSBC admitted to laundering billions of dollars for Mexican and Colombian drug cartels, accepting $500,000 per day from Russian mobsters, working with banks connected to al-Qaida and facilitating deals with the sanctioned state of Iran. At a news conference, Breuer proudly announced that HSBC would pay a fine of $1.9 billion—less than 10 percent of that bank’s earnings for a single year. “I don’t think the bank got off easy,” Breuer said. A dubious Forbes magazine asked, “What’s a bank got to do to get into some real trouble around here?” The New York Times agreed: “Clearly, the government has bought into the notion that too big to fail is too big to jail.”
It got worse. When Swiss banking giant UBS was nailed for rigging Libor rates, which affected the price of trillions of dollars worth of financial products, Breuer lamely defended the $1.5 billion settlement at a news conference before Holder stepped in. “I’m not talking about just this case,” Holder said, “but in others we have resolved, the impact on the stability of financial markets around the world is something that we take into consideration.”
As with the Goldman Sachs story, other journalists have confirmed Taibbi’s major claims. Writing for Salon, David Dayen called attention to an article in American Lawyer that congratulated Covington & Burling for allowing its banking clients to escape justice “with very little damage.” One client “got off with just a $5 million fine,” while another “was fined just $75,000” for allegedly misleading investors about the firm’s subprime exposure. The article even quoted Breuer, who returned to Covington & Burling after his stint in the Justice Department. “Marrying regulatory expertise with white-collar lawyers is an extraordinary advantage,” Breuer said. For Dayen, the American Lawyer piece was a teachable moment. “Ex-regulators like Lanny Breuer can make millions defending the clients they used to regulate,” he wrote. “And with few exceptions, it’s all perfectly legal. We just don’t usually get to see the scheme displayed so obviously and transparently as it is in these marketing materials.”
In her New York Times column, Gretchen Morgenson also highlighted the Justice Department’s kid-gloves approach to Wall Street fraud. Citing a report by the department’s own inspector general, Morgenson noted that the FBI ranked complex financial crimes as the lowest priority of the six criminal threats within its area of responsibility. Moreover, the same report ranked mortgage fraud as the lowest threat within the complex financial crimes category. That report, Georgetown law professor Adam Levitin said, “confirmed what’s been clear for quite a while—that the D.O.J. has never taken mortgage fraud seriously.” Breuer declined to comment for Morgenson’s piece, but former Delaware Sen. Edward Kaufman, who now teaches law at Duke University, was more forthcoming. “The report fits a pattern that is scary for a democracy, that there really are two levels of justice in this country, one for the people with power and money and one for everyone else,” Kaufman said. “And that eats at the heart of what I think makes this country great.”
“The Divide” marks a shift in Taibbi’s tone. More Lincoln Steffens than Hunter Thompson, Taibbi drops most of the histrionics to reveal the corruption and injustice at hand. He even goes out of his way to be reasonable. He acknowledges that prosecuting financial cases can be expensive and risky, especially when the alleged crimes are complex and the defendants have vast legal resources at their disposal. That fact motivates prosecutors to settle such cases rather than try them in criminal court. He also concedes that many disadvantaged neighborhoods may benefit from tough policing. But he maintains that when combined, the two law-enforcement strategies add up to a glaring injustice. He also notes that it’s far too easy to introduce jurisdictional complications in financial cases that would never be allowed in less consequential cases. To make that point, he recounts a horrific case in which high-profile Wall Street financiers escaped punishment after trying to destroy a company they bet against as well as harassing its executives and their family members.
Taibbi’s is an important voice, especially in today’s media ecology. Support for investigative reporting has never been a given; when it comes to muckraking, you take it where you can get it. Taibbi has shown that he can deliver the goods, and “The Divide” is his most important book-length contribution to date. One wonders what the future holds for him. In February, he announced he was leaving Rolling Stone to join First Look Media, where his website will feature investigative stories with a satirical edge. In describing his new venture, he linked his Russian experience to his current interests. “There was a certain kind of corruption that I got to see up close in the ’90s,” he said, “and I think that a version of it is being repeated here in the United States.”
Latest data on capital gains show enormous windfalls for wealthiest at the expense of vast majority of Americans
How government policies worsen the nation’s income and wealth disparities comes into sharp focus in a new government report on capital gains. The short story: Investing is gaining and work declining as sources of income.
Capital gains come from selling assets such as stocks, real estate and businesses. Property owned for more than a year is taxed at lower rates than wages and in some cases is tax-free.
Although capital gains are growing — an indication that national wealth is growing — far fewer capital gains are going to the vast majority, while those at the absolute top of the economy are enjoying vastly more. This trend, as well as other official data, suggests that wealth is piling up at the top and that a narrowing number of Americans are wealth holders.
These findings emerge from a new report by the Statistics of Income branch of the IRS that examined a large set of taxpayers over nine years. I have reanalyzed the data, adjusted for inflation, and then compared similar, but not identical, data for 2012, the year with the latest available numbers.
To understand recent changes in capital gains, think of a pie made from the money received when stocks and other assets are sold for a profit. Call it a capital gains pie.
Now imagine we set down the 1999 and 2007 capital gains pies side by side to see how they were sliced up and handed out to four Americans sitting at the dinner table, who represent four different income classes.
The good news is that the 2007 pie is 40 percent larger than the 1999 pie. But it’s also important to consider the size of the various slices.
The smallest slice from both pies goes to the vast majority of Americans, roughly the bottom 90 percent, whose total income in both years was less than $100,000. In 1999 they got 13.9 percent of the pie, but in 2007 just 5.3 percent. That was such a dramatic decrease that even though the pie was much larger in 2007, that year’s pie slice contained only slightly more than half the dollars of the 1999 slice, $91 million reduced to $49 million. In other words, the bottom 90 percent took a huge capital gains hit, despite the overall increase in wealth.
Next are the slices going to the roughly one in eight Americans making between $100,000 and $1 million. Their slice shrank from 35.5 percent to 28.6 percent, but the dollars received grew by 13 percent, because the pie got bigger.
Next come the small number of Americans, roughly one in 400, who made between $1 million and $10 million in both years. Their slice of pie also shrank, from just over 28 percent to just under 24 percent. But the total dollars in their slice went up by 17 percent.
And what of the top group, the slightly more than 18,000 households with total income of $10 million or more in both years? Their slice doubled to more than 42 percent of the pie. And because the pie was also bigger, their cash from capital gains in 2007 was 2.6 times greater than in 1999.
So in 1999 the already very rich made almost $146 billion from capital gains, but eight years later they made more than $388 billion.
Wealth was already highly concentrated in America before the 2008 financial crisis, especially financial wealth — stocks, bonds, the cash value of life insurance policies and cash. The Great Recession was a disaster for those who were forced to sell assets due to unemployment, but a grand opportunity for those with the money to buy stocks and other assets at fire sale prices. Since Barack Obama took office five years ago the stock market has more than doubled, while average incomes have fallen.
So are these trends due simply to the luck of the free market? No, in fact, government polices have played an important role in generating these grossly unequal outcomes.
First, tax cuts: One in 1,000 Americans, roughly those making more than $2 million annually, enjoyed 12.5 percent of the tax cuts championed by President George W. Bush. When that’s combined with previous tax cuts under Presidents Johnson, Reagan and Clinton, the top 400 taxpayers in 2006 enjoyed a 60 percent reduction in their total tax burden compared with 1961, my analysis of a different set of IRS statistics shows.
Second, wages hardly grew during the years 1999 to 2007 — or since. Adjusted for inflation, the average wage reported on tax returns in 2007 was only 1.7 percent more than in 1999. That works out to an average annual pay increase of a nickel an hour, not that anyone would notice such a tiny sum — less than $2 per week.
In the next five years, to 2012, the average wages on tax returns remained essentially flat, up $55 compared with 2007. That’s the equivalent of getting a raise each year of about half a penny per hour — less than 20 cents per week.
When wages do not grow but the cost of living rises, people have a reduced capacity to save and invest. Those among the less well off who had saved only to join the ranks of the long-term unemployed have had to sell some or all of their investments to those who are better off.
Among the vast majority a dwindling share of people report any capital gains. In 1999 it was more than 9 percent of taxpayers, but in 2012 it was under 5 percent.
The decimation of unions, enabled by government policies that make organizing extremely difficult, is a major factor in stagnant wages. Moving factory work offshore has added to the downward pressure on wages. Now some white-collar workers are feeling the effects, since almost any job done at a computer can be moved to a low-wage country such as India.
Third, the massive growth of subsidies to business tends to increase the value of companies that get such deals; to enable profit taking, dividends and oversized compensation; to weaken competitors not afforded these gifts (perhaps because of lack of lobbying power and campaign contributions); and to burden taxpayers generally. Many of these subsidies come from state and local governments, virtually all of which inordinately burden those down the income ladder more than the well off, because of regressive levies such as sales taxes.
Holding down wages has increased corporate profits, which have soared to heights never before seen, at least since the government started issuing consistent statistical measures in the late 1920s.
For the bottom 90 percent, roughly the same group making under $100,000 that the IRS studied, total income in 2012 was $31,000 in 2012, down almost $5,400 — or about 15 percent — compared with 1999, analysis of tax data by economists Emmanuel Saez and Thomas Piketty shows.
However, incomes soared for the top 1 percent of the top 1 percent — approximately 16,000 households, or a slightly smaller group than the 18,000 high earners in the IRS study. This group averaged almost $31 million in 2012, up $5 million compared with 1999.
In a representative democracy we choose our leaders, who in turn set policy. A major reason we are not getting laws and regulations that support the vast majority of Americans is that members of Congress and candidates for President must raise money from wealthy donors, who in return for their largesse want policies bent in their favor.
The Supreme Court’s ruling yesterday in McCutcheon v. FEC is probably not the last to overturn limits on campaign giving that were adopted after the Watergate scandal revealed the corrupting influence of big money. As big money’s influence grows due to the high court’s decision we can expect those slices of pie to be recut again and again with fatter slices for the political donor class and thinner slices for everyone else.
David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times, teaches business, tax and property law of the ancient world at the Syracuse University College of Law. He is the best-selling author of "Perfectly Legal", "Free Lunch" and "The Fine Print" and editor of the forthcoming "Divided: The Perils of Our Growing Inequality."
The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera America's editorial policy.
by Robert Reich
By Paul Krugman | March 28, 2014 | Updated: March 28, 2014 8:08pm
As inequality has become an increasingly prominent issue in American discourse, there has been furious pushback from the right. Some conservatives argue that focusing on inequality is unwise, that taxing high incomes will cripple economic growth. Some argue that it's unfair, that people should be allowed to keep what they earn. And some argue that it's un-American - that we've always celebrated those who achieve wealth, and that it violates our national tradition to suggest that some people control too large a share of the wealth.
And they're right. No true American would say this: "The absence of effective state, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power," and follow that statement with a call for "a graduated inheritance tax on big fortunes … increasing rapidly in amount with the size of the estate."
Who was this left-winger? Theodore Roosevelt, in his famous 1910 New Nationalism speech.
The truth is that, in the early 20th century, many leading Americans warned about the dangers of extreme wealth concentration and urged that tax policy be used to limit the growth of great fortunes. Here's another example: In 1919, the great economist Irving Fisher - whose theory of "debt deflation," by the way, is essential in understanding our current economic troubles - devoted his presidential address to the American Economic Association largely to warning against the effects of "an undemocratic distribution of wealth." And he spoke favorably of proposals to limit inherited wealth through heavy taxation of estates.
Nor was the notion of limiting the concentration of wealth, especially inherited wealth, just talk. In his landmark book, "Capital in the Twenty-First Century," the economist Thomas Piketty points out that America, which introduced an income tax in 1913 and an inheritance tax in 1916, led the way in the rise of progressive taxation, that it was "far out in front" of Europe. Piketty goes so far as to say that "confiscatory taxation of excessive incomes" - that is, taxation whose goal was to reduce income and wealth disparities, rather than to raise money - was an "American invention."
And this invention had deep historical roots in the Jeffersonian vision of an egalitarian society of small farmers. Back when Teddy Roosevelt gave his speech, many thoughtful Americans realized not just that extreme inequality was making nonsense of that vision, but that America was in danger of turning into a society dominated by hereditary wealth - that the New World was at risk of turning into Old Europe. And they were forthright in arguing that public policy should seek to limit inequality for political as well as economic reasons, that great wealth posed a danger to democracy.
So how did such views not only get pushed out of the mainstream, but come to be considered illegitimate?
Consider how inequality and taxes on top incomes were treated in the 2012 election. Republicans pushed the line that President Barack Obama was hostile to the rich. "If one's priority is to punish highly successful people, then vote for the Democrats," Mitt Romney said. Democrats vehemently (and truthfully) denied the charge. Yet Romney was, in effect, accusing Obama of thinking like Teddy Roosevelt. How did that become an unforgivable political sin?
You sometimes hear the argument that concentrated wealth is no longer an important issue, because the big winners in today's economy are self-made men who owe their position at the top of the ladder to earned income, not inheritance.
But that view is a generation out of date. New work by the economists Emmanuel Saez and Gabriel Zucman finds that the share of wealth held at the very top - the richest 0.1 percent of the population - has doubled since the 1980s and is now as high as it was when Teddy Roosevelt and Irving Fisher issued their warnings.
We don't know how much of that wealth is inherited. But it's interesting to look at the Forbes list of the wealthiest Americans. By my rough count, about a third of the top 50 inherited large fortunes. Another third are 65 or older, so they will probably be leaving large fortunes to their heirs.
We aren't yet a society with a hereditary aristocracy of wealth, but, if nothing changes, we'll become that kind of society over the next couple of decades.
In short, the demonization of anyone who talks about the dangers of concentrated wealth is based on a misreading of both the past and the present. Such talk isn't un-American; it's very much in the American tradition. And it's not at all irrelevant to the modern world.
So who will be this generation's Teddy Roosevelt?
Krugman is a New York Times columnist.
by Robert Reich
One of the worst epithets that can be leveled at a politician these days is to call him a “redistributionist.” Yet 2013 marked one of the biggest redistributions in recent American history. It was a redistribution upward, from average working people to the owners of America.
The unemployment rate is 7.8%. Both parties agree that this is too high, but they propose totally different solutions to create more jobs. The Republican solution is to give more tax breaks and other advantages to the rich and to corporations because they are the job creators. Really? Then why haven't they created more jobs in the last 30 years. This historical experiment of "trickle down" economics has been tried since the time of Ronald Reagan and it has proven to be an abject failure. Yet Republicans are still pushing it as the solution to all our problems.
Esteemed Nobel laureate and Princeton professor Paul Krugman wants to take the traditional Keynesian approach and do deficit spending to improve the economy. He says there's no reason to worry about the deficit since the US can borrow money at extremely low rates. Not to worry. He sides with Dick Cheney who famously said, "Deficits don't matter." He and Bush then went on to add trillions to the national debt by fighting two unpaid for wars, tax breaks for the rich and an unpaid for prescription drug benefit for seniors that was in reality a giveaway to the pharmaceutical companies. But now that a Democratic President is in office, Republicans are all worried about deficits. They should have been worried when George W Bush was doing the profligate spending.
However, I disagree with both Cheney and Krugman. Deficits do matter and here's why. Sure the government can borrow a lot of money, as much as it wants to, at extremely low rates. But the government has to pay interest on the national debt and that is a growing part of the budget. Interest on the debt is the fourth largest government expenditure after Defense, Medicare and Medicaid. In 2011 Federal, state and local governments spent $454,393,280,417.03 on interest. It actually came down dramatically in 2012 to $359,796,008,919.49. That's still a lot of money. The Federal government alone spent around $220 billion in net interest on its debt in 2012, and is predicted to spend over a trillion dollars in interest by 2020. That's $1 trillion we can't spend to educate our kids or to replace our badly worn-out infrastructure.
And there's no guarantee that interest rates will continue to remain at historical lows. They are being held there right now by the Federal Reserve's policy of quantitative easing. The Fed is printing money at the rate of $85 billion a month. This money is being essentially given to the large Wall Street banks. Theoretically it's being loaned, but if someone loans you money at a zero interest rate, why would you ever pay it back? It's foolish to think that interest rates will always remain this low and that foreign nations and individuals will continue to loan us money ad infinitum.
The Fed's policy of printing money and then giving it to the big banks relies on the theory that low interest rates will get the economy moving again. The theory goes that people will be attracted to the low interest rates, borrow money and consume. It assumes that banks will actually loan out the money. Since consumption is 70% of the US economy, GDP will increase and that will create more jobs. In other words the Fed is exercising the same trickle down theory of economic growth made famous by Ronald Reagan and that has been tried for the last 30 years and failed. The Fed is essentially devaluing American currency in the hopes that this will create jobs. And it has been a big failure insofar as job creation is concerned but it has kept the US government's borrowing rates low.
So if both deficit reduction and job creation are important, how do you do both. Put simply the US government has to walk and chew gum at the same time. The Republican emphasis on cutting spending, especially spending on social programs, would lead to austerity and that would contract the economy even more. So that isn't the solution. To be fair President Obama has not been on the side of deficit spending as a way to get the economy out of the doldrums. He has been for a balanced approach of stimulating the economy and paying down the deficit. But Paul Krugman and many Democratic theorists like Robert Reich have.
The trick is to note that government spending does not have to be deficit spending. Government spending can increase without incurring greater deficits by increasing government revenues. And there are different varieties of government spending. Republicans favor just giving government money to private corporations and having them do the job. Their policy is to let the government just be a money conduit from taxpayers to corporations. Alternatively, government can spend money directly on jobs programs like rebuilding infrastructure. Instead of using the indirect approach which amounts to pushing on a string which is what the Fed is doing and which Republicans advocate, the government can actually create jobs directly in the public sector. If you want to create jobs, why not just create jobs directly instead of trying to get the private sector to create jobs. President Obama should just get up and say, "We've tried various policies to get the private sector to create jobs; they haven't worked so now the government, the public sector, is going to create jobs directly."
But here's where Democrats and President Obama have a problem. Instead of calling for more revenue by taxing the rich and corporations and government direct spending instead of spending to fund private corporations to rebuild infrastructure, Obama is reticent because he is afraid of being labeled a socialist. No worries, he's already been labeled a socialist despite his administration's being the most pro-business administration in years. And beware of the public/private partnership which is just another variation of the privatization of functions which the government can do more efficiently. We don't want to replace the military-industrial complex with an infrastructure-industrial complex replete with lobbyists, cost plus contracts and highly paid CEOs. There's no need for Wall Street to get involved.
Well, where is the money going to come from? Senator Bernie Sanders has an answer: End Offshore Tax Havens. One out of four profitable corporations pays nothing in taxes. Tax rates on profits are the lowest since 1972. Last year Facebook paid nothing despite having a billion dollars in profits. Government revenue as a percentage of GDP is lower than at any time in history. Corporate contributions to tax revenue are the lowest of any major country on earth. It is absurd for major corporations to stash huge amounts of money in countries like the Cayman Islands which have a zero tax rate.
Bernie Sanders and Jan Schakowsky have introduced the Corporate Tax Fairness Act. The bill will raise $590 billion over the next decade. The bill will also stop giving tax breaks to corporations for shipping jobs overseas. Their bill would prevent oil companies from disguising royalty payments to foreign countries as taxes in order to reduce their taxes in the US among other things. And it has a snowball's chance in hell of passing. A financial transaction tax would bring in as much as $100 billion annually. We used to have one; Europe just recently enacted one. Let's end the "carried interest" loophole for hedge and private equity funds. Wall Street needs to start paying its fair share.
Corporations have been getting away with murder in not paying their fair share of taxes. This is from an article by Bernie Sanders:
"In 2010, Bank of America set up more than 200 subsidiaries in the Cayman Islands (which has a corporate tax rate of 0.0 percent) to avoid paying U.S. taxes. It worked. Not only did Bank of America pay nothing in federal income taxes, but it received a rebate from the IRS worth $1.9 billion that year. They are not alone. In 2010, JP Morgan Chase operated 83 subsidiaries incorporated in offshore tax havens to avoid paying some $4.9 billion in U.S. taxes. That same year Goldman Sachs operated 39 subsidiaries in offshore tax havens to avoid an estimated $3.3 billion in U.S. taxes. Citigroup has paid no federal income taxes for the last four years after receiving a total of $2.5 trillion in financial assistance from the Federal Reserve during the financial crisis."
The sad fact is that the private sector is not in the process of creating jobs but of destroying jobs through automation and robotics. Almost anything a human being might have done in a job is now being done by robots. Some say that this creates jobs for "knowledge workers." Sure if you're among the upper 1% in knowledge talent. Companies like Microsoft, Google, Apple and Facebook are not looking for the average college graduate. They're looking for the upper 1% of college graduates. Together they employ less than 200,000 people in the US. The top talent in every field are making good money. Everyone else is going downhill if they're employed at all. 50% of college graduates are either unemployed or underemployed in terms of their qualifications. In the 2009-2010 recovery, 93% of the gains in income went to the top 1%.
Why should the private sector create jobs if they can get a robot to do the work 24 hours a day at a cost of less than $5.00 an hour? If the private sector will not create jobs, that leaves the government to create jobs directly. Instead of pushing on a string with policies that are supposed to create jobs indirectly by encouraging the private sector to do so, government should get more involved. More government revenues plus direct job creation rebuilding infrastructure could result in growing the economy, providing good middle class jobs and paying down the debt.
Chrystia Freeman in her book Plutocracy explains this phenomenon which results in the divergence of jobs and income, creating a well to do upper 1% class and everybody else:
"This is what ecomomists call the "superstar" effect - the tendency of both technological change and globalization to create winner-take-all economic tournaments in many sectors and companies, where being the most successful in your field delivers huge rewards, but coming in second place, and certainly in fifth or tenth, has much less economic value."
We are seeing the effects of a meritocracy where the top 1% of talent merges with the top 1% in terms of income and wealth. This is great for the top 1% of graduates from elite colleges but not so much for the average graduates of average colleges with $100,000. in student loan debt and a job at Starbucks instead of a career type job in their field. In every field the chasm between the superstars and everyone else is getting bigger and bigger. Inequality increases with the acceleration of meritocracy. Meritocracy and plutocracy converge creating a democratic dystopia.
That's why the government has to step in to regulate this runaway dystopia. Taxes on corporations and the rich need to be increased in order to tamp down inequality. This revenue needs to be redistributed to the former middle class in terms of job programs. It could be redistributed in terms of welfare and unemployment insurance, but this creates a class of dependents. It would be much better to create a middle class of workers rebuilding infrastructure. And this is not a trivial job. The American Society of Civil Engineers estimates that there is $2 trillion worth of work that needs to be done just to bring roads, bridges and other basic infrastructure up to par. But there is more to infrastructure than just that. When you consider all that needs to be done to prevent and combat the changes due to global warming, there is enough potential work out there to fully employ US workers for generations. Utilities need to be hardened and undergrounded. Fossil fuel powered electric plants need to be converted to solar and wind. Buildings need to be made less energy consuming. High speed rail needs to be implemented. Housing needs to be moved back from the shorelines.
There is no lack of work that needs to be done, and this is work the private sector not only won't do but in many cases it is work that the private sector is lobbying against doing. They profit from using the atmosphere as a dump. It's crucial that the government prevent runaway wealth maldistribution, create jobs that the private sector has no incentive to create and save the planet from ecological disaster.
Posted by John on February 25, 2013 at 08:26 AM in John Lawrence, Paul Krugman, Robert Reich, Austerity, Climate Change, Corporations, Economics, Education, Careers, Jobs, Employment, Global Warming, Inequality, Infrastructure, Jobs, Middle Class, Obama Presidency, Offshore Bank Accounts, Taxes, The Budget, The Economy, The Environment, The Federal Reserve, The Role of Government, Unemployment, Wall Street, Wealth, Weather Disasters | Permalink
Two important events took place this week. One was President Obama’s call for a higher minimum wage, which got a lot of attention. The other was a new report which showed just how much of our nation’s wealth continues to be hijacked by the wealthiest among us.
That didn’t get much attention.
There’s a Great Robbery underway, although most of its perpetrators don’t see themselves as robbers. Instead they’re sustained by delusions that protect them from facing the consequences of their own actions.
Heads I Win …
An updated report from economist Emmanuel Saez details the loss of income suffered by 99 percent of Americans, and the parallel gains made by the wealthiest among us. Its most startling finding may be this: The top 1 percent has captured 121 percent of the increases in income since the worst of the financial crisis, while the rest of the country has continued to fall behind.
If you thought the rich recovered from the crisis just fine but everybody else got the short end of the stick, relax: You’re not crazy. And since the financial crisis was caused by members of the 1 percent – not all of them, of course, just the ones we spent so much to rescue – it’s understandable if the injustice still rankles you.
You rescued them. Now they’re drinking your milkshake.
Tails You Lose
But this wealth shift is not a new phenomenon. As Saez notes in his paper, “After decades of stability … the top decile share has increased dramatically over the last twenty-five years.” In fact, the top 10 percent’s share of our national income is higher than it’s been since 1917 - and maybe longer. (The figures don’t go back any farther than that.)
Although it began during the Reagan years, to a certain extent this wealth shift has been a bipartisan phenomenon. During the Clinton boom years (more of a bubble, actually; Dean Baker has the details) the top 1 percent saw their real income grow by 98.7 percent, while the other 99 saw a smaller increase of 20.3 percent. They lost more during the recession that followed – a little over 30 percent, as opposed to 6.5 percent for everyone else – but more than made up the difference again during the Bush years.
The same thing happened during the Great Recession: The top 1 percent lost more during the initial shock, but they’re rapidly making up the difference now. Government policy’s been designed to help them. (Meanwhile, underwater homeowners still don’t have the help they need.)
The disparities are even greater when you include capital gains. (Saez uses pre-tax income for his figures. Given the generous tax breaks for capital gains and the many loopholes used by the wealthy,the after-tax differences could be even greater.) There’s even economic injustice at the top. Gains for the one percent have far outstripped those of the top five and top ten percent.
As the old song says: Them that has, gets.
If you can remember the sixties you weren’t there … or can’t afford to remember
The minimum wage has been falling since 1968. As John Schmitt notes in his paper, “The Minimum Wage Is Too Damn Low,” “By all of the most commonly used benchmarks – inflation, average wages, and productivity – the minimum wage is now far below its historical level.”
It’s currently $7.25. What would it have been if it had been tied to a commonly-used benchmark? Schmitt ran the numbers:
Consumer Price Index (CPI-I): $10.52
Current CPI methodology (CPI-U-RS): $9.22
As a percentage of average production worker’s earnings: $10.01
And if it had been tied to productivity gains the minimum wage would be $21.72 today. But that cream was skimmed off at the top.
There’s a myth in this country that enormous wealth doesn’t come from anywhere or anyone, that it’s self-creating and self-sustaining, thriving on pure oxygen like an epiphyte or a garden fairy. In reality, highly concentrated wealth is caused by actions – human actions with human consequences.
Saez: “A number of factors may help explain this increase in inequality, not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II – such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality.”
Wealth inequity is created whenever an employer lowers his employees’ wages, replaces a full-time worker with several part-timers, busts a union, cuts corners on workplace safety, or pays a lobbyist to change the rules.
It’s created whenever a job is shipped overseas, and when investments are shifted from job-producing industries to the non-productive financial sector. It’s created when GE outsources its manufacturing operation and gets into the banking (read, “gambling with taxpayers’ money”) business. Or when AIG stops insuring risk and starts betting on it.
And the process isn’t slowing down. In fact, it seems to be accelerating.
As Saez says, “We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it.”
President Obama’s proposal is modest, and there’s no reason not to enact it immediately. For those who believe that businesses “can’t afford” to pay higher wages, some key facts:
Most low-wage workers work for large corporations, not Mom-and-Pop businesses.
A Data Brief from the National Employment Law Project finds that 66 percent of low-wage employees work for companies with more than 100 employees. A handful of very large corporations collectively employ nearly 8 million low-wage employees.
There’s no evidence minimum wage increases mean fewer jobs.
Opponents say a higher minimum wage means fewer jobs. But the official U.S. unemployment rate in 1968, when the real minimum wage was highest, was 3.6 percent. Today it’s 7.8 percent – and the unofficial numbers are even worse. At the state level, the Fiscal Policy Institute recently concluded that “states with minimum wages above the federal level have had faster small business and retail job growth.”
Ninety-two percent of the 50 largest low‐wage employers in the country were profitable last year.
As the NELP notes, big corporations more than recovered from the recession: 75 percent are collecting more revenue, 63 percent are earning higher profits, and 73 percent have higher cash holdings than they did before the crisis.
Bringing It All Back Home
The real “job creators” aren’t the ultra-wealthy. If they could create jobs with all their added wealth, they would have done it already. The real job creators are working people with jobs.
They don’t invest their money in hedge funds or stash it in offshore accounts. They spend it: on food, transportation, their kids’ education, maybe a night at the movies … And then other people get jobs making those things possible.
We have a working model to follow: The USA in the 35 years after World War II. As Paul Krugman says, “To the extent that people say the economics is confusing or uncertain, that’s overwhelmingly because people want it to be.” We know how to do this.
Raising the minimum wage is a start. A maximum wage would help, too, by reducing CEOs’ incentives to emphasize quarterly gains over long-term growth and leaving more to be shared with employees.
We also need a national strategy for regaining the more reasonable distribution of income this country had in the 1950s. We need to ensure that the door of opportunity, which is closing every day for millions of young people, is opened again. And we need to ask the wealthiest to really pay their fair share – at something closer to the top tax rates of the 1950’s or 1960’s. (Elvis Presley’s manager “Colonel” Tom Parker once said “I consider it my patriotic duty to keep Elvis in the ninety percent tax bracket.”)
Most of all, we need to educate those around us so they understand what’s happening. That includes the well-intentioned well-to-do, who might do more to end the problem if they knew it existed. After all, you can’t stop a robbery until you know it’s happening.© 2013 Campaign for America's Future
Well the New Year is upon us, and it's time to take stock and see if I can make any sense out of the goings on of the last year and the interaction of reality with my own mind. This is my crack at it.
1. I believe that gun ownership should be a privilege and not a right. The 2nd Amendment was constucted to be similar to the Swiss model in which citizens formed a militia for national defense. There was no standing army. That was the original intent of the framers of the Constitution for exactly the same reason: there was no standing army. Today that rationale is not relevant. Even Switzerland has moved the guns from homes to depots to prevent what little gun violence takes place there.
I don't believe background checks and a database of those with mental problems will solve much. In almost every mass murder, the perpetrators had no prior record of mental health problems although in retrospect everyone agrees that there were mental health problems. In almost every case, the guns were obtained legally. That tells you something which is that it is the proliferation of military type weapons with high capacity magazines that is the problem. These guns should not only be made illegal, but they should be taken off the streets, that is, confiscated or gotten rid of with buyback programs.
Terrorists have only been able to kill 17 people in the US since 9/11, but 88,000 Americans have died in gun violence from 2003 to 2010. Britain, which has very strict gun laws, had 41 gun murders in 2010 while the US had around 10,000. 6,626 Americans have died in the wars in Iraq and Afghanistan. About 3000 died in the tragedy of 9/11. The cost of the wars in Iraq and Afghanistan so far is around $4 trillion. At the same time zero dollars have been spent on the war on gun violence in the US in which about the same number of people die every year as died on 9/11 plus Iraq and Afghanistan (Americans, that is). Does this make any sense? As Pogo said, "We have met the enemy and the enemy is us."
2. I believe there should be a floor on poverty and a ceiling on wealth. For most of the last decade, the percentage of Americans living below the poverty line increased each year, from 12.3 percent in 2006 to 15.1 percent in 2010. In 2011 the official poverty rate was 15 percent, meaning that 46.2 million people live below the poverty line. The Walton family has more wealth than the lower 40% of the American population combined while workers at Wal-Mart subsist on wages so low that they need to supplement their incomes with food stamps and other social services driving up the cost of government.
Much of the wealth that the upper 1% possesses is used to distrort the political system and was gained fraudulently by those in the financial sector. I wrote this in 2010 on Will Blog For Food:
"Hedge Fund manager John Paulson helped to design the Abacus fund for Goldman Sachs and filled it with a bunch of garbage. This fund was then peddled to unwary investors while Paulson shorted it. As a result, when the garbage in the fund went south, the investors lost $1 billion and Paulson's gamble netted him $3.7 billion. But that isn't even the worst of it. Taxpayers who bailed out the system actually paid Paulson the $3.7 billion - as if he needed it."
John Paulson hasn't been prosecuted for this fraudulent investment scheme and paid taxes on his income at the "carried interest" rate of 15% just like his fellow private equity fund manager, Mitt Romney. He has used some of his ill gotten gains to contribute to conservative causes as has billionaire Sheldon Adelson who has made his money off of seniors gambling away their social security checks.
I don't think anyone needs an income of more than $10 million a year, and a family of four needs an income of at least $40 thousand. These would be my recommended limits, for what they're worth, for the ceiling on wealth and the floor on poverty. Remember anyone earning an income of $10 million is going to store much of that as accumulated wealth which is going to provide a certain percentage return on investment (ROI in plutocrat speak) as unearned income each following year in addition to the $10 million earned (yeah, sure) income.
3. I believe that global warming is happening right now and is a result of human beings polluting the atmosphere with carbon emissions. As the saying goes "Don't shit where you eat" and we are shitting on Mother Earth. Future generations are going to have to eat and breathe here. Europeans and native Americans settled this continent without sending massive amounts of carbon into the atmosphere. We're going to have to relearn how to do the same, and there is not much time to waste without suffering the consequences that we're already starting to suffer.
As the number of billion dollar weather events starts to pile up, we will soon run out of money. We need to divert money from the bloated and wasteful military-industrial complex and spend it on infrastructure redevelopment in order to counteract and protect ourselves from the devastating aftermaths of extreme weather events like SuperStorm Sandy and SuperTyphoon Bopha. As I previously said, we have spent trillions to avenge the deaths of approximately 3000 people while spending hardly anything on gun control or infrastructure hardening. Both of the latter are bigger threats to American security than are the handful of self-proclaimed Al-Quaeda terrorists who have done a trivial amount of damage to the US since 9/11. Yet we spend trillions of dollars on them which mainly goes into the coffers of corrupt politicians and defense contractors. Not to mention the millions of civilians we have killed in Iraq and Afghanistan which guarantees a future generation of terrorists bent on avenging those deaths.
4. I don't believe that good middle class jobs are coming back as we recover from the Great Recession. They were disappearing long before the Great Recession hit. The combination of automating and computerizing manufacturing processes combined with the outsourcing of menial labor combined with the deunionization of the country means that we shouldn't sit around and hold our collective breaths expecting that everyone who has lost a good middle class job is going to get one back as we recover from recession and the unemployment rate gets down to 5%. The jobs that are being created are for the most part minimum wage service sector jobs. Even so-called full employment, if we achieve it, will consist in large part of those kinds of jobs. So what good is full employment as a measure of anything or a goal?
The so-called job creators are really job destroyers and they know that. They are just laughing up their sleeves as they automate and outsource thereby slashing the cost of production and increasing profits while at the same time calling for lower taxes on themselves on the grounds that they are job creators. This makes Wall Street very happy and top management is handsomely rewarded for doing this. As CEO pay soars, jobs are either outsourced or subcontracted to temp agencies who hire non-full time workers at minimal wages to do the heavy lifting. By this means the major corporations take no responsibility for low wages. It's somebody else, a sub-contractor, that's paying the low wages, not them. And a college education is no panacea. Middle aged college degreed folks are being let go, laid off and downsized never to be rehired again. A good job right out of college is no guarantee of continued employment as you become technologically obsolete in about 10 years.
What's the solution? I believe that self-employment is a big part of it. When you are employed by a corporation, you are vulnerable to being laid off for any reason at any time. When you're self employed, you can never be laid off. It may be too late for a lot of people, but young people coming up in school, even those college bound, should learn a trade while in high school that they can fall back on if need be. Most trades that serve the local community cannot and will not be outsourced and are amenable to self employment. The college educated crowd needs to think about what occupations and professions allow them to be self employed and which only allow them to be employees of some corporation. And most corporations don't want you if you've been laid off after the age of 50 when you are most vulnerable and desperately need a job.
I also believe that government has to be the employer of last resort. Corporations are in the business of outsourcing and creating temp jobs. Even startups usually only need employees until they really get rolling, go public and get obsessed with their stock price which means they need to reduce the cost of labor. At that point the job creators seek to creatively destroy American jobs and pocket increased profits.
Well, folks, there you have it in a nutshell. These are some of the topics I will be writing about in 2013. I also like to bring in the San Diego connection as what's happening in the wider world is also very definitely happening here as well. As far as our political system is concerned, my prediction is that Republicans in Congress will obstruct any meaningful legislation whatsoever and put a halt to any initiative President Obama wants to make. Better hope that 2014 brings a return to majorities in both the House and Senate for Democrats and that Obama can manage to get something constructive done for the good of the country in his last two years in office.
Happy New Year to All.
Mitt Romney's Bain Capital was very good at making money for Mitt Romney. At the same time it loaded companies Bain bought with debt, borrowed even more money to pay dividends to Mitt Romney and destroyed or outsourced lots of jobs. It even raided pension funds. Then Romney turns around and holds himself up as a "successful businessman." Sure he was successful in terms of making money for himself. But this was at the expense of those workers at previously successful companies who lost their jobs when those companies went bankrupt thanks to the debt loaded on them due to money borrowed from banks that went directly into Romney's pocket.
Here's how a private equity fund such as Bain Capital works. It picks a successful company and then takes it over with a leveraged buyout (LBO). The money borrowed from a bank to pay off the owner or stockholders does not become the debt of Bain Capital. It becomes the debt of the company that was taken over. You might ask, "Why would a bank even loan money to place a company in debt for the purposes of being taken over by Bain Capital which does not even assume the debt?" Well, it's for the same reason that so many subprime loans were available. The bank does not continue to hold the loan. It offloads it to investors such as pension funds so the bank doesn't really care. They have no skin in the game. Why not loan Mitt Romney money to take over companies? There's good money in those commissions.
Pension funds show up again and again as the fall guys in Wall Street machinations. They are the dumb clucks who keep trying to make up for the fact they are 50% underfunded by entering into sucker bets and losing even more money. And since Romney and Bain do not assume the debt themselves, they don't care if the overleveraged company goes bankrupt since, if it does, they lose nothing. That company is just a money conduit for Romney since, as soon as they take it over, they have the company borrow even more money in order to pay Romney a dividend. You might ask. "Why would the owners of a company or the shareholders sell out to Bain Capital?" Because Bain offers them a really good deal, that's why. After all they don't care if they overpay. They're using OPM, other people's money. It's all based on a loan to the company they intend to take over, not a loan to Bain itself. Bain takes hardly any risk at all. So much for the risk takers that Romney eulogizes.
Romney pioneered the strategy of having a company Bain took over in a leveraged buyout borrow even more money to pay himself a dividend. So now the company is staggering under a huge load of debt and in many cases they can not keep up with the payments. In 1994 Bain bought medical equipment manufacturer Baxter International. After a merger with another company, it became known as Dade Behring. Bain then reduced R&D investment because Bain's game plan was to only hold the company for five years or so. So why invest for the long haul? The money borrowed from banks for the LBO was usually for five to eight years with small monthly payments and a big balloon payment at the end. About five years after Bain had acquired Dade, it was looking to get out. But not before it drained even more money from Dade and placed the company and its workers in even more jeopardy.
Bain froze the workers' pension benefits and converted them from a defined benefit plan, in which employees were entitled to 75% of the average of their last three years' salaries, to a cash-balance plan in which they would get a lump sum equal to what they were owed in 1999. Workers were furious. They threatened to sue, but never went through with the lawsuit because they were fearful of losing their jobs. Dade saved $10 to $40 million with this strategem. The very month Dade did the conversion, it used the projected savings as the basis to borrow $421 million placing Dade in even more debt. The result was that Dade paid Bain and its partner Goldman Sachs the entire amount as a dividend. Bain and Goldman had only put down $81 million to buy the company in the first place. Yet in June 1999 they received $365 million from the dividend, a gain of 4.3 times their initial investment. Consequently, Dade's debt more then doubled to $871 million in order to make this huge payment to Bain and Goldman. Romney had left operational management of Bain that year, though his disclosures show that he owned 16.5 percent of the Bain partnership responsible for the Dade investment until at least 2001. In order to make their loan payments, Dade had to cut not only R&D but also the core of the company. It sold off assets and fired workers. Nevertheless, the whole thing came crashing down in 2002 when Dade filed for bankruptcy protection. It was the end of Bain's and Goldman's involvement with Dade. They had looted the entire company, raided the pension fund, albeit indirectly, and caused mega job losses. Nevertheless, Romney could turn around calmly, face the cameras and proclaim himself a "successful businessman" for having made hundreds of millions of dollars for himself and his investors. Bain and Goldman had made a $280 million profit on an investment of only $85 million. Is this what America is all about? Is this what freedom consists of? Romney seems to think so.
Later Dade emerged from bankruptcy and, after increasing its investment in R&D, went on to become a successful company probably because Romney and Bain were no longer in the picture. They had done their part forcing the company into bankruptcy by having Dade take out huge bank loans in order to pay Romney and Goldman dividends.
Bain used the same playbook with several other companies: put down a small down payment, get a bank loan (which the bank resells to other investors) for a leveraged buyout (in which the company not Bain assumes the debt) and then after taking ownership get another bank loan to pay Bain a huge dividend while saddling the company with even more debt. As a result of these tactics at least six companies filed for bankruptcy between 1992 when Romney took over Bain Capital and 2004. The reason that Romney wants us to believe that he had nothing to do with Bain after 1999 is that most of these companies filed for bankruptcy between 2000 and 2004. Nevertheless, according to SEC filings Romney was sole owner and operational manager of Bain until 2001. During this period there were several multimillion-dollar investment deals, bankruptcies and a spate of layoffs and overseas job shifts at Bain-owned companies. No wonder Romney doesn't want to release his tax returns. They would show that Romney took dividends from several companies that went bankrupt during this period including Stage Stores, Ampad, GS Industries, Dade Behring, DDi and KB Toys. Mitt Romney, the successful businessman, doesn't want you to know how he profited from driving companies bankrupt and destroying jobs. In any event Bain made more than 20 percent of its money in its 1987 to 1995 funds from five companies that borrowed money to pay it dividends or buy back shares that later collapsed.
Since balloon payments on many of the loans that private equity funds had their take-over targets take out are due in the next few years, the eventual collapse of those companies could trigger the next big financial crisis. If Mitt Romney is elected President, it will be just in time to deal with that.
This article relies on the book, "The Buyout of America" by Josh Kosman (sub-title: How Private Equity Will Cause the Next Great Credit Crisis) and the Vanity Fair article, "Where the Money Lives," by Nicholas Saxson.
I have never heard so many conservative pundits offering gratuitous avuncular advice to Barack Obama that his campaign strategy attacking Bain Capital will not get him anywhere. Joe Scarborough of Morning Joe on msnbc and others have gone on and on about how using Bain Capital against Mitt Romney is not a good strategy. Well, when conservatives offer advice to Barack Obama about what will or will not work for him, Obama better do just the opposite of what they recommend because ultimately they want him to lose. Therefore, he should double down, not abandon, the Bain Capital strategy.
But the problem with Obama is that he starts out praising Romney for being a good businessman (Clinton said he was "superlative"), certainly something no Republican would do for Obama. Then Obama goes on to say that, while Romney created wealth for himself and his investors, the President of the US must be concerned about creating jobs for everyone. This is a roundabout, circuitous route to putting Romney down, a circumlocution, something the Republicans would never do. Instead, they start right our calling Obama a failure. Obama starts out praising Romney, then seeming to walk on eggshells aiming at a scholarly criticism of his activities at Bain. Obama should get right to the point: Romney made his money at Bain by destroying jobs and companies, picking over their bones like the vulture he is.
Bain Capital is a private equity (formerly known as leveraged buyout) firm. They changed the name to protect the guilty. What they do is to pick the bones of perfectly healthy companies and in many cases drive them into bankruptcy. Here's how it works: they buy a private company with borrowed money (the leverage in leveraged buyout). But they don't buy just any company. They buy one with assets they can strip. It just so happens that they usually buy companies that have a unionized work force. Why? Because a company with a unionized work force usually has a pension fund. Their goal is to get their hands on that pension fund and transfer that asset to Bain Capital. So they borrow the money to buy a company, strip the pension fund and fire all the unionized workers. Then they hire a nonunionized work force to do the same jobs at half the pay. In this way they claim to have made the company "more efficient." Contrary to Republican hogwash, wealthy Individuals like Romney are job destroyers not job creators. Then the vulture capitalists borrow as much money as they can using the company itself as collateral. The next thing they do is to pay Mitt Romney himself, his partners and investors all the borrowed money plus the pension fund. They may also sell off parts of the company or move jobs overseas. Then the company is left to sink or swim on its own. If it can manage to pay all the increased debt Bain Capital put it in, it swims. If not, it sinks and goes bankrupt. In either case, Mitt Romney and Bain Capital have made tens or hundreds of millions of dollars.
President Obama's attack on Romney and Bain Capital has been rather tepid and timid. He essentially says that, while Romney and Bain have done wonderfully well for Bain Capital's investors making them a lot of money, that this is not the skill set required of the President of the United States who has to create jobs for the general public, not make a lot of money for investors. This is typical Barack Obama rationalizing. Instead, he should go for Romney's jugular, something the Republicans including Romney never fail to do, not congratulate him on making money for his investors. First of all, even the companies that have managed to survive the Bain treatment have ended up with a non-union work force working for minimal pay. The fact that Staples and some others are successful companies has nothing to do with it. Staples was never acquired by Bain. They just played a venture capital role there. Romney's role as a vulture capitalist was to identify companies with tangible assets and then to figure out a way to get control of those assets for Bain and its investors. But it gets worse from there.
This is from the LA Times:
Bain Capital had bought a controlling interest in a paper products company called Ampad for $5 million in 1992. Two years later, after Ampad bought a factory in Marion, Ind., the new management team dismissed about 200 workers, slashed salaries and benefits, and hired strikebreakers after the union called a walkout.
“We were just fired,” Randy Johnson, a former worker and union officer at the Marion plant, recalled in a telephone interview. “They came in and said, ‘You’re all fired. If you want to work for us, here’s an application.’ We had insurance until the end of the week. That was it. It was brutal.”
In October 1994, Johnson and other striking workers drove to Massachusetts to protest Romney’s Senate campaign. “We chased him everywhere,” Johnson recalled. “He took good jobs with benefits, and created low-wage, part-time, no-benefit jobs. That’s what he was creating with his investments.”
The Republicans like to point out how Solyndra, which was invested in by Obama's administration and then went bankrupt, was a huge flop. No matter how many successes the Obama administration has had, Republicans will characterize the whole program as a failure because of the failure of a small part of it. They don't mention the other successes like saving General Motors. By the same token Obama should talk about Ampad, GST Steel, Aventis and other companies whose bones have been picked by Romney and Bain and ignore any successes Romney and Bain might have had.
This is from Rolling Stone:
And let's take a look at the record specifically of Bain Capital, which Romney owned from 1992 to 2001.
• 1988: Bain put $10 million down to buy Stage Stores, and in the mid-'90s took it public, collecting $184 million from stock offerings. Stage filed for bankruptcy in 2000.
• 1992: Bain bought American Pad & Paper, investing $5 million, and collected $107 million from dividends. The business filed for bankruptcy in 2000.
• 1993: Bain invested $25 million when buying GS Industries, and received $58 million from dividends. GS filed for bankruptcy in 2001.
• 1994: Bain put $27 million down to buy medical equipment maker Dade Behring. Dade borrowed $230 million to buy some of its shares. Dade went bankrupt in 2002.
• 1997: Bain invested $41 million when buying Details, and collected at least $70 million from stock offerings. The company filed for bankruptcy in 2003.
President Obama is afraid to criticize Romney's Bain Capital days because Republicans will accuse him of being against capitalism. Well, so what. Today's capitalism is not your Grandfather's capitalism. If a law were passed making it illegal to raid a company's pension fund and make a large payout to investors, would that be against capitalism? Capitalism is malleable. It only exists within a legal framework. Some of it should be outlawed like the part that let Romney buy companies with borrowed money and then take a tax writeoff because the money was borrowed. Wall street lobbyists have changed the laws regarding capitalism to their own advantage. The Commodities Futures Modernization Act of 2000 deregulated derivatives and helped to cause the financial meltdown of 2008. Advocating reregulating derivatives is not anti-capitalistic. So if Obama were to go after Romney's record as a vulture capitalist, it does not mean he is against capitalism, only capitalism as it has been "modernized" and deregulated.
Obama should double down on what Romney and Bain Capital really did which was to load companies up with debt, take the borrowed money for their own personal benefit, raid pension funds, fire unionized workers and hire nonunionized ones at much reduced pay, sell off profitable parts of companies and then force them into bankruptcy. This is exactly what a vulture does: picks apart a carcass for its own profit. He should not give Romney one iota of credit for making money for himself and his investors. After all Romney will never be caught dead giving Obama one iota of credit for anything.
Think back a couple hundred years ago - before industrialization when economic life was much simpler. Let's assume that when a good or service was purchased, that the person who received the money spent it all - no savings. Therefore, money was circulated just like water can be circulated in a closed pipe. If the pipe makes a circle, then all that is needed to keep water flowing through the pipe is a pump. Similarly, when the blacksmith received $10. for shoeing a horse, we can assume that he took that money and spent it at the grocery. The grocer then took that same $10. and spent it with the farmer. The farmer took the money and spent it at the haberdasher's and so on. So the same $10. gets passed around from person to person until it lands back up at the blacksmith's again and the process repeats itself over and over. As long as all the yeoman in any given village have a good or service they can sell and as long as the money flows through the hands of each person in the village, that same $10. is used over and over; it is circulated round and round just like the water in the pipe. As long as the money flows fast enough, everyone can purchase what they need and business is good. GDP is a measure of how many transactions occur in any given year. The faster the money flows through the system, the greater is GDP.
Now what happens when one of the participants saves some of the money instead of spending it all? Then there is less money to flow through the system and economic activity and hence GDP will be lower. The more money that is saved, the more economic activity will decrease until the money supply is inadequate to meet people's needs. It is a well known fact that, when consumers spend more and save less, economic activity and GDP increase. That's why George W Bush sent everybody a check and told them to go out and spend it. When economic activity decreases enough, a recession or a depression occurs. In the US consumer spending accounts for 70% of GDP so, if consumer spending decreases, economic activity decreases. This would happen in the simple economy described above if, instead of the blacksmith spending his money at the grocer's, he saved it instead. So saving decreases economic activity and GDP. There is one caveat to that and that is, if instead of the blacksmith saving the money, he invested it by expanding his business and created a couple of additional jobs. Then those additional workers would also go out and spend their paycheck adding to economic activity.
When the economy goes into recession two things happen. Government revenues from taxes decline and consumers spend less because they have less money to spend. Keynsianism is a philosophy that says that the government should borrow money in a recession and spend it into the economy thus creating jobs and increasing economic activity or at least preventing starvation and dire need. The other way that economic activity can be expanded is for the central bank to loan money to banks which then loan it to businesses who want to expand their businesses thus creating jobs. So money is injected into the economy either by the government borrowing money or by the central bank printing money in the form of a loan. In either case debt is created and the economy becomes a debt based economy.
If we think of money circulating similar to water circulating in a network of pipes, if a business or an individual saves a portion of the money instead of spending it, there is a continual need for money creation to keep up the same level of economic activity. That's why capitalism has to be a growth based economy. When there was one blacksmith for every village, saving money was not a problem since the income from blacksmithing over the economy as a whole was dispersed to many blacksmiths who all spent most of it keeping it in circulation. If one blacksmith captured most of the business - let's say he called his business Blacksmiths Are Us - and franchised it throughout the whole economy, then all the profits would flow to one person - more or less - and money would be continually taken out of circulation necessitating growth and debt based money creation by the government or private businesses just to provide enough jobs to keep money circulating to all people with economic needs. Money saved and not spent is similar to water in a system of pipes entering a cul de sac or black hole from which it never emerges or to being siphoned off never to return to mainstream circulation.
In today's economy money is continually siphoned off by the major corporations who have not only nationalized but who have internationalized. It's as if Blacksmiths Are Us has gone global. That money which is taken out of the real economy goes into the financial economy which is a black hole from which money never emerges again into the real world economy. So there is a continual need for either the central bank to print money (increase the money supply) or for the government to prime the pump with debt based stimulus money (the fiscal method).
In a western capitalist economy there is a continual need for money to be created either by government borrowing and the provision of fiscal stimulus or by means of the central bank loaning money into the banking system. The only problem is that today, when the Federal Reserve (the central bank) loans money to other banks, the money goes not into the real economy where jobs are created but into the financial or casino economy. In other words it goes to rich people like Jamey Dimon of JP Morgan Chase or Lloyd Blankfein of Goldman Sachs who don't spend it in the real economy but who gamble it in the casino economy so it doesn't do too much good for the creation of jobs which provides for the distribution of money to all who need it. A job is seen as the only legitimate means for an economic unit to acquire the money it needs to meet its needs. Of couse, just giving the money to all who need it would increase economic activity and GDP, but that isn't seen as legitimate. Similarly, when the government borrows and spends, the money also does not circulate much since it is soon siphoned off by the Wal-Marts, the Exxon Mobils - the modern day versions of Blacksmiths Are Us - where it ends up in the financial economy. There is no very good way to keep the money circulating in the real economy since large corporations are siphoning it off at every turn which means that either the central bank has to keep printing money or the government has to keep borrowing and spending money, the Keynesian approach.
Therefore, neither the method of giving money to rich people through zero interest loans nor fiscal stimulus requiring more government debt will work in today's economy. Paul Krugman, who advocates fiscal stimulus and more government borrowing, is wrong and the Republican supply siders who advocate giving more money to the rich are also wrong. Obviously, the central bank cannot go on indefinitely printing money because of the devaluation of the currency and subsequent inflation and the government can not go on indefinitely borrowing money because interest on the debt eventually consumes all expenditures so what is the solution? Giving more tax breaks to the rich only compounds the problem of money being siphoned off from the real economy, taken out of circulation and placed in the financial or casino economy where it circulates only among the financial elite. The Republican solution is to speed up the process of redistributing money from the poor and middle class to the rich even more.
The only viable solution is to redistribute the money from rich to poor. The money that has been siphoned off and taken out of circulation by the Wal-Marts and Exxon Mobils of the world needs to be siphoned back into the real economy where it can continue to circulate. Too much money is ending up in the cul de sacs where it never reenters the real economy but instead circulates endlessly in the casino economy among very rich people. 300 years ago when the economy was much simpler and consisted of a yeomenry who provided a good or service and spent all the money they took in, money circulated endlessly in the real economy. Today, Wal-Mart and Exxon Mobil take most of the money out of the real economy in the form of profits. That money leaves the real economy and enters the financial economy which is a big black hole as far as the real economy is concerned. In order not to increase the money supply endlessly or to require the proliferation of new products and services, which provide a temporary increase in economic activity, new jobs and circulation of money to a wider distribution of individuals and families, money has to be recirculated and redistributed into the local real economy. And in order for the Federal Government not to have to borrow money endlessly, it needs to siphon money from the rich who won't spend it and redistribute it to the poor and middle class who will. In this manner the economy needs not to be based so much on debt based growth but can become more of a steady state, balanced economy. Money siphoned off by Blacksmiths Are Us is siphoned back again and redistributed to the local blacksmiths where it can circulate in the real economy again.
Another way the economy can grow without creating debt or increasing the money supply endlessly, which means just fueling the casino economy, is to take Ellen Brown's suggestios from her book Web of Debt, and that is for the central bank to not loan money into the economy with zero interest loans to the big banks, but instead to spend the money into the economy for infrastructure projects and the like. Thus the money supply is increased as needed without the creation of debt. This is the method Abraham Lincoln used to fight the Civil War and to build the transcontinental railroad. It is estimated he saved the nation $4 billion in interest by spending the money into the economy with greenbacks instead of loaning it into the economy at interest.
Taxing the rich amounts to siphoning back money which has been siphoned off from the real economy in the first place and putting it back into circulation amongst a wider distribution of people. The Blacksmith Are Us franchisees supply a uniform blacksmithing experience for weary travelers regardless of which village they happen to be in. As such they take business from the Mom and Pop blacksmiths and concentrate wealth at the central headquarters of Blacksmiths Are Us. We imagine that no matter which village George Washington or Thomas Jefferson was in, they could count on the fact that their blacksmithing needs were met with satisfaction when they shopped at Blacksmiths Are Us. However, this would diminish the amount of money in the real local economy due to the fact that the business of the local blacksmith would diminish since the profits would be shipped elsewhere.
A final note: with all the economic turmoil in Europoe over the eventual default by Greece on its loans and the fact that this could create economic chaos, instead it could be seen as an opportunity for Greece to set up its economy as non-debt based by having its central bank spend fiat money into the economy thus creating jobs and distributing income until the economy picks up steam of its own accord. Thus Greece could drop out of the eurozone with it's western debt based economic methods and align itself more with the non-western world to create a non-debt based society instead of one drowining in debt as it is presently constituted.
by Robert Reich
Imagine a country in which the very richest people get all the economic gains. They eventually accumulate so much of the nation’s total income and wealth that the middle class no longer has the purchasing power to keep the economy going full speed. Most of the middle class’s wages keep falling and their major asset – their home – keeps shrinking in value.
Imagine that the richest people in this country use some of their vast wealth to routinely bribe politicians. They get the politicians to cut their taxes so low there’s no money to finance important public investments that the middle class depends on – such as schools and roads, or safety nets such as health care for the elderly and poor.
Imagine further that among the richest of these rich are financiers. These financiers have so much power over the rest of the economy they get average taxpayers to bail them out when their bets in the casino called the stock market go bad. They have so much power they even shred regulations intended to limit their power.
These financiers have so much power they force businesses to lay off millions of workers and to reduce the wages and benefits of millions of others, in order to maximize profits and raise share prices – all of which make the financiers even richer, because they own so many of shares of stock and run the casino.
Now, imagine that among the richest of these financiers are people called private-equity managers who buy up companies in order to squeeze even more money out of them by loading them up with debt and firing even more of their employees, and then selling the companies for a fat profit.
Although these private-equity managers don’t even risk their own money – they round up investors to buy the target companies – they nonetheless pocket 20 percent of those fat profits.
And because of a loophole in the tax laws, which they created with their political bribes, these private equity managers are allowed to treat their whopping earnings as capital gains, taxed at only 15 percent – even though they themselves made no investment and didn’t risk a dime.
Finally, imagine there is a presidential election. One party, called the Republican Party, nominates as its candidate a private-equity manager who has raked in more than $20 million a year and paid only 13.9 percent in taxes – a lower tax rate than many in the middle class.
Yes, I know it sounds far-fetched. But bear with me because the fable gets even wilder. Imagine this candidate and his party come up with a plan to cut the taxes of the rich even more – so millionaires save another $150,000 a year. And their plan cuts everything else the middle class and the poor depend on – Medicare, Medicaid, education, job-training, food stamps, Pell grants, child nutrition, even law enforcement.
What happens next?
There are two endings to this fable. You have to decide which it’s to be.
In one ending the private-equity manager candidate gets all his friends and everyone in the Wall Street casino and everyone in every executive suite of big corporations to contribute the largest wad of campaign money ever assembled – beyond your imagination.
The candidate uses the money to run continuous advertisements telling the same big lies over and over, such as “don’t tax the wealthy because they create the jobs” and “don’t tax corporations or they’ll go abroad” and “government is your enemy” and “the other party wants to turn America into a socialist state.”
And because big lies told repeatedly start sounding like the truth, the citizens of the country begin to believe them, and they elect the private equity manager president. Then he and his friends turn the country into a plutocracy (which it was starting to become anyway).
But there’s another ending. In this one, the candidacy of the private equity manager (and all the money he and his friends use to try to sell their lies) has the opposite effect. It awakens the citizens of the country to what is happening to their economy and their democracy. It ignites a movement among the citizens to take it all back.
The citizens repudiate the private equity manager and everything he stands for, and the party that nominated him. And they begin to recreate an economy that works for everyone and a democracy that’s responsive to everyone.
Just a fable, of course. But the ending is up to you.
Part 1 of this series covering the Reagan years can be found here. This post relies on data from the following sources: Federal Income Tax Rates History, Social Security and MedicareTax Rates, Historical Capital Gains and Taxes and Party Control of Congress and the Presidency. In the first part we pointed out that Reagan under the tutelage of Ayn Rand lover Alan Greenspan flattened the tax code to just two rates: 15% for anyone making less than $56,427. and 28% for anyone making more than that amount. This effectively raised taxes on the poor and lowered them on the rich compared to the day Reagan entered office when the tax rate was zero on the poor and 70% on the rich. Reagan and Greenspan also drastically raised Medicare and Social Security (payroll) taxes which affect mainly the poor and middle class. Bush Sr served from 1989 till 1992 when Clinton took over. In 1991 under a Democratic Congress, Bush Sr raised taxes despite his pledge not to. Remember his campaign promise: "Read my lips. No new taxes." However, despite the big brou ha ha, Bush did not raise income taxes on the poor and middle class; he only raised them on the rich. You would think that, if the middle class and poor were paying attention, they would have been satisfied with this development and reelected Bush in 1992. But the Republicans and right wing media talking heads raised such a hue and cry, convincing voters that Bush Sr had raised taxes on all people and not just the top few percent, that Bush was defeated and Clinton elected. What Bush did was to add a third tax bracket of 31% for incomes over $135,336 while leaving unchanged the two lower tax brackets. Bush "unflattened" the tax code slightly which should have raised a cheer among the middle class, but it didn't due to the fact that they were convinced by the right wing punditry that Bush raised taxes period, end of story. They didn't distinguish whom Bush raised taxes on. They only paid attention long enough to understand that Bush raised taxes.
Bush Sr also raised FICA and SECA (Social Security and Medicare) taxes. These went from 7.150% for employees and employers in 1987 to 7.51 in 1988 and 1999. The corresponding rates for the self-employed went from 14.3% in 1987 to 15.02% in 1988 and 1989. So what Bush gave with one hand to the poor and middle class in the form of not raising their income taxes, he took away with the other by raising FICA and SECA taxes which affect mainly the poor and middle class. The net effect was to make the total tax burden on the middle class as great or greater than the tax burden on the rich since the rich pay little FICA and SECA tax compared to their total income. Bush Sr and the Republicans were at it again in 1990, a year in which they raised FICA and SECA taxes to 7.65% for employees and employers and 15.3% for self-employed where they have remained to this day. So Bush Sr was not such a traitor to his class as one might think from just considering the income tax structure alone. The net effect was that he raised taxes on the poor and middle class much more than he raised them on the rich.
Bush Sr had a Democrat controlled Congress during his four year term and they managed to raise the capital gains tax from 28% to 28.93% in 1991, a piddling amount compared to the huge decreases which were to come later during the Bush Jr administration. So the rich had their capital gains taxes raised for the last year of the Bush Sr administration through no fault of Bush's own. It was the Democrats who pushed this tax increase through.
Clinton took over in 1993 and with a Democratic Congress unflattened the tax code even more adding two tax brackets at the high end. The following is the tax table for married couples filing jointly, inflation adjusted.
Table 1 - 1993 - Married Filing Jointly
Marginal Tax Brackets
Tax Rate Over But Not Over
15.0% $0 $57,298
28.0% $57,298 $138,432
31.0% $138,432 $217,392
36.0% $217,392 $388,200
39.6% $388,200 -
Despite the fact that Clinton raised only taxes on the rich and kept them the same on the poor and middle class, a fact that the vast majority of voters should have been happy with, Republicans managed to tag Clinton and the Democrats with the "tax and spend" and "big government" labels. FICA and SECA taxes remained the same under Clinton.
In 1994, half way into Clinton's first term, Republicans took over control of Congress. Despite that fact the income tax code remained substantially unchanged for the rest of Clinton's Presidency with the result that, by the time Clinton left office in 2000, there was a budget surplus and the nation was on track to eliminate the national debt entirely.
Capital gains taxes were a different story. They went from 28.93% in 1991 to 29.19% in 1993. The poor and middle class swallowed the Republican hogwash about Clinton raising their taxes and elected a Republican Congress in 1994. The Republican Congress slashed the capital gains tax all the way back to 21.19% in 1997 where it stayed for the remainder of the Clinton Presidency. So despite the fact that during the Clinton years income taxes were raised on the rich, capital gains taxes which affect primarily the rich were substantially reduced. The net result was that taxes on the rich were effectively lowered and despite that fact Clinton was able to run budget surpluses during his last few years in office. Go figure!
George W Bush was elected in 2000. Then the tax cutting which led to huge deficits began - with a vengeance. "You know how to spend your own money better than the government does." The Republicans were great at formulating slogans and defining the situation. What were the Democrats supposed to say to that: "The government knows better how to spend your money than you do"? Consequently, in 2001 the top tax rate was lowered by .5% from 39.6% to 39.1%. The middle three tax rates were lowered .1%, and the tax rate for the poor, the lowest tax bracket was not lowered at all. The net effect was to give the rich a big tax cut, the middle class a modest tax cut and the poor no tax cut. Here is the tax table:
Table 2 - 2001 - Married Filing Jointly
Marginal Tax Brackets
Tax Rate Over But Not Over
15.0% $0 $57,267
27.5% $57,267 $138,416
30.5% $138,416 $210,950
35.5% $210,950 $376,732
In 2002 another half a percent was cut for the four highest tax brackets and in addition a new bracket was added at the bottom thus reducing taxes on the poor to 10% up till an income of $14,967. The 15% tax bracket was the only one not cut thus making a mockery out of tax cuts for the middle class. Here is the tax table for 2002:
Table 3 - 2002 - Married Filing Jointly
Marginal Tax Brackets
Tax Rate Over But Not Over
10.0% $0 $14,967
15.0% $14,967 $58,246
27.0% $58,246 $140,752
30.0% $140,752 $214,464
35.0% $214,464 $382,967
In 2003 there was another tax cut ... of course ... but only for the rich and upper middle class, not for the middle class or the poor!! 3.6% was cut off the top tax rate! 2% was cut from the next three tax rates leaving the bottom two tax rates all the way up to an income of $69,265 virtually untouched!! All the while the right wing propaganda machine was out to convince everyone that Bush Jr was cutting taxes for E..V..E..R..Y..B..O..D..Y. Here are the sad results:
Table 4 - 2003 - Married Filing Jointly
Marginal Tax Brackets
Tax Rate Over But Not Over
10.0% $0 $17,072
15.0% $17,072 $69,265
25.0% $69,265 $139,810
28.0% $139,810 $213,039
33.0% $213,039 $380,409
After 2003 the income tax cutting frenzy for the rich was over at least for the remaining years of the Bush Jr administration. The 2003 tax table was for all intents and purposes the tax structure that President Obama inherited when he became President in 2009. The same tax structure remains in effect till this day, Obama having failed to end the Bush tax cuts due to Republican intransigence and obstructionism and to raise the top rate back to the 39.5% that it was in the last years of the Clinton administration. As a consequence structural budget deficits continue to add immense sums to the national debt, and there is Republican pressure to cut spending on social programs like Social Security, Medicaid and Medicare but, of course, they don't want to reduce spending on the military. Obama may force their hand by ending the wars in Iraq and Afghanistan and talking up his desire on the campaign stump to spend half the savings on deficit reduction and half on rebuilding infrastructure, but he will need a Democrat controlled Congress to do anything of the sort.
In addition to the Bush Jr income tax cuts for the rich, he also cut capital gains taxes substantially during his term in office, an even greater boon to the rich than the income tax cuts. Capital gains taxes went from 21.19% in 2000 to 21.17% in 2001 and 21.16% in 2002. Then in 2003 they went all the way down to 16.05%. That was followed by a drop to 15.07% in 2006 and further down to 15.35% in 2008 where they remain today. The combined income and capital gains tax cuts which benefitted primarily the rich produced disastrous budget deficits, and, since structurally the Bush tax cuts remain in effect, the Obama administration is forced to run huge budget deficits which Republicans disingenuously blame him for although they refuse to raise taxes on the rich or let the Bush tax cuts expire which would ameliorate the situation.
Raising the top income tax rate back to 39.5% and the capital gains tax back to 28.93% (an almost doubling of capital gains tax) where they were under the Clinton administration would do a huge amount to eliminate the budget deficits that Obama is unfairly being tagged with. Adding more tax brackets for incomes above $382,967 where the highest rate now kicks in would also provide even more desperately needed revenue. Today when the Fortune 400 is composed exclusively of billionaires, tax brackets in the millions and billions of dollars are appropriate and only fair. Obama has presented this rather cleverly as the Buffet rule: a boss shouldn't be effectively taxed less than his secretary. Today most billionaires pay an effective tax rate around 15% since most of their income is composed of capital gains. The only way to implement the Buffet rule is to raise the capital gains tax since the income tax no matter how high it becomes for millionaires and billionaires will hardly affect them. In addition a financial transaction tax could raise as much as $100-$200 billion a year.
by Robert Reich
The rest of us ought to be having a serious discussion about a wealth tax. Because if you really want to know what’s happening to the American economy you need to look at household wealth — not just incomes.
The Fed just reported that household wealth increased from October through December. That’s the first gain in three quarters.
Good news? Take closer look. The entire gain came from increases in stock prices. Those increases in stock values more than made up for continued losses in home values.
But the vast majority of Americans don’t have their wealth in the stock market. Over 90 percent of the nation’s financial assets – including stocks and pension-fund holdings – are owned by the richest 10 percent of Americans. The top 1 percent owns 38 percent.
Most Americans have their wealth in their homes – whose prices continue to drop. Housing prices are down by a third from their 2006 peak.
So as the value of financial assets held by American households increased by $1.46 trillion in the fourth quarter, the wealthiest 10 percent of Americans became $1.3 trillion richer, and the wealthiest 1 percent became $554.8 billion richer.
But at the same time, as the value of household real estate fell by $367.4 billion in the fourth quarter, homeowners – mostly middle class – lost over $141 billion (owners’ equity is 38.4 percent of total household real estate).
Presto. America’s wealth gap – already wider than the nation’s income gap – has become even wider. The 400 richest Americans have more wealth than the bottom 150 million Americans put together.
Given this unprecedented concentration of wealth – and considering what the nation needs to do to rebuild our schools and infrastructure while at the same time saving Medicare and reducing the long-term budget deficit – shouldn’t we be aiming higher than a “Buffet tax” on the incomes of millionaires?
There should also be a surtax on the super rich.
Yale Professor Bruce Ackerman and Anne Alstott have proposed a 2 percent surtax on the wealth of the richest one-half of 1 percent of Americans owning more than $7.2 million of assets. They figure it would generate $70 billion a year, or $750 billion over the decade. That’s half the savings Congress’s now defunct Supercommittee was aiming for.
Instead of standing empty-handed while Santorum and Romney dominate the airwaves with their regressive Social Darwinism, Democrats need to be reminding Americans of what’s happening in the real economy – and what needs to happen.
The wealth gap is widening into a chasm. A surtax on the super rich is fair — and it’s necessary.
When I was a graduate student at UCSD in the midst of the anti-war movement, protesting the war in Vietnam, I went to the library and pondered what would make the world a better place, what could I do to contribute something that might make war less likely and peace time activity more likely. I concluded that more cooperation was needed. More ways to resolve conflicts big and small. For example, democratic voting systems resolve conflicts in such a way that solutions are found that are acceptable to all parties for the most part. I took it for granted that institutions that provided for more cooperation and less competition were more desirable. I thought that this was what the Enlightenment was all about. My heroes were the Enlightenment superstars: Jeremy Bentham, John Stuart Mill, Rousseau, Diderot, Voltaire, John Locke.
As I sat there and went through the stacks, I discovered another field and another set of superstars. Social choice has a long history going back to the French Enlightenment philosophers, the Marquis de Condorcet and Jean-Charles de Borda, and even further back than that. One of the 19th century superstars in this field was none other than the Rev. C. L. Dodgson otherwise known as Lewis Carroll, the author of Alice in Wonderland. These guys came up with voting systems which are essential to democracy and are essential to the whole notion of cooperation and conflict resolution. The most recent work in this field was by Kenneth Arrow who published a book Social Choice and Individual Values in the 1950s which attempted to generalize conflict resolution in society in both the political and economic spheres. Arrow concluded that this was impossible and came up with his famous Impossibility Theorem which was a generalization using sophisticated mathematics of the paradox of voting that was known to Condorcet hundreds of years ago. Therefore, Arrow concluded democracy was impossible and any economic system other than capitalism was impossible too. Hmmm, I thought, this is obviously a cop-out because some political and economic systems are more desirable than others and Arrow has done nothing except to throw cold water on any framework that could consider these. I took it as my self-assigned task to prove that Arrow was wrong, that social choice is possible. My work can be found on the website Social Choice and Beyond.
My latest work is "Politonomics: A Meta-Theory Encompassing Political and Economic Decision Making." This is from the Abstract:
In “Social Choice and Individual Values,” Kenneth Arrow said , “In a capitalist democracy there are essentially two methods by which social choices can be made: voting, typically used to make ‘political’ decisions, and the market mechanism, typically used to make ‘economic’ decisions.” This paper resolves that dichotomy by developing a meta-theory from which can be derived methods for both political and economic decision making. This theory overcomes Arrow’s Impossibility Theorem in which he postulates that social choice is impossible and compensates for strategic voting, an undesirable aspect of decision making according to Gibbard and Satterthwaite. Thus the politonomics meta-theory spawns both political and economic systems which are indeed possible and which cannot be gamed. In a typical voting system the outcome of an election among several candidates results in one realized outcome – the winner of the election - which applies to all voters. In a typical economic system, a consumer may choose among a variety of possible baskets of consumer items and work programs with the result that multiple realized outcomes are possible with a unique or quasi-unique outcome for each worker/consumer. As the number of possible realized outcomes of a political-economic decision making process increases, the process becomes more economic and less political in nature and vice versa. We show that as the number of possible realized outcomes increases, voter/consumer/worker satisfaction or utility increases both individually and collectively.
I never considered, as I sat there pondering, that there would be people who would argue that what the world needed was not more cooperation but more competition, but, as I sit here today, I realize that the whole conservative right wing is in favor of just that. They want not more cooperation in either the political or economic realm but more competition believing that only winners should prevail and human progress is only possible when you give free reign to those among us who are the most talented, intelligent and ambitious. They believe that competition will result in the strongest among us winning just as Nietzsche believed that a good war hallows every cause. Their ethic is that the naturally gifted elite should prevail, and they are not concerned about what happens to the rest of us or of who is trampled in the process. This is also the philosophy of Ayn Rand as espoused in her novels Atlas Shrugged and The Fountainhead.
The debate today about increasing inequality in the world has to do with the prevalent conservative belief that only the strong should survive and be promoted and that freedom should preclude equality as a value. The rich should get more tax breaks because they are the true instigators of human progress and should be catered to at every turn. Perhaps a few crumbs will trickle down to the rest of us. This kind of thinking is counter to the Enlightenment and is fast returning us to a neo-Dark Age. No more is human progress to be measured in reduction of poverty and extension of basic services like health care to everyone. It is to be measured in terms of the great advances to human civilization like iPads, iPods and iPhones. People who are capable of coming up with these advances should be cut every break and none of the billions of dollars they make should be transferred by government to the least of these among us like the homeless, the poverty-stricken and the destitute because, well, they are the least among us, not the best among us who should be given every break.
Nevertheless, I remain in the camp of those who think that more cooperation in the political and economic spheres will do more for human progress than more competititon. I also have spent about 40 years in my spare time trying to prove that Arrow was wrong, that social choice is not impossible and that democracy in both the political and economic spheres is not only possible but desirable. This has a lot to do with voting systems, democratic institutions and constitutions but also with cooperative economic systems in which freedom is seen not as the freedom to make money at other people's expense (the losers in the competitive struggle) but the freedom to work as much or as little as one chooses and in accordance with one's preferences as much as possible. Freedom from work is for many people just as desirable a goal as the freedom to make billions of dollars, and wealthy people who don't have to work would be the first to tell you that. Economic democracy in my view is more desirable than cutthroat capitalism, and can be practiced not only at the national level, but at the enterprise level in the form of co-ops like the Mondragon Corporation.
Marx's famous definition of the "good society" was "from each according to his ability, to each according to his needs." This of course was perverted in defining communism as a society where all the wealth created by those who had a lot of talent and ability as well as a strong work ethic combined with those who had not so much in those categories would be thrown into a pot and then divided up in equal portions and handed out by the government. Such need not be the case in achieving the "good society." The "needs" part is pretty basic and could probably be accomplished with abouit 10% of the wealth that exists in the world today. Most people can provide for their own needs - no transfer necessary. There are some who cannot and to transfer a small part of the wealth of the wealthy to provide for their basic needs seems to me to be no more than humane. That still leaves the vast amount of wealth in the hands of the wealthy. In other words if you total up how much it would cost to provide for all the basic needs of everyone in the world and tote up how much wealth there exists in the world, it would take a fraction of all that wealth to provide the basic needs for everyone who cannot provide for their basic needs themselves who turn out to be mainly children, seniors and handicapped (whether physically or mentally) people.
A recent documentary by German TV station Deutsche Welle pointed out that half the world's production of food is wasted because super markets only want perfect vegetables and ones with slight blemishes are thrown out even though they are perfectly edible. Shelves need to be fully stocked with bread right up till closing hours even though any bread left over at the end of day will be thrown out as "day old." All the food that is thrown out by advanced nations is enough to feed all the world's hungry three times over although no governments or other institutions, much less the supermarkets themselves, seem to be interested in organizing that effort. This is what I mean by the fact that the basic needs of all the world's people could be satisfied without subtracting much if anything from the world's wealthy although a lot of them would admit they do not need incomes of millions of dollars a day like the Fortune 400 billionaires have.
Another documentary noted that Finnish school children have the highest test scores in the world despite the fact that they have one of the world's shortest school days with 15 minutes intermissions between classes during which time they are encouraged to go outdoors and play. All grades have large amounts of music, art and self-defined projects. They don't teach to the test. They are concerned with the development of each student as an overall human being not just as some super competitive cog in a nationally competitive machine. The Chinese on the other hand have the opposite approach demanding that children learn by rote methods and extra hours in school and at study. The Finnish schools are all public and everyone is accepted into every class. There are no advanced classes or tracking of students into lesser classes if they are not among the elite intellectually. Everyone is thrown in together; yet they have the best outcomes of any country in the world on standardized international tests. Egalitariansim seems to gain the best results.
An egalitarian ethic in which the concern is for the development of the whole human being rather than a promotion of just those who have superior abilities in accordance with a competitive ethic seems to me to be the most humanitarian way to treat both children and adults. The 1948 Universal Declaration of Human Rights already provides for most of the "from each according to their abilities, to each according to their needs" ethic. It calls for free health care which most advanced socierties, with the exception of the United States, already provide. It calls for free education and other public institutions and covers most basic human needs including food and shelter.
Here are Articles 25 and 26:
All the basic needs of everyone on the planet could be provided for without subtracting much of the wealth of the rich since most people can provide for at least their basic needs without any transfer of wealth whatsover being necessary. Interestingly, the US among other nations does provide food security for the poor through its food stamps program. And of course seniors are provided for through Medicare, Medicaid and Social Security, programs which conservative free marketers are anxious to change or eliminate.
I am with the Enlightenment thinkers especially the English utilitarians like Jeremy Bentham and John Stuart Mill who thought about the happiness of society as a whole and concluded that everyone counted, not only the ones with exceptional talent, ability and other admirable qualities. A society should be judged by how it treats "the least of these my brethren" which is the core and essence of Jesus' teachings but, sad to say, not the core and essence of Christianity as it exists in the world today. Perhaps we should start thinking about an alternative constitution for the US which has the world's oldest constitution (236 years old!) while being the world's youngest advanced nation. Other societies including most European societies while being older than the US have newer constitutions. As far-sighted as the Founding Fathers were, a new and updated constitution incorporating not only political but also economic rights along the lines of the UN Declaration of Human Rights would do much to right the wrongs and shortcomings of present day America and the world.
Posted by John on March 14, 2012 at 03:34 PM in John Lawrence, Conservatives, Cooperatives, Corporations, Democracy, Economic Democracy, Economics, Education, Careers, Jobs, Employment, Enlightenment, Equality, Ethics, Morality, Human Rights, Inequality, Laissez Faire Capitalism, Medicaid, Medicare, Politics, Poverty, Preferensism, Republican War on the Poor, Right Wing, Social Choice, Social Security, Survival of the Fittest, The Economy, The Rich, The Role of Government, Values, Voting Methods, War, Waste, Wealth, Welfare | Permalink | Comments (0) | TrackBack (0)
by Robert Reich
Suddenly, manufacturing is back – at least on the election trail. But don’t be fooled. The real issue isn’t how to get manufacturing back. It’s how to get good jobs and good wages back. They aren’t at all the same thing.
Republicans have become born-again champions of American manufacturing. This may have something to do with crucial primaries occurring next week in Michigan and the following week in Ohio, both of them former arsenals of American manufacturing.
Mitt Romney says he’ll “work to bring manufacturing back” to America by being tough on China, which he describes as “stealing jobs” by keeping value of its currency artificially low and thereby making its exports cheaper.
Rick Santorum promises to “fight for American manufacturing” by eliminating corporate income taxes on manufacturers and allowing corporations to bring their foreign profits back to American tax free as long as they use the money to build new factories.
President Obama has also been pushing a manufacturing agenda. Last month the President unveiled a six-point plan to eliminate tax incentives for companies to move offshore and create new lures for them to bring jobs home. “Our goal,” he says, is to “create opportunities for hard-working Americans to start making stuff again.”
Meanwhile, American consumers’ pent-up demand for appliances, cars, and trucks have created a small boomlet in American manufacturing – setting off a wave of hope, mixed with nostalgic patriotism, that American manufacturing could be coming back. Clint Eastwood’s Super Bowl “Halftime in America” hit the mood exactly.
But American manufacturing won’t be coming back. Although 404,000 manufacturing jobs have been added since January 2010, that still leaves us with 5.5 million fewer factory jobs today than in July 2000 – and 12 million fewer than in 1990. The long-term trend is fewer and fewer factory jobs.
Even if we didn’t have to compete with lower-wage workers overseas, we’d still have fewer factory jobs because the old assembly line has been replaced by numerically-controlled machine tools and robotics. Manufacturing is going high-tech.
Bringing back American manufacturing isn’t the real challenge, anyway. It’s creating good jobs for the majority of Americans who lack four-year college degrees.
Manufacturing used to supply lots of these kind of jobs, but that was only because factory workers were represented by unions powerful enough to get high wages.
That’s no longer the case. Even the once-mighty United Auto Workers has been forced to accept pay packages for new hires at the Big Three that provide half what new hires got a decade ago. At $14 an hour, new auto workers earn about the same as most of America’s service-sector workers.
GM just announced record profits but its new workers won’t be getting much of a share.
In the 1950s, more than a third of American workers were represented by a union. Now, fewer than 7 percent of private-sector workers have a union behind them. If there’s a single reason why the median wage has dropped dramatically for non-college workers over the past three and a half decades, it’s the decline of unions.
How do the candidates stand on unions? Mitt Romney has done nothing but bash them. He vows to pass so-called “right to work” legislation barring job requirements of union membership and payment of union dues. “I’ve taken on union bosses before, ” he says,” and I’m happy to take them on again.” When Romney’s not blaming China for American manufacturers’ competitive problems he blames high union wages. Romney accuses the President of “stacking” the National Labor Relations Board with “union stooges.”
Rick Santorum says he’s supportive of private-sector unions. While in the Senate he voted against a national right to work law (Romney is now attacking him on this) but Santorum isn’t interested in strengthening unions, and he doesn’t like them in the public sector.
President Obama praises “unionized plants” – such as Master Lock, the Milwaukee maker of padlocks he visited last week, which brought back one hundred jobs from China. But the President has not promised that if reelected he’d push for the Employee Free Choice Act, which would make it easier for workers to organize a union. He had supported it in the 2008 election but never moved the legislation once elected.
The President has also been noticeably silent on the labor struggles that have been roiling the Midwest – from Wisconsin’s assault on the bargaining rights of public employees, through Indiana’s recently-enacted right to work law – the first in the rust belt.
The fact is, American corporations – both manufacturing and services – are doing wonderfully well. Their third quarter profits (the latest data available) totaled $2 trillion. That’s 19 percent higher than the pre-recession peak five years ago.
But American workers aren’t sharing in this bounty. Although jobs are slowly returning, wages continue to drop, adjusted for inflation. Of every dollar of income earned in the United States in the third quarter, just 44 cents went to workers’ wages and salaries — the smallest share since the government began keeping track in 1947.
The fundamental problem isn’t the decline of American manufacturing, and reviving manufacturing won’t solve it. The problem is the declining power of American workers to share in the gains of the American economy.
by Robert Reich
It has been said there is no high ground in American politics since any politician who claims it is likely to be gunned down by those firing from the trenches. That’s how the Obama team justifies its decision to endorse a super PAC that can raise and spend unlimited sums for his campaign.
Baloney. Good ends don’t justify corrupt means.
I understand the White House’s concerns. Obama is a proven fundraiser – he cobbled together an unprecedented $745 million for the 2008 election and has already raised $224 million for this one. But his aides figure Romney can raise almost as much, and they fear an additional $500 million or more will be funneled to Romney by a relative handful of rich individuals and corporations through right-wing super PACS like “American Crossroads.”
The White House was surprised that super PACs outspent the GOP candidates themselves in several of the early primary contests, and noted how easily Romney’s super PAC delivered Florida to him and pushed Newt Gingrich from first-place to fourth-place in Iowa.
Romney’s friends on Wall Street and in the executive suites of the nation’s biggest corporations have the deepest pockets in America. His super PAC got $18 million from just 200 donors in the second half of last year, including million-dollar checks from hedge-fund moguls, industrialists and bankers.
How many billionaires does it take to buy a presidential election? “With so much at stake” wrote Obama campaign manager Jim Messina on the Obama campaign’s blog, Obama couldn’t “unilaterally disarm.”
But would refusing to be corrupted this way really amount to unilateral disarmament? To the contrary, I think it would have given the President a rallying cry that nearly all Americans would get behind: “More of the nation’s wealth and political power is now in the hands of fewer people and large corporations than since the era of the robber barons of the Gilded Age. I will not allow our democracy to be corrupted by this! I will fight to take back our government!”
Small donations would have flooded the Obama campaign, overwhelming Romney’s billionaire super PACs. The people would have been given a chance to be heard.
The sad truth is Obama has never really occupied the high ground on campaign finance. He refused public financing in 2008. Once president, he didn’t go to bat for a system of public financing that would have made it possible for candidates to raise enough money from small donors and matching public funds they wouldn’t need to rely on a few billionaires pumping unlimited sums into super PACS. He hasn’t even fought for public disclosure of super PAC donations.
And now he’s made a total mockery of the Court’s naïve belief that super PACs would remain separate from individual campaigns, by officially endorsing his own super PAC and allowing campaign manager Jim Messina and even cabinet officers to speak at his super PAC events. Obama will not appear at such events but he, Michelle Obama, and Vice President Joe Biden will encourage support of the Obama super PAC.
One Obama adviser says Obama’s decision to openly endorse his super PAC has had an immediate effect. “Our donors get it,” the official said, adding that they now want to “go fight the other side.”
Exactly. So now a relative handful of super-rich Democrats want fight a relative handful of super-rich Republicans. And we call this a democracy.
There is much talk about inequality lately. The top 1% take home 24% of the nation's income. In 1976 they took home just 9%. Wealth inequality is even worse. The top 1% of Americans own 40% of the nation's wealth. The bottom 80% own 7%. The concentration of wealth in the top 1% bodes ill for democracy. An aristocracy is in the process of being created that is controlling the levers of government by means of money in the form of campaign contributions and lobbying. Thus is democracy thwarted.
It shouldn't have to be this way. As technological progress has continued, wealth is being created at a rapid pace. If this wealth were evenly distributed, the average person should only be working 10 or 20 hours per week and have twice the income that he or she now receives. Think about it. Lesson 1 in "Wealth Creation for Dummies" is that as you become more wealthy you should be able to work fewer hours. A modest amount of wealth insures that a person doesn't have to work at all. A wealthy person receives most of their income from the return on their assets - which is another name for wealth - in the form of interest, dividends, rents or other forms of investments such as factories which are mainly capital investments in the form of robots rather than investments in human capital. They receive so-called "unearned income" while people whose only income is from their labor receive "earned income." Being wealthy to the point that you don't have to work does not mean that you have all the commonly imagined accoutrements of wealth - big houses, fancy cars, expensive jewelry etc. You can be wealthy to the point of not having to work and yet not be able to afford more than a modest lifestyle. At that point you have true freedom as you have complete control over your time and energy and are not accountable to anyone.
If wealth were evenly distributed and since most products are manufactured by automated processes requiring little labor, people could have most of what they consume while not having to work much. Certainly with the robotization of the work force and the even distribution of wealth, consumable products should cost virtually nothing. However, in the real world products do cost a great deal and the profits from the sale of those products go mainly to the upper 1% because they own most of the wealth. They own the factories that produce the products; they own the robots. They own the physical capital and supply chains and retail outlets. So rather than the wealth that is created by the robots being evenly distributed, it accumulates more and more in the hands of fewer and fewer people who end up with far more wealth than they really need to live even a high end lifestyle with multiple homes, cars yachts, airplanes, art, jewelry etc. They spend their extra money on lobbying and campaign contributions which gives them control over what has become an ersatz democracy.
Lesson 2 in "Wealth Creation for Dummies" is that as soon as possible you must get yourself in the position of not living paycheck to paycheck. This means that even if you have a good job, you can't be spending your whole paycheck every month shortly after you receive it. Because what happens is that as soon as some unexpected expense pops up, you go into debt and your financial situation worsens because now in addition to your other expenses you have to pay interest on that debt - to some wealthy person for whom it represents unearned income. You need a buffer whether in the form of a savings account or in the form of a Home Equity Line of Credit (HELOC) so that you can manage the ups and downs of cash flow without paying exhorbitant amounts of interest. You also need a second job, the proceeds of which go right into savings and creating wealth. A good way to do this is to buy fixer-uppers, fix them up and rent them out. At this point in time when interest rates and property values are extremely low, it's the ideal time to follow this strategy. As soon as the rent that can be charged exceeds the mortgage to be paid, you have a source of wealth that is creating unearned income and that will go on creating additional income, rent being one form of the phenomenon that wealth creates income, ad infinitum. These assets, unlike a pension, can be passed down from generation to generation.
It takes a surprisingly small amount of wealth to generate an income sufficient to live on providing you don't need to live the lifestyle of the rich and famous. For example, just three mortgage free rentals renting at approximately $1500. per month per property is enough for a small family to live on as long as you live modestly. And just because you collect unearned income every month doesn't mean that you can't continue to work at something you really love doing. Lesson 3 in "Wealth Creation for Dummies": Work as a self-employed person is far more rewarding then work as an employee. When you work for yourself, you aren't subject to being laid off, fired or having your job outsourced. You don't have to take a subservient position relative to an employer or potential employer. You don't have to go begging in the job market for a job. You have control over your time, work the hours you choose and vacation when you want not when your boss tells you to. You don't have to swallow hard and say nothing if your supervisor insults you. You are your own boss. This is what freedom is all about. Freedom is much more than just the freedom to make money which is what the right wing would have you believe. Wealthy people no matter the amount of their wealth are self-employed by definition because they are not dependent on any job or any employer. In today's world of employee uncertainty, this kind of independence is priceless.
But the real world situation is entirely different than the scenarios I've painted in "Wealth Creation for Dummies." Most people live paycheck to paycheck, are entirely dependent on someone giving them a job and are not in a position to contradict their boss. Meanwhile, wealth and the income that wealth produces as a return on assets goes to fewer and fewer people, exacerbating income and wealth inequality. Lesson 5 in "Wealth Creation for Dummies' is to change your ideas about what money is used for. Money shouldn't just be used for consumption. You don't need all the products that TV advertising is urging you to buy. You must develop sales resistance and use your money insofar as is possible for wealth creation. Isn't the goal to get in the position of not having to work? The typical middle class position on this is that you should work for a set period say 30 years as an employee at a job and then collect a pension for the rest of your life. This process does not really create wealth for you; it creates wealth for your employer because the assets the return on which goes to pay your pension are owned by your employer - not you. With a pension once you die, it goes away. If you own the wealth that your pension is based on instead of your employer owning it, you can pass it on to your heirs (Lesson 6).
Second, employers aren't providing set pensions any more - only 401ks which are defined contribution instead of defined benefit plans. This means that they may be totally worthless which many of them have turned out to be when you reach retirement age. Therefore, you have to create wealth for yourself (Lesson 7) instead of counting on your employer to do it for you. Thirdly, 30 year careers are few and far between any more. The shift from defined benefit pensions to 401ks really makes a sham and a mockery out of the traditional middle class aspiration of a college degree and a secure job with a secure retirement. There just ain't no such thing any more. Intead of wealth creation most college students are creating debt in the form of student loans which will follow them the rest of their lives. Therefore, you have to take wealth creation into your own hands and not expect some employer to allow you to live paycheck to paycheck. Now should you expect a college degree to in and of itself create wealth for you? A college degree only gives you a ticket of admission to the corporate world in the form of an employeehood. In this form you are likely to be laid off, outsourced or downsized. You are much better off starting to create wealth right out of high school instead of creating debt which is what most college students are doing. As a self-employed person you don't need a college degree and there are no roads to the creation of wealth that are closed to you. Just ask Bill Gates, Steve Jobs, Michael Dell or Larry Ellison - all college dropouts and high tech billionaires.
If you create wealth for yourself instead of relying on a pension you may be able to retire in less than 30 years. There's no law that determines when you should have to or not have to retire. If you are self-employed you can work as long as you want to. You don't have to retire at 65 if you love your work.
Now the concentration of income in the upper 1% which is a consequence of the concentration of wealth in the upper 1% leads to its own logical contradiction which suggests that this wealth maldistribution is not inevitable. Consider the largest concentration of wealth in the US - the Walton family based on the Wal-Mart chain of stores. But what does Wal-Mart really do? They amalgamate products manufactured in China, arrange them on store shelves and hire a few cashiers to collect money from consumers. It's not rocket science. The same applies to Home Depot, Best Buy, Costco, Target, Loew's and any other large nation wide retail chain. They provide nothing of value but they have concentrated wealth in fewer and fewer hands as they've replaced Mom and Pop operations throughout the country. This begs the question why shouldn't these retail operations which just assemble products made in China, arrange them on store shelves and hire check out people (which are increasingly being replaced with automated check out stations) be cooperatively owned with the rewards of ownership (shares of the wealth) being more evenly distributed among larger and larger numbers of people? It should be a no brainer because nothing these stores are doing requires a large amount of brain power to undertake.
Part of the answer is that the person or persons who started these retail stores were ambitious entrepreneurs who worked long hours to get their operations going. The average person does not have the time or energy (not to mention the capital) to do this or to attract a large number of people to get a cooperative venture going. In other words how do you set something like this up if not for the ambitions of the individual entrepreneur? Here's one way: a group of citizens could petition local government to provide startup money for such a venture. After all local government consists of a bunch of local citizens. If there was enough of a collective will to set up a co-op retail merchandising operation, it could be done using local government to provide capital and manpower and organization. Once in operation a co-op such as this could replace Target, Best Buy, Home Depot, Costco etc and profits could be plowed back into the local population. In addition an operation such as this could provide employment for the local population and a share of the wealth so created. In banking this is already being done in North Dakota which has a publicly owned state wide bank. The profits are owned by the people of North Dakota.
For another approach check out Mondragon.
This is exactly what is needed to distribute wealth more evenly and to distribute the demands for necessary labor more evenly. Instead of fewer and fewer people becoming fabulously wealthy and owning multiple million dollar homes which they don't need, the bulk of the population could be in the position of working fewer and fewer hours taking full advantage of the robotization of the work force and having income based on the wealth so created.
Lesson 7: Wealth produces income; income does not produce wealth if your mindset is to consume up to your income level. Therefore, consume less and instead of saving for your old age, invest to create wealth, but invest in real assets not in phony paper financial assets which can evaporate at a moment's notice.
Marx's chief criticism of capitalism was that it led to the centralization and concentration of capital. In a society comprised of small scale enterprises such as the yeomanry and small scale farmers of early America, an America romanticised and favored by Thomas Jefferson, capital was widely dispersed in the form of small land holdings and businesses which replicated themselves throughout the US with different owners in every community. For example, each small town had a blacksmith shop owned by a single person who owned one and only one blacksmith shop. He didn't franchise his blacksmith shop operation all over the country calling it perhaps "Blacksmiths Are Us." He didn't go public with his blacksmith shop attracting investors from all over the country who bought shares in his blacksmith shop. He didn't acquire other blacksmith shops and merge with yet more blacksmith shops. He didn't expand into other towns creating blacksmith shop megastores and forcing Mom and Pop blacksmiths out of operation. He didn't open a furniture store as an accompaniment to his blacksmith shop. All the techniques of modern capitaliasm - mergers and acquisitions, franchise operations, big box megastores - produce a centralization and concentration of capital or ownership in fewer and fewer hands. Instead of capital being dispersed in many hands, capital is concentrated in the hands of a few and the rest are left to be employees with zero capital assets.
The statistics are startling. Today the richest 400 Americans own more wealth than the bottom 150 million American citizens. According to Senator Bernie Sanders, six of the biggest banks own wealth equivalent to 60% of US GDP. Two of these banks, Citibank and Goldman Sachs, have been convicted of fleecing investors by selling them securities they knew were bogus and then betting that those securities would go bad. The top 1% earn 25% of the nation's income and own 40% of the nations's wealth. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent. Despite owning the lion's share of wealth and income, three years ago American taxpayers provided the wealthy banks with the largest bailout in history. Furthermore, the Federal Reserve provided more than $16 trillion in low-interest loans to every major financial institution in this country, huge foreign banks, multi-national corporations, and some of the wealthiest people in the world. Meanwhile 43 million Americans live in poverty and millions have lost their homes through foreclosure. Countries with less income inequality than the US include Cambodia, Vietnam and Morocco.
Is it any wonder then that the Occupy Wall Street protesters are proclaiming "We are the 99%." The 99% who are being left in the dust with no jobs, huge student loans, homes that are underwater or have been foreclosed on. No bailouts here. Thanks to Republican legislation, the terms of student loans are draconian. Unlike credit card loans student loans cannot be discharged in bankruptcy. They will follow you to the grave. And defaults due to lack of jobs can triple the amount owed. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was signed into law by President Bush and made possible by Republicans in Congress. It was designed to make it impossible to discharge student loans in bankruptcy and opened the way for a lucrative private loan industry to flourish. David Cay Johnston in his book Free Lunch says, "The idea that young minds should be a source of immediate profit is among the most coldly calculated changes in government which, over the past three decades, have taken from the many to enrich the few." Legislation to restore bankruptcy protection to student loans has been reintroduced in Congress by Democrats. Fat chance it will pass though with Republicans controlling the House and having the filibuster rule in the Senate.
People are facing retirement with no pensions, their 401ks having lost value or having been spent before retirement just to keep financially afloat. The 99 per centers include students, recently graduated students with huge student loans and no jobs, middle aged unemployed folks who are not being rehired, African Americans whose unemployment rates are sky high, people who have lost their homes to foreclosure - all those people who were not bailed out while the banks who were bailed out profit at their expense. The Obama administration failed to put sanctions on the banks allowing them to continue to profit with no accountability. No banksters went to jail. They made mortgage write downs voluntary on the part of the banks and so far banks have refused to volunteer. The cards have been stacked on the side of the banks and against the middle class. Is it any wonder then that people are occupying Wall Street whose CEOs make on average 300 times the salaries of average workers?
Johnston details a part of the process of how advanced US capitalism with government support centralizes and concentrates capital, ownership wealth and income in the hands of a few. He details how Mom and Pop stores are put out of commission by large mega stores which, with government help, take over retail trade while forcing former Moms and Pops to become employees rather than owners and concentrating wealth. He tells about Jim Weaknecht who had a little sporting goods store in Hamburg, Pennsylvania. In 2003 a sporting goods super store, Cabela's, opened a few miles away. But far from being an exercise in free market capitalism, Cabela's demanded $32 million in government subsidies or else they would take their six acre store elsewhere. Cabela's wanted exemption from paying local property taxes for years to come and tax-exempt status for the "museum" part of the store in perpetuity. In addition they wanted to pocket the sales tax. The store was 100 times bigger than Weaknecht's and stocked more guns and reels and hunting jackets than Weaknecht could sell in a lifetime. Their pitch was that people would come from miles away just to shop there bringing tourist dollars to Hamburg's restaurants and hotels. Shortly after Cabela's opened, Weaknecht's sales fell more than 70%. In less than two years he was out of business. Now Weaknecht works as an assistant manager at a grocery store chain and holds down a second job too. His wife, who previously devoted full time to their children, now also works two jobs. This is how, with government help, wealth and income along with political power is concentrated in the hands of a few. Cabela's has also opened numerous other super stores across the nation putting Mom and Pop operations out of business nationwide.
Johnson details how Wal-Mart pioneered the super store approach. "In seeking these subsidies, Cabela's was not inventing a new scheme. It was simply improving on a technique pioneered by an icon of retailing success, Sam Walton. The Walton story was not about the brave capitalist taking on risk and proving his mettle by being smarter than the other guy, no matter how carefully the Wal-Mart company has polished and sold that fairy tale. Sam Walton practiced corporate socialism. As much as he could, he put the public's money to work for his benefit. Free land, long-term leases at below-market rates, pocketing sales tax, even getting workers trained at government expense were among the ways Wal-Mart took every dollar of welfare it could get."
Fifty years ago, people shopped at a number of Mom and Pop stores rather than at one super store. For instance, there were paint stores, lumber stores, hardware stores, electrical supply stores all under different ownership and all under different ownership in different towns and cities. Now in one trip to Home Depot, you can buy all these items in one centralized location with the result that the smaller Mom and Pop stores have been put out of business and wealth has been centralized and concentrated. There are Home Depots in practically every large and middle sized town and city in America. The same holds true for large super market chains. Previously, shoppers went to a meat market for meat, a dairy for dairy items, a bakery for baked goods etc. Now one trip to a super market does it all and wealth has been centralized and concentrated in the hands of a few while the remaining population have become employees with no accumulation of wealth except for their houses which have drastically decreased in value in recent years.
The US has concentrated private wealth in the hands of the 1% while at the same time creating a concentration of debt in the government. Government debt has fueled private wealth as the government has been used just as a tool for benefitting private capitalists. The privatization of government functions has increased government debt while increasing private wealth. China, on the other hand, has a wealthy class including billionaires, less inequality than the US and a concentration of wealth in the hands of government. So wealth is dispersed at least between public and private entities and to a larger extent even among the public than in the US. China's sovereign wealth fund holds approximately $2 trillion of US debt. So while the US is a wealthy nation in terms of its cumulative wealth, that wealth is mostly in private hands and in the hands of the upper 1%. The US government itself is next to bankrupt. The US represents private wealth amid public squalor. 46 million people live below the poverty line as of 2011. Minorities are hit hardest. Blacks experience the highest poverty rate, at 27 percent, up from 25 percent in 2009, and Hispanics rose to 26 percent from 25 percent. For whites, 9.9 percent live in poverty, up from 9.4 percent in 2009. Asians were unchanged at 12.1 percent. The number without health insurance is on the rise. 43 million use food stamps to survive.
Marx foresaw that capitalism would lead to the concentration and centralization of wealth ownership in fewer and fewer hands. It is easy to see why. To recapitulate, mergers and acquisitions lead to larger and larger enterprises forcing smaller firms out of business. Franchise operations lead to replicating the same stores in every community with profits flowing to one centralized location. Think of MacDonald's, Wal-Mart, Home Depot and Starbucks which force less well capitalized Mom and Pop stores out of business. Loans and money from investors in equity shares is available to large scale enterprises but not to small Mom and Pop stores. The corporate form dictates that companies pursue the bottom line over all other possible goals. Owners of small scale enterprises are reduced to employees living paycheck to paycheck rather than owning capital which would tide them over economic downturns. So even though the corporate form was relatively new in Marx' day, he was remarkably prescient in showing how the dynamics of capitalism would centralize and concentrate wealth in fewer and fewer hands. That dynamic, along with the addition of political power to use government as a tool for the further accumulation of wealth which Marx did not foresee, is playing out today as Republicans go on the warpath against unions and government employees which will result in an even larger return to the owners of wealth while wages and benefits to workers remain stagnant or even decrease. The addition of computers and automated machinery means that workers will become increasingly irrelevant as they are replaced by capital equipment.
From ThinkProgress, September 21, 2011
Forbes: Koch Brothers Now Worth $50 Billion | Forbes estimates that Tea Party petrochemical scions Charles and David Koch have a fortune of $25 billion each, making them the fourth richest Americans, behind only Bill Gates, Warren Buffet, and Larry Ellison. Their combined wealth of $50 billion is exceeded only by the Microsoft founder’s $59 billion fortune. Buoyed by aggressive speculative trading on volatile energy markets, the Koch brothers accumulated $15 billion in wealth since March 2010, a 43 percent increase.
By Brad Johnson on Sep 21, 2011 at 2:10 pm
by Robert Reich
THE 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody’s Analytics. That should come as no surprise. Our society has become more and more unequal.
When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt — which, as we’ve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar?
The economy won’t really bounce back until America’s surge toward inequality is reversed. Even if by some miracle President Obama gets support for a second big stimulus while Ben S. Bernanke’s Fed keeps interest rates near zero, neither will do the trick without a middle class capable of spending. Pump-priming works only when a well contains enough water.
Look back over the last hundred years and you’ll see the pattern. During periods when the very rich took home a much smaller proportion of total income — as in the Great Prosperity between 1947 and 1977 — the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats.
During periods when the very rich took home a larger proportion — as between 1918 and 1933, and in the Great Regression from 1981 to the present day — growth slowed, median wages stagnated and we suffered giant downturns. It’s no mere coincidence that over the last century the top earners’ share of the nation’s total income peaked in 1928 and 2007 — the two years just preceding the biggest downturns.
Starting in the late 1970s, the middle class began to weaken. Although productivity continued to grow and the economy continued to expand, wages began flattening in the 1970s because new technologies — container ships, satellite communications, eventually computers and the Internet — started to undermine any American job that could be automated or done more cheaply abroad. The same technologies bestowed ever larger rewards on people who could use them to innovate and solve problems. Some were product entrepreneurs; a growing number were financial entrepreneurs. The pay of graduates of prestigious colleges and M.B.A. programs — the “talent” who reached the pinnacles of power in executive suites and on Wall Street — soared.
The middle class nonetheless continued to spend, at first enabled by the flow of women into the work force. (In the 1960s only 12 percent of married women with young children were working for pay; by the late 1990s, 55 percent were.) When that way of life stopped generating enough income, Americans went deeper into debt. From the late 1990s to 2007, the typical household debt grew by a third. As long as housing values continued to rise it seemed a painless way to get additional money.
Eventually, of course, the bubble burst. That ended the middle class’s remarkable ability to keep spending in the face of near stagnant wages. The puzzle is why so little has been done in the last 40 years to help deal with the subversion of the economic power of the middle class. With the continued gains from economic growth, the nation could have enabled more people to become problem solvers and innovators — through early childhood education, better public schools, expanded access to higher education and more efficient public transportation.
We might have enlarged safety nets — by having unemployment insurance cover part-time work, by giving transition assistance to move to new jobs in new locations, by creating insurance for communities that lost a major employer. And we could have made Medicare available to anyone.
Big companies could have been required to pay severance to American workers they let go and train them for new jobs. The minimum wage could have been pegged at half the median wage, and we could have insisted that the foreign nations we trade with do the same, so that all citizens could share in gains from trade.
We could have raised taxes on the rich and cut them for poorer Americans.
But starting in the late 1970s, and with increasing fervor over the next three decades, government did just the opposite. It deregulated and privatized. It cut spending on infrastructure as a percentage of the national economy and shifted more of the costs of public higher education to families. It shredded safety nets. (Only 27 percent of the unemployed are covered by unemployment insurance.) And it allowed companies to bust unions and threaten employees who tried to organize. Fewer than 8 percent of private-sector workers are unionized.
More generally, it stood by as big American companies became global companies with no more loyalty to the United States than a GPS satellite. Meanwhile, the top income tax rate was halved to 35 percent and many of the nation’s richest were allowed to treat their income as capital gains subject to no more than 15 percent tax. Inheritance taxes that affected only the topmost 1.5 percent of earners were sliced. Yet at the same time sales and payroll taxes — both taking a bigger chunk out of modest paychecks — were increased.
Most telling of all, Washington deregulated Wall Street while insuring it against major losses. In so doing, it allowed finance — which until then had been the servant of American industry — to become its master, demanding short-term profits over long-term growth and raking in an ever larger portion of the nation’s profits. By 2007, financial companies accounted for over 40 percent of American corporate profits and almost as great a percentage of pay, up from 10 percent during the Great Prosperity.
Some say the regressive lurch occurred because Americans lost confidence in government. But this argument has cause and effect backward. The tax revolts that thundered across America starting in the late 1970s were not so much ideological revolts against government — Americans still wanted all the government services they had before, and then some — as against paying more taxes on incomes that had stagnated. Inevitably, government services deteriorated and government deficits exploded, confirming the public’s growing cynicism about government’s doing anything right.
Some say we couldn’t have reversed the consequences of globalization and technological change. Yet the experiences of other nations, like Germany, suggest otherwise. Germany has grown faster than the United States for the last 15 years, and the gains have been more widely spread. While Americans’ average hourly pay has risen only 6 percent since 1985, adjusted for inflation, German workers’ pay has risen almost 30 percent. At the same time, the top 1 percent of German households now take home about 11 percent of all income — about the same as in 1970. And although in the last months Germany has been hit by the debt crisis of its neighbors, its unemployment is still below where it was when the financial crisis started in 2007.
How has Germany done it? Mainly by focusing like a laser on education (German math scores continue to extend their lead over American), and by maintaining strong labor unions.
THE real reason for America’s Great Regression was political. As income and wealth became more concentrated in fewer hands, American politics reverted to what Marriner S. Eccles, a former chairman of the Federal Reserve, described in the 1920s, when people “with great economic power had an undue influence in making the rules of the economic game.” With hefty campaign contributions and platoons of lobbyists and public relations spinners, America’s executive class has gained lower tax rates while resisting reforms that would spread the gains from growth.
Yet the rich are now being bitten by their own success. Those at the top would be better off with a smaller share of a rapidly growing economy than a large share of one that’s almost dead in the water.
The economy cannot possibly get out of its current doldrums without a strategy to revive the purchasing power of America’s vast middle class. The spending of the richest 5 percent alone will not lead to a virtuous cycle of more jobs and higher living standards. Nor can we rely on exports to fill the gap. It is impossible for every large economy, including the United States, to become a net exporter.
Reviving the middle class requires that we reverse the nation’s decades-long trend toward widening inequality. This is possible notwithstanding the political power of the executive class. So many people are now being hit by job losses, sagging incomes and declining home values that Americans could be mobilized.
Moreover, an economy is not a zero-sum game. Even the executive class has an enlightened self-interest in reversing the trend; just as a rising tide lifts all boats, the ebbing tide is now threatening to beach many of the yachts. The question is whether, and when, we will summon the political will. We have summoned it before in even bleaker times.
As the historian James Truslow Adams defined the American Dream when he coined the term at the depths of the Great Depression, what we seek is “a land in which life should be better and richer and fuller for everyone.”
That dream is still within our grasp.
August 23, 2011, from the Wall Street Journal
Warren Buffett is playing well in France.
A group of 16 of the richest people in France has signed a petition asking the French government to increase their taxes. The group includes Liliane Bettencourt, the billionaire heiress of L’Oreal; Christophe de Margerie, the head of oil giant Total; Frederic Oudea of bank Société Générale; and Jean-Cyril Spinetta, president of Air France KLM SA. (Given SocGen’s share price, Mr. Oudea may not have as much wealth to tax).
The group says the government should create a “special contribution” that would target the rich.
“We are conscious of having benefited from a French system and a European environment that we are attached to and which we hope to help maintain,” the petition said.
Conservatives will argue that the French are already socialists, so why care? Those on the left will say the petition is proof of a new global movement to get the rich to pay more of a fair share.
In France, they may well get their wish. Unlike the U.S., where Warren Buffett’s Tax Pledge calling for higher taxes on millionaires and billionaires was met with stiff opposition from Republicans, France is leaning toward raising its already high taxes on the wealthy.
The wealthy pay a top rate of 40%. Plus, they pay an annual wealth tax on their total assets, levying fees of between 0.5% and 1.8% on assets above $1.1 million. (Not to mention all the other estate and inheritance and gift taxes and social taxes and corporate taxes and VAT taxes and, well, you get the idea).
President Sarkozy had been planning some minor tweaks to the deduction system. But after the nation’s recent financial turmoil and threats of a downgrade, it will have to take more drastic action. France’s budget chief said this month the government was working on a new contribution from taxpayers earning more than €1 million a year.
As they will quickly learn, however, there aren’t enough rich people in France to fill the budget hole.
Do you think the Buffett Tax Pledge will spread to other countries?
Published on Monday, August 22, 2011 by CommonDreams.org
Wealthy Americans will recoil at the suggestion, likely responding with the tired mantra that the top earners pay most of the income tax. But two points can be made in response to that: (1) federal income tax is only a small part of the burden on the middle class. Based on data from the Institute on Taxation and Economic Policy, the total of all state and local taxes, social security taxes, and excise taxes (gasoline, alcohol, tobacco) consumes 21% of the annual incomes of the poorest half of America. For the richest 1% of Americans, the same taxes consume 7% of their incomes. And (2) the richest people pay most of the federal income taxes because they've made ALMOST ALL the new income over the past 30 years. Based on Tax Foundation figures, the richest 1% has TRIPLED ITS SHARE of America's income since 1980, AFTER TAXES.
But there are better reasons why the rich should pay higher taxes.
Do we want our national parks sold to billionaires? Do we want programs for music and the arts eliminated from schools, so that only children of the wealthy can participate in them? (photo: Plashing Vole)
The very rich benefit most from national security, government-funded research, infrastructure, and property laws. Defending the country benefits the rich more, because they have more to defend. Taxpayer-funded research at the Defense Advanced Research Projects Agency (the Internet), the National Institute of Health (pharmaceuticals), and the National Science Foundation (the Digital Library Initiative) has laid a half-century foundation for their idea-building. The interstates and airports and FAA and TSA benefit people who have the money to travel.
Over a hundred years ago, Teddy Roosevelt, facing an epidemic of inequality not unlike today, reminded us that "Great corporations exist only because they are created and safeguarded by [democratic] institutions; and it is therefore our right and our duty to see that they work in harmony with these institutions."
Here's another good reason for the rich to pay more taxes: With the drop in tax revenue, funding for the preservation of American culture is disappearing. Do we want our national treasures deprived of maintenance because of budget cuts, as is currently happening in Italy? Do we want our national parks sold to billionaires? Do we want programs for music and the arts eliminated from schools, so that only children of the wealthy can participate in them?
The 1912 book "Promised Land" by Mary Antin revealed the wonder of a Russian immigrant coming to the U.S.: "In America, then, everything was free...light was free...music was free."
Not that capitalist markets don't have their place. But the current view of democracy has gone to the other extreme, in which individualism and personal gain trump societal responsibility, and growing inequality makes community support and safeguards unnecessary for the privileged elite.
Finally, back to the tax statistics. Why should financial earnings (i.e., capital gains) be taxed less than wage earnings from actual work? The richest 10% of Americans own over 80% of the stocks, the gains from which are taxed at a 15% rate. Most wage earners pay more.
Furthermore, over the past 15 years millionaires have seen their income tax rates drop from 30% to 22%. During approximately the same time period, American economic growth declined from an annual 3.2 percent rate to 1.7 percent. Lower taxes for the rich do not lead to productivity.
Will the rich stop investing or move to another country if their taxes are increased? Not likely. They have it too good here. As Warren Buffett recently stated, "I have worked with investors for 60 years and I have yet to see anyone - not even when capital gains rates were 39.9 percent in 1976-77 - shy away from a sensible investment because of the tax rate on the potential gain."
Mr. Buffett is admitting what everyone else is beginning to realize. The rich take much more than they pay for.
Billionaire Warren Buffett has been making headlines in his call for the super-rich of America to be taxed more. (See below.)
Now we hear that Irwin Jacobs – one of the richest San Diegans and co-founder of Qualcomm – agrees with Buffett. Jacobs made this surprising statement during a meeting with the San Diego U-T Community Editorial Board earlier this week, where he raised questions about the assumption that higher taxes on the super-rich were bad for job creation, and completely agreed with Buffett.
In 2009, Forbes listed Jacobs as the 220th richest American, worth $1.6 Billion.
In an op-ed piece for the New York Times, Buffett wrote:
“My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”
Buffett called for immediate increases on all taxable income for the 0.3 percent of U.S. taxpayers making $1 million or more a year, with an additional higher bracket for those making $10 million or more a year.
By Warren E. Buffett / New York Times / Published August 14, 2011
See article here.
The Tea Party wants to get "government off 'our' back." But is government really on our back or is the case really that corporations and wealthy interests are on government's back? There are 40,000 or more lobbyists in Washiongton, DC. They are there for the purposes of extracting taxpayer money for their corporate sponsors' benefits and for no other reason. The notion that taxpayer money goes to provide benefits for taxpayers, especially middle class taxpayers, is rather nieve. Taxpayer money goes to provide benefits for large corporations and the wealthy because the poor can't afford lobbyists. And the union movement is practically dead so union money is not influencing legislators to any great extent. Republican Governors like Scott Walker are doing their level best to kill off the remaining unions so that corporate sponsored lobbyists will have full sway in Washington. They aren't there to help the middle class; that's for sure. They are there to write legislation favorable to their own interests whether they be defense contractors lobbying for more money for military hardware or corporate flacks trying to drill holes in the tax code or lower the corporate tax rate. The notion that a lower corporate tax rate combined with closing the loopholes is preferable is nieve since lobbyists will only then proceed to drill new loopholes into the tax code at the lower rate.
Republicans argue that any expiration of a "temporary" tax cut such as the Bush tax cuts is actually a tax increase, but Michelle Bachman said on Meet the Press that she wouldn't be in favor of extending the "temporary" reduction in the payroll tax rate because "we can't afford it." Yet we can afford, according to her, to continue the temporary Bush tax cuts which amount to a whole hellava lot more. Why won't Bachman apply the same logic to the temporary payroll tax cuts? I'll tell you why. Because the payroll tax affects mainly the poor and middle class. It's a regressive tax that's used to pay social security recipients and for many years the excess was just combined with income tax revenues and spent in the General Fund. So General Fund expenditures were partially funded by a regressive tax on the poor. Right wingers love to point out that the poor and lower middle class pay hardly any income tax. What they don't point out is that they pay excessive payroll taxes, taxes that allow for no deductions or exemptions. For instance, if you're a poor self-employed worker earning $10,000 a year, you will pay over $1500. in payroll taxes no matter how many children you have or how many medical expenses or anything else. You will pay at a tax rate of 15.3% (except for this year for which there is a 2% reduction for employees), more than a hedge fund manager pays. Capital gains are taxed at only 15%. Is that fair? Of course not. As long as the money is being spent in the General Fund and treated as income tax revenue, deductions and exemptions should be allowed for payroll taxes which affect mainly the poor just as they are for income taxes which affect mainly the rich. When right wingers point out that the poor don't pay any income tax, they fail to point out that the poor, especially the poor self-employed, pay a higher rate, when you consider payroll taxes, than rich hedge fund managers including Warren Buffet. Please note that the rich pay hardly any payroll taxes and have voluminous deductions and exemptions on their income taxes.
So instead of getting government off our back which is the movie right wingers want you to see, instead we should be trying to get corporations off government's back, which is the reality they want you to ignore, so that government can better serve the interests and needs of the poor and middle class. The right wing makes no bones about this being class warfare. They flat out come out and say that they are in power for one reason and one reason only: to serve the needs of the rich corporate class. That is their purpose in life. They don't even try to hide it. Michelle Bachman is not in favor of extending unemployment benefits for the long term unemployed because "we simply can't afford it." Yeah, but we can still afford more tax breaks for the rich because they are the "job creators." Really? REALLY?? If they are the job creators, then where are the friggin jobs? They've had 30 years of supply side economics (or voodoo economics as the first George Bush christened it) and the job situation is worse than it was in the Great Depression in absolute numbers of people out of work and on the verge of desperation. We "can't afford" to allow them to subsist which would cost a paltry amount, but we can afford to give gargantuan tax breaks to the corporate class because - hint, hint - they might create a job or two somewhere down the line. Give me a break. The only jobs they are creating are overseas. Cheap labor combined with automation produces all the goods and most of the services that the US needs. Free trade has allowed the global labor force to be concentrated in the country where labor is cheapest and the finished product shipped to wherever it can be sold. Increasingly, this is not in the US where consumers have cut back on their spending finally realizing that their houses can no longer be used as ATMs.
We don't need small government, weak government, a government that corporate lobbyists can ride roughshod over; we need smart government, strong government, "right sized" government, a government which has the audacity to kick lobbyists out of Washington and get money out of politics. Most Republican Senators and Congressmen are merely front men for corporations. They are merely "political personalities" able to garner votes and get themselves elected. They are not legislators. Lobbyists write the laws. As front men for corporations, Republican Congressmen's paychecks are provided by the corporations they represent. They need big money to get elected. When their time in Congress is finished, they can look forward to a cushy job working for the corporations they represent and making use of their inside contacts in Washington to funnel more taxpayer money and taxpayer funded contracts to the corporations they first represented and later worked for. Small government simply means government dominated by large corporations which exists to extract taxpayer money, mainly from the poor and middle class, and transfer it to the wealthy in terms of tax breaks and government contracts. It's not the poor who are feeding off the government trough; it's the rich. They want you to watch this movie over here about welfare queens and ignore that reality over there about the transfer of wealth to the already wealthy. They want you to abhor the redistribution of wealth from the government to the poor and middle class in terms of entitlements and unemployment insurance while ignoring the transfer of wealth from the middle class to the rich.
And why should unelected political underworld figures like Grover Norquist be in the position of extracting a pledge from every elected Republican Congressman that they won't raise taxes? They were elected to do the public's bidding not Grover Norquist's. Unelected rogues like Karl Rove, Dick Army, the Koch brothers and Grover Norquist are trying to control the American political system just as unelected lobbyists swarm the Capitol. And as for getting money out of politics, who benefits the most from keeping money in politics? The TV and cable channels who receive huge sums of money in the form of political TV ads. That's where most of the money is spent. Consequently, you will never hear anything about getting money out of politics on Meet the Press, Face the Nation or on any cable news infotainment show. There are vested interests which want to keep money in politics, the more the better. The Citizens United Supreme Court decision was a windfall for media news channels. No wonder they give as much air as possible to charlatins like Sarah Palin and Christene O'Donnell; their paychecks could just as well be endorsed by big right wing money. Instead of getting people on their shows who are really intelligent and insightful, they get airheads and then look forward to another infusion of right wing cash. The exception is CNN's Fareed Zakaria who always books intelligent and articulate experts.
Getting government off corporations' backs implies a rational world in which corporations want nothing more than to compete freely in the free enterprise system without being interfered with by government. They just want to go merrily along competing with their competitors, providing jobs, serving the public interest and providing value to their shareholders. In reality this hands off approach is a total lie. Corporations are totally hands on when it comes to government. They spend big bucks on lobbyists to make sure that government cash and legislation is funneled their way. They are not simply competing with other corporations in the free marketplace. They are using government to their advantage, and they are making sure that the middle class does not get to use government to its advantage. They don't simply want to get government off their backs. They want to climb on the back of government. They want to make sure that government does not tell them what to do, whether or not they can destroy the environment or cheat consumers. They want to tell government what it can do which is to say remove any regulations which might protect the public or the environment and lower their profit margins. They want to get government out of their way so they can exploit foreign labor and American consumers because this will maximize their profits, and that, my friend, is their bottom line. They are here to serve themselves not the public and they will use every lever of government in order to do so.
STOP CODDLING THE SUPER-RICH
by Warren Buffett, from the New York Times, August 14, 2011
OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.
While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.
These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.
Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.
If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.
To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It’s a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.
Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.
I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.
Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.
The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)
I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.
Twelve members of Congress will soon take on the crucial job of rearranging our country’s finances. They’ve been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It’s vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country’s fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.
Job one for the 12 is to pare down some future promises that even a rich America can’t fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.
But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.
My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.
Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.
by Mike Brunker from msnbc.com, July 26, 2011
WASHINGTON — As Congress and the White House wrestle whether to raise taxes for the wealthiest Americans, a new analysis of Census data shows that the wealth gaps between whites and blacks and Hispanics widened dramatically during the recession.
The analysis by the Pew Research Center, released on Tuesday, found that from 2005 to 2009, inflation-adjusted median wealth fell 66 percent among Hispanic households and 53 percent among black households, compared with a 16 percent decline among white households.
Those declines increased the wealth gap between white and minority households to the largest since the census began collecting such data in 1984. The ratio of wealth for whites to blacks, for instance, is now roughly 20 to 1, compared to 12 to 1 in the first survey 25 years ago and 7 to 1 in 1995, when a booming economy lifted many low-income Americans into the middle class.
The wealth ratio for whites to Hispanics was 18 to 1 in 2009, also up from 7 to 1 in 1995, the Pew analysis found.
The declines from the recession left the median black household with $5,677 in wealth (assets minus debts, where assets include items like a car, a home, savings, retirement funds, etc.) and the typical Hispanic household with $6,325. White households, by comparison, had $113,149, the study found.
Sliced another way, the data from the Census Bureau’s Survey of Income and Program Participation (SIPP), showed that 35 percent of black households and 31 percent of Hispanic households had zero or negative net worth in 2009. The comparable rate for white households was 15 percent.
The SIPP income questionnaire is considered to provide the most comprehensive snapshot of household wealth by race and ethnicity.
The Pew analysis said the housing crisis was largely to blame for the widening gulf. The median level of home equity held by Hispanic homeowners declined by half from 2005 to 2009, from $99,983 to $49,145 it found. By comparison, white homeowners saw their median equity decline from $115,364 in 2005 to $95,000 in 2009. Black homeowners’ median equity fell from $76,910 to $59,000 over the same period.
The study said the sharper decline among Hispanics happened because a large share of Hispanics live in California, Florida, Nevada and Arizona, which were among the states hardest hit by the housing crisis.
Other studies have noted that blacks and Hispanics lost so much more home equity because they were far more likely to be sold a high-cost, sub-prime loan, regardless of their credit histories. Those mortgages now have the highest foreclosure rates.
It also noted that because whites are more heavily invested in the recovering stock market than blacks or Hispanics, the former had recovered a higher percentage of the wealth lost to the recession.
National Urban League President and CEO Marc Morial called the report a “wake-up call” that minority communities need more investment in long-term job creation.
"A paramount issue for this nation for the 21st century is to ensure the narrowing and closing of the racial wealth gap," Morial told the Associated Press on Tuesday, a day before the National Urban League opens its annual convention in Boston. "It has deep social implications. It has deep political implications."
In Washington, the wealth gap has been a major point of friction in talks about raising the debt ceiling and putting the nation on sounder fiscal footing. President Barack Obama and Democrats have sought a variety of ways to increase revenue, all aimed at those in the upper income bracket.
The president has proposed closing loopholes in the tax code, such as breaks for owners of private jets and for oil companies as well as higher income tax rates on wealthier individuals and families. Republicans have made resistance to any tax increases a focal point in the debate, arguing that raising taxes in a recession is an impediment to creating jobs. Neither plan currently under consideration contains any tax increases.
The Associated Press contributed to this report.
Published on Friday, July 8, 2011 by CommonDreams.org
What if there was a group of terrorists holding your family hostage with a gun pointed at themselves, demanding the account number to your pension fund? Would you negotiate with the terrorists by allowing them access to your savings, or would you let them shoot themselves and keep your retirement money intact?
Congressional Republicans are threatening to default on the debt unless President Obama caves to their demands to cut Medicare, Medicaid and Social Security spending. Regardless of the market-crashing consequences of a debt default, actually doing so would be unconstitutional. Section 4 of the 14th Amendment clearly states that "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions...shall not be questioned." Republicans are violating the constitution by threatening a debt default. End of discussion.
Credible economists and lawmakers on both sides generally agree that raising the debt ceiling is an essential part of governing, and that a large deficit can pose a danger to economic security. But if Speaker Boehner genuinely cares about deficit reduction, he need only look to ending his own party's policies and shifting the tax burden. Swearing allegiance to Grover Norquist's no-new-taxes pledge, the GOP will only allow room for $4 trillion in cuts, arguing this is a spending problem, not a revenue problem. However, their budget would collect exactly $4 trillion less over the next decade through even more tax cuts for corporations and the wealthy.
Contrary to Republican claims, the United States is one of the lowest-tax countries in the world-- U.S. corporations and wealthy citizens pay far less in taxes than other developed nations. Since 1950, capital gains taxes have dropped 10 percent, tax rates for million-dollar households have decreased 10 percent since the mid-nineties, and the estate tax has virtually disappeared for those with the largest fortunes since the onset of the Bush presidency. Four simple solutions would close that $4 trillion budget gap in the next decade, without even touching Social Security or Medicare.
By passing laws like Sen. Carl Levin's Stop Tax Haven Abuse Act, we could generate over $100 billion in new revenue from closing loopholes that allow corporations to shift profits to overseas bank accounts. Through modest taxation of speculative Wall Street trading, we could bring in another $150 billion per year. With higher income tax brackets for households earning over $1 million annually, as Rep. Jan Schakowsky has proposed, we would gain another $100 billion. And progressively taxing estates worth $5 million or more would mean an extra $45 billion in tax revenue.
A truly principled leader would refuse to negotiate with terrorists, and allow them to turn the gun on themselves. Our President needs to stand firmly behind these common-sense proposals, and remove from the table any cuts to the programs we've spent our lives funding from our own paychecks. No exceptions.
From the OB Rag, June 20, 2011
by Mail Online
Here are America’s 10 wealthiest billionaires:
No. 1. : Bill Gates
Microsoft tycoon Bill Gates is worth a huge net $54 billion.
No. 2.: Warren Buffett
Financial magnate Warren Buffet smiles as he is introduced at the Berkshire Hathaway. Chairman Warren Buffett has $45 billion to smile about.
No. 3: Larry Ellison
Larry Ellison, chief executive officer of Oracle Corp., a computer technology company, is worth $27 billion
No. 4: Christy Walton and family
As the widow of John Walton, son of Wal-Mart’s founder, Christy Walton has inherited a cool $24 billion
No. 5: Charles Koch
The chairman and CEO of Koch Industries, said to be the largest private company in the world, is worth $22 billion
No. 6: David Koch
As executive vice president of Koch Industries, David trails his brother slightly, with $21.5 billion
Nos. 7 and 8: Alice and Jim Walton
The Wal-Mart siblings and heirs are each worth between $20 and $20.1 billion.
No. 9: S. Robson Walton
As chairman of Wal-Mart Stores Inc., Robson’s net worth stands at $19.7 billion
No. 10: Michael Bloomberg
New York City’s Mayor, who also owns media company Bloomberg LP, takes home $18 billion
by Robert Reich
According to no-tax-increase purists like Grover Norquist, this is tantamount to a tax increase.
The truth is, Republicans are divided between those who want to bring down the budget deficit and those who want to shrink government. Ending a special tax subsidy helps reduce the deficit but doesn’t necessarily shrink government. That’s why Norquist and his followers have insisted any such tax increase – including even the closing of tax loopholes – be directly linked to a corresponding tax cut.
In order to save face on today’s vote, Norquist says renegade Republicans will still be considered to have adhered to the pledge if they vote in favor of an amendment offered by Senator Jim DeMint to eliminate the estate tax. Talk about grasping at straws. DeMint’s amendment isn’t even up for a vote.
In short, the no-tax pledge is evaporating in the fresh air of reality.
What are anti-tax Republicans to do now?
For one, continue to distort the arguments of those who believe corporations and the rich should pay more taxes.
For example, in the lead op-ed piece in today’s Wall Street Journal, Cato Institute fellow Alan Reynolds claims a higher marginal tax on the super rich will bring in less revenue.
Reynolds uses my tax proposal from last February as his red herring. “Memo to Robert Reich,” he declares, “The income tax brought in less revenue when the highest rate was 70 percent to 91 percent [between 1950 and 1980] than it did when the highest rate was 28 percent.”
Reynolds bends the facts to make his case, picking and choosing among years.
In truth, the most important variable explaining the rise and fall of tax revenues as percent of GDP has been the business cycle, not the effective tax rate. In periods when the economy is growing briskly, tax revenues have risen as a percent of GDP, regardless of effective rates; in downturns, revenues have fallen.
Reynolds also distorts my proposal, implying that the bracket on which I call for a 70 percent tax is the same as in today’s tax code. Wrong. My proposed 70 percent rate would apply only to incomes over $15 million.
$15 million, Alan!
Under my proposal, incomes between $5 million and $15 million would be subjected to a 60 percent rate, and incomes between $500,000 and $5 million to a 50 percent rate.
Importantly, my proposal calls for a substantial rate reduction for families with incomes under $100,000. (Conveniently, Reynolds fails to mention this.)
Reynolds entirely ignores my central argument, which is that rather than depress economic growth, higher taxes on the rich correlate with higher growth. During almost three decades spanning 1951 to 1980, when the top rate was between 70 percent and 91 percent, average annual growth in the American economy was 3.7 percent.
Between 1983 and the start of the Great Recession, when the top rate dropped to between 35 percent and 39 percent, average growth was 3 percent.
How to explain this? Easy.
Since the early 1980s, a larger and larger share of total income has gone to the top (the richest 1 percent of Americans got 10 percent of total income in 1980, and get over 20 percent now). That’s left the vast middle class with insufficient purchasing power to boost the economy – without going deep into debt.
Lower tax rates on the rich — including lower capital gains rates — have exacerbated this regressive trend.
Finally, having misread the facts, distorted my proposal, and ignored my argument, Reynolds fails to rebut my conclusion that raising middle class purchasing power by lowering their tax rates while raising the rates at the top will help spur growth, to the benefit of all. Top earners will do better with a smaller share of a more rapidly- growing economy than a larger share of a slower-growing one.
If I were a cynic, I’d say the Republican right is showing signs of desperation.
Published on Sunday, June 12, 2011 by CommonDreams.org
Ever since the Great Recession shook the foundations of the U.S. economy, President Obama has been promising recovery. Evidence of this recovery, we were told, was manifested in the massive post-bailout profits corporations made. Soon enough, the President assured us, these corporations would tire of hoarding mountains of cash and start a hiring bonanza, followed by raising wages and benefits. It was either wishful thinking or conscious deception. The recent stock market meltdown has squashed any hope of a corporate-led recovery.
The Democrats fought the recession by the same methods the Republicans used to create it: allowing the super rich to recklessly dominate the economy while giving them massive handouts. This strategy, commonly referred to as Reaganomics or Trickle Down Economics, is now religion to both Democrats and Republicans; never mind the staged in-fighting for the gullible or complicit media.
When it becomes obvious to even the President that the economic recovery never existed beyond the bank accounts of the rich, questions will have to be answered. Why, for example, did nobody in either political party foresee the disastrous consequences of the bailouts? Not only did the U.S. deficit drastically increase but the same U.S. corporations that caused the recession were given reinforcement for their destructive actions, ensuring that it would continue unabated.
In his book, Crisis Economics, Nouriel Roubini outlines the insane response to the recession by Republicans and Democrats. Because both parties simply threw money at the banks and hedge funds instead of punishing them, a condition of "moral hazard" was created, meaning, that banks would assume another bailout would come their way if they destroyed the economy again -- too big too fail, remember? Roubini explains how the Democrats allowed the "too big" banks to get even bigger; how Wall Street salaries based on short-term profits went unregulated; how the regulations that were put into place were inadequate and filled with loopholes; how nothing of any significance changed.
Roubini has also written extensively about how the post-bailout Federal Reserve policies were fueling a commodity bubble that may be in the midst of bursting, possibly triggering a double dip recession. Essentially the big banks and rich investors were borrowing cheap dollars from the Fed and investing abroad in commodities with the hopes of higher returns. Roubini states:
“The risk is that we are planting the seeds of the next financial crisis...this asset bubble is totally inconsistent with a weaker recovery of economic and financial fundamentals." (October 27, 2009).
This investor-created commodity bubble pushed up prices in oil, food, and other basic products, causing further pain for working families and the economy as a whole. This speculative bubble was easily predictable but ignored by both political parties, since they claimed the bubble was a sign of recovery.
Another mainstream economist, Paul Krugman, also admits that the rich's death-grip on the U.S. political and economic system is causing pain for everybody else:
"Far from being ready to spend more on job creation, both parties agree that it's time to slash spending - destroying jobs in the process - with the only difference being one of degree...policy makers are catering almost exclusively to the interests of rentiers [rich investors] - those who derive lots of income from assets, who lent large sums of money in the past, often unwisely, but are now being protected from loss at everyone else's expense." (June 10, 2011)
Krugman explains that this process continues because the rich dominate the political system through campaign contributions, "access to policy makers,” promises of high paying corporate jobs after their congressional term is over, and good o'l fashion corruption. Because he's a true blue Democrat at heart, Krugman nevertheless focuses most of his rage on Republicans.
Krugman's repeated calls to Democrats and Republicans to create jobs have fallen on deaf ears. Both parties agree that the "private sector" [corporations] should create jobs; until they decide to hire, nothing will happen. This is not merely "bad policy,” as liberals like Krugman like to fret about, but the conscious agenda of the rich. Corporations and rich investors love high unemployment. The Kansas City Star explains why:
"Last year , for the second year in a row, U.S. companies got more work out of their employees while spending less on overall labor costs." (February 3, 2011)
It really is that simple. High unemployment creates a downward pressure on wages, allowing employers to work the remaining employees harder and thus to increase profits. This dynamic, combined with the above commodity speculation, has been the entire basis for the corporate recovery, while working people have literally seen nothing beneficial.
This process is an extension of the bailouts, in the sense that more wealth is being transferred from working people to the corporations. Since consumer spending accounts for 70 percent of the U.S. economy, policies like these ensure that another crisis is inevitable.
Further complicating matters is the ending of the Federal Reserve's Quantitative Easing program (printing money), which amounted to the Fed buying $600 billion in U.S. Treasury bonds since last fall, essentially funding the U.S. debt and driving down interest rates.
Since the Fed was buying 60 percent of the bonds, a new creditor will need to be found; and this lender will likely require higher interest rates before loaning to the U.S. government, to make sure the loan is profitable. And although different nations buy U.S. debt for different reasons, much of this debt is bought by rich U.S. citizens, who will put the squeeze on the rest of us that have to pay back this debt. The Washington Times explains:
"...Bill Gross, the head of America's own Pimco bond fund, the largest buyer of bonds worldwide, recently reduced Pimco's holdings of Treasuries to zero out of concern that they weren't yielding enough given the risks of inflation and deficit spending." (June 7, 2011)
When the Federal Reserve raises interest rates to satisfy these rich investors, the economy will likely take a further nosedive. It appears, then, that the rich have a win-win situation: they got free bailout money, which increased the deficit; and because the deficit is too high, the rich want higher interest rates for investing in U.S. Treasury Bonds. In both instances working people pay the bills.
This insanity cannot be stopped by conventional measures, since politicians are tone deaf to anything that doesn't ring of corporate cash. The jobs crisis continues as a result of the policy agreed to by both Democrats and Republicans. The labor movement has a special role to play in reversing the above policies.
The corporate-led discussion around cutting social programs to fix the deficits -- on a state and national level -- can be challenged by a nationally coordinated campaign of unions and community allies demanding: Tax the Rich! This demand is significant because it can address both the deficits and the jobs crisis: a massive public works program can be funded by taxing the corporations and the wealthy to pre-Reagan levels. And it makes complete sense because the growing inequalities in wealth over the past three decades has meant a spectacular concentration of wealth at the top. The rich have plenty of money to spare.
Organized labor needs to bring masses of people in the street all over the country in order to get attention and pressure the government to respond to these demands. And it can succeed, especially if it organizes a serious, protracted campaign and especially if this campaign does not get funneled into supporting Democratic candidates, the surest way to kill campaign momentum.
AFL-CIO President Richard Trumka recently spoke in favor of a strong, independent labor movement. This is the direction it must take, rather than relying on the Democrats. The labor movement must get its act together, unite to put up a fight and demand specific policies that can concretely address the crisis faced by millions of working people.
If American football fans end up facing a fall without NFL games, they probably won’t blame George W. Bush and other Republican presidents for packing the federal courts with right-wing judges, but it was two Bush appointees who reversed a District Court ruling that would have ended the lockout of players.
The Appeals Court judgment encouraged the NFL’s hardline billionaire owners to resist making the kinds of compromises that a few less intransigent owners recognize could easily resolve the impasse.
Now, the hardliners simply assume that Republican judges will keep siding with the NFL owners and thus enable them to beat down the players, eventually assuring the billionaire owners a bigger piece of the revenue pie – even if that means losing some or all of the 2011 season.
What many average Americans, especially white guys, don’t seem to understand is that whatever the populist-styled rhetoric of Fox News or Rush Limbaugh, the Right’s default position is to side with the billionaires – and to show little or no regard for the fate of anyone else, whether NFL players or sick senior citizens.
Still, one must give the Right credit for having worked hard refining how to phrase its arguments. Right-wingers even have turned the term “class warfare” against the Left by shouting the phrase in a mocking fashion whenever anyone tries to blunt the “class warfare” that the billionaires have been waging against the middle class and the poor for decades.
On right-wing TV and talk radio across the country, there are tag teams of macho men pretending that ”class warfare” exists only in the fevered imagination of the Left. But billionaire investor Warren Buffett has acknowledged the truth: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
The right-wing propagandists further earn their keep by disparaging science as “elitist.” So, even as the dire predictions from climate-change experts that global warming will generate more extreme weather seem to be coming true, many Americans who have listened to the “climate-change-deniers” for years still reject the scientific warnings.
While no single weather event can be connected to the broader trend of climate change, the warnings about what might happen when the earth’s atmosphere heats up and absorbs more moisture seem to be applicable to the historic flooding in some parts of the world, droughts in others, and the outbreak of particularly violent storms.
Heat and moisture are especially dangerous ingredients for hurricanes and tornados.
Ironically, the parts of the United States hardest hit by this severe weather are those represented predominately by Republicans who have been at the forefront of obstructing government efforts to address the global-warming crisis.
Flooding, hurricanes and tornados have inflicted horrendous damage on Mississippi, Alabama, Louisiana, Texas, Tennessee, Missouri and Oklahoma – all part of the Republican base.
If televangelist Pat Robertson were a left-winger instead of a right-winger, he might be saying that God is punishing these “red states” for doubting the science of global warming.
However, even as the U.S. news obsesses over the violent weather, mainstream media stars have steered clear of whether global warming might be a factor. It’s as if they know that they’d only be inviting career-damaging attacks from the Right if they did anything to connect the dots.
The Right also is not eager to explain how these catastrophes will require emergency funding and rebuilding assistance from the federal government. After all, you don’t want Republican voters to understand that sometimes “self-reliance” alone doesn’t cut it; sometimes, we all need help and the government must be part of that assistance.
In the case of the killer tornado that devastated Joplin, Missouri, House Republicans, without a hint of irony, are extracting the funds for disaster relief from green energy programs, which remain a favorite GOP target since many Republicans still insist there is no such thing as global warming.
At both state and national levels, Republican leaders have lined up behind climate-change deniers, with former Minnesota Gov. Tim Pawlenty just the latest GOP presidential hopeful to apologize for his past support of a cap-and-trade system aimed at reducing global-warming gases.
Any serious move toward alternative energies would, of course, be costly to the giant oil companies and their billionaire owners, like David Koch of Koch Industries who has spent millions of dollars funding right-wing organizations, such as the Tea Party. The Right’s media/political operatives know better than to bite the hand that feeds them.
GOP orthodoxy also disdains tax increases on the rich or even elimination of tax breaks for the oil industry. The Republican insistence on low tax rates for the wealthy, in turn, has forced consideration of other policy proposals to achieve savings from services for average Americans.
That is why congressional Republicans have targeted Medicare with a plan that would end the current health program for the elderly and replace it with a scheme that would give subsidies to senior citizens who would then have to sign up for health insurance from private industry, which has proven itself far less efficient in providing health care than the government.
The GOP budget, drafted by House Budget Committee Chairman Paul Ryan of Wisconsin, would impose the Medicare changes on seniors beginning in 10 years.
Most attention on the Ryan plan has focused on estimates that it would cost the average senior citizen more than $6,000 extra per year, but the proposal also has the effect of privatizing Medicare, meaning that the government would make direct “premium support” payments to profit-making insurance companies whose interest is in maximizing profits, not providing the best possible care for old people.
While the Ryan plan would achieve budget “savings” by shifting the burden of health-care costs onto the elderly, Ryan’s budget also would lower tax rates for the wealthiest Americans even more, from 35 percent to 25 percent. Partly because of that tax cut, Ryan’s budget would still not be balanced for almost three decades.
Thus, the battle lines of America’s “class warfare” are getting more sharply drawn. The conflict is now over the Right’s determination to concentrate even more money and power in the hands of the rich by hobbling any government capability to protect the people’s general welfare.
If the Right wins, individual Americans will be left essentially defenseless in the face of unbridled corporate power.
Ryan’s Medicare plan may be just the most striking example because it envisions sick old people trying to pick their way through a thicket of private insurance plans with all their confusing language designed to create excuses for denying coverage. It is not an exaggeration to say that Ryan’s tight-fisted Medicare plan could consign millions of Americans to a premature death.
The Right’s priorities hit home at a town hall meeting held by Rep. Rob Woodall, R-Georgia, when he chastised one of his constituents who worried that Ryan’s plan would leave Americans like her, whose employer doesn’t extend health benefits to retirees, out of luck.
“Hear yourself, ma’am. Hear yourself,” Woodall lectured the woman. “You want the government to take care of you, because your employer decided not to take care of you. My question is, ‘When do I decide I’m going to take care of me?’”
However, another constituent noted that Woodall accepted government-paid-for health insurance for himself.
“You are not obligated to take that if you don’t want to,” the woman said. “Why aren’t you going out on the free market in the state where you’re a resident and buy your own health care? Be an example. …
“Go and get it in a single-subscriber plan, like you want everybody else to have, because you want to end employer-sponsored health plans and government-sponsored health plans. … Decline the government health plan and go to Blue Cross/Blue Shield or whoever, and get one for yourself and see how tough it is.”
Woodall answered that he was taking his government health insurance “because it’s free. It’s because it’s free.”
Self-reliance, it seems, is easier to preach to others than to practice yourself.
Woodall’s explanation recalled the hypocrisy of free-market heroine Ayn Rand, whom Rep. Ryan has cited as his political inspiration. In her influential writings, Rand ranted against social programs that enabled the “parasites” among the middle-class and the poor to sap the strength from the admirable rich, but she secretly accepted the benefits of Medicare after she was diagnosed with lung cancer.
A two-pack-a-day smoker, Rand had denied the medical science about the dangers of cigarettes, much as her acolytes today reject the science of global warming. However, when she developed lung cancer, she connived to have Evva Pryor, an employee of Rand’s law firm, arrange Social Security and Medicare benefits for Ann O’Connor, Ayn Rand using her husband’s last name.
In 100 Voices: An Oral History of Ayn Rand, Scott McConnell, founder of the Ayn Rand Institute’s media department, quoted Pryor as saying: “Doctors cost a lot more money than books earn and she could be totally wiped out.”
So, when push came to shove, even Ayn Rand wasn’t above getting help from the “despised government.” However, her followers, including Rep. Ryan, now want to strip those guaranteed benefits from other Americans of more modest means than Ayn Rand.
It seems it’s okay for average Americans to be wiped out.
While the Right’s penchant for hypocrisy is well-known (note how many Republicans involved in the impeachment of President Bill Clinton had their own extra-marital affairs), the bigger mystery is why so many average-guy Americans volunteer to fight for the rich in the trenches of the Right’s class warfare.
Clearly, the Right’s propaganda with its endless repetition is very effective, especially given the failure of the American Left to invest significantly in a competing message machine. The Right also has adopted the tone of populism, albeit in support of a well-to-do economic elite.
Yet, perhaps most importantly, the Right has stuck with its battle plan for rallying a significant percentage of middle-class Americans against their own interests.
Four decades ago, President Richard Nixon and his subordinates won elections by demonizing “hippies,” “welfare queens” and the “liberal media.”
Then, in the late 1970s, a tripartite coalition took shape consisting of the Republican Establishment, neoconservatives and the leaders of the Christian Right. Each group had its priorities.
The rich Republicans wanted deep tax cuts and less business regulation; the neocons wanted big increases in military spending and a freer hand to wage wars; and the Christian Right agreed to supply political foot soldiers in exchange for concessions on social issues, such as abortion and gay rights. Ultimately, each part of the coalition got a chunk of what it wanted.
From Ronald Reagan to George W. Bush, the rich got their taxes slashed, saw regulations rolled back and gained a larger share of the nation’s wealth and political power. The neocons got massive military spending and the chance to dispatch U.S. soldiers to kill Israel’s Muslim enemies. The Christian Right got help in restricting abortions and punishing gays.
But what did the American middle-class get?
Over those three decades, the middle-class has stagnated or slipped backward. Labor unions were busted; jobs were shipped overseas; personal debt soared; education grew more expensive, along with medical care. People were working harder and longer – for less. Or they couldn’t find jobs at all.
With today’s Tea Party and the Ryan budget, the Right’s coalition is staying on the offensive. If the House budget were passed in total, tax rates for the rich would be reduced another 10 percentage points; military spending would remain high to please the neocons (who foresee a possible war with Iran); and Planned Parenthood and other pet targets of the Christian Right would be zeroed out.
Yet, with the proposed elimination of traditional Medicare, the Ryan budget has lifted the curtain on what the Right’s “free market” has in mind for most average Americans, who could expect to find their lives not only more brutish but shorter.
The real-life-and-death consequences of the Right’s tax cuts, military spending and culture wars are finally coming into focus. If you’re not rich – and can’t afford to pick up the higher tab on health care – you’re likely to die younger. Or your kids might have to dig into their pockets to help you out.
Less extreme but still troubling, another consequence of the Right’s remarkable success over the past three decades might become apparent on your TV screens this fall.
Thanks to all those right-wing judges packed onto federal appeals courts by Reagan and the two Bushes, American football fans might not have the NFL to watch.
The NFL’s lockout of its players seemed to be ending several weeks ago when a lower-court judge ruled against the billionaire owners, but the NFL’s lawyers confidently filed an appeal to a three-judge panel on the Eighth Circuit, knowing that they would surely get one dominated by Republican judges.
They did. Steven Colloton and Duane Benton, two Republicans appointed by George W. Bush, constituted the majority on the panel and reflexively sided with the NFL’s owners.
The ruling should have surprised no one. After all, the Right’s default position is almost always to side with the billionaires.
We hear all this blather about how the US is such a wealthy nation. Not true. Before Ronald Reagan became President, the US was the world's largest creditor nation. People and countries owed us more money than we owed them. Now some 30 years later the US is the world's largest debtor nation. This is the definition of a poor - not a rich - nation. China on the other hand holds $3 trillion in international reserves including $1 trillion of US debt. Other nations have sovereign wealth funds which contain vast amounts of money. The US has only a huge pile of debt - some $14 trillion worth. The US used to be the world's largest importer of raw materials and exporter of manufactured goods. Now we're the world's largest exporter of raw materials and importer of manufactured goods with a trade deficit of some $600 billion a year. At the present time the US has a deficit of some $2 trillion in needed infrastructure repairs while China is building high speed rail track at such a rate that it will soon have more miles than the rest of the world combined. Meanwhile, the US spends more on its military establishment than the rest of the world combined while cutting safety nets and education for its own citizens.
Americans have pulled the wool over their own eyes. Despite having a national debt of $14 trillion, despite having gone from a net creditor nation to a net debtor nation in little over 30 years, despite having enormous trade deficits month after month, year after year, despite having an infrastructure in need of $2 trillion worth of repairs, Americans think they live in a wealthy nation. The truth of the matter is that the US is a poor nation within which live a lot of wealthy individuals. China on the other hand holds a little over $1 trillion of US debt making it a fairly wealthy nation albeit with a large but diminishing number of poor people. China is building new infrastructure at an astonishing rate. It's a fallacy to think a wealthy nation is a nation comprised of a large number of wealthy individuals. In fact many Banana Republics are comprised of a small class of wealthy individuals surrounded by a sea of poverty. The US is on track to becoming one of those. A recent survey showed that there is a higher level of inequality in the US than exists in Pakistan, Ethiopia and Ivory Coast.
It is not hard to diagnose why the US is a poor nation which thinks itself rich while China is a rich nation which passes itself off as being poor. All the free trade agreements like NAFTA and CAFTA have resulted in the decimation of the US manufacturing base. US factories are closing in droves:
2010 comes in the midst of a stunning wave of U.S. factory closings that stretches from coast to coast. Once upon a time America was the greatest manufacturing machine that the world has ever seen, but now it seems as though the only jobs available for working class Americans involve phrases such as “Welcome to Wal-Mart” and “Would you like fries with that?” Even though the population of the United States has exploded over the last several decades, the number of Americans employed in the manufacturing sector today is smaller than it was in 1950. America has become a voracious economic black hole that ”consumes” as much as possible and yet actually produces very little. The United States is becoming deindustrialized at a blinding pace, and it is becoming increasingly difficult for blue collar American workers to find jobs that will actually enable them to support their families. The sad truth is that American workers don’t have a whole lot to actually celebrate this Labor Day. 14 million U.S. workers are “officially unemployed” and tens of millions of others have been forced to take part-time or temporary jobs that they are overqualified for just so they can survive. Unfortunately, this is not just a temporary situation for American workers. As millions of good jobs continue to get outsourced and offshored, Labor Day celebrations in coming years will be even more depressing.
Since 2001, The U.S. Has Lost 42,400 factories. The "giant sucking sound" that Ross Perot predicted has become a point of actual fact. But this doesn't seem to bother America's leaders. They are dedicated to the policy that US consumption drives US GDP and as long as US GDP is the largest in the world, who cares? Sales are up! However China, as the world's second largest economy as measured by GDP, is on track to overtake the US in the near future. American politicians only care about transnational corporations, nominally American, and how they can maintain the US consumer appetite (and their profit margins) for buying their goods even though most of those goods are produced overseas. They coddle these corporations by lowering their taxes, having their lobbyists drill loophioles in the tax code and giving them a "tax holiday" during which they can "repatriate" their overseas capital and bring it "home" without any tax consequences.
The model of trickle down economics, long since discredited, is still being championed by right wing politicians with the result that the fig leaf of prosperity is being shredded to reveal a naked transfer of wealth from the middle class to the upper one per cent. Naked power grabs are becoming the order of the day as the recent vote to extend taxpayer subsidies to the five Big OIl companies, despite their being the most profitable corporations in human history, reveals. At the same time those same right wing policticians are demanding that the budget be balanced on the backs of the poor and middle class. While countries such as Norway fund their safety net with royalties from oil drilling, the US gives away its natural resources to oil corporations including BP which is not even headquartered in the US. The neocon model of privatization and eliminating safety nets, although unsuccessful in Argentina and Brazil, is achieving considerably more success when practiced here at home. Trade unions are being decimated. States are being turned into fiefdoms and dictatorships. Public education is being defunded. There is an all out assault on teachers, police and other public workers. The notion that government doesn't work and can't be trusted is being fostered.
The US is becoming the very definition of a Banana Republic. It is becoming a nation largely bereft of a middle class, a nation in which there exists a small class of extremely wealthy individuals surrounded by a sea of impoverishment, a nation of antiquated infrastructure, a nation in which there is no there there. All that exists is a diminshing probablity of getting rich or even making it into the middle class. Students are being saddled with immense and obscene amounts of student loan debt. Middle classers are losing their homes to foreclosure. Poor people are being shunted aside as food stamp programs are being shut down and home heating oil allowances are drying up. The war on the poor is raging. And the American people continue to vote the guys that are screwing them into office because they pander to them with promises of unlimited rights of gun ownership and promises that they won't allow gays to marry
The US in point of fact is not a wealthy nation despite attempts to brainwash us that it is, and it's becoming poorer by the hour. But instead of implementing a rational health care system, we continue to give away billions to the pharmaceutical companies that we wouldn't have to if the government weren't prevented by law from negotiating with them. We continue to give away billions in subsidies to Big Oil and Big Agriculture. We continue to give away billions in tax breaks to the rich. We continue to pour billions down ratholes in Afghanistan, Pakistan, Iraq, Israel and many other places. .
These countries are taking us for a ride, and the Israeli President Netanyahu lectures our President on why he won't cooperate to bring about mideast peace. They are manipulating us out of our money while actually working and fighting against us as revealed by Pakistan's harboring of bin Laden. If Obama had tried to coordinate bin Laden's capture with Pakistan instead of going it alone, bin Laden would probably have been tipped off with the result that the Seals, to Obama's embarassment, would not have found bin Laden at home. What, no bin Laden? Just innocent women and children.
As China eats the US' lunch and the rest of the world rips off Uncle Sucker for billions of US taxpayer dollars, the American people should get used to the fact that we're not number 1 any more. Far from being the world's richest nation we're fast becoming one of the world's poorest nations where some of the world's richest people happen to reside. But don't worry about them. They also own villas in France, Italy and Spain. They only continue to hold US citizenship as a convenience. They could live anywhere. They could headquarter their corporations anywhere. It's still convenient for them to headquarter here so they can use their lobbyists to rip off American taxpayers and sell into the American consumer market. But as time goes on most of their sales will be to emerging consumer markets in China and elsewhere.
Posted by John on May 21, 2011 at 08:13 AM in John Lawrence, American Social System, China, Corporations, Debt, Deficit, Education, Careers, Jobs, Employment, Free Trade, Inequality, Infrastructure, Manufacturing, Obama Presidency, Outsourcing, Poverty, Republican War on the Poor, Safety Net, Student Loans, Teachers, The Economy, The Middle Class, The Military Industrial Complex, The Role of Government, Wealth | Permalink | Comments (0) | TrackBack (0)
by Robert Reich
Forty years ago, wealthy Americans financed the U.S. government mainly through their tax payments. Today wealthy Americans finance the government mainly by lending it money. While foreigners own most of our national debt, over 40 percent is owned by Americans – mostly the very wealthy.
This great switch by the super rich – from paying the government taxes to lending the government money — has gone almost unnoticed. But it’s critical for understanding the budget predicament we’re now in. And for getting out of it.
Over that four decades, tax rates on the very rich have plummeted. Between the end of World War II and 1980, the top tax bracket remained over 70 percent — and even after deductions and credits was well over 50 percent. Now it’s 36 percent. As recently as the late 1980s, the capital gains rate was 35 percent. Now it’s 15 percent.
Not only are rates lower now, but loopholes are bigger. 18,000 households earning more than a half-million dollars last year paid no income taxes at all. In recent years, according to the IRS, the richest 400 Americans have paid only 18 percent of their total incomes in federal income taxes. Billionaire hedge-fund and private-equity managers are allowed to treat much of their incomes as capital gains (again, at 15 percent).
Meanwhile, more and more of the nation’s income and wealth have gone to the top. In the late 1970s, the top 1 percent took home 9 percent of total national income. Now the top 1 percent’s take is more than 20 percent. Over the same period, the top one-tenth of one percent has tripled its share.
Wealth is even more concentrated at the top — more concentrated than at any time since the Gilded Age of the late 19th century.
So what are America’s super rich doing with all this money? They’re investing it all over the world, wherever they can get the best return for any given level of risk. Treasury bills – essentially loans to the U.S. government — have proven good and safe investments, particularly during these last few tumultuous years.
You hear a lot of worries about foreigners dumping Treasuries if they lose confidence in the dollar because of our future budget deficits. What you hear less about are these super-rich Americans, who are just as likely to abandon Treasuries if spooked by future budget deficits.
The great irony is if America’s super rich financed the U.S. government the way they used to – by paying taxes rather than lending the government money – that long-term budget deficit would be far lower.
This is why a tax increase on the super rich must be part of any budget agreement. Otherwise the great switch by the super rich will make the income and wealth gap far wider.
Worse yet, average working Americans who can least afford it will either lose the services they depend on, or end up with a tax burden they cannot bear.
Published on Wednesday, May 4, 2011 by CommonDreams.org
For the past few months, we’ve been witnessing an inspiring, genuinely grass-roots rebellion of average Americans against corporate/financial profiteers savaging our collective well-being for their narrow, private gain.
It’s most powerful manifestation came in Wisconsin, where tens of thousands demonstrated outrage over atrociously arrogant, callously cruel Republican efforts to eviscerate organized labor.
As welcome as this explosion of populist protest has surely been, its amorphous spontaneity and incomplete cohesion evince a weakness that needs correction.
Much greater unity is required, stronger links between separate communities and regions are necessary, and a national people-before-profits agenda has to be drawn up, disseminated, and implemented.
In the interim -- as an effective programmatic counter to constant rape by marauding monopolists is being formulated -- it’s crucial to put forward an overriding progressive theme, expressed tersely in strong language well suited for street chants and bumper stickers, that every fair-minded citizen possessing a good heart can immediately, enthusiastically embrace.
That’s why “Make the wealthy pay to save the USA!” should figure prominently in everything we say or write about the profound systemic injustice under which increasing multitudes of our fellow citizens -- and we ourselves -- painfully suffer.
Most adult Americans are either workaday wage-earners or worked-a-lifetime retirees. They’re the folks to whom ‘government of the people, by the people, and for the people’ should properly apply.
It’s in clear furtherance of their welfare and common good that elected officials are duty-bound to constructively act, as our societal first priority. But just the opposite is happening.
Crony capitalist speculators who tanked our economy through their enormous greed and malfeasance are being shielded by conservative extremists like Scott Walker, Paul Ryan, and the Tea Party.
They would rather decimate collective bargaining, Social Security, Medicare, and Medicaid before eliminating unfair tax loopholes and havens for billionaires.
Constantly putting Wall Street ahead of Main Street is simply wrong. It’s also as socially unsustainable as similarly unfair practices were when ancient empires fell.
Appropriately taxing the mega rich and corporation -- together with ending ill-advised wars and curbing costly militarism -- could fix the deficit moving forward.
Our country’s been damaged long enough by those who treasonously owe primary allegiance to the Almighty Dollar.
As mass poverty and deprivation worsen, while fat cats unconscionably rake in more stolen booty, no reasonable person can fail to agree with what’s just been stated.
More importantly, no conservative can present a countering argument without clearly exposing the elitist, self-serving social irresponsibility that Republicans are afflicted with as if by a diabolical moral disease that’s completely contrary to both Golden Rule Christian teachings and key American ideals that they hypocritically profess to cherish.
We can’t lose if we gather in growing numbers in all venues of public expression to relentlessly speak (shout) these words with an insistent, unified voice:
Make the wealthy pay to save the USA!
The CEO who got a 449% raise for keeping his company in the red, and more tales of executive excess.
— By Josh Harkinson
The recession is far from over for millions of Americans, but prosperity has returned to the nation's boardrooms and corner offices. After two years of declines in the wake of the financial crisis, executive pay is skyrocketing. CEOs at the country's 200 largest companies earned an average of 20 percent more last year than in 2009, according to recent corporate filings. By comparison, average pay for workers in the private sector rose just 2.1 percent last year—nearly the smallest increase in decades.
While some CEOs, such as Apple's Steve Jobs, took symbolic $1 salaries last year, many kept drawing outsized checks. Below, we list 10 of 2010's most egregiously overcompensated executives. They're selected not just on the size of their pay packages, but how much more they were paid than their peers at similar companies, as well as the disparity between their personal bottom line and their companies'. These 10 vividly illustrate what veteran compensation consultant Bud Crystal views as a broad problem in many boardrooms: "You have almost no relationship between pay and performance when it comes to the CEO."
Philippe Dauman, Viacom
Compensation: $84.5 million
Stock performance (change 2009-2010): +30%
Viacom CEO Philippe Dauman's staggering $84.5 million take makes him the highest paid chief executive in the nation. After getting a 149 percent raise in 2010, his pay bested that of the fourth- and fifth-highest-earning CEOs combined—and that was only for nine months on the job (Viacom changed its fiscal year in 2010 to end in September). During that time, Dauman brought home an average of $312,963 a day. To be sure, Viacom, the gargantuan media conglomerate that runs Paramount Pictures, MTV, Comedy Central, and Nickelodeon, saw respectable growth last year. It defended Dauman's pay by arguing that $54.5 million of it was a one-time signing bonus tied to a six-and-a-half-year extension of his contract. Even if that bonus is averaged over that period, Dauman would still be, on a monthly basis, the highest paid CEO in America, overseeing a company whose stock price closed out the 2010 fiscal year down 12 percent from its 2007 high.
Mitt Romney made his millions as a leveraged buyout artist. His company, Bain Capital, did what many rich individuals and corporations do: they bought up companies, many of them profitable and doing just fine. They used borrowed money which then was added to that company's debt. Then they broke up the company, laying off workers, sending jobs overseas, selling off the profitable parts, making millions. Finally, they took the company into bankruptcy, washing their hands of the whole business. The workers were left jobless to fend for themselves. This is how wealthy individuals "create" jobs. The Republican mantra that the rich are job creators and, therefore, must be given "encouragement" in the form of more tax breaks is just not true. Their goal is to make money, and they do this by destroying companies and jobs and going overseas for what labor they do need. Then they import products back into the American market. They don't care a fig about Americans as workers, but they do want them as consumers.
This is from the Los Angeles Times:
From 1984 until 1999, Romney led Bain Capital, a Boston-based private equity group that earned jaw-dropping profits through leveraged buyouts, debt hedge funds, offshore tax havens and other financial strategies. In some cases, Romney’s team closed U.S. factories, causing hundreds of layoffs, or pocketed huge fees shortly before companies collapsed.
Making his first bid for elected office, Romney boasted that he had helped create more than 10,000 jobs at companies he had retooled. But Kennedy painted him as someone “who puts profits over people,” and an ugly labor dispute soon helped sink Romney’s campaign.
Bain Capital had bought a controlling interest in a paper products company called Ampad for $5 million in 1992. Two years later, after Ampad bought a factory in Marion, Ind., the new management team dismissed about 200 workers, slashed salaries and benefits, and hired strikebreakers after the union called a walkout.
“We were just fired,” Randy Johnson, a former worker and union officer at the Marion plant, recalled in a telephone interview. “They came in and said, ‘You’re all fired. If you want to work for us, here’s an application.’ We had insurance until the end of the week. That was it. It was brutal.”
In October 1994, Johnson and other striking workers drove to Massachusetts to protest Romney’s Senate campaign. “We chased him everywhere,” Johnson recalled. “He took good jobs with benefits, and created low-wage, part-time, no-benefit jobs. That’s what he was creating with his investments.”
At first, Romney tried to justify the Indiana layoffs as necessary in “the real world.” He then sought to distance himself, arguing that he took a leave of absence from Bain Capital before Ampad bought the factory. The dispute proved potent, however, and Kennedy trounced him in the election.
Leveraged buyout firms are also called private equity firms. They are all the same. They buy a company with borrowed money, then cannibalize it, first borrowing against, then selling off the assets and laying off workers. They borrow as much money as they can overloading the company with debt. Finally, they take it into bankruptcy.
Simmons Mattress was a very fine and very profitable company until it was bought by a private equity firm. It had furnished mattresses for Air Force 1 and the Lincoln bedroom. It had been in business for over 100 years. This is from my blog on October 5, 2009:
Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.
For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.
But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.
Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.
How so many people could make so much money on a company that has been driven into bankruptcy is a tale of these financial times and an example of a growing phenomenon in corporate America.
Every step along the way, the buyers put Simmons deeper into debt. The financiers borrowed more and more money to pay ever higher prices for the company, enabling each previous owner to cash out profitably.
But the load weighed down an otherwise healthy company. Today, Simmons owes $1.3 billion, compared with just $164 million in 1991, when it began to become a Wall Street version of “Flip This House.”
In many ways, what private equity firms did at Simmons, and scores of other companies like it, mimicked the subprime mortgage boom. Fueled by easy money, not only from banks but also endowments and pension funds, buyout kings like THL upended the old order on Wall Street. It was, they said, the Golden Age of private equity — nothing less than a new era of capitalism.
These private investors were able to buy companies like Simmons with borrowed money and put down relatively little of their own cash. Then, not long after, they often borrowed even more money, using the company’s assets as collateral — just like home buyers who took out home equity loans on top of their first mortgages. For the financiers, the rewards were enormous.
Twice after buying Simmons, THL borrowed more. It used $375 million of that money to pay itself a dividend, thus recouping all of the cash it put down, and then some.
Republicans are pulling the wool over the public's eyes calling the rich "job creators" when in actuality, they are job destroyers. Their demands for tax breaks for the wealthy are a naked attempt to accrue more economic power for themselves and their sponsors. They are just shills for the wealthy, and their goal is to subjugate the working class and shred the social safety net. In this environment why would anyone aspire to becoming an "employee." It's like entering the henhouse after the fox has already been there and is in the process of devouring the chickens. You're putting yourselves at the mercy of financial vultures. It's much better to become your own employee. Let the 600,000 college educated white males who are out of work be a lesson! If you are self-employed, then at least you can't be laid off. Is a college diploma and a mound of student loan debt really worth it?
Romney, of course, is not the only one who has laid off American workers and sent jobs overseas. There's "Chainsaw" Al Dunlop who drove Sunbeam into the ground. This is from Slate:
A holy terror of a CEO, Dunlap has emerged as the mascot of a new kind of capitalism. Dunlapism begins and ends at Wall Street. Its sole credo is: "How can we make our stock worth more?" Nothing that is valued by less steely businessmen--loyalty to workers, responsibility to the community, relationships with suppliers, generosity in corporate philanthropy--matters to Dunlap. Business ethics professors tout "stakeholder capitalism." Dunlap sneers at the phrase. Dunlapism is the perfect religion for the Mutual Fund Age. As the AMA discovered, everyone who deals with Dunlap loses--except his stockholders.
Other executives share his creed, but none matches Dunlap's methods. In the past two decades, the 60-year-old executive has run nine companies in the United States, Australia, and England. He served as right-hand man/enforcer for both Australian media magnate Kerry Packer and recently deceased British billionaire Sir James Goldsmith. In the process, he has earned a reputation as the most merciless turnaround artist in the world. To wit: As CEO of struggling cup manufacturer Lily Tulip Corp. in the '80s, Dunlap fired most of the senior managers, sold the corporate jet, closed the headquarters and two factories, dumped half the headquarters staff, and laid off a bunch of other workers. The stock price rose from $1.77 to $18.55 in his two-and-a-half-year tenure. At Scott Paper--his pre-Sunbeam tour of duty--he fired 11,000 employees (including half the managers and 20 percent of the company's hourly workers), eliminated the corporation's $3-million philanthropy budget, slashed R&D spending, and closed factories. Scott's market value stood at about $3 billion when Dunlap arrived in mid-1994. In late 1995, he sold Scott to Kimberly-Clark for $9.4 billion, pocketing $100 million for himself--a modest payoff, he says, for the $6 billion in increased shareholder value.
Dunlapping continues at Sunbeam, a stagnant consumer-products company. Dunlap has fired 3,000 of 12,000 workers since taking over in July 1996; sold off subsidiaries employing another 3,000; eliminated corporate charity; and shuttered 18 of 26 factories. The payoff: Sunbeam's stock has climbed from $12 to $44 in barely a year.
What distinguishes Dunlap from his colleagues is that he takes pride in his toughness, expressing only cursory regret for having cashiered thousands of his workers. When Newsweek ran a cover story about corporate layoffs, Dunlap contributed a gleeful column about how wonderful such firings are for stockholders. Then he savaged AT&T CEO Robert Allen publicly for not sacking enough people. He posed as Rambo on the cover of USA Today. And he titled his 1996 best seller Mean Business: How I Save Bad Companies and Make Good Companies Great. (In it, he likens himself to Michael Jordan and Bruce Springsteen, fellow "superstars.")
It's easy to hate Dunlap for the wrong reason, which is that he is a brutal, heartless, arrogant bastard. According to Business Week, Dunlap skipped the funerals of both his parents, failed to support (or even pay attention to) the child from his first marriage, and refused to help pay for his niece's cancer treatments. But to criticize Dunlap for his cruelty is akin to scolding a lion for killing an antelope. Dunlap lacks conscience? Well, so does the market. If Wall Street were a CEO, it would skip its parents' funerals, too. And there is logic to Dunlap's cruelty. Struggling companies do need to shed workers in order to recover. Dumping 35 percent of your employees, as Dunlap did at Scott, may save the jobs of the other 65 percent. Stockholder profits should not necessarily be squandered on the CEO's favorite charity.
Although there are some benign CEOs, Mitt Romney and Chainsaw All Dunlop are not two of them. And these are the kinds of people that the Republicans want to give tax breaks? Not only do they not deserve them, their ill-gotten profits as job destroyers need to be taxed at an even higher rate. They are reponsible for offshoring American workers' jobs in order to reap higher profits for themselves and their shareholders. That's why dividends and capital gains which are taxed at a historically low 15% need to be taxed at a much higher rate. And a financial transaction tax needs to be implemented on every transaction. Instead of lowering corporate tax rates, the loopholes in the tax system, which allow many corporations to get away with paying nothing in taxes, need to be closed. Corporate subsidies need to be done away with. Social Security and Medicare need to be means tested. The rich should be made to pay for their own retirement and health care. God knows they can afford it. They don't need a voucher. But they should pay into it because if they should happen to go bankrupt they will need the safety net at that point, but, God knows, not before! They want private health care? Give it to them and make them pay for it but don't take Medicare and Social Security away from poor and middle class people. The social safety net shouldn't be for everybody, but only for those who need it. The mega-rich don't need it yet they collect Social Secuirty and are allowed to avail themselves of Medicare.
The rich say that if you tax corporations more they will just move their operations overseas. I say, "Let them, but then charge them and all others for the privilege of selling into the US consumer market, the largest in the world." How do you do this? With a VAT tax. This is the only kind of tax that they couldn't get out of no matter how much they and their army of tax accountants try to finagle. The VAT is how Germany manages to keep a healthy export economy and create high paying jobs within Germany. It's the only tax corporations could not get out of and would produce enough revenue to eliminate deficits. So let them move their operations overseas. Many of them pay no taxes and supply no American jobs now, so what good are they? They could be taxed sufficiently no matter where they are registered with a VAT if they want to continue to import into the American market. The same goes for the race to the bottom exemplified by many states and municipalities who give tax breaks to corporations to get them to build plants in their jurisdictions. If they have to pay a VAT, there is no incentive to locate a plant in any particular location so they will have to use other, more rational criteria for their plant locations.
Corporate subsidies need to be eliminated. That's mainly oil and agricultural subsidies that go to large corporations or to farmers in Texas that don't grow anything. Everything should be means tested. Means testing should be the mantra before any government money is given to anybody. Instead armies of corporate lobbyists roam Capitol Hill demanding favors for the job destroying rich people and corporations. Right wing talk show hosts engage in an elaborate shell game in which the poor and middle class are duped into watching the left hand of social issues while the right hand is stealing their pocketbook. The Defense Department is also largely a gigantic corporate welfare scheme. Let's make government smaller by reducing the size of the Defense Department and ending two wars. Government should be there to provide a safety net for the poor, not for the rich, as it is presently constituted. And all those demagoguing southern Republican Governors who don't want anything to do with Big Government in Washington - let them not come to Washington for a bailout then when their states are destroyed by tornadoes!
David Cay Johnston is a columnist for tax.com and teaches the tax, property and regulatory law of the ancient world at Syracuse University College of Law and Whitman School of Management. He has also been called the “de facto chief tax enforcement officer of the United States” because his reporting in The New York Times shut down many tax dodges and schemes, just two of them valued by Congress at $260 billion. Johnston received a 2001 Pulitzer Prize for exposing tax loopholes and inequities. He wrote two bestsellers on taxes, Perfectly Legal and Free Lunch. Later this year, Johnston will be out with a new book, The Fine Print, revealing how big business, with help from politicians, abuses plain English to rob you blind.
John Coltrane: One Down, One Up
Monk and Coltrane: Thelonious Monk and John Coltrane at Carnegie Hall
Best album of 2005 (*****)
Doug Ramsey: Take Five: The Public and Private Lives of Paul Desmond
This is a great book! Paul Desmond and Dave Brubeck formed the heart of one of the best all time jazz groups. Paul was the quintessential intellectual, white jazz musician. A talented writer, he never published anything. However author, Doug Ramsey has collected Paul's letters here. How ironic that now his writing in the form of letters to his father and ex-wife, among others, is finally published showing another window on the mind of this talented person. A sideman, for the most part, his entire life, the Dave Brubeck Quartet might never have happened at all due to the fact that Paul had managed to offend Dave to the point where he never wanted to see him again. It had to do with a gig that Paul actually was the leader of. Paul wanted to take the summer off to play another gig, and Dave wanted Paul to let him take over the gig at the Band Box in Palo Alto, CA. Paul wouldn't let him and Dave, married with two children, proceeded to starve. Due to an elaborate publicity campaign, when he realized the error of his ways, Paul managed to worm himself back into Dave's good graces. The rest is history. This book is remarkable for the insight it gives into a working jazz musician's mind, wonderful pictures and interviews with the significant figures in Paul's life. Author Ramsey, not a remarkable penman himself, has nevertheless done a magnificent job of assembling all these various materials. Unlike a lot of jazz authors, he doesn't overly idolize his subject with the result that you get the feeling that you have met a real person and not a idealized version. That's high praise indeed for any biographer. (*****)