Plutocracy, Complacency, and Taxes

I am growing ever more fearful of the plutocracy that is ravaging the spirit of my country and the pride of my people. Much like a cancer that has quietly metastasized undetected for so long that even chemotherapy is an unfeasible option (perhaps a lack of health insurance prevented preventative check-ups—God forbid they pay out of pocket in time to learn they cannot afford to pay for treatment!), I believe the governing system of America is so inflicted and full, not so much of corruption (although that is also true), as much as incoherent and therefore unenforceable rules and regulations, that it will inevitably implode and take the country--if not the world--with it. (Please note, as someone who has experienced the horror of watching a loved one succumb to cancer that went undetected until it reached stage-4, I am aware of the implications of this analogy.)

The intensity of economic inequality that has swept America and enslaved the ethos of its people is such that I no longer believe that a gradual structural revamping of the system is possible; the only way out of this mess is to hit the reset button or wait for nature to do it for us. What, exactly, it means to “hit the reset button” is surely a question worthy of significant attention and discussion, but suffice it for the purposes of this blog entry to say that some kind of major and immediate structural change—regulatory or not—resulting in a major redistribution of a significant portion of the wealth of the top 5% of Americans to the remaining 95% is necessary or we are doomed to suffer a civil war, another third world war, or both.

Before I enter into an endless filibuster with those who think they represent (or some day will)—and therefore feel the need to defend—the top 5%, permit me a few more moments of your time. First off, by the laws of probability, you most likely do not and never will represent the top 5%. Truly, one of the greatest illusions propagated by American plutocracy during the past 50 years, is the Reaganomatic three-class system. Apart from the fact that “upper class” sounds oh so much better than “rich” and “lower class” better than poor (albeit still a denigrating term), the fact of the matter is that socially, economically, and thus residentially, American society is divided and subdivided so completely and thoroughly that one can hardly maintain candid awareness of their place within it. I believe many individuals actually prefer it this way; as it is more palatable to trade away our consciousness than to accept that within the context of the actual, far more variegated, stratosphere in which we exist, the majority of us are really pretty damn far from the top, not “2nd best”, as our acceptance of “middle class” status would have us believe or even “upper-middle class.” There is plenty written on this subject so I defer to the Ackerman’s of the world for those that want to isolate discussion to Reaganomics. As for me, I am passed that as I think it is more pertinent to note that the average tax rate of the wealthiest 1% fell to its lowest level in at least 23 years in the year 2000 and has been maintained at such a level for 9 years. The group's share of the tax burden has risen, but only because its share of income has risen faster. This painful fact is only possible because over the past hundred years this group has had their taxes gradually lowered from 70% in the 1920’s to the current rate of 35% (I’m ignoring of course the Eisenhower time period in which they had a 90% tax rate because of the need to fund the war). [More on this topic can be found at: www.heritage.org as well as the IRS's income-statistics website.] The compounding impact of the increased wealth of the top 1% (you can use 5% if you prefer) creates an increasingly unfair playing field as these extremely wealthy individuals are provided with much lower risk opportunities to multiply their free and available money that unlike the “middle class” is not being tied up by liabilities connected to basic necessities. Yet, our regulators have not only accommodated the wealthy (forget for a moment that many of them belong to this privileged group), they have actually made it exponentially easier to compound their wealth.

It is important to note here that the word “wealth” is often confused with “income.” As noted in Wikipedia: “These two terms describe different but related things. Wealth consists of those items of economic value that an individual owns, while income is an inflow of items of economic value. The relation between wealth, income, and expenses is:

change of wealth = income − expenses

A common mistake made by people embarking on a research project to determine the distribution of wealth is to use statistical data of income to describe the distribution of wealth. The distribution of income is substantially different from the distribution of wealth. According to the International Association for Research in Income and Wealth, "the world distribution of wealth is much more unequal than that of income.

Two important points need to be extracted and highlighted here: first, the wealthy do not grow wealth-y by spending their money, they do so by hording it or by having such a disproportionately large income compared to that of the rest of the individuals in society that they cannot spend it all without gratuitous effort; second, the more wealth an individual has sitting in appreciating assets, especially those that pay dividends, the more powerful the compounding effect of such wealth becomes, allowing such an individual to take from the economy without producing an equivalent worth of production.

Thus, without voluntarily giving back, or being compelled to give back (via taxes for instance) an amount of that money proportional to the amount of energy that created it, the said wealthy person is essentially sucking net value and currency flow from the economy, thus defeating the two purposes of using a currency system in lieu of a bartering system, which was intended to facilitate the transfer of value (and individuals net production to society) over space and time. Does that mean that we should get rid of interest rates and capitalism? Absolutely not! I have a retirement account and I completely agree that those who have the prudence and gumption to endure short-term pain for long-term gain (my definition of “investing”) should be rewarded. What that individual is giving up (and it is not merely the unit value of the money, but the comforts that such money could have provided) allows for multiplied production. At some point, however, an individual’s wealth is so great that he endures no pain whatsoever, and hence could not possibly buy any further reasonable comforts, yet he is rewarded as if he has given up an incredible amount for the good of society.

Apart from forcing the wealthy individual to give back, what else can be done to return balance to the economy? We could cut expenses. Certainly excessive and unnecessary public spending should be avoided as it ultimately causes the same concern as the previously described super wealthy individual, the money controlled by the government is granted to them under the pretense that if combined it will be able to provide a quality of life enhancement that in general is greater than the pain caused by taking it from the individuals for whom it belonged.

I can already hear someone in the back of the room yelling, that’s exactly why the wealthiest 5% should not have to pay their money into the pot since they do not utilize public resources. Such a skewed perspective is how we got to this point to begin with. Lloyd Blankfein may never need to use the Metrorail system, but 95% of the persons that are somehow connected to the success of the company he runs do (think pension funds) and will continue to depend on public investment. Out of sight out of mind, I guess.

We live in a society in which everyone is convinced of two seemingly connected but really very separate things: one can achieve anything in this world if one wants it badly enough; and the wealth that one has is the result of one's hard work--hence, you’ve earned it. One does not magically result in the other, especially when one thinks of, say, Paris Hilton. Such ideologies allow the wealthy to feel like they are entitled to the disproportionately easy living they have and the un-wealthy believe that the energy they are transferring to the wealthy is just part of the due-diligence process at the end of which they will some day enjoy the benefits of a role reversal. The misdirection lies in the fact that very, very, seldom, if ever, will roles actually be reversed. Sure, it is quite likely that our un-wealthy worker will one day meet another hardworking individual with even less wealth than he, but that does not mean that roles have been reversed. The flow of real wealth, the flow of real power and of economic value in America is for the most part unidirectional and exponential. Furthermore, since it is customary to inherit one’s family wealth, it is not at all obligatory for an individual to produce their wealth’s worth of production.

Continued denial of the state of disequilibrium in our country will only bring us to an ever more painful inevitability. What happens when the masses stop believing? Worse, what happens when those who stop believing begin to mobilize? A friend of mine recently told me that he does not believe in recessions, that they are merely the result of people resting on their laurels after a period of time in which things came to easy. He went on to say how he was at Target and was waiting in line for so long (because there weren't enough employees) that he just put his stuff down and left. He said, on the way out he saw a "we're hiring sign" on the door and continued with a smugness that made me question if he was the same person I played t-ball with as a kid 25 years ago. All I could think to say to him was "the other possibility is that the cost of living has increased so quickly relative to wages that in the end it's not worth working at all." He was disgusted with my response, and as someone who has held multiple simultaneous jobs for most of my life, I wasn't sure I believed the words coming out of my own mouth. Then my 23-year old brother called me to tell me he had quit his job because after subtracting the cost of commute (two hours a day), taxes, and other basic job-related expenses he was working for $4.90 an hour. How can anyone believe in the "American Dream" when they work their ass off for $4.90/hr during one of the worst recessions in history while the front page of the newspaper reads: Goldman Sachs’ profit and remuneration soars?

Haiti in Context: History

Note: This is a Partner Post to Haiti in Context: Voices. Please check out both. They represent some of the best information I've seen on Haiti that's emerged over the past few days.

It has been a tough 4 days for Haiti and its Diaspora but from struggle emerges strength. I first want to say I am every renewed by the way I've seen folks in my own personal network and internationally begin to pull together for Haiti. I am clear that what we are doing now is small and late, but there is nothing like watching community form before your eyes and working together. Political differences become supplanted in the midst of crisis and when heavy lifting is occurring. A number of people have reached out to me regarding Haiti and the context surrounding the country that would allow an earthquake to do so much damage. In reality, like most "natural disasters" there are very human causes that lead to such catastrophic consequences. I have assembled some of the best writing I've seen on the context and figured I'd let you read the experts words moreso than mine.

Alternet covers the emergence of Haiti and the deep connections between the United States, Haiti and the globe:

However, more than two centuries ago, Haiti represented one of the most important neighbors of the new American Republic and played a central role in enabling the United States to expand westward. If not for Haiti, the course of U.S. history could have been very different, with the United States possibly never expanding much beyond the Appalachian Mountains.
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The Socialist Worker has a good article on the policies that helped produces deep issues of political and economic infrastructure.

"The media coverage of the earthquake is marked by an almost complete divorce of the disaster from the social and political history of Haiti," Canadian Haiti solidarity activist Yves Engler said in an interview. "They repeatedly state that the government was completely unprepared to deal with the crisis. This is true. But they left out why."

To understand these facts, we have to look at a second fault line--U.S. imperial policy toward Haiti. The U.S. government, the UN, and other powers have aided the Haitian elite in subjecting the country to neoliberal economic plans that have impoverished the masses, deforested the land, wrecked the infrastructure and incapacitated the government.
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American "Capitalism" (it 'ain't quite capitalism) and the Health Care Debate

The health care debate (more on that soon) got me thinking a little about the whole capitalism/socialism thing. And my conclusion is...I wish I was a full-time comedian (no, I'm not even a part-time comedian, but I should be - you know I got jokes!), because this debate has so much ridiculous material. The central thrust is that Obama and the advocates of health care reform, or I should say, reform of his kind, are threatening to take the U.S. health care system and paint it socialist. In general, the Know-Nothings (what I call the Republicans who pretty openly shun knowledge, which, sadly, is quite a few of them) use the socialist label pretty often anytime there is any sort of discussion about corporate responsibility, progressive tax reform, etc. Well, their argument is full of holes, anyway (not surprising from know-nothings), but they seem to gloss over a major issue - America has had a lot of socialism in it, and I argue, not in a good way, either.

Okay, lets try to keep this simple, and not turn into a long-ranging discussion on political economy, etc. (which I couldn't do, anyway). A basic selling point of capitalism is that a free market pushes innovation at a greater pace than a controlled market. By making firms compete against each other, you not only theoretically get better products, you also get lower prices - everybody wants to win in the marketplace, so they make better products than the next guy, and then sell it for less. On a theoretical level, I'll say that I personally tend to favor the incentives of a free market.

So, you're thinking to yourself, this is kind of what America is based on, right? Isn't this system the basis of our economy? Isn't this one of the main points of contrast between us and the Soviet Union in the Cold War? Well...sort of. See, the problem with all of this is, we're not exactly a capitalistic society. Not for the big boys, at least. And the health care debate reminded me of that.

What am I talking about here? Simple...if America was truly a capitalistic society, it would not protect its large firms, which are among the largest and most powerful in the world, anyway. We do not have infant industries in any stretch of the imagination. The US, if truly adherent to capitalism, would limit tariffs. We would not shield these companies in any way - the whole point is to use global competition to create better products, right? Well, that's where we fall short on a lot of levels. We do indeed protect a lot of our industries. Not all, of course, but there are quite a few corporate tax loopholes, corporate welfare, and other forms of financial protection for some of our biggest firms.

So, when Bill Maher laments that America doesn't make anything anymore, there's a reason for that...we cover our industries collective behinds to a point that they don't have to compete so hard in the global economy. This hurts innovation, competitive prices, etc. Hence, we no longer lead in producing "stuff". And some of this has other real consequences, too. For instance, our protection of the textile industry here really hurts Pakistan, which can't really penetrate US markets because of this fact. Now, if Pakistani textiles could get in, they would do pretty well and generate some wealth for Pakistan, no small thing considering the major economic issues the country is experiencing, which are undoubtedly playing a big role in larger security issues. This would also push our own textile industry to get their act together as well.

Now, on the other hand, when it comes to a massive comparative advantage, we are pure capitalism, baby! Iraq is the most obvious example of this, and we see this type of thing when US aid gets distributed to other countries. Part of the condition is to open their markets to the US/buy US products with the aid money. What happened in Iraq was one of the more disgusting examples of this. Iraq, post-war, was obviously a mess (and it still is). In terms of its economy, what it really needed was a more socialistic approach. There was no way its industries could compete with foreign firms. Of course, this kind of approach didn't fly with US capitalism promotion abroad. Bremer wrote in laws that opened Iraq for foreign business early in the occupation, and not surprisingly, foreign firms came in and wiped the floor with native industries. Hooray capitalism! This kind of thing has happened quite frequently, though maybe not to the degree of the CPA in Iraq. Andrew Bacevich, a noted military and US foreign policy historian, talked about the concept a bit, referring to it as economic imperialism, something a lot of people missed during the Clinton years. We made many across the world "liberalize" their economies, which isn't bad at all, but we often insisted that they open up their markets fully, as opposed to nurturing some of their own native industries, which ended up being a major win for us. I realize this kind of goes in between imperialism and foreign capitalism, but I'm just trying to illustrate the point of open markets here.

This has some similarities to the economics of European colonialism. It's not the same, but there's a lot of overlap. Europe, coming off its Industrial Revolution, needed markets to sell these goods in, as well as markets to buy cheap raw materials. Hello, Middle East and Africa. European powers came in, made deals with rulers to open the markets, and did a killing. But wait...didn't I say earlier that global competition is necessary to improve industries? If so, doesn't that make all this foreign capitalism okay? Well...not exactly. When I talk about keeping open markets, etc., I'm talking about cases where the countries have somewhat similar economies. So, the domestic country has a chance to compete with the foreign one. This is not quite so applicable for countries with true infant industries, which need time to grow to a point where they can compete with global firms. The US, for instance, obviously has a huge economy, and should be able to try and compete with European, Russian, and Gulf companies, whereas a war-torn Iraq, which had been depleted by years of sanctions, had no chance in hell of competing with US firms.

So, yes, we are all about capitalism when we have a massive advantage, but not quite so much when we don't have a massive advantage. That's not really pure capitalism, you know. That's more like capitalism for our companies when its convenient, and kind-of-socialism when it's not. Which is why the cry of socialism by the Know-Nothings cracks me up. It's like, morons, otherwise known as members of Congress, we're not exactly a capitalist society! What we have, I'd argue, is the worst of both worlds. On the one hand, we have an exploitative brand of capitalism abroad that is unlikely to win us many allies, and could come back and bite us pretty bad one day. Nothing says revolutionary overthrow of a regime like massive economic strife caused by domestic industries killed by large foreign multinational corporations! Now that's what I call a bumper sticker! At home, we allow some of our industries to become more and more noncompetitive in the global economy by sheltering them with socialism...this is the place where capitalism is the most important thing, of course. And, where socialism would actually help, like providing a social safety net for the market failures that inevitably occur in capitalism (namely, the poor), we back away from it like it was the plague.

I'm not necessarily advocating either system here - like I intimated earlier, I think the incentives of capitalism are good, but I understand that it will ultimately fail when it comes to the poor and marginalized, so I think we need a more socialistic response there. All I'm trying to point out here is the hypocrisy in the use of these terms, and particularly of socialism by people who support its worst aspects for our own firms in many cases. I understand that great powers have incentives to exploit the economic system, which is in theory what we're doing, but when you shelter your own corporations, not making them earn their keep globally, I think it will come back and bite you in the long-run. And, I mean, look at Britain in the 19th century. The colonial aspect is awful, obviously, but in terms of their economy, unlike other European powers, they did actually keep an open market at home, irrespective of whether other countries did or did not reciprocate. I'd argue this played no small role in their becoming the dominant power of the time - their industries were forced to compete as opposed to being sheltered. Of course, brutal British colonialism abroad helped, too, but at least domestically, I think the British empire got the capitalism/socialism thing better than others.

The health care debate made me think about all of this because some are going after the public option with a cry that it will kill insurance companies - even though a recent report from the Congressional Budget Office (CBO) said it would do no such thing. (For the entire report, click here). Hmmm....health insurance companies have been running inefficiently for years in the US. So providing a public option plan that might run better due to (presumably) lower administrative costs is bad - how? I mean, isn't that the point of capitalism? If you have a company that has been doing a crappy job, you want a company that is doing a better job to come in for a) production purposes; and b) to get the crappy company in line or out of the game. So, lets be very clear. The argument to protect the "poor insurance companies" at the behest of millions of Americans is, in a way, an argument for socialism.

Now, I realize a public option isn't exactly the same as another health insurance company coming in and competing, but the private health system is, in some ways, an oligopoly, and I can't fathom private insurance companies becoming more efficient without competition from a plan that limits administrative costs, return on equity for shareholders, and advertising. I agree with Howard Dean in that I don't really give a damn as to whether private insurance companies get hurt by a public option, because they are doing a terrible job. We spend more on health care than any nation, but rank, depending on what evaluation tool you're looking at, as somewhere between #30 and #60 in terms of how good our health care actually is. A major reason is the private insurance companies. The most efficient private health insurance companies spend over 20% of costs on administration...you can expect that number to be halved by a public option plan, if not more. They keep about half of your premium dollars for themselves, and sometimes deny payment on claims to make more profits. They could do business better, but have no incentive to do so, since they profit from taking additional money from their customers while not paying themselves. I mean, did you pay attention to Wendell Potter's testimony to Congress in late June? Dear god. (Click here for a transcript of the testimony). If you think the insurance companies are reforming without competition, albeit from the government to keep them honest, I have some prime real estate I'd like to sell you. You're not getting a well-functioning health care system with private health companies - we've seen the results, and they've been pretty awful. Hence, the need for some competition, albeit not exactly a private firm.

So, like I said, the argument to protect the insurance companies that have done such a (sarcasm alert) wonderful job up to this point amounts to an argument to protect inefficient and, ultimately, ineffective companies, which is pretty similar to other arguments to protect our "threatened" corporations, which smells more like socialism than capitalism. It's like pulling for King Kong Bundy as the "little guy" in a fight against Al Bundy. And...here's the best part...at the same time, Obama's health care reform itself is also socialism (it's not, but whatever) that must be defeated at all costs before it destroys America. Wow. So, basically, they're trying to win on both fronts. See, I told you, great stand-up material.

We hope to have more on the actual meat of health care reform up soon on the blog

Note: I want to clarify something here - the point of this point is not to debate whether capitalism or socialism are better systems, or what precisely comprises each. Rather, I want to highlight the problematic and hypocritical nature in which these terms are being used. Like I point out, America is not exactly the bastion of the free market, so I find the socialist argument against a greater US government role (even though it isn't remotely as big as many are making it out to be) in health care to be a ridiculous argument. The government is plenty involved in plenty of our big businesses in ways that I posit may not be all that good. In health care, the government needs to be more involved, given the many problems of private health insurance. Paul Krugman and I are clearly thinking on the same wavelength, as he published a pretty good article about this today. He must have read our blog first...ha. Anyway...so that it's clear, this isn't so much a detailed analysis of capitalism versus socialism as it is an exercise to illustrate the insanity of the way the health care debate is regressing thus far.