I said there were six postings in this series. This one is a bonus that will undoubtedly save the world, or at the very least the country. Try to pay attention.
I have tried to outline the whys and wherefores of inequality in the US, adding information and suggestions from Thomas Piketty and his excellent book Capitalism in the Twenty-First Century to others’ and my own. This added essay suggests some possibilities for how inequality might be brought within tolerable limits, because it is already intolerable and getting rapidly worse. Very soon, extreme wealth may move democracy and equality completely out of our reach absent violent revolution. In fact, new info from Saez and Zucman (here) and (here) suggest that it’s already worse than we thought. Krugman says it is apparently the norm for the super-rich to hide significant amounts of their wealth offshore.
If nothing changes,
it will only take us another
two or three decades
to greatly exceed the
worst inequality levels in history.
As I suggested, doing something to allow the least wealthy half of the population to keep themselves out of destitution and poverty is relatively easy, because the primary things that are needed are nothing more than Living Wage, universal health care, and a viable savings plan for old age. This doesn’t make the poor wealthy, and that is not the goal. It only relieves their growing misery at not being able to provide for themselves by working full time, reassures them that not every medical problem will bring death, and they will not starve in old age. Not that achieving these changes would be simple, far from it, but what to do and how to get there are readily spelled out, lacking only resolving the details and passing the appropriate laws. These things are doable because they require only decisions.
But the more difficult part of reducing inequality will be to overcome the inherent tendencies of great wealth to increase without limit, which is part and parcel of capitalism. When capitalism works as expected, this is what we get.
Then there are the “small government” folk, who want to solve all our problems by reducing the size of government to practically nothing. Call it the Paul Ryan Planned Tax Disaster. Tax money in the US presently comes to about 30% of national income. Tax in the highly desirable Scandinavian and European countries lies more in the 50%-60% range, so the US already has low taxes. The minimalists want something more like the 10% we had in 1910.
It is very clear that only basic social functions such as police, courts, foreign affairs, etc., what Piketty calls “regalian” functions, can be funded with that level of taxation. It would accelerate the plutocrat/peasant split to make us almost overnight into a nation of poor, ruled over by earls and barons with vast wealth. I notice that none of the small government enthusiasts in Congress have so far suggested a 60% reduction in Congress’ size, staff, or pay.
The difficult part of reducing inequality
will be to overcome the inherent tendencies
of great wealth to increase without limit.
Ryan’s foolish budget would make at least 90% of citizens greatly underserved. Everything would be more difficult to do; everything would cost more. It would be a total disaster requiring half a century to recover from. Each person having to pay for everything individually is guaranteed to be more expensive. Have these people never heard of economy of scale, combined resources, spreading risk? Take treatment for practically any serious medical condition, each of which could cost $100,000, $200,000, or more, cash on the barrelhead. Only the rich have that kind of money. For the rest of us a serious diagnosis would be a death sentence, and not having to pay insurance premiums we couldn’t afford anyway would be of little comfort. Meantime, do we really want to revert to privately owned highways, bridges, airports? Owned by the rich, of course, with no government input such as regulations and standards.
Such a plan would do absolutely nothing to stem the rising fortunes of the extremely wealthy, and would increase their private ownership of the nation’s public wealth, eventually to the point where most of the national wealth would be in private hands. It would increase inequality so much that most of us, even the affluent, would be harshly affected.
Piketty’s book is built around the trait that leads inexorably to inequality: r > g. When the rate of return (r) is greater than the national rate of growth (g), which is the normal long-term condition, wealth grows inexorably. The highest returns, 6%-10%, are available only to the wealthiest 0.1%, 0.01%, and 0.001%—the absolute wealthiest people in the country. The rest of us, even the affluent, can earn nothing comparable. This puts an ever-increasing percentage of national wealth in ever fewer private hands.
Overcoming the extreme adverse effects of enormous wealth will require strong steps that the wealthy will label theft. But the question that must be answered in this regard is, Do we want the egalitarian democracy that the country was designed to be, or a country owned and managed by a self-selected oligarchy? Is it even possible to prevent the hijacking of the nation by plutocrats? It’s as stark as that.
Do we want the egalitarian democracy
that the country was designed to be,
or a country owned and managed
by a self-selected plutocracy?
All of this excessive wealth completely fails the test of social utility. It does not strengthen the country. It does not advance technology or education. It doesn’t help anyone, or accomplish much of anything else. It is useless even to those who own it. I call it “museum money”, there to look at, but ultimately useless to anyone.
What to do about it presents extraordinary challenges, but perhaps the least difficult suggestion would be to nationalize industries that should be the responsibility of the federal government in the first place, thus moving their earnings from the very rich to the public purse. A national bank is an obvious first target. A national bank should issue currency, manage debt, and a few other things that should be the sole responsibility of the government. For the most part we now farm these tasks out to private industry, that is, to the rich, which contributes to their further enrichment and creates private ownership of public goods. A real federal bank would obviously be less costly and more responsive to the needs of the population.
Is it even possible to prevent
the hijacking of the nation
There are undoubtedly other enterprises that concern only the government that might be profitably nationalized. Industries of the national infrastructure come to mind, and certain parts of the so-called defense industry. National industries to build certain military equipment would remove most of the obvious overcharging that private defense contractors currently enjoy, as well as the huge private fortunes built by it. Impossible? Well, France nationalized the Renault auto company for some 40 years after WWII. And how about a national roadway company to build and maintain the nation’s highways?
Naturally, the conservative position is that it’s not possible for any government enterprise to be either efficiently or profitably run, which is nonsense. There are dozens of such government enterprises, competently and efficiently run. National health care insurance should be one of them.
We should not shy from tax policies that prevent private ownership of national wealth. Such policies were not uncommon in the twentieth century, and taxes on income rose above 90% in some countries after the great disruption created by two world wars. But that was income that was taxed, not wealth, and it is mostly established wealth that builds inequality.
Piketty suggests that, among other things, a progressive tax on extreme wealth be instituted, with the proceeds earmarked for national debt reduction. This would be doubly productive, because it is the very rich who buy up the debt issued by the government, thus enriching themselves and making the country poorer at the same time. Such a tax would reverse the results of this process.
We should not shy
from tax policies that
prevent private ownership
of national wealth.
All attempts to address this very serious situation involve political decisions, which, as I said, will be bitterly resisted. But there is plenty of precedent. The question to ask is simply whether a change will be good for the country, and not just for the ultra-rich. To that end, economists, financial experts, and demographers have an important responsibility to provide dependable data and information. Much economic debate in the not-distant past was based largely on opinion, ideology, and shaky logic in the absence of solid evidence. Better data are available now. The more real and dependable the data that are available the more likely it is that responsible decisions will be taken.
As Piketty notes, our financial picture is still quite opaque in many ways, allowing private wealth to be shifted around and hidden (see Saez and Zucman, above). Ideally, global law would make all wealth transparent. This will not happen anytime soon, but a national law forbidding deposits in places that do not report their holdings to US tax authorities, for example, would have major benefits, and there is no rational reason we should not have it.