Wednesday, May 11, 2011
When you look at other countries and the history of the world in general, we are all just amazingly, unbelievably wealthy in this country. We have technology and opportunities that are insane; we can’t even comprehend how well off we are compared to people who used to have to live in huts and fight for every meal. When you look at it objectively, every one of us in this country is a billionaire. And what did we do to earn all this incredible wealth? For most of us, the answer is: absolutely nothing. We were just born with it. So we take it for granted. And we demand even more.
There is another type of rich person, though — the working rich. The people who create. These are the people who made all the benefits we enjoy in society today. Thanks to their creativity and initiative, we have all the technological marvels we enjoy today. Because of their hard work, we have all these companies that give us cushy 9-to-5 jobs where we earn sums of money most of the world couldn’t even imagine possessing. And are we thankful? Do we say, “Thank you, rich people, for making all these things so we can benefit from them. I can’t even believe how simple and easy my life is because of you”? No, we demand more from them, because we’re the idle rich, and we think the working rich owe us everything.
The great divide in American politics is increasingly between those who believe that the "system" -- and the economy and the government that regulates it and taxes it -- is fundamentally fair, and those who believe it is rigged to benefit nefarious and poorly-defined rich people who confer no value but have somehow positioned themselves to benefit. The "system-is-rigged" party believes, in its heart, in the labor theory of value -- that the fellow who works a 9-5 job that requires minimal education, training, creativity, or genuine responsibility contributes most of the value that owners extract because they own the capital. In this view, executives are especially suspect, because they do no "work" themselves and have positioned themselves between diffuse, powerless stockholders and the people who supposedly do the work, from which perch they are alleged to siphon off undeserved salary and bonus. Bizarrely, these same people who believe executives create nothing to justify their pay will almost invariably argue that we should hold executives personally liable for newly-created policy "crimes" of vast organizations, whether those executives actually did anything wrong. I have never understood how executives can simultaneously deserve no credit for the vast financial and social contributions of their businesses and at the same time be responsible for everything every employee, agent, or distributor does, but that is what the "rigged-system" crowd believes.
At any rate, I rather like the linked article's concluding proposal:
The next step would be to change the attitudes of all the idle wealthy in this country. Everyone born in this country owes a huge debt to those who went before and built it up for us, and if you’re not going to try and be one who adds to the wealth of this country, at least be grateful for what you have and don’t think you’re owed any more or have a right to the wealth of anyone else.
If you want my one part economic plan, it’s this: A new amendment to the Constitution that makes whining no longer a protected form of speech. And the punishment for whining will be that you lose your inheritance, i.e., you’ll be deported. So these will now be your three choices: Be another creator who adds to this nation, coast by and just be grateful for the privileges you were born with, or learn the hard way not to take the wealth of this country for granted.
I could live with that.
My favorite fact-free theory (ie, no actual work has gone into supporting the idea) is that income gaps increase during times of great technological and economic innovation in human society, and diminish elsetimes. We are lucky to have been born into a society experiencing the greatest time of innovation in human history, and the consequent greatest wealth creation ever, but the whiners focus on the inevitable side effect instead of the main story. They complain that the non-creators and the non-workers, ie, that great majority of us who benefit from the work of the few, are gaining wealth at a much lower rate of increase than those who actually do the creating and the hard work.
It's the greatest single example of dippshitiness, evah.
All over the world, but most spectacularly in the United States, the poor and the illiterate are materially better off than ever before in human history. But that fact is ignored or immaterial to those parasites who live off exploitation of the masses. The relentlessly ideological left, in other words.
Pretty sure you are knocking down a straw man here. The (better) lefty argument isn't that entrepreneurs and business leaders don't create a lot of value; they clearly do. Better arguments are:
1) There is no equality of opportunity in this country. A kid from a broken home has nowhere near the chances to grow up to contribute productively, so rich people (who mostly have come from privileged backgrounds and had a big leg up) should contribute a large amount to create systems (e.g. public schools etc) that help such individuals.
2) Inherited wealth. Many rich people did not create their own wealth. Why is it in the best interests of society for you to be allowed to dictate what happens to most of your money after you die? I don't think there is a very easy answer to this question.
3) Some (rational) paternalistic preference. I don't want to live in a society where you suffer the full consequences of your bad decisions or bad luck. That comes with a price: you don't get to enjoy the full benefits of your entrepreneurship, or good luck. The "whining" you allude to can be more charitably interpreted as a disagreement about the degree to which we should we should insulate people from their bad decisions/luck. A typical rich person is probably a pretty fortunate individual who was at the right place at the right time in quite a few instances. Though this person may have worked extremely hard in his or her life, still, it is rational to believe that this person should be obliged to contribute a large amount to the general welfare.
A prolix manifesto follows. You’ve been warned.
Our big political fault line lies between those who get government checks and those who pay for them, I’ve been saying for sometime. I expect this to be true for an election cycle or two as we fight about the size of government and how to pay for it.
But we may already have passed the point where The Big Statist Borg will win out:
Residential real estate: Over 90% of new mortgages now run through Fannie and Freddie, which are now expressly controlled by government and continue to lose lots of money.
Banking. We’ve reached an alarming concentration in just a short time. In effect, Dodd-Frank has turned our largest banks into Government-Sponsored Enterprises – what Fannie and Freddie used to be – some more so than others. The power connections run through their executive offices to Treasury to the Fed to the Oval Office – they’re almost all on speed dial to one another. Bank America is odd man out at the moment – I’d short them for that reason alone. We’ve been running a profligate monetary policy in part to bail these fuckers out.
Energy. We quasi-nationalized our utilities back in the 1930s. Their need to curry favor with the Oval Office has only gotten stronger. The only things we’re sure to do on current trajectory are to have higher energy costs and to burn even more coal. Utilities like this outcome, as it makes the value of their existing plant – even 40-year old nuclear reactors – that much more valuable. To the Oval Office, oil companies are too “multinational” and too “independent” and not with the Borg Program. They’ve always been easy to vilify.
Healthcare. We’ve had an odd quasi-private / quasi-public hybrid for over two generations. ObamaCare would make public domination near total, but even if over-turned the public side still largely controls.
Education. What’s noteworthy is what’s been happening at university level. We used to pride ourselves that our private colleges – and faculty tenure – would foster free and independent thinking. Heh. The right kind of college degree has become a necessary ticket to gain entrance to the right part of The Borg, but is it worth the cost of admission?
Thus, if you look at what a typical modest household spends its money on, most of it goes to things that we’ve in effect already nationalized.
Resistance is Futile! I might give in, but I believe that The Borg is “un-financeable”, and hence unsustainable. Oil is the primary reason why I believe so, but there are others. We can’t survive as an autarky without oil, much as the Lefties fantasize so. We can’t just export dollars – and inflation – to pay for it.
I also think The Borg is un-American, but not everyone seems to agree with me on that – especially our current Commander-in-Chief.
To loop back to TH’s lede – The Borg will need to expropriate “excess” wages and/or “excess” wealth to Keep on Truckin’ for awhile. They’ll go after “ordinary income Kulaks” first – including the ordinary income of the Working Rich. Whether they get to capital gains will depend on which way we jump politically when our debt crisis hits.
The next step in this will be the fight over raising the debt ceiling. Boehner wants to match any increase with defined hard cuts to future spending. Parts of The Borg will scream.
The White House’s usual MSM mouthpieces (e.g., Ezra Klein) are planting the meme that the Bush Tax cuts got us into this mess … eliminating them will solve the problem … but the math doesn’t work either coming or going.
The optimist says the glass is half full. The pessimist says the glass is half empty. The engineer says the glass is twice as big as it needs to be. Let’s take that last viewpoint, and turn it to the idea of feedback mechanisms.
(Pause here a moment and just imagine a thermostat designed by Congress…)
Whatever you think of them personally, people like Alex Rodriguez, Lady Gaga, and Steve Jobs pleased millions of consumers, and deserve their millions.
In contrast, people like Stan O’Neal or Charles Prince did not satisfy millions. They merely seduced a dozen directors and soon drove (probably ungovernable) firms like Merrill and Citi into ruin. And not the first troubled times for either firm.
The problem is that the feedback mechanisms of the free market are broken — that means bad corporate governance and even worse, misdirected regulation.
The answer for governance is to “fix Delaware.” There are a range of flaws that disenfranchise absentee shareholders in favor of entrenched managers, including poison pills, staggered boards, unfair proxy rules, wrongheaded limits on short sales, and the general disrepute of corporate raiders.
The answer for bad regulation is to revisit the original function, which is to enforce the premises of free markets. Free markets solve Hayek’s information problem, but only if there are: many small independent agents; free flow of information; no subsidies, tariffs or barriers; no monopolies; and most importantly today, no “too big to fail.”
Real problems arise when government goes beyond that. The first order problems are only exacerbated when government tries to pile more regs to fix the first round. For example, in 1974 ERISA tried to define “prudent lending.” But by the iron law of unintended consequences, that entrenched a rating oligopoly, which (1) created a bright line at investment grade, and (2) substituted statistical methods for reason. Together those drove CDOs et seq.
Likewise with the behemoths. Instead of admitting folly and denying a taxpayer safety net to the “TBTF,” Dodd-Frank instead attempts to micromanage — from the outside, with less information, and less talented regulators — firms which are ungovernable from the inside, with full information and highly paid and talented managers.
So we are certain that the TBTF will soon be in trouble again. And again, even if we punish equity (the smaller part of capital) we will still bail out the lenders, the far greater capital providers. And as long as we do that, the lenders will continue to provide leverage in new and more subtly flawed ways, despite Dodd-Frank efforts at numeric limits.
A patch on a kludge atop jury-rigging must necessarily fail. The only answer is to realign the feedback mechanisms.
Can we go for the Alternative Maximum Tax? "Not one penny more than 20% of income shall be removed from a taxpayer by means of taxes, fees, and other revenue squeezing mechanisms."
Why 20%? It's twice as much as God gets, it *ought* to be enough for the Government. After Net Income is figured, the Local gets their cut first, then the State, then the Federal.
The problem is it makes all the Liberals have to figure out how to pay for their good feelings. Poor dears, bless their hearts....
No, the problem with a flat tax is that it is regressive. 20% of a poor person's income is a bigger hit to a poor person than 20% of a rich person's income is to the rich person.
This is also the problem with the consumption taxes that righty economists seem to favor.
Anonymous is incorrect, or at least incomplete.
Imagine government was still the province of non-professional, that like the Founding Fathers, one had life accomplishments first, and only later gave public service.
Imagine each of us gave the same length of service, say it came to 10 weeks a year.
A poor man's day is as sweet to him as s rich man's. Just because the rich man earns a higher rate for his time in the market is not a reason to take more of his life away.
That's the moral basis for the 20% of income, when we substitute money for time.
Suppose finally, to gratify Anonymous, we set a floor at the once or twice the poverty level, and only tax the amounts over that.
Then many virtues follow. Everyone is assured a minimum livelihood; everyone has a stake in the public policy issues; and politicos have to live within their means. No more incremental ratcheting up for every "nice to have." No more threatening to shoot the children at every hint of cuts...
This is a completely obnoxious straw man, TH, even for you. One problem is that the "idle rich" (i.e., the "working class") have little or no hope of ever becoming anything other than and resent the limitations on their station, as they should in a so-called meritocracy. There was a time when many "captains of industry" (CEOs and other corporate leaders) had worked their way up the ladders in their companies - had held every or nearly every job through the ranks and had a good idea of what it was like at each rung (and actually appreciated that each is important to the enterprise as a whole). Now, with a JD or MBA you vault to the upper end and think you're there because you're more deserving - and that noone else does anything of consequence. Make any ridiculous argument you want for how someone at the top "deserves" 100x (or more than) someone low in the same organization - it's still just an ugly rationalization.