Dean Baker wrote what I consider one of the most important economic/political columns the other day.
It speaks to the structure of our capitalist system and the choices that have been made by elected officials and, yes, voters, which have resulted in a dangerous and completely unnecessary billionaire class and soaring gross inequality.
It doesn’t have to be this way; our economic and political system does not spring forth out of some preordained natural order of things. It has evolved based on conscious choices. Choices we can choose to change at any time.
Here is the gist of Baker’s argument:
“Capitalism Can Be Structured Differently
To be clear, this is not a question of whether or not we want capitalism. I’ll leave that one to others. But as I have argued repeatedly, capitalism is an infinitely malleable system. It can be structured in an endless number of different ways, some of which w”ill lead to far less inequality. We seem to have structured it in a way to maximize inequality.
I’ll give some of my favorites below, but the list is far from comprehensive. I’ll also skip antitrust for two reasons. First, antitrust policy is an important issue, but everyone talks about it. With some notable exceptions (e.g. the lawsuit against Microsoft in 1998), the watchdogs have largely been asleep for the last 45 years, but they did briefly awaken under Biden.
The other reason I am less fond of talking about antitrust is that it requires government action. (Actually, private actors can sue as well, but it’s difficult.) I like to focus on the ways in which the government actively structures the market to take money from everyone else and give it to the rich and very rich.“
A good definition of capitalism is it is an economic and political system in which a country's trade and industry are controlled by private owners for profit.
I have been stating for years that the “free market” core of capitalism is not so… free. The market operates within a set of laws and rules passed by Congress and implemented by the Executive branch. These laws and rules can favor certain groups over other groups, corporations over people, or even people over corporations (if we so choose).
Think of a sporting event and the rules of each sport. I’ll use football, America’s gladiator sport, as an example. Rules can favor the defense, protect the quarterback more than other players, make the game safer on kickoffs, etc. But all these rules can - and often are - changed over the years.
The same holds true for the laws upon which our economy is built and within which the players in our economy must operate.
Back to Baker. He proposes a list of laws/rules that can be changed to reduce inequality and - hopefully over time - eliminate billionaires and their undue influence on our society (some of which I have previously written about). Here are some snippets - please read the entire article:
Government-granted patent and copyright monopolies. “Patents and copyright monopolies are government policies to promote innovation and creative work, but there are alternative mechanisms that can be used. And even if it uses these monopolies, they can be shorter and weaker, transferring less money from the rest of us to the monopoly holders.“
Let the Financial Industry Enjoy the Free Market. “The billionaires of Wall Street like to pretend they are swashbuckling capitalists, at least until they sink themselves with their greed, when they run to the government and demand a bailout. They did in a huge way in the 2008-09 financial crisis, when they pushed the Big Lie that we would face a Second Great Depression if the government didn’t come to their rescue.
This was an obvious lie since we learned the secret for getting out of a depression 70 years earlier: it’s called “spending money.” We did this in a big way with World War II, but spending on wars doesn’t magically affect the economy in a way that’s different from government spending on things like health care and solar panels. This is pretty simple stuff, but if you tried to say this back when Wall Street was demanding taxpayer dollars, you weren’t invited to the discussion.”
Whack Private Equity: The Structure of Bankruptcy Laws Is Not Intrinsic to Capitalism. “One of the big games for private equity (PE) firms is to strip assets from the companies they buy. They have the companies pay big dividends to the PE partners, often taking on debt for the companies (not the PE firm) to make the payment. They also sell off real estate or other assets and pocket the money themselves.
This puts the PE firm in a perfect win-win situation. If they can keep the company in business and then take it public again, they make a fortune, since they likely have already recovered most or all of their investment by stripping its assets. If the company ends up in bankruptcy, they just walk away, screwing its creditors, which can include suppliers, landlords, and workers with pensions.
One way to alter the equation is to restructure bankruptcy law to make PE companies that control other companies responsible for their liabilities. If a company that controls another company is responsible for its liabilities in bankruptcy, we still have capitalism.”
Make Non-Compete Agreements Unenforceable. “A non-compete agreement is a clause in an employment contract that prohibits a worker from working for a competitor or starting their own business in the same field. There is a limited rationale — for example, when top researchers have access to a company’s latest product designs. But non-compete agreements have proliferated in the last quarter century to the point that a sandwich chain was prohibiting its workers from being employed elsewhere.
The laws on this can be changed, as Biden’s Federal Trade Commission tried to do, so that most non-competes would not be enforceable. If anyone thinks that not enforcing all contracts is inconsistent with capitalism, think again. In most states, a contract that an employer signs with a union, requiring all workers to pay a union representation fee, is not enforceable. (They call it “right-to-work.”)”
Baker wraps things up by writing:
“Capitalism Needs to be Restructured to Produce Less Inequality
It is incredibly lazy to treat the massive inequality we see as the natural outcome of capitalism. It is understandable that the people who benefit from this inequality would make that claim, but it is bizarre that the people seeking greater equality would as well. It’s fine to try to tax back some of the wealth that we have handed to the billionaires, but the much better solution is to not give it to them in the first place.”
I’ll add a few more changes that I’ve written about that can - and should - be made:
Carried Interest. Get rid of the carried interest rules where hedge funders and private equity managers pay capital gains tax rates while the rest of us pay higher ordinary rates.
Stepped-Up Basis. Get rid of stepped-up basis where the wealthy can transfer stocks/property to their heirs and nobody ever pays the taxes on the increase in value from purchase to date of transfer.
Re-institute a micro transaction tax on trades of financial instruments. We used to have a Financial Transactions Tax (FTT, or “documentary stamp tax) from 1914 - 1965. Some estimates are we can raise $220 billion/year with an exceedingly small tax of 0.5% on stocks, 0.1% on bonds, and 0.005% on derivatives. Yep - $220 billion per year. While somewhat more than half of Americans indirectly own stocks through company retirement accounts estimates are that no more than 15% of Americans directly own stocks/financial instruments. A nice side benny of this proposal is the likely reduction in stock speculation.
Increase the estate tax and make it stick. This is really an inheritance tax on lucky heirs. Much like “Stepped-Up Basis”, passing on ones accumulated wealth to heirs is simply passive income to those heirs based solely on the circumstances of their birth. Teddy Roosevelt argued for the inheritance tax in order to avoid the inter-generational landed aristocracy that led to gross economic/power inequality in Old Europe. Yes - allow some reasonable transfer of wealth and exempt true small businesses, real working ranch and farm lands. Find a way to include trusts so the wealthy can’t evade the tax so easily. Michael Green has a way too dense analysis HERE, but the gist is that taxing wealth after accumulation and redistributing is the best way to reduce inequality (trust me - tl:dr).
Raise the top marginal federal tax rate. Over the years, the top marginal rate on individuals has averaged approx. 60%. Today it is 37% and the only two times it has been below 50% was before the Great Depression and when Reagan started piling up huge deficits and bought into the fraud that is “trickle-down economics” that ultimately led to the Great Recession.
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In theory, the reason we have an “economy” is to provide the best opportunity for everyone in our society to enjoy “life, liberty and the pursuit of happiness”. Again, in theory, in a voting democracy, “We the People” determine the laws/rules that govern how that economy may be run and by whom. We the People need to demand more from our elected officials and ensure that those we do elect have a primary economic goal of reducing inequality be changing the rules, so they don’t favor corporations (no - corporations are NOT people) and the creation of rent-seeking billionaires.
Those of is who are politically engaged need to help “low info” voters and non-voters understand that choices are being made by elected officials that impact their lives and they can/should have a voice in what those choices are.
The choice is ours. We can make different choices. I’m with Dean.
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