© Charles D. Hayes
If we are to have a
brighter economic future, some prevailing ideological
bubbles must be burst, and now we have a very sharp pin to focus on the subject
of inequality. French economist Thomas Piketty has pored over a century’s worth
of economic data from thirty
countries and written Capital in the
Twenty-First Century, where he provides compelling details that burst the balloon
of supply-side ideology. Specifically, his evidence deflates the claim that the key to the future is laissez faire
capitalism, low taxes, and the arcane notion that capitalism is a dependable trickle-down
success story.
Piketty’s work has been under unrelenting attack,
especially by people who don’t want to believe it and likely won’t believe it, even
if it holds up over time as a valid argument. But the manic condemnation has created
a bestseller. Critics are desperately searching Piketty’s data in hopes of
finding flaws that will enable them to dismiss the whole work. Doing so won’t be easy, though, because,
apart from some noted arithmetic errors, his examples are exhausting and his
timeline covers decades of trends in the demographics of wealth accumulation.
One glaring fact
is undeniable: inequality is escalating globally at an alarming rate. The
debate needs to go on until we sort the virtues from the vices of capitalism
and get to the bottom of why so many working people remain in poverty.
Those
who claim that Piketty is a Marxist obviously have not read the book. He favors
capitalism, but he makes it clear that capitalism is an engine so powerful that
when it idles, the return on capital outpaces general economic growth. This is
why the top one percent is on course to accumulate more and more wealth, at the
expense of the rest of the economy.
The
imbalance will not stop without serious intervention, namely putting a governor
on the carburetor of capitalism, in the form of a progressive tax that’s steep at
the high end, to check the excessive growth disparity and bring an equitable
balance to the population at large.
In
a nutshell, Piketty argues that capitalism is a system whose algorithmic
functionality accelerates advantage and then continues to favor that advantage
disproportionally. It’s a snowballing effect that, if left unchecked, eventually
becomes an avalanche. The gap between the growth of capital and the rest of the
economy is small, but the consequences are enormous.
Piketty’s
analysis aside, the rise in economic inequality in America during the last
thirty years offers prima facie evidence that something in our capitalistic
system is fundamentally flawed. Capitalism, it seems, systematically undermines
its own success. According to the Wall
Street Journal, 95 percent of income gains from 2009 through 2012 went to the
top one percent. How much worse does this disparity have to get before the
intransigent GOP wakes up and at least admits we have a problem?
The
ideological friction between labor and capital is an ancient quarrel. “Labor is prior to, and independent of,
capital. Capital is only the fruit of labor, and could never have existed if
labor had not first existed. Labor is the superior of capital, and deserves
much the higher consideration.” So said Abraham Lincoln, a prescient Republican
president, in 1861.
Where is the higher consideration? Labor
today gets scorn, contempt, and derision for even raising the subject. Why is the
minimum wage stagnant despite significant growth in productivity? Simply put: although
the precise identity of the culprits directly responsible may be subject to
argument, the pockets of the working poor have been picked as effectively as if
accomplished by a thief.
Adam
Smith’s invisible hand is a powerful metaphor, and the self-interest it
describes can and does improve lives all over the world. But Smith’s work has
been corrupted and championed as a celebration of greed, which is the
antithesis of his thinking. At its best, capitalism dramatically improves lives;
at its worst, unchecked greed ravages the environment, oppresses individuals,
and destroys culture.
Capitalism
is analogous to radiation. Used carefully, it can produce miraculous results,
while overuse kills. In Smith’s view, economic freedom does not come with the
license to oppress because the very idea of doing so is immoral.
The
government’s job is to keep the invisible hand from becoming a pickpocket by
keeping any and all economic factions from acquiring enough power to be
oppressive, whether the aggressor is the government itself, a corporation, or
an individual. Whatever happened to the notion that “we the people” are the government?
Adam
Smith advocated freedom in a sense of moral ethicality long since forgotten and
absent from general public discourse. The ethos of Wall Street is so far out of
sync with Smith’s view of ethical economic behavior, it seems almost extraterrestrial.
The
idea that a self‐creating,
self‐sustaining middle class
can exist on nothing but low taxes, ambition,
and individual initiative is absurd, and the hundred-year history in Piketty’s
book makes this crystal clear. Middle-class societies require significant ongoing
investments. Repeating adamant declarations that lowering taxes will always lead
to economic growth will not make it so. American economic history well
illustrates this point. Higher taxes do not necessarily result in economic
downturns. Some of our greatest periods of growth and a thriving middle class have occurred when tax rates were much higher than
those we have today.
Remember this: Never
on this planet has there existed a civilization with a strong middle class and
minimal poverty without an extraordinary government
effort behind its creation and a
substantial and ongoing investment in both hard and soft infrastructure to keep
it viable. Never!
The existence of middle class is a purposeful effort. Don't
believe it? Find one that occurred by happenstance or sheer ambition. Offer an
example. Please. Look the world over at all of the developed nations with a
high quality of life, and you will find no great society arising solely out of
the burning desire for individual success. Affluent societies are not accidental
occurrences. Even in societies that are resource rich, substantial investments
in the public interest have to be made. And yet, in America, Horatio Alger
bootstrap nonsense is still touted as if personal drive
is the only ingredient necessary for economic triumph.
Make no mistake, individual responsibility and initiative are
important for success, but we don't achieve middle‐class status without an
overt public effort and the investment necessary
for both creating and sustaining it. Rural electrification, the interstate
highway system, the GI Bill, and the Federal Housing Authority were key
ingredients that gave rise to America's middle class, all paid for by much
higher tax rates than are currently in effect.
Thomas
Piketty describes this period in American history as an aberration, but it
didn’t kill capitalism. To the contrary, it kicked the engine into overdrive,
putting a governor on capital and providing enough equity that starting wages supported
a middle-class lifestyle with only one person in a family working. To avoid taxes at the highest rate, business
owners reinvested heavily in their companies, and their wealth increased
accordingly.
Executive compensation today has everything to do with the
power to loot with legal immunity. These days we hear a lot of talk about takers, but not much is said about those
who have already taken far more than
the value they create. Wall Street executives fled the 2008 meltdown with multimillion‐dollar bonuses, while people
who were put out of work because of executive greed are routinely referred to
as parasites for collecting unemployment.
In
reality, the financial services industry is where we have an infestation of
parasites. They skim the stock market with supercomputers, and cover their
tracks with empty slogans about success, freedom, and the American Dream,
having succeeded in getting the legislative license and political support not
only to loot openly, but to be celebrated for it.
An ethos of self‐reliance is accepted as a core component of American culture.
Ralph Waldo Emerson is the grand architect of this way of thinking about
ourselves. But today's politicized rhetoric about self‐reliance overlooks the fact that Emerson was anti‐materialistic to an extreme that few Wall Street cheerleaders can
comprehend.
Much of our love
affair with rugged individualism is based on mythology. We celebrate a history
that never happened, obsessively calling attention to individual initiative,
while ignoring the enormous government expenditure that made America possible. Millions
of working people today depend upon paychecks in market economies that are subject
to the whims of fashion and global recessions. Through no fault of their own,
they find themselves out of work for months or years. The idea that without
some kind of intervention or assistance, sheer determination will allow them to
recover is patently illogical.
There is plenty of
need for outrage in America, but it should focus on adjusting the engine of
capitalism and the regulations that pose a danger to the public interest. Skyrocketing
inequality and a shrinking middle
class create a recipe for economic decline. The
engine of capitalism is perfectly capable of working for everyone. It’s
happened before and it can happen again, but the public will must demand an
overhaul.
The profound irony
is that the long-term future of our species depends not on economic growth per
se, but almost its opposite: the exponential growth of knowledge toward
reducing the human imprint on the natural world. Sadly, even to raise the
subject that our impact on the earth is more important than our economic system
is to invite ridicule and the questioning of one’s sanity.
Piketty’s research suggests that our long-term growth is inevitably
likely to slow, but he is reluctant to predict a rate. He offers a brief
discussion of the importance of addressing climate change, but says little
about population growth and the consequences of finite resources. In his words,
“The long-term dynamics of wealth distribution are potentially terrifying,
especially when one adds that the return on capital varies directly with the
size of the initial stake and that divergence in the wealth distribution is
occurring on a global scale. The problem is enormous, and there is no simple
solution.”
Put simply, civilization is a very expensive proposition, and if
we continue to attempt to achieve progress with ego-driven criteria based on
greed, a childish penchant for selfishness, and ethnocentric tribalism, the
pursuit is likely to end badly. Nothing save a catastrophe will produce the
resolve to do what needs to be done.
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