Obligations of the Wealthy

What obligations do capitalists have to their society? Any? Or is it only the money?

Consider somebody who works for a living. Family. Wife and children. Hard worker. Maybe overtime. He has time and resources to look after his own affairs. But does he have time to look at the bigger picture? And even if he had the time, would he have the opportunity. Would he have the education?

Probably not. Indeed, in most cases, a person cannot look after larger interests than his own. Yet, each person is as dependent on this bigger picture as he is of his job. Indeed, one of the people he is most dependent on is his boss. His boss can make his job miserable or pleasant. He can fire him, in some places without any cause at all. Just so, his boss is dependent on his own boss, and his boss on his boss. And so on, up to the very wealthy and very powerful. And even the self employed, even the small business owner is dependent on those richer and more powerful than he is in society. After all, they are able to spend vast sums of money, and alter the government and the allocation of resources. Any one of these powerful could destroy him, the worker, the self employed, the small business man, purely incidentally, without thought, or regard. One has only to look at the hundreds, perhaps thousands, of down towns destroyed by Walmart, or the thousands of desolate factories, to know this is true.

We are all dependent on what goes on beyond our horizons. And we look to other people, those above us, those around us, to keep track of what those things are. We have to.

This dependency is a socially necessary thing. Society could not exist without it. A worker who was more concerned with the affairs across the planet simply could not give enough attention to be able to manage his own life. The same for the small business man. He must attend to his business, his community, the people he buys from and sells to. He doesn’t really have the time to spend a lot of it worrying about the larger issues.

And of course there are other dependencies. We are dependent on the behavior of our neighbors, on the politicians who are expected to serve us, on the people who provide the public services in our community. Society is a web of dependencies. So the question is: Do these dependencies carry any obligation beyond the purely economic? Do they carry a moral obligation?

And what do we mean by moral obligation? From “The Free Dictionary:”http://legal-dictionary.thefreedictionary.com/moral+obligation we have: MORAL OBLIGATION. A duty which one owes, and which he ought to perform, but which he is not legally bound to fulfill.

Now some of these dependencies are equal exchanges. I depend on my neighbors, and my neighbors depend on me. The sense of ‘duty which one owes,’ seems clear in these cases. It is not so clear in cases of hierarchy. Does a boss owe his employee anything besides his salary? Is not the entire value for both parties of the relationship summed up in the exchange of labor for money? Is not the employee compensated in his wages for all the factors of his employment including, say, the fact that he can be fired at will? If we believe this, then be believe that not only is the labor market efficient, but that it is just. But if we believe a particular market is just, how can we believe that the same market, tilted by external forces, is also just? Is the market produced by a monopoly just? And employment, we have a market defined not only by an asymmetry of needs, as are all markets, but by an asymmetry of information. Can the employee negotiate a premium on not only on what he doesn’t know, but what he doesn’t know he doesn’t know? Not only can he not negotiate such a premium, but it is unreasonable to expect him to. And even were he to, he would be in competition with those who would not demand such a premium.

The point here there is that there is a gap, which cannot be remedied by formal debt and application of law.

And what about the relationship between the wealthy and the rest of us. Let us first admit the obvious. They pretty much control the economy. That is, our welfare, the welfare of the society is dependent on their actions. Even if this were not completely the case, it is very much so. By their actions, should they choose, they can do enormous damage to society.

I am not claiming conspiracy. I merely claim a similar response to similar motivations. There was no conspiracy to outsourcing, nor is there to robotization, but damage was done, though some would say the benefits to society more than compensated for it.

But who got compensated? Did the workers who lost their jobs to outsourcing gain any share of the increased profits enjoyed by those companies who sent their jobs overseas? Were they owed any? Did the companies who fired these workers for greater profit elsewhere have any obligation to these workers, or society in general? Or just to enjoy their increased profits, to divide among the wealthy shareholders?

So do the wealthy owe the rest of us anything? It need not be a matter of owing. A parent has obligation to his offspring. But it is not a matter of debt. And in a very real sense we count on the wealthy to take care of us, to manage the economy for the benefit of us all. Why should society allow them to have and retain wealth, if it were not to the benefit of the rest of society? If the wealthy have no obligation, then they have no obligation to act to society’s benefit. They have no obligation not to inflict damage on the rest of society. So if inflicting damage on society profits them, then we should expect them to do so.

Unless they indeed have a moral obligation to the society which supports them.

Income Growth During the Latest Expansion

Check this out:

Got this graph from mashable.com: http://mashable.com/2014/09/25/this-really-depressing-graph-about-the-u-s-economy-is-turning-heads/

The article is titled “This Really Depressing Graph about the Economy is Turning Heads.”  Which it should.  I share it here with you.  The source is Pavlina Tcherneva, who is an economist at Bard College, in Annandale-on-Hudson, New York, and the Levy Economics Institute, a think tank associated with the college, using data from Piketty and Saez.  Basically it shows the wealthy’s control of the economy increasing until now the growth of their wealth and income is obtained by plundering the rest of the economy, which is to say us, the rest of the people.  The graph charts increase in income, but you better believe the rich are getting richer, at our expense, we are getting poorer.  Not much of a recovery, this latest, when it is gotten for a few by preying on the many.

Thanks, Yahoo, for the pointer, on Sept. 25, 2014. 

Do the Wealthy need the Middle Class?

Can the Wealthy, by Themselves, Sustain the Demand of an Economy?

Can the wealthy own too much?

Paul Krugman, back in 2008, could find:” … there’s no obvious reason why consumer demand can’t be sustained by the spending of the upper class — $200 dinners and luxury hotels create jobs, the same way that fast food dinners and Motel 6s do. “

http://krugman.blogs.nytimes.com/2008/12/17/do-we-need-the-middle-class/

What we are seeing today, with the combination of rising income inequality and  unemployment, is the inability of the wealthy to do this. They cannot, of themselves, provide enough demand to keep the economy at full employment.  We are also seeing it in Europe, with the economic damage inflicted by wide spread austerity.  After all, the wealthy, including many wealthy bondholders, are unable to sustain economic demand in the face of shrinking payrolls and public expenditures.

In order to sustain demand, the wealthy would have to spend almost as much as they earned, even as does much of the middle and lower class.  And they would have to spend it mostly on the productive economy, and not just on real estate and such.  That would just be the churning of existing assets, and add a minimum of jobs. And this production would necessarily involve the massive production of useless, or at least unused, artifacts. That is, this production would largely have to be economic waste. The wealthy already do the best they can to be wasteful, with their yachts and multiple mansions, luxury hotels and yes, $200 dinners, but they are already failing, and it is only going to get worse, as income becomes increasingly concentrated and mal-distributed.

Indeed, we can characterize wealth by the extravagance and wastefulness of its expenditures.  Since this extravagance represents an economic loss to the rest of the economy,  the greater the concentration of wealth and its expenditures, the greater the waste, and the poorer the economy. (So there is a tax multiplier not just on the quantity of wealth, but on the quality of its expenditures.)

The wealthy are actually poorer if they keep this wealth and income to themselves.  After all, they basically control the government, so all public goods are essentially already under their control. So the decline of infrastructure is a decline of their wealth. The only thing missing is the formal privatization of ownership. Thus the progression is not just the increased concentration of true wealth, although there is some of this, but the increased individuation of ownership of the assets of society. That is, the wealthy already hold in common the essential assets of society, including the so called public ones, if not formally then informally.  However, they seek to exploit these assets in a non-sustainable way, thus destroying the commons on which all depend.  

And because of the multiplier effect, the synergy of common effort having results greater than the sum of individual efforts, much of their own wealth depends on the perpetuation of this commons.

Consider what the rich already own.  The increased concentration of wealth can only constitute, collectively, an essential meanness among the wealthy, or, if you will, a meanness of the system, seeking to take from those who have much less, even what they have.  

We can suppose that everything is owned by the rich, and is just to service the rich.  It then comes down to how much the rich are willing to pay the help.  And the answer seems to be, among our current crop of wealthy, not much. They keep insisting on paying less. The fact is, with the economy in a shortfall of demand, even with the ability to pay more, our wealthy will not.

The further problem is that by depleting the middle class, they are also destroying the market required for  most of those individually owned assets to have a positive return.  After all, it is rich people who own fast food restaurants and Motel 6s, and from whose profits they buy their yachts. They will not profit if no one has the money for fast food restaurants, or Motel 6s. If we look at a ghetto, all of those ruined buildings were once owned by wealthy people, either for dwelling or for income.  If they cause the ghetto-ization of their world, they will not be the wealthier for it. 

Private Wealth, Public Debt, and Taxes

Well, well. Over at VoxEU somebody just connected a couple of the dots:

http://www.voxeu.org/article/eurozone-crisis-time-tax-rich

“Increased levels of public debt are accompanied by mounting private wealth, which is increasingly concentrated on the wealthy elite.”

Could there be a connection?  Could the public debt increasingly be held by a wealthy elite?  Could that wealthy elite be charging their sovereigns rent for the use of the sovereigns own money, money only owed that elite in the first place because that elite have used their power over their governments to lower their own taxes?  And the governments have had to borrow to maintain their services, and now they owe that elite too much to ever repay? 

But note the key step:  The elites used their power over governments to reduce their own taxes, and forced those governments to borrow from them instead.  And now those governments owe too much, threatening the very stability of the system which supports their own wealth.  Greed, greed, greed. 

At Vox they propose a one-off tax of 10%  on the assets of the top 8% of wealth.  (The top 10%, in Germany, for instance, own 2/3 of the wealth.)  They figure it will raise 9% GDP. 

Good, but not good enough.  The entire increase in the concentration of wealth since the 1970’s has been engineered by the elites.  They should give it all back.  The top 1% share of the pie more than doubled, for instance, so they should be taxed, on average, 50% of their assets.

It’s quite remarkable.  They demand disproportionate compensation, because they are so important, and they run things.  But when you ask, who’s responsible for the increased inequality, they deny responsibility, and point the finger somewhere else:  Education, for instance.  Globalization.  

They manage the system, and the system is tottering.   They take too much out of the system for a modern economy to support.  But is it due to their mis-management and short-sighted greed? Or can we, they blame circumstances beyond their control?  Well, if they do not run things, perhaps they are paid too much.   

But we know very well who’s responsible for the financial predicament.  Our elites, and their greed.  So taxing their ill gotten gains is good for us.  And good for them.  Stave off collapse of the system, on which they, and the rest of us, depend.  Will they? Or will our elites, who purport to run things, be shortsighted to the end?  If the US elections are any indication…

One of the Main Functions of Government is to Consume Excess Production

One of the main functions of government is to consume excess production, hopefully in a socially constructive manner, and so maintain the price level. Keynes suggested this, as a solution to inadequacies of demand, but it must be done even in 'good' times, and adjusted, for bad. That is, government consumption must be increased during recession or depression.  Further, the government must redistribute even more as industries become more capital intensive.  To do this in perpetuity, government’s debt cannot get out of hand, but must be constrained as a percentage of GDP.  This means collect more taxes, and these must necessarily be collected from the rich.

First, the wealthy consume less as a percentage of their income than the rest of the population. They save more. On the other hand, since the government will spend all it collects in taxes, collecting more in taxes from the rich will be economically stimulatory.   That is, the economic multiplier on taxes on the wealthy is greater than one.    This implies a strongly progressive tax to stimulate the economy. 

Indeed, from the point of view of economic stimulus, there is no point in taking taxes from the poor, or even much of the working class, when their savings is very low.  Any money taken as taxes from the poor would have been spent anyway, and so would not provide net stimulus to the economy.  What is more, a certain rate of savings in the middle and lower classes should generally be seen as desirable, since it would act as an automatic stabilizer.  Money would be saved during good times, helping to slow down the economy, and dis-saved, or spent, during recession or depression, helping to stimulate the economy, thus helping to smooth economic fluctuations.      

Further, as the owners of capital, an increased share of market income will go to the wealthy as industries become more capital intensive.  More demand, that is money, will have to be redistributed to maintain the market, which otherwise would slowly contract as labor is increasingly forced out of the productive process. (The same thing happens in a country as production is off-shored. No country can afford to have a significant proportion of the goods it consumes to be imported, unless it has compensating exports.  Thus the need for balanced trade.  See:  http://anamecon.blogspot.com/2010/04/effects-of-unbalanced-trade.html)  Indeed, given the observation that one of the government’s functions is to consume excess production, and running a trade deficit effectively increases that excess,  much of a government’s deficit can be laid at the feet of that trade deficit.)

Now there is no market for labor forced out of the productive process. This is because, as unemployed, they do not represent a market for production.  Supply increases, due to increased capital expenditures, but ultimate demand does not, because there is no increase in the number of consumers, that is, labor. Demand increasingly becomes concentrated at the top. (Of course, the wealthy could spend this money on providing public goods and services to the rest of their community. They instead rail against government, and do not themselves provide the things the community needs.)   

On the contrary, the absence of a progressive tax is/will be depressive, and destabilizing, as wealth becomes more concentrated and inequality increases. One of the causes of this destabilization is that as wealth becomes more concentrated, the market for commodities and financial instruments becomes thinner, and subject to greater fluctuations, as fewer people have the greater concentrations of wealth to invest in the various markets. Meanwhile, the market for production, represented by the middle and working classes, gradually contracts in the absence of a progressive tax.  The government, for a time, may maintain this by running up debt.  But this is regarded by many as unsustainable.

Privatizing government functions is counterproductive, since profits in privatized industries cause an increase in the upward redistribution of income, which must be counteracted with an even greater progressivity of taxes to compensate.  Indeed, a certain amount of inefficiency in government spending is a virtue, as it allows wider dispersion of government expenditures. 

What is important is the efficiency with which government collects taxes from the wealthy, since the primary goal is the constant redistribution of demand throughout the economy.  If it is inefficient in collecting taxes from the wealthy, too much money will remain at the top, and it will be inefficient at redistributing this money to the base of the economic pyramid, where it is needed to stimulate demand.  In particular, the taxes on the wealthy should be increased during recessions and depressions, that is periods of inadequate demand and excess supply.  Of course, that suggests taxes on the wealthy be decreased during periods of inflation, when they are large, but they are now already inadequate.  We are talking about a tax rate centered about 65% or so, and adjusted from there, depending on circumstance:  Higher during bad economic times; lower during good economic times. 

(Some) Homage to Karl Marx

(Some) Homage to Karl Marx

Let us offer some praise to a famous man, much in disregard these days: Karl Marx. Not because we’re a Communist, or anything. European Socialism has worked much better.(Can it continue to do so?) We offer it because he predicted this, our present predicament. He didn’t get the initial cause quite right, because his theory of surplus value was off. And he missed some delaying factors. But once he gets rolling…!

To Marx capitalism was a dynamic process, and its destruction an inexorable result of the forces implicit in its structure. He did not predict the action of some other implicit forces in society, which delayed and altered the process. But we see these forces are eventually overwhelmed, and their existence apparently in no way alters the final conclusion.

So what did he predict? Increasing substitution of capital for labor. Resulting in increasing unemployment. Increasing concentration of economic power. Decline of the middle class. Crises and depressions, as supply increases while demand decreases. Increasing misery among the masses. Who eventually react badly. Pretty good for 130 or more years. Of course, he didn’t think it would take that long…But, hey, in good company with Thomas Malthus, who also made predictions that, while also delayed, still seem pretty inexorable.

What he did not predict: The period of increasing well-being for labor, prior to the beginning of the collapse he does predict. Rise of debt and the rise of finance. The rise and role of government as a temporary buffering factor, providing a balance of power between labor and the capitalist. Indeed, he apparently missed the role of government altogether.

However, these factors only change the timing, but not the final direction. Neither did Marx predict advances in technology, but this is not necessary to his theory. It’s covered under the increasing substitution of capital for labor. And as for the end result, well, who can say?


It is not necessary to demand, as Marx did, that the value of a good is determined by the amount of labor that went into making it. (He might have had this backwards. It seems more meaningful to say the value of a good determines the amount of labor that goes into producing it. Clearly, you’re not going to labor to put more value into a good than you’re going to be able to sell a good for. There does seem to be the scarcity factor, also.) It is only necessary to observe that the Capitalist must take his profit from the worker. The worker must be ‘exploited.’ The worker must produce more than he consumes. He must produce surplus value. This is necessary. Otherwise the capitalist goes out of business. So, in fact, does society.
Now if this surplus were consumed in other ways, say by the Capitalist in high living, or the government in taxes and the production of public goods, all would be well and good. But the capitalist faces competition, and so must either drive down wages to subsistence, (and/or expand the work day and/or speed the pace of work(!)) or further invest in capital. Either way, he increases the surplus produced, either by decreasing the size of the market, or by expanding the amount produced. But all capitalists have to do this, so this merely increases the competitive pressure, leading to a crisis and driving the less efficient (smaller) producers out of business. This leads to unemployment, the concentration of wealth, etc., until the system recovers and the cycle repeats itself.

Marx apparently missed this next part: Where wages increase at the rate of the increase of production, so the market expands, there is no increase in competitive pressure, and so no crisis. Of course this is only temporary, as long as a balance of power exists between labor and capitalists, so that labor can share in the surplus value they produce. As long as the buying power of labor expands at the same rate as businesses expand, the surplus is consumed. (We previously mentioned the possible use of inflation for doing this: http://anamecon.blogspot.com/2010/07/producer-consumer-problem-again.html )

This, of course, is only a temporary situation, depending of the ability of labor to force the capitalists to keep increasing their wages, And note this balance of power works to the benefit of the capitalists, by mitigating competitive pressures. But labor must eventually fail in this, because the supply of labor continuously increases, weakening labor’s bargaining power. Note also the role of government: Government provides the legal framework for labor to exercise its power. It also acts to effectively increase wages through redistribution and regulation.

The inability of labor to prevent the taking over control of government by capital contributed to labor’s downfall. This helped permit the capitalists to hold down the wages paid labor, while at the same time increasing capitalization. Marx got this, but here Marx misses the onset of the debt bubble. Because, by borrowing, labor, despite is static income, is able to increase its buying power, its ability to absorb surplus value and so mitigate the competitive forces which bring about crisis. But debt can only carry the economy so far, and when labor reaches the limits of its ability to absorb debt, Marxian dynamics takes over, now with a vengeance.

The Marxian crisis is precipitated as the market suddenly collapses due to the tightening of credit, as the banks perceive that labor has reached the limits of its ability to pay. (Here it was as a result of the Mortgage crisis.) There is a surplus of production. Competition increases. Businesses cut back. Failures increase. Unemployment rises dramatically. (And the tax base erodes. This weakens the power of government.) Wealth becomes increasingly concentrated.

Now the government tries to intervene. It has always served as a buffer, augmenting demand, but now its efforts increase dramatically, maintaining demand by increasing spending. But this project is doomed, because with the increased concentration of wealth, the capitalists have taken over the government, and have arranged so that they do not pay their necessary share of taxes. (Indeed, the situation is aggravated by the increased demands that the wealthy, with their influence, place on government. That is, they are involved in increasingly extracting wealth from government. Thus the government, once captured by capitalists, works to destroy the capitalist’s own market, the buying power of labor, by pumping out money and giving it to the capitalists, rather than preserving the market the capitalists need.) At the same time, the income of the government has decreased, due to increased unemployment. So the government, already under increased debt loads due to the increased strenuousness of its efforts to augment demand during the period that labor was also taking on debt, must increase its debt burden dramatically. (Actually the government does not have to take on any debt at all. It can always print money. See: http://anamecon.blogspot.com/2010/11/banks-are-forcing-debt-on-rest-of-us.html Increasing taxes on labor would not have helped, as this would have left total demand unchanged. Only politically infeasible increased taxes on the wealthy would have provided an increase in demand, as well as a mitigation of supply.)

But government can only do this so far, when the wealthy, who have now committed much of their savings to government bonds, since they are unwilling to lend to others, (and indeed labor, that is the market, is still overextended,) use their influence to put a stop to this process.

It should be mentioned that much government intervention is misplaced, due to the disproportionate influence of finance. By trying to maintain the debt bubble, that is financial institutions of disproportionaate size, the real economy is sacrificed. And since it all depends on the real economy, of course, the government must eventually fail in this project, as well.

So the government ceases its intervention, and now its own demand contracts, as it seeks to reduce its debt. There is an increased surplus of production as demand decreases. Competition increases. Businesses cut back. Failures increase. Unemployment rises dramatically. The tax base further erodes. Wealth becomes increasingly concentrated.

So we have a two step crisis. Assuming this crisis eventually resolves itself, (this is uncertain) the cycle merely repeats itself, and more quickly, because of the increased weaknesses of labor and government.

The crisis may not resolve itself, however, because of the debt bubble. The debt bubble cannot deflate, except by default, and this will be resisted at all stages by those whose wealth depends on it being maintained. Since these will have control of government, this means debt will be forced on labor, (and the smaller business owner, and the middle class, who thus will be swept into the proletariat,) as government seeks to reduce its deficit, as asset prices and wages decline, and the prices of commodities increase. Labor and the middle class will take on more debt to survive, but this can only be a temporary expedient. When it reaches its limits, the workers will then be reduced to subsistence and charity.

So we see that the capitalist, by pursuing power, acquires too much! He then must act to create the misery among the lower classes that propels the proletarian revolution.

So we have filled in some of the details Karl Marx might have missed. I say might have, because I haven’t actually read his stuff, (except for the Communist Manifesto) just reductions of it. We have also skipped the role of trade, and globalization, and the fact that the interests of the industrial capitalist and the financial capitalist increasingly diverge.

And in out analysis, we haven’t reached Marx’s ‘happy’ conclusion, the liberation of the worker from the yoke of capitalism, either. That is a matter of discussion all itself. Indeed, the matter reaches to the very survival of our civilization.

Needs of Society

Society has its needs. Indeed, a society must meet these needs, before it can do things like protect itself and its members. In a viable society, its institutions must each produce more that they cost society. That is they each must produce more than they consume.

If the worker costs more than the value of what he produces, there is no point for the capitalist to hire him. Only if he is worth more to the capitalist than his cost, is it worth the capitalist employing him. It can be said that a worker must produce more than he consumes.

Just as the capitalist must take his profit from the worker, so must society take its profit from the capitalist. Only when the capitalist allows society to take its profit from him, is it worthwhile for the society to have him around. That is the capitalist entity must produce more than it consumes.

The capitalist may do this two ways. He may pay his employees enough that they can contribute to the tax base, that is, that society may take its profits off the employees, or he may allow society to take the taxes directly out of his own profits.

Society must take these profits, since otherwise it will fail. One way society does this is to have a strong enough government to take its profit from its producers. That is the government must be able to collect enough in taxes to sustain itself. If its government fails to do this, that society will fail.

Now one can say that since what a capitalist does is make and build, taxes, and a government, are unnecessary. But what is necessary is the commons, those goods and services which government secures, and often provides. The common welfare, the common capital, is what taxes support. A wealthy society seems to need a large commons, and seems to need a large and strong government to maintain it.

We think we have a strong government. It is not. It is weak. It cannot collect enough in taxes to support itself, and maintain the services and infrastructure(capital) it provides. It cannot convince its people, or its wealthy, that they should pay their taxes. It must borrow, a sign of weakness. Also, it is corrupt. It is captive to many special interests. This is a sign of weakness. It wastes its resources on things that are not needed, that may of themselves be wasteful. And it fails to do needed things. It fails to protect and preserve its commons. It fails to preserve and protect its tax base.

The people borrow to purchase things from foreign countries, things the producers of the country do not make for its people. Society cannot produce enough to exchange for the goods and services it imports. Also a sign of weakness, and of either sloth or misapplied effort.

There are those who do not want a strong government, or at least do not want to pay for one. They think that they will be able to wage war with a weak government. They think they will be able to defend their country with a weak government. They think they will be able to defend their industry with a weak government. They think they will be able to secure and maintain their wealth with a weak government, and a small commons.

They of course do not think of it these terms They merely resent the fact that society must take its profit from them, and therefore they take steps to avoid this. They try to minimize the amount they pay labor, so the government cannot collect sufficient tax from labor to maintain itself, and having corrupted the government, they manipulate the system so that they do not have to pay the necessary taxes out of their own profits. Since these taxes are both inevitable and essential to the maintenance of any society, and a fair amount of taxes for a modern society, they work the destruction of their own society.

From the point of view of society, of course, those who demand more than they contribute, and at no matter what scale, who refuse to let society take its profit off of themselves, are worse than useless.

This is all according to the principle that it is better to produce than consume. A society whose members produce and give to society more than they consume will become unimaginably wealthy, while a society whose members consume more than they produce will consume its capital, and become poor.

The wealthy set the pace. They lead both by deed and example. A society whose wealthy elevate consumption over production, who refuse to let society take its profit off of them and instead insist of taking their profits off of society, is not viable, and will destroy itself. It will consume its capital and become poor, its institutions collapsing.

Leaders are leaders not because of what they take, but because of what they give.

Why No One on Wall Street Goes to Jail

If you doubt my assertions
here

Read this:

http://www.nakedcapitalism.com/2011/02/taibbi-on-why-no-one-on-wall-street-goes-to-jail.html

This should make you mad.

Upside Down: Who the Government Really Gives To

Here's a nice little paper that ties in with my recent post "Our
Government is Captive of the Wealthy"

http://cfed.org/assets/pdfs/UpsideDown_final.pdf

Here's the little blurb on the CFED site pointing to the paper:

"Among the most compelling findings included in the report is that of the nearly $400 billion spend by the federal government in 2009, most funds went toward tax breaks. However, more than half of these breaks went to the wealthiest five percent of taxpayers, who averaged a net benefit of $95,000 each. On the other hand, less than 5% of the federal expenditures benefitted the Americans earning the least. The bottom 60% of taxpayers averaged just $5 each.

This finding and a series of others likely evoke immediate frustration, pointing to yet another barrier keeping low- and moderate-income Americans from getting ahead and achieving the American dream. Yet, with this information comes unprecedented opportunity. As CFED Founder and Board Chair Robert Friedman elucidates, “Taken together, this suggests we have a monumental opportunity not only to save by curbing existing ineffective tax incentives, but to increase net savings significantly by extending effective incentives to the asset-poor majority.”"

The government taketh away. The government giveth.

Our Government is the Captive of the Wealthy

We no longer live in a democracy.
Our government is the captive of the wealthy. Such is their power, so complete the government’s servitude, that it is by many not even seen for the prisoner it is. The people are blinded to the evidence, though this captivity is the cause of their distress.
The elections, as they have proceeded, did not change this. Hidden money has flowed into the coffers of the candidates, cementing the hold the wealthy and influential have over them. The candidates did not speak to it. Our elected officials do not speak of it. The Congress is now seeded with the lackeys of the wealthy, who do as they are told. It will get worse for the people. Our government, no longer a government of the people, will remain the captive of the wealthy.

As their captive, our government does their bidding:
It allows the manipulation and degradation of its money, forcing the people into debt, and servitude to the wealthy.
It lowers the taxes of the wealthy, and the taxes of their corporations. At the same time, it borrows from them, and accumulates a ruinous debt, an unseen burden on the people, to the great gain of the wealthy.
It reduces its regulation of the activities of the wealthy, allowing them to exploit the people.
It rescues the corporations of the wealthy when they squander their assets. It places the burden of these debts upon the backs of the people.
It subsidizes their corporations when they cannot compete on their own, and guarantees their profits.
It defends and subsidizes an inefficient and inadequate system of healthcare, one increasingly ruinous to the people, and immensely profitable to the wealthy.
It neglects the assets of the people, and allows them to crumble. It refuses to capitalize and invest in the people's future.
It allows its educational system to deteriorate, that the people may be more easily manipulated and restrained.
It refuses to effectively defend the nation’s borders against unfair trade, and illegal immigration, driving down the wages of the people, and for the profit of the wealthy.
It sells the property of the people to the wealthy, at less than its true value.
It buys things from the wealthy at exorbitant prices.
It allows and encourages the destruction of the nation’s natural resources, to the profit of the wealthy.
It prosecutes an undeclared war in a distant country, squandering the people’s assets, and thousands of the people’s lives, as well as the lives of innocents. A war from which the wealthy derive unjust profit.
It raises the specter of Terror against the people, where little is seen. It makes enemies in distant places, to the profit of the wealthy.
It enforces laws that are harsh against the people, yet excuses the wealthy.
It compromises the people’s right to due process.
It placates the people with the people’s own money, and deflects the people’s anger away from the wealthy.
It allows the press to also become the captive of the wealthy, to speak with their voice, and to distract the people with the inconsequential.
It obfuscates the nature of its actions, and the actions of the wealthy, to the confusion of the people.
It silences the discourse of the people, with insinuations of unpatriotism.
It enacts laws which perpetuate and rationalize its captivity
It enacts laws which increase its powers to do these things, to the greater harm of the people.

The government does all this in servitude to the wealthy, to the harm of the people, and the nation.
And finally, the wealthy cause this to their own harm. The wealthy gild their plumbing with their plunder, with what they gnaw from the true foundation of their wealth, which is the people, for it is by the people’s toil and sweat, and forbearance, that the wealthy live their lives of privilege.
The recent elections have strengthened the grip of the wealthy on our government: The government will enact policies that further aggravate the disparity of wealth and income between the wealthy and the people. It will inflict hardship on the people, and further insulate the wealthy from the consequences of their misrule.
Make no mistake, this land is ruled by the wealthy, and they rule for their own pleasure, and at the expense of the people. They become an ever greater burden on the people, and treat the people with ever greater contempt.
But the people are pillar on the top of which they prance.

What the income of the top 1% means to the rest of us

The top 1% of the population now get 24% of the personal income of the nation. They used to get, in the 1970’s, 9% or so. Let’s say the difference is 15%.

What is that 15%? Well, that 15% is 15% of all personal income. (All personal income is about $10 Trillion.) So it is $1.5 Trillion. Now if this $1.5 Trillion was distributed to the other 99% of the population, they would be 15% better off. That is, on the average, they would each be 15% better off. That works out to $7500 for somebody earning $50,000. $1500 for someone making $10,000, etc.

Most of the money would be spent, since most of the rest of the people are living closer to the edge. Figure $1 Trillion spent. That makes for 10 million or so jobs. (Well, figure less. The rich do spend some of their excess money.) And figure $50 Billion or so per year to social security.

Millions would be lifted above the poverty line. It would reduce the need for government expenditures on the poor, and other social programs, by $60 billion or so. ($10K x .15 x 40 Mil people.)

Over $300 Billion per year would go to people who owed mortgages. Millions of these would be able to pay their mortgages. Not all would need it. But for millions it would make a difference. It would put a boost to housing prices, and put a big dent in the bubble collapse.

Now let's compare the income of the top 1% to that of the Federal government. 24% of the personal income of the nation works out to about $2.4 Trillion. The income of the Federal government for 2010 is $2.4 Trillion. The income of the top 1% is equal to the income of the entire Federal government. Federal government expenditures are going to be$3.6 Trillion dollars. The deficit is $1.2 Trillion, or half the income of the top 1%.

Of course we already have that the top 1% pay over 40% of all income taxes. Thanks FOX. All income taxes are $1.06 Trillion. So the top 1% pay $410 Billion or so, or just over 1/6th of their income, or 17%. This tells us where FOX is coming from. Since the government’s share of the GDP consumption is 25% or so, we would expect that percent, 25%, of income paid as tax, even under a flat tax. We may conclude that the top 1% pay a smaller share of their income than the rest of society. (Well, to be accurate, the tax end of the government share of GDP is only 17%. But since almost half of the poplulation pays little or no income tax, the tax paying half, minus the top 1%, pay a higher percentage of their incomes.) Now if the wealthy paid 25% of their income, that extra 8% works out to $200 Billion, or 1/6th of the current deficit. If they paid 40% of their income, as they easily can afford to do, (they would still be far better off than they were in the 70's,) the additional amount would pay about 1/2 the deficit.

But, as we have pointed out before, or elsewhere, they are largely the ones the government borrows from. Clearly it pays them not to pay taxes. And since they are largely in control of government....

See:

http://www.philstockworld.com/2010/08/21/who-rules-america/

Now to say they rule America is somewhat of a misstatement. A proper ruler rules for the benefit of all, if only out of enlightened self-interest. The more correct title is: “Who exploits America.” That they act according to unenlightened self-interest is to all our sorrow. For they have made themselves enemies of the rest of us. In fact, they have made themselves enemies to each other, and to themselves.

They wealthy have the power to save the government. But not the..inclination.
Justice Oliver Wendell Holmes Jr. observed that, "taxes are what we pay for civilized society." (See the link.) Evidently, the wealthy do not want a civilized society.

Do the rest of us?

The Interests of the Wealthy

When the wealthy seize control of government, the wealthy cannot help but destroy the society which supports them.

In the short term, it is in the separate interests of the wealthy to corrupt the system to their benefit. That is, they will seek their own benefits ahead of the people's, first by becoming the instruments of government policy, then by bending government policy to their interests. They will cooperate with each other to do this, and secure advantage over the people. Securing advantage, they will plunder the wealth of the people. This is what (most of) the national debt is. It is what the people 'owe' the rich. Instead of paying taxes, wealthy 'loan' the money to the government, which it then has to pay back. The wealthy have used their power to cause this.

In securing their separate interests, they will cooperate in gaining favors. They will trade for votes. This is not 'zero sum' as regular trade is, but each party gains, and both their influence on, and burden on, government and the people, will expand. That is, through the instrument of government, they each acquire disproportionate wealth. And since all resources are competed for, others, the people, are at a disadvantage. The system becomes rigged.

But then they will compete, they must compete, to secure advantage over each other, and further advantage over the people. The government becomes an instrument of their competition, as they compete for its favors. Those who do not compete will be at a competitive disadvantage.

So all the wealthy are forced to compete against each other. They will compete to cause the government to pursue purposes to their own separate ends,which is the very definition of corruption. These interests, the benefit of the wealthy, harm the system, and the people, necessarily, by the law of externality: Those costs which can be externalized, will be. Thus the costs of the benefits to the wealthy will be laid upon the people, until the wealth f the people is exhausted. We are seeing this happening in the present 'recession.'

But the welfare of the people is essential to the welfare of the wealthy, and where it is destroyed, so is their own welfare. If the destroy the income flow of the people, they destroy their own income flow as well.

A poor society has few rich people. Neither has it much power to project, or even protect its interests.

In the long term, an uncorrupted government serves the interests of the wealthy better. A government can only remain uncorrupted to such degree as the influence of the wealthy is limited.

The people have been losing the competition for their government. They have persistently elected the servants of the rich to office. Now the system is rigged in the favor of the wealthy. Not good.

Cross posted as comment to angrybearblog.com: Maule and Pappas on progressive taxation and the decreasing burden on the rich