“Wealth Over Work”: We’re On The Way Back To “Patrimonial Capitalism”, Where Birth Matters More Than Effort And Talent
It seems safe to say that “Capital in the Twenty-First Century,” the magnum opus of the French economist Thomas Piketty, will be the most important economics book of the year — and maybe of the decade. Mr. Piketty, arguably the world’s leading expert on income and wealth inequality, does more than document the growing concentration of income in the hands of a small economic elite. He also makes a powerful case that we’re on the way back to “patrimonial capitalism,” in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent.
To be sure, Mr. Piketty concedes that we aren’t there yet. So far, the rise of America’s 1 percent has mainly been driven by executive salaries and bonuses rather than income from investments, let alone inherited wealth. But six of the 10 wealthiest Americans are already heirs rather than self-made entrepreneurs, and the children of today’s economic elite start from a position of immense privilege. As Mr. Piketty notes, “the risk of a drift toward oligarchy is real and gives little reason for optimism.”
Indeed. And if you want to feel even less optimistic, consider what many U.S. politicians are up to. America’s nascent oligarchy may not yet be fully formed — but one of our two main political parties already seems committed to defending the oligarchy’s interests.
Despite the frantic efforts of some Republicans to pretend otherwise, most people realize that today’s G.O.P. favors the interests of the rich over those of ordinary families. I suspect, however, that fewer people realize the extent to which the party favors returns on wealth over wages and salaries. And the dominance of income from capital, which can be inherited, over wages — the dominance of wealth over work — is what patrimonial capitalism is all about.
To see what I’m talking about, start with actual policies and policy proposals. It’s generally understood that George W. Bush did all he could to cut taxes on the very affluent, that the middle-class cuts he included were essentially political loss leaders. It’s less well understood that the biggest breaks went not to people paid high salaries but to coupon-clippers and heirs to large estates. True, the top tax bracket on earned income fell from 39.6 to 35 percent. But the top rate on dividends fell from 39.6 percent (because they were taxed as ordinary income) to 15 percent — and the estate tax was completely eliminated.
Some of these cuts were reversed under President Obama, but the point is that the great tax-cut push of the Bush years was mainly about reducing taxes on unearned income. And when Republicans retook one house of Congress, they promptly came up with a plan — Representative Paul Ryan’s “road map” — calling for the elimination of taxes on interest, dividends, capital gains and estates. Under this plan, someone living solely off inherited wealth would have owed no federal taxes at all.
This tilt of policy toward the interests of wealth has been mirrored by a tilt in rhetoric; Republicans often seem so intent on exalting “job creators” that they forget to mention American workers. In 2012 Representative Eric Cantor, the House majority leader, famously commemorated Labor Day with a Twitter post honoring business owners. More recently, Mr. Cantor reportedly reminded colleagues at a G.O.P. retreat that most Americans work for other people, which is at least one reason attempts to make a big issue out of Mr. Obama’s supposed denigration of businesspeople fell flat. (Another reason was that Mr. Obama did no such thing.)
In fact, not only don’t most Americans own businesses, but business income, and income from capital in general, is increasingly concentrated in the hands of a few people. In 1979 the top 1 percent of households accounted for 17 percent of business income; by 2007 the same group was getting 43 percent of business income, and 75 percent of capital gains. Yet this small elite gets all of the G.O.P.’s love, and most of its policy attention.
Why is this happening? Well, bear in mind that both Koch brothers are numbered among the 10 wealthiest Americans, and so are four Walmart heirs. Great wealth buys great political influence — and not just through campaign contributions. Many conservatives live inside an intellectual bubble of think tanks and captive media that is ultimately financed by a handful of megadonors. Not surprisingly, those inside the bubble tend to assume, instinctively, that what is good for oligarchs is good for America.
As I’ve already suggested, the results can sometimes seem comical. The important point to remember, however, is that the people inside the bubble have a lot of power, which they wield on behalf of their patrons. And the drift toward oligarchy continues.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 24, 2014
“If You Go Back To 1933”: Another Billionaire With A Victim’s Complex And An Unhealthy Nazi Fixation
Ben White and Maggie Haberman report this morning that the political winds seem to have shifted lately in the One Percenters’ direction. Whereas a few months ago, economic populism looked like it’d give Democrats a boost in 2014, and polls showed strong public support for addressing economic inequality, Wall Street and its allies are feeling more confident.
In two-dozen interviews, the denizens of Wall Street and wealthy precincts around the nation said they are still plenty worried about the shift in tone toward top earners and the popularity of class-based appeals…. But wealthy Republicans – who were having a collective meltdown just two months ago – also say they see signs that the political zeitgeist may be shifting back their way and hope the trend continues.
“I hope it’s not working,” Ken Langone, the billionaire co-founder of Home Depot and major GOP donor, said of populist political appeals. “Because if you go back to 1933, with different words, this is what Hitler was saying in Germany. You don’t survive as a society if you encourage and thrive on envy or jealousy.”
Oh for crying out loud. Do we really have to deal with another billionaire with a victim’s complex who sees a parallel between economic populism and Nazis?
Apparently so.
If this sounds familiar, it was just two months ago that venture capitalist Tom Perkins caused a stir in a Wall Street Journal letter, arguing that the “progressive war on the American one percent” is comparable to Nazi genocide. “Kristallnacht was unthinkable in 1930,” he wrote, “is its descendent ‘progressive’ radicalism unthinkable now?”
He later said he regretted the Kristallnacht reference, but nevertheless believed his point had merit.
Despite the controversy surrounding Perkins’ bizarre concerns, Home Depot’s Ken Langone apparently decided to embrace the exact same message.
This shouldn’t be necessary, but as a rule, Nazi comparisons in domestic political debates are a bad idea. But they’re an especially egregious mistake when they’re rooted in a ridiculous fantasy.
Whether Langone understands this or not, the scope of contemporary economic populism is often quite narrow. In a political context, it tends to focus on stagnant wages, regressive tax policies, and safeguards against the worst of Wall Street excesses. As a policy matter, we’re generally talking about a higher minimum wage, extended unemployment benefits, food stamps, access to affordable medical care, and lately, expanded access to overtime compensation.
Billionaires may have substantive disagreements with these concerns and their proposed remedies, but to see them as somehow similar to Nazi genocide is more than a little twisted.
The more annoying phenomenon isn’t an American mainstream that believes the wealthy can afford to pay a little more in taxes, but rather, coddled billionaires benefiting from a modern-day Gilded Age feeling sorry for themselves.
As we talked about in January, it’s comparable in a way to a curious strain of political correctness. The more progressive talk about the concentration of wealth at the very top, tax rates, poverty, and stagnant wages, the more some of the very wealthy tell each other, “Oh my God, they may be coming to get us.”
If liberals would only stop talking about economic justice, maybe the richest among us wouldn’t have their feelings hurt.
Or maybe billionaires should just let go of this fantasy, stop seeing themselves as victims, and abandon the disgusting notion that American liberals have something in common with Hitler because they’re concerned with the consequences of growing economic inequality.
By: Steve Benen, The Maddow Blog, March 18, 2014
“Inequality Perpetuates Inequality”: Conservatives Defend Inequality Out Of Self-Interest, Nothing More
Conservatives have justified inequality for decades, arguing that it is an inevitable byproduct of capitalism and broadly beneficial. This intellectual edifice has begun to collapse.
Supply-side economics rest on the assumption that the wealthy drive economic growth, and that by reducing taxes on them, we can unleash latent economic potential. In fact, however, investment is driven by demand, not supply (a point acknowledged by the relatively conservative Martin Feldstein). If there are viable investments, they will be made regardless of tax rates, and if there are no investments, cutting taxes is merely pushing on a string. Thomas Piketty and Emmanuel Saez, two top economists on inequality, find no correlation between marginal tax rates and economic growth.
Recently, two IMF papers confirmed what Keynesians like Joseph Stiglitz have long argued: Inequality reduces the incomes of the middle class, and therefore demand. This stunted demand means fewer opportunities for investment, stunting growth.
Add to this growing body of research the fact that a robust defense of inequality is increasingly difficult to muster when every other OECD country has far lower levels of inequality than the United States. Greg Mankiw’s defense of the 1 percent was widely decried, because a large swath of research shows that the rise of the 1 percent did not come from natural economic forces, but rather rent-seeking.
The evidence is clear: The economic benefits of inequality have been massively oversold. Inequality is, in fact, a detriment to growth. So why has the right not conceded the argument?
The answer is class interest.
“Class interest” does not mean that the wealthy are nefarious schemers. Instead, it means there are various cognitive biases that lead them to justify and perpetuate inequality. For instance, Kris-Stella Trump conducted experiments in which participants were asked to solve anagrams in a high inequality scenario (the winner received $9 and the loser $1) and a low inequality scenario (the winner got $6 and the loser $4). When asked what a fair distribution would look like, the high inequality group preferred an inequality of $5.54 ($7.77-$2.23) while the low inequality group preferred inequality of $2.30 ($6.15-$3.85). She concludes: “Public ideas of what constitutes fair income inequality are influenced by actual inequality.” Inequality perpetuates inequality.
Paul Piff finds that the wealthy feel more entitled to their earnings and are more likely to show personality traits typically associated with narcissism. Recent research by Andrew J. Oswald and Natavudh Powdthavee finds that lottery winners in the UK are more likely to switch their political affiliation to the right, and also more likely to believe that current distributions of wealth are fair. As people get richer, they think that tax policies favoring the rich are fair — not because of the macro-economic benefits, but because of how they benefit me.
These cognitive biases, rooted in class distinctions, have deep implications. As a young economist argued in 1846, “The ruling ideas are nothing more than the ideal expression of the dominant material relationships.” Benjamin I. Page, Larry M. Bartels, and Jason Seawright examined the policy preferences of the very wealthy and found that they generally fall in line with their class interests. The wealthy were far less likely than the general public to believe that “government must see that no one is without food, clothing, or shelter,” or that minimum wage must be “high enough so that no family with a full-time worker falls below official poverty line,” or that “the government in Washington ought to see to it that everyone who wants to work can find a job.”
This is not meant to demean the policy preferences of the wealthy — only to examine the motives. For too long, the wealthy have couched their economic ideas as being broadly good for the country, but in fact, de-unionization, capital market liberalization, and austerity benefit them while leaving the rest of us far worse off. It’s time that we were all honest about why we support the policies we support.
Now of course, not everyone who supports conservative economic policy is wealthy. Indeed, there is a large literature devoted to the question why the working class supports policies against their own interests. Engles calls this phenomenon “false consciousness,” writing to Franz Mehring, “the real motive forces impelling him remain unknown to him; otherwise it simply would not be an ideological process.” Thomas Frank proposes that working-class conservatives are swayed by social issues. Ian Haney Lopez argues that racial animus still plays a role. Rick Perlstein notes the power of identity politics. The American ethos of upward mobility certainly plays a role; truck drivers in Tallahassee vote for tax breaks on Wall Street believing that they may someday posses enough wealth that an estate tax might affect them. John Steinbeck noted the power of aspiration, writing, “Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.”
But when it comes to wealthy conservatives who favor economic policies that hurt many Americans: Bartels’ previous investigation of economic and political power finds, unsurprisingly, that those with a higher socioeconomic status have more influence on legislative outcomes. Martin Gilens, Dorian Warren, Jacob Hacker, Paul Pierson, and Kay Lehman Schlozman have all recorded similar findings. It seems obvious, but it is important to connect these dots: Not only do the wealthy have interests divorced from the broader interests of society, but they also have the political heft to turn those interests into policy.
It is considered rather gauche to discuss class today, and the inequality debate is therefore situated in a purely theoretical realm. Liberals are constantly confused and aggravated about why the preponderance of evidence that austerity doesn’t work (while stimulus does) and that inequality harms society is lost on a large portion of conservatives.
Well, let’s face it: Those who support austerity and inequality are not really about “trickle-down” economics or “efficiency and equity.” They are protecting the interests of the upper class.
As Jonathan Swift warned, “It is useless to attempt to reason a man out of a thing he was never reasoned into.”
By: Sean McElwee, The Week, March 18, 2014
“Stripping Away The Rhetoric”: Rebuilding The American Dream, One Insurance Policy At A Time
The Republicans give lots of reasons for their opposition to the Affordable Care Act. Only two really matter.
One is politics. The other is money. More precisely, big-business money.
Like Social Security and Medicare, the expansion of health insurance coverage is making voters more predisposed to support the politicians that championed the law — and they’re all Democrats.
Meanwhile, the more Americans benefit from this new law, the more Republicans are being forced to modify and mellow their rejection of it.
Within a few years, it may become as politically suicidal to openly attack the Affordable Care Act as it would be to call for abolishing Medicare.
Of course, Republicans can’t say they oppose the reform law often called “Obamacare” because it boosts the Democratic Party’s prospects. So they say it violates states’ rights. They say it infringes on individual liberty. They say it hurts small businesses. They say it will cost Americans their jobs.
None of these charges is withstanding scrutiny.
The law was written with states in mind. That’s why states can build their own insurance exchanges. It doesn’t erode individual liberty. The Supreme Court said so. And while it will be some time before we know about the law’s full economic impact, the evidence so far suggests that it puts more money into the pockets of people who will spend it, according to a report by the Congressional Budget Office.
Wasn’t that the same report that said Obama’s expansion of health insurance coverage is killing jobs? Indeed, many news outlets reported exactly that. But that’s a misreading of the report.
The CBO found that some workers — mothers with small children, students, and those close to retirement — have voluntarily left the workplace, because they didn’t need a job to maintain access to quality health care anymore.
Once the Affordable Care Act began to take effect, these workers exercised their newfound economic freedom by choosing to quit. They’re now caring for their kids and grandchildren, focusing on their own education, simply opting to enjoy their golden years, or starting their own businesses.
That’s something to celebrate. The critique that the Affordable Care Act somehow reduces the incentive to work doesn’t stand up to scrutiny.
The voluntary exit of more than 2 million workers from the American labor force will benefit many people. These workers are free to follow their dreams. If they are providing care, they will ease our caregiving deficit. And other Americans seeking work may finally find a job.
At the same time, money saved on health care can be spent on things that small businesses sell. Yes, I know. Republicans claim higher wages are bad for small businesses, and because small businesses are the engine of the economy, Obama’s expansion of health insurance is a job-killer. That’s just wrong.
Wages aren’t the top concern of small businesses. Taxes and poor sales are. So with more money in more pockets, sales receipts should climb.
When you strip away the rhetoric and take a good hard look at what the Affordable Care Act actually does, it sure looks like the new law raises wages and increases workers’ bargaining power.
By: Jonathan Stoehr, Managing Editor, The Washington Spectator; The National Memo, March 17, 2014
“That Old-Time Whistle”: The Kind Of Things Conservatives Say To Each Other All The Time
There are many negative things you can say about Paul Ryan, chairman of the House Budget Committee and the G.O.P.’s de facto intellectual leader. But you have to admit that he’s a very articulate guy, an expert at sounding as if he knows what he’s talking about.
So it’s comical, in a way, to see Mr. Ryan trying to explain away some recent remarks in which he attributed persistent poverty to a “culture, in our inner cities in particular, of men not working and just generations of men not even thinking about working.” He was, he says, simply being “inarticulate.” How could anyone suggest that it was a racial dog-whistle? Why, he even cited the work of serious scholars — people like Charles Murray, most famous for arguing that blacks are genetically inferior to whites. Oh, wait.
Just to be clear, there’s no evidence that Mr. Ryan is personally a racist, and his dog-whistle may not even have been deliberate. But it doesn’t matter. He said what he said because that’s the kind of thing conservatives say to each other all the time. And why do they say such things? Because American conservatism is still, after all these years, largely driven by claims that liberals are taking away your hard-earned money and giving it to Those People.
Indeed, race is the Rosetta Stone that makes sense of many otherwise incomprehensible aspects of U.S. politics.
We are told, for example, that conservatives are against big government and high spending. Yet even as Republican governors and state legislatures block the expansion of Medicaid, the G.O.P. angrily denounces modest cost-saving measures for Medicare. How can this contradiction be explained? Well, what do many Medicaid recipients look like — and I’m talking about the color of their skin, not the content of their character — and how does that compare with the typical Medicare beneficiary? Mystery solved.
Or we’re told that conservatives, the Tea Party in particular, oppose handouts because they believe in personal responsibility, in a society in which people must bear the consequences of their actions. Yet it’s hard to find angry Tea Party denunciations of huge Wall Street bailouts, of huge bonuses paid to executives who were saved from disaster by government backing and guarantees. Instead, all the movement’s passion, starting with Rick Santelli’s famous rant on CNBC, has been directed against any hint of financial relief for low-income borrowers. And what is it about these borrowers that makes them such targets of ire? You know the answer.
One odd consequence of our still-racialized politics is that conservatives are still, in effect, mobilizing against the bums on welfare even though both the bums and the welfare are long gone or never existed. Mr. Santelli’s fury was directed against mortgage relief that never actually happened. Right-wingers rage against tales of food stamp abuse that almost always turn out to be false or at least greatly exaggerated. And Mr. Ryan’s black-men-don’t-want-to-work theory of poverty is decades out of date.
In the 1970s it was still possible to claim in good faith that there was plenty of opportunity in America, and that poverty persisted only because of cultural breakdown among African-Americans. Back then, after all, blue-collar jobs still paid well, and unemployment was low. The reality was that opportunity was much more limited than affluent Americans imagined; as the sociologist William Julius Wilson has documented, the flight of industry from urban centers meant that minority workers literally couldn’t get to those good jobs, and the supposed cultural causes of poverty were actually effects of that lack of opportunity. Still, you could understand why many observers failed to see this.
But over the past 40 years good jobs for ordinary workers have disappeared, not just from inner cities but everywhere: adjusted for inflation, wages have fallen for 60 percent of working American men. And as economic opportunity has shriveled for half the population, many behaviors that used to be held up as demonstrations of black cultural breakdown — the breakdown of marriage, drug abuse, and so on — have spread among working-class whites too.
These awkward facts have not, however, penetrated the world of conservative ideology. Earlier this month the House Budget Committee, under Mr. Ryan’s direction, released a 205-page report on the alleged failure of the War on Poverty. What does the report have to say about the impact of falling real wages? It never mentions the subject at all.
And since conservatives can’t bring themselves to acknowledge the reality of what’s happening to opportunity in America, they’re left with nothing but that old-time dog whistle. Mr. Ryan wasn’t being inarticulate — he said what he said because it’s all that he’s got.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 16, 2014
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