Tuesday, August 18, 2009

A Thousand Words

In case you were wondering why financial regulation, a public option for health care, an increase in domestic employment and a caesura to foreign adventurism aren't going to happen anytime soon.


  1. Obviously, I haven't reached the top .01% any more than I got the memo that y'all had opened a bar.

  2. Hey SRV, glad to see you posting again!

    I have to disagree with the Chief again (talk about bad habits!)

    The chart is appalling, but not so bad as public opinion about the chart. I've mentioned this statistic quite a number of conservative people and the usual response is something like, "Yeah, well they earned it."

    So then I bring up the next logical statement, "We should set tax rates to reflect this fact."

    The result is almost always the same, jaw dropping in horror, eye-roll at my lack of understanding of basic economic facts, and a comment to the effect of "Don't be stupid."

    Rich people may or may not be inherently greedy, but they usually aren't stupid. Think about the situation for the moment.

    There are two ways for rich people to increase the size of their piece of the pie; expand the pie (which benefits everybody) or find some way to increase the size of their piece without argument from the other sliceholders.

    You can make a case that rich people might inhibit financial regulation but there are two mighty arguments against this theory:
    1. Too much of market activity these days is destructive like Goldman Sachs' continuing sales of "financial weapons of mass destruction." Continued sales of these tools are eventually going to bring the market down and turn the pie into blackened crumbs. This is why Warren Buffet has repeatedly called for increased regulation.
    2. A great way for the rich to lock in their gains is to set up financial regulations preventing people from earning money the same way they did. What one person can build up another person can tear down using the same tools, unless it's now illegal to use the tools.

    A connection between wealth and opposition to a public option for health care isn't as obvious.

    Yes, people who are heavily invested in health insurance companies aren't going to welcome it, but the vast majority of rich people have earned their money through other conduits and they view health care as a massive drain on their resources that should be reduced or eliminated. Support for a public option comes from the Walton family (owners of Wal-Mart), Exxon, and a majority of doctors (who are very tired of fighting with health care companies over reimbursement).

    You really can't make a case for the rich being against domestic employment. This gets back to increasing the size of the pie. It's a painless way for them to get richer and have a more stable environment to earn money.

    The same is true for ending foreign adventurism. Some of the rich make money selling weapons to the DoD, but they've mostly seen their sales cut because the DoD can't afford new weapons platforms while the wars are being fought. Companies like KBR made a killing for a while in the Iraq war but they've mostly been called to task for this and Halliburton has sold the unit because it's no longer very profitable.

    I think a better statement about the Chief's appalling chart is that the super-rich are more efficient about adapting to the unfortunate changes in our economy. In this view, they aren't leaders, they are more effective scavengers.

    The Federal Reserve has an interesting study called the "Survey of Consumer Finances" they do every three years. Check out the latest (2007) numbers and you'll get a pretty good but very depressing picture of US wealth before the crisis. The 2010 study (to be published in late 2011 or early 2012) should be fascinating.

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  4. Pluto, you're straining at gnats and swallowing camels. It doesn't matter whether they "earned it" or not (although I wouldn't be surprised if many of them "earned" their wealth by such public benefits as leveraging buyouts and creating financial Ponzi schemes).

    What matters is that such a concentration of wealth is inherently bad for democracy. When 0.01% of the people control 6% of the general wealth, those people have become "too big to fail"; disproportionally powerful and influential in the "democratic" society. Are you telling me that it didn't matter that people like John D. Rockefeller were, in effect, the uncrowned kings of America in the pre-Sherman Act America of the Gilded Age? That they didn't ensure the warping of legislation for their own benefit? Or that it took several generations to pry things like health and safety regulation, clean air and water and decent housing from them?

    Don't get me wrong; ever since Rome the wealthy have played a huge part in yanking the societies around them up from poverty. But they don't do it from their own nobility and they aren't inherently more noble than the proles they use for their labor. The principle behind this country is cautious distrust; both of the power of government AND the power of the "nobility". A republic can NOT depend of the kindness of strangers.

    And for all your claims, I will believe that the wealthy really want all of those things when I see them throwing their weight BEHIND them, rather than the opposite. Are you telling me that the reason that we still have no effective regulation of the non-banking sector of the financial industry is because the average Joe and Molly are holding back the nobly self-interested Masters of the Universe who WANT the Feds to ensure that they can no longer speculate on margin in things like CDS?

    Well, okay then...

  5. Pluto,

    So then I bring up the next logical statement, "We should set tax rates to reflect this fact."

    There is a big difference between tax rates, which are more theoretical than real, and actual taxes collected, or the effective tax rate. Take at look at the CBO numbers here (excel file):


    As you can see, despite major changes in tax rates for the wealthy, the actual percentage of income collected has not changed much since 1979. Reagan reduced marginal rates, but also eliminated some loopholes. The result was that the upper brackets, despite the decrease in tax rates, ended up paying almost the same amount of taxes as they did before.


    In case you were wondering why financial regulation, a public option for health care, an increase in domestic employment and a caesura to foreign adventurism aren't going to happen anytime soon.

    There is a lot of assumed causality in that statement. It would be nice if you could explain the causal relationships as you see them.

  6. "The idea that the profits of capital are really the rewards of a just society for the foresight and thrift of those who sacrificed the immediate pleasures of spending in order that society might have productive capital, had a certain validity in the early days of capitalism, when productive enterprise was frequently initiated through capital saved out of modest incomes. The idea, as a moral justification of present inequalities of privilege, has become more and more dishonest, since the increased centralization of privilege and power makes it possible for those who make the largest investments in industry to do so without any diminuation of even the most luxurious living standards. Since we are living in a world in which there is too much capital for production and too little for consumption, the argument that economic inequality is necessary for the accumulation of capital resources has lost even its economic validity. Yet it is still used by privileged classes to establish a specious connection between virtue or social function and privilege."

    Reinhold Niebuhr, Moral Man and Immoral Society, 1932, p83.

  7. Andy: The causal relationship, so far as I can see it, is that the four things I mention are all in the best interests of the public in general and the less well-off of the public in particular. If I am some poor lower-middle-class mook struggling to get by, why would it be in my best interest to allow some wealthy venture capitalist to LBO the company I work for, take it public, downsize and offshore it to jack up the profits, cramdown my wages, reduce my healthcare benefits while all the while my government stands by and, while so doing, spends my tax dollars on feckless adventures in central Asia and ensuring the profit of my insurance company, physician and hospital?

    Here, as in law, the principle would seem to be cui bono?

    While I suspect that the wealthy elite have no particular interest in foreign adventuring they are also well enough insulated from the mayhem to have no particular interest in ending them. In the other cases, their interest is direct and proportional; a reduction in marginal tax rates, a liberalization of investment and economic regulation, the favoring of private profit over public welfare? All in their interest.

    And, as I said to Pluto - where is the counterexample? Where are Sam Walton's kids taking airtime to explain how a 10% increase in their own taxes will help fund the public health that will help reduce the sick days, workman's comp claims and lost time accidents their employees suffer and thereby reduce the Walton clan's profits? Where are the Goldman Sachs executives arguing for a reduction in military spending to divert the funds into domestic infrastructure maintenence, or an increase in tariffs to protect domestic manufacturing, or a Depression-era style regulation of investment banking?

    So, no, there's no smoking gun. But the cui bono seems to lead fairly directly to malefactors of great wealth.

  8. And, as Seydlitz points out, this concentration of wealth seems unrelated to either work ethic or individual brilliance. And it has been significantly assisted by the tax, fiscal and economic policies we've been enacting ever since the "supply-side" nonsense came into vogue.

    Add to this the problem that this kind of wealth virtually ensures a hereditary upper class. Practically speaking, you CAN'T lose this sort of rich; "outhouse to outhouse in three generations" just ain't gonna happen to these people.

    So you end up with a vastly wealthy, socially segregated stratum of society, almost a textbook situation for the creation of an inflexible social stratification. This worked in Great Britain in a sort-of way because of the noblesse oblige tradition of public service among the wealthy - note that it broke down after the Industrial Revolution and the rise of the mercantile class, who oversaw the great expansion of the "working poor" and the apalling slums of industrial Britain - but this is America, land of the Gold Rush, the get-rich-quick and the Devil take the hindmost. We have no such tradition here.

    I say again: this concentration of wealth is not a good thing for the 99.99 percent of Americans not in this class. Can anyone explain why it SHOULD be?

  9. I say again: this concentration of wealth is not a good thing for the 99.99 percent of Americans not in this class. Can anyone explain why it SHOULD be?

    Because there is a strong belief among mainline fundamental Christianity in the "Prosperity Gospel".

    The rich are blessed by God, therefore in supporting the wealthy politicly and, as Pluto wrote, "rolling the eyes" at suggestions the wealthy should contribute more to the societal structure which enabled their wealth . . . .

    . . . they worship God.

    IOW, success and wealth in this world is proof God Loves You.


  10. ooops!

    " . . . people believe they worship God."


  11. Chief, I never said that I thought that the top 0.01% of the population earned their wealth, I was quoting people who were arguing with me over the fairness tax system.

    The CBO chart that Andy mentions is interesting because it shows that the top 1% of the country pays 25% of the Federal government tax burden (table 1B) while the Chief's chart shows that the top 1% of the 1% receive 60% of the total compensation. This, to my way of thinking, is grossly unfair and should be corrected.

    Although the Chief is right that no wealthy people other than Bill Gates and Warren Buffet have made public statements in favor of Obama's bill, the wealthy have been contributing money to Obama's cause. Below is a CBS article about Walrmat's public statement of support.

    I can't find the reference again but earlier this week I noticed a statement on Reuters to the effect that Obama's supports have outspent his detractors by 2:1 on healthcare.

    I will also agree with the Chief that wealthy people tended to interfere in stupid ways during the first Guilded Age (1875-1895). But there's a lot less support for the ridiculous theory of Social Darwinism in the wealthy than there used to be which means that there's less support for the theory that wealth automatically equals wisdom.

    I think a more accurate statement about the wealthy is that mostly they don't particularly care where this country is going or how. They only want to ensure that they successfully extract their "fair" share of the wealth.

    BasilBeast, PLEASE tell me that those idiots who believe that God wants them to be wealthy is a tiny majority of the whole. I recall back in 2004-05 when they first surfaced, they were SO obnoxious. I've seen the Bible twisted in some pretty impressive ways but they take the cake by a huge margin.

  12. "I think a more accurate statement about the wealthy is that mostly they don't particularly care where this country is going or how. They only want to ensure that they successfully extract their "fair" share of the wealth."

    Agreed. Which is why I say that we should treat them as my Scots ancestors would have treated a Jacobite and an armed one, at that. In principle, they are just another American trying to get by. In practice, their immense wealth and power make them a potential threat to the public weal. The historical precedent I always think of is Cicero and the Revolt of the Gracchi. The Senatorial class did what they needed to do to "restore order" and ensure that they continued to get their "fair share". But the practical effect was to eviscerate the republic. It probably would have happened anyway, but the self-interested greed of a handful of wealthy and powerful men assured that it happened sooner and more thoroughly.

    In our history I would call this the triumph of the Hamiltonians. The Jeffersonian/Jacksonian republicans insisted that the only way to ensure a vital democracy was to have a powerful and vital middle class of artisans, merchants and smallholders. The Hamilton faction (to give it the name of its best known advocate) felt that the wealthy had risked the most to achieve revolution and therefore should reap the bulk of the benefits. This is the comic-book version, of course, but that's the outline. Our history since then has been a mixture of tension and cooperation between the factions. Right now, as in the 1865-1929 period the Hamiltonians are on top. I don't think this is directly damaging to the republic, but it's definately not in the interest of MY class and, I think, is not healthy for the long-term interest of the nation. As you point out; the wealthy are in the position of being "above" issues of the mass. This, I think, makes them more liable to be prey to the sort of hubris and carelessness that feudal lords have often been victims of...

  13. Andy,

    The CBO numbers you present show that the effective tax rate for corporations dropped about 30% (from 13.8% to 9.9) between 1979 and 2005 -- which is a pretty good chunk of change in and of itself.

    But I suspect that this tax rate was calculated only on the income that was actually reachable by the government. And that it does not include the income that corporations (and individuals) have managed to hide via offshore shell games. Do you happen to know whether that's the case?

    Since Goldman-Sachs has been mentioned above, I suggest that y'all read this (sorry about the raw URL -- I can't seem to make the link tag work):


    For anyone who hasn't already been sickened by the antics of the finance industry, that should do the trick.



  14. Pluto, I refer you to Thomas Franks' book on Kansas.

    Look at Osteen, Copeland, Robertson, the Falwell Empire, it is endemic I fear.

    "Good" Bible-thumping "Christians" supporting the god of Mammon over the Gospel of Jesus Christ.


  15. Forgot this bit. Go here


    and you'll see plutocracy in all its unvarnished glory.

    Not that you wouldn't make a decent Ruler of the World, Pluto.



  16. basilbeast,

    I'm not sure I would include Joel Osteen the bible thumping crowd. He's pretty new-wave whatever-feels-good. Less new testament, even less old.

  17. In addition to amassing wealth beyond comprehension, 4,450 "Great Americans" have appeared to have sequestered some $18 BILLION in just one Swiss bank.
    Not only have their tax rates been lowered, but they purposefully evade that lower rate through secret accounts offshore.

    Trust me, few of these bastards give a crap about the benefits of a roust economy that accrues to the less fortunate. They simply demand a new set of rules to favor themselves, and then evade those rules to gain even further benefit.


  18. And for those to like to read, here's some expanded onfo and commentary


  19. Except for financial regulation, I don't see much connection. The public option is failing for a lot of reasons that have nothing to do with the super-rich. Domestic employment subject to a host of factors and our out-of-control healthcare system makes employment in this country comparatively expensive. I don't see how foreign adventurism benefits the super-rich - particularly since all that money is borrowed and it will be the rich that eventually pay that bill.

    almost drafted:

    Corporate income taxes are one area where taxes really have dropped off, and I think it would be good to increase those to a reasonable level.

  20. Andy,

    Yes, well, the recent IRS deal with UBS involved more than 4,450 accounts owned by US individuals, with total holdings of $18 billion.

    That is, $18B at one time -- some of that money may have been moved after the IRS gun first went off, though I can't imagine why.. :)

    UBS is just one private Swiss bank. I just found a list, compiled by SW Consulting SA of Chambésy Switzerland, of more than 700 private Swiss banks.

    I hope that UBS was just the first step on a long road.



  21. I hope the list gets released. It would be interesting to see how many Senators, Representatives and senior members of government are on it.