Since the release of Thomas Piketty's book, Capital in the 21st Century, I've been thinking back to the days of the Reagan Administration. I remember the speeches he gave, how he told us how great his proposed tax cuts would be for the economy, and I look at the economy now with great disappointment. We were set on a path towards one of the greatest financial collapses we have ever witnessed. (There was an even bigger one in 1929, but most of those witnesses are dead.) What just happened?
Piketty has compiled enormous amounts of data into a nutshell of nearly 600 pages in a book that is now a top seller at Amazon and is putting real fire under the feet of conservatives everywhere. A book with an analysis of more than 200 years of data to show, conclusively, that capital will always outperform the economy in terms of rate of return. Left unrestrained, this trend has returned us to a gilded age where a very small minority own the majority of the wealth.
This tiny minority, the 1%, or even the 0.1%, have the greatest influence over public policy where the average person has next to zero influence. They have achieve what many Americans dream of, making money with money. This is wealth without work, and in a sense, it is a form of slavery, since everyone else has to work to support the system maintained by the 0.1%. This condition was exacerbated and accelerated by the Reagan Revolution.
One thing Reagan didn't tell us about his tax cuts is that just around the corner, monopolies are waiting to be hatched. Look around the country and you will see enormous monopolies, not just in finance, but also in telecommunications, software and in the media. In the last few decades we have seen a great deal of consolidation of many industries, leaving us with one or two really big players in just about any industry. This is especially true of the older manufacturing industries.
Consider: do you go to a mom and pop shop for hardware or do you go to Lowe's or Home Depot instead? Do you keep your money in one of the really big banks that were responsible for the meltdown in 2008? Or do you use a local credit union? Do you use Visa or Mastercard? Do you use Comcast or Time-Warner? Can you touch any food that isn't genetically modified? How would you know?
In almost every industry, we can find at least one overwhelming leader in the industry, often there are two, a sort of duopoly. Where industries are consolidated into a few giant corporations, we lose freedom of choice. Worse, we lose the power to regulate those industries. Why?
Because the lucre offered by the monopolies is so great that regulators are often enticed to go work at the firms they regulate when their public service is done. So they're extra lenient to those really big companies they want to work for someday. Many of the people working in regulatory agencies come from the very industries they regulate with the intention of using what they learned at their former employer's direction. That's the revolving door that some politicians like to agitate about to bring the populists into their fold, but rarely do anything about.
There are some who say that if you tax the rich, you won't be able to finance government, the rich simply don't have enough money to take from them to do it. Some have estimated that you might get $35 billion from them if you confiscated all their income for a year. But that's probably not the point of high taxes.
The point of high taxes is to avoid returning to a gilded age where only the 1% have any influence in public policy. A billionaire can have enormous influence on regulators, politicians and courts. A check here, a check there, under cover of trusts and foundations can go a long way towards buying the justice you want, if you can afford it. The Supreme Court has said that money is speech and that seems to be the rule these days in our capitals.
Piketty's book shows conclusively that capital will always outperform the economy, and it trounces labor. But he also shows that capital can be tamed with higher taxes and that will create a longer lasting boom in the economy. Don't believe me? Check out the general prosperity we had in the 50s when the top marginal tax rate was 90%+. We had a middle class then, and it was thriving. Our middle class now can't even retire comfortably.
The progressive taxes we had up until the 80s kept the capitalists in check so that everyone could enjoy the growth in the economy. Those taxes forced capitalists to scale up to make the money they wanted and that created more jobs. But the tax cuts of 2001 meant that between 2009 and 2012, the top 1% took 95% of the growth in the economy as their own, leaving the rest of us to compete for that remaining 5%. This is not sustainable.
There are some who say that corporate rates are too high here and that many corporations are holding money offshore to avoid the taxes. Some corporations say that if we could just have a tax holiday for a year, they'd bring the money back home to create jobs. We've been there, done that. How did that work out?
The corporations that did repatriate their money paid more than 90% back to shareholders while at the same time cutting jobs. The capital returned simply went into other investments rather than helping all of us with higher wages and more jobs.
I look around my town and instead of liquor stores, I see pawn shops and payday loan joints. They're everywhere. Even some employers are offering payday loan services as if that was a valued service. Wages have been suppressed for 30 years and the trend shows no end in sight.
This is what trickle down economics looks like. Instead of redistribution so that consumers will have money to spend - money that creates demand, which also creates jobs - the wealthy among us think they're going to loan us the money. Yeah, that's cute, but buying on time is what got us into trouble in 2008. People were getting second mortgages on their homes to finance what their stalling wages would not pay for. Vacations, cars, boats, college, whatever. How ironic that Tea Party Conservatives claim to want to eliminate the federal deficit.
From 1930 to 1980, outside of technological change, we suffered no giant collapses of any industry, including the financial industry. We had a middle class. We had a voice in our collective fate.
Since 1980, only the 0.1% called the shots, while using the government to protect themselves from the consequences of their choices, leaving the rest of to consider: was this trip really necessary?
The 0.1% have noticed increased scrutiny of their actions thanks to the internet. It is now easier to find data that belies their motives and then to spread it around so that many people can see what is happening to the rest of us. For example, if domestic legislative agendas endure too much scrutiny, efforts move to treaty deals that are negotiated almost entirely in secret. Then domestic legislatures (that'd be Congress for us), can vote on the treaty up or down, with no amendments. They usually do this when some crisis is happening, like in Ukraine. During the secret negotiations, it's called a free trade agreement. After adoption, it's called a treaty.
This is a mathematical expression of the rules we're operating under:
We can change this. If money is speech, then there is a superPAC for the people. That money can be used to convince politicians that money is not speech if everyone else but the 1% are able to use it to make their voices heard. That is probably the best place to start. Let's see what happens when elected officials lose theirs seats because they continue to believe that money is speech.