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Wednesday, January 9, 2013

There's a Violent World War Going On, with Millions of Casualties -- Oligarchs vs. Everyone Else




News & Politics  


We have become, in the United States, and increasingly all over the world, a society with only two classes: Those who own, and those who owe.

 
 
 
 
History is littered with the corpses of those who thought they could conquer the world, or at least the “known” or “important” world, through force of arms.  Many come immediately to mind: Alexander the Great; Caesar; Hitler; the Celts, Ottomans, and Catholics; various European, Asian, and American empires from the 17th Century Dutch to the 18th Century French, to the 19th Century British and the 20th Century Soviets and Americans.  Others, like the Aztecs, are less well known to westerners, Europeans, and Asians, but no less ambitious.
All used some variation on war, the force of military power, to accomplish their goal. All won, over the short-term, and then collapsed over the long term (making the relatively safe assumption that the American Empire is in the process of collapse right now).

So, who’s next?

While the rising economies of the world, like the BRIC (Brazil, Russia, India, China) nations, all have the potential, particularly the Chinese, all also are pretty focused on regionalism.  But there is one group that has declared war on us - all of us, all over the world - and already won some significant victories.  And that’s the creditor class, what economist Henry George called the “rentiers,” and we generally today refer to as “the billionaires.”

The top story on the Sunday, January 6 2013 online edition of the Financial Times, was headlined, “Banks win more flexible Basel rules” by Brooke Masters.  The lead paragraph noted that “International banks received a new year fillip” or gift, when the new regulations out of the Basel bank regulators meeting “announced that the first ever global liquidity standards would be less onerous than expected and not be fully enforced until 2019, four years later than expected.”  Perhaps the single most relevant sentence in the article started: “The results are largely good news for bank profits…”

We have become, in the United States, and increasingly all over the world, a society with only two classes: Those who own, and those who owe.  
The owners (or “Takers”) own vast wealth, and loan it out at interest to everybody from students to governments.  They’re continually receiving that interest back in ways that are either tax-free or taxed at very low levels.  (Here in the US we call it “capital gains,” “Interest,” “dividends,” and “carried interest.”  While a working person will pay as much as 39% in federal income taxes, the federal income tax to the Mitt Romneys, Paris Hiltons, and Lloyd Blankfeins of the world is now capped at 20%.  As Leona Helmsley famously said, “Only little people pay taxes.”)

The owe-ers - the indebted - find themselves trapped on a lifelong treadmill paying interest and fees to the Takers.  The owe-ers are also mostly the workers, the people who make things (from manufactured goods to hamburgers), and so are rightly called the “Makers.”

For a brief period of American history, the rapaciousness and greed of the Takers  was kept in check by the Makers - mostly through the actions of their unions and elected officials like FDR, Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter.  Glass-Steagal prevented banksters from gambling with your savings account or pension.  The Sherman Anti-Trust Act and its heirs prevented the big fish from swallowing all the medium-sized and smaller fish, so cities and malls were filled with locally-owned businesses.  Social and economic mobility were higher in the United States than in most other countries of the world.

But with the election of Ronald Reagan, the Takers - whose favorite way of taking is through putting the Makers into debt - won a huge victory.  They killed or weakened democratic institutions, like unions and politicians not dependent on them.  They moved the Middle Class from prosperity into, first, credit card debt, then into second-mortgage debt, and finally into student loan debt.  And then, in the final Coup de grâce, they made the formerly democratic governments of Western Europe and the United States indebted to them.
They knew from the beginning it was war.  But a softer and more silent form of war than the world was used to.  Not since the ascendency of the British East India Company in the 1700s had the world seen an economic, rather than sovereign, force so dominate the world.

And now they’re in the final stages of their war.  Having taken most all the resources of the West’s Middle Classes and thrown them and their children into debt bondage, they’ve moved onto taking over entire nations.

This is what Republicans mean when they talk about “making government smaller” here in the United States, or “the austerity agenda” in Europe, Canada, and Australia.  It’s all the same thing - transfer even more wealth and political power from those in debt (be they individuals, cities, states, or nations) to those who made the loans.  From the middle-class Makers to the billionaire Takers.
And God forbid a politician should stand up to the Takers.  From Republicans refusing to raise taxes on billionaires, to international banking institutions leading the charge, via their captive governments, on “renegade” states like Bolivia.

Longer work weeks in France.  Indexing the Inheritance Tax to inflation in the United States, but not the minimum wage.  Cutting Greeks off their national health-care system after a year of unemployment.  Slashing government support to schools, police, and health-care in Canada.  Banks committing crimes and getting slap-on-the-wrist fines.  Fossil Fuel corporations, the world’s most profitable, not only getting taxpayer subsidies but never, ever paying for the cancers, pollution, and global warming they cause.  The list goes on and on.
It’s war.  Rob, plunder, and pillage.  Take what little is left from those with a little, and give it all to those who have a lot.  Turn the Makers into slaves, while the Takers get an Inheritance Tax cut so their great-grandchildren can live the lives of the landed gentry.

When Ronald Reagan came into office, America was one of the most socially- and economically- mobile nations in the developed world.  Today it is among the least.

Democracy is being replaced by plutocracy.  Modern oligarchs are richer than the kings of old.  And, still not content, they’re amping up the war with a coming July 4th attempt to amend the US Constitution so the wealthy need never again fear tax increases.  It’s being led by the Goldwater Institute with its “Compact For America.”

Look out.  We’re moving from trench warfare to aerial bombardment.  And when they’re done, Western Democracies will look far more like Italy in the 1930s…

Thom Hartmann is an author and nationally syndicated daily talk show host. His newest book is The Thom Hartmann Reader.

Monday, January 7, 2013

Life Among the Plutocrats -- What Unimaginable Wealth Does to a Person




Life Among the Plutocrats -- What Unimaginable Wealth Does to a Person

They control our politics, shape our societies, outsource our jobs.

Reviewed:Plutocrats: The Rise of the New Super-Rich and the Fall of Everyone Else, by Chrystia Freeland (Doubleday, Canada 2012)


Last year the Occupy movement brought the subject of inequality into public debate, and especially the inequality between those of us in the 99 per cent and the happy few in the one per cent. But Chrystia Freeland has been studying the happy few for years, and has spent many hours talking with some of their most famous and powerful members.
The result is a book full of surprises and insights. Today's plutocrats are the latest variation on an old theme, and at the same time they're strikingly new in many ways.
Societies have supported plutocratic classes at least since ancient Rome, and the Gilded Age of the US after the Civil War presaged our own: A rising class of self-made men, imaginative exploiters of new technology and wider trade. Then it was the telegraph and the railroad; now it's the internet and the container ship.
Freeland's plutocrats are mostly self-made also, and overwhelmingly male; one very rich man suggested to her that women lack the "killer instinct" needed for real success. But they are not the idle heirs of rich parents. The "working rich" are a distinct class: smart, ambitious and often outsiders.
What's more, they represent a dramatic change from the 19th and early 20th century, Freeland argues. Then, the conflict was between capital and workers, with workers doomed to lose because they couldn't own the means of production.
The communist revolutions were supposed to transfer those means to the workers, but instead transferred them to a new class of upstart intellectuals and technical experts. She cites Milovan Djilas, Tito's second in command in communist Yugoslavia. In the 1960s Djilas wrote "The New Class" to describe this phenomenon as a corruption of communist orthodoxy; Tito threw him in jail.

They didn't come entirely out of the blue. Freeland documents the gradual but decisive shift in fields like finance, which since the age of the superstar had been regulated to the point of boredom. This came along with a new struggle: Now it wasn't capital versus labour, but capital versus talent.Even more ironically, the same new intellectual class now runs capitalism -- with the exception of the princelings of the Chinese Communist Party, the billionaire sons and grandsons of Mao's old proletarian comrades. But elsewhere, smart young men got jpossession of ex-Soviet resources, or an operating system for newfangled personal computers, and within months were rich beyond imagining.
The age of the superstar
Companies were no longer stuck with local workers and their high wages. Globalization meant they could outsource the work to anywhere in the world, whether Chinese special economic zones or Mexican maquiladoras.
And by the 1970s we were in the age of the superstar: the baseball player, singer, or CEO whose talent could make the difference between corporate success and failure. Talent couldn't be bolted to the shop floor, and superstars in any field could name their price.
Hence, says Freeland, CEOs' salaries began to rise while their workers' pay stagnated or fell. Financial superstars set up their own hedge funds, and drew investors by the sheer power of their reputations. The superstar entrepreneurs thrive in a globalized economy, equally at home in Beijing, Moscow, New York or London.
In fact, they are now so rich that they form their own economy, a "plutonomy" producing goods and services just for them: private jets, monster yachts, and armies of professionals dedicated to making them comfortable.
Freeland's interest in this super-elite is infectious. They really are smart people, superbly educated and culturally sophisticated. They attended the best universities in the world and did brilliantly in fields like mathematics and physics. They understand their own success; coming often from working-class or middle-class backgrounds, they embody the old Horatio Alger dream of rags to riches. Modestly, they think anyone could have done the same, with a lucky break or two and a lot of hard work.
This is where the plutocrats really part company from the rest of us -- including the bottom 0.9 of the top one per cent. Living in their own higher world, with its own economy, they have only a fading sense of what non-plutocrats are like. Mitt Romney's famous dismissal of the 47 per cent was actually an understatement. The plutocrats don't think much even of the mere multimillionaires scrambling about in hopes of breaking into the billionaires' circle.
Freeland is keenly aware of the impact of inequality, but she doesn't see the 99 per cent as the plutocrats' biggest enemies; it's the aspiring plutocrats who are beginning to see how the deck is stacked against them. It will be interesting to see if they decide to take serious steps against their superiors.
Those moderate Canadian plutocrats
Freeland gives sympathetic attention to former prime minister Paul Martin (himself a multimillionaire) and outgoing Bank of Canada head Mark Carney, who sympathize with the Occupy movement and support the bank regulation that most plutocrats still reject. But such attitudes are rare among the plutocracy.
In the meantime, the plutonomy is not just booming, but skewing the still-depressed economy the rest of us live in. Many of the plutocrats reflect soberly on Andrew Carnegie's comment that the man who dies rich dies disgraced. Many, including George Soros, Bill Gates, and Warren Buffett, are giving away their billions to various causes and charities.
Individually, those causes may be admirable (Soros has worked hard to promote democracy in eastern Europe). Collectively, those causes may be compromised and diverted from their original purposes by the sheer quantity of plutocratic money available. And of course many billionaires like the Koch brothers are pumping money into political causes that promise to keep their taxes low while suffocating government programs for the rest of us.
This is just one form of plutocratic "rent-seeking" -- getting one's businesses into a monopoly position, or lowering their operational costs, through favourable legislation. Every business, after all, wants to improve its own working conditions, just as every worker does.
But what is good for one's business is not always good for the country. Rent-seeking simply runs up the plutocrats' revenues while doing nothing for their customers. And it never occurs to such plutocrats that their success ultimately stems from the system created and maintained by the rest of society. As Barack Obama observed, "You didn't build that."
Freeland makes a useful contrast between plutocrats who are pro-market and those who are pro-business: In the market, companies compete, innovate, or die if they can't. This is the "creative destruction" that brings genuine improvements in living standards, and it's still at work. As one plutocrat told Freeland, the big companies used to eat the little ones. Now the swift eat the slow.
But in business, one tries to protect one's own company by eliminating the competition (and the innovation). Historically, innovators become consolidators and rent-seekers, creating a new privileged class of their children and hangers-on.
Plutocracy 2.0
That second generation, Plutocracy 2.0, is already with us, especially in the U.S. Freeland notes that until the 1970s, sizable numbers of Ivy League graduates went into science, the arts, and public service. Few went into finance, because it paid little better than most other fields. But as superstars came to dominate finance, and their incomes rose, more bright young graduates migrated to the field.
Now, she says, the median earnings for Harvard men in 2005 were $162,000. "But almost eight per cent of the men had labor market income above $1 million, putting them in the top 0.5 per cent. An important driver of the gap was the split between the bankers and everyone else, with financiers earning 195 per cent more than their classmates."
In effect, the plutonomy is drawing the next generation's best and brightest into its orbit, leaving everything else (including higher education) to the fools and saints willing to stay in the 99 per cent. More and more of those graduates are themselves the children -- bright or not -- of plutocrats.
I saw this, without understanding it, as an alumnus-recruiter for Columbia University in the 1990s. The teenage applicants I interviewed here in Vancouver were smart, well travelled, and positively placid about the cost of tuition (then around $30,000 a year; now, much more). What was more, they considered Columbia as a fallback if they couldn't get into Harvard or Yale, where the real connections could be made.
So it's the plutocracy's world; we just live in it. It funds our politics, shapes our societies, owns our universities, and outsources our jobs. Many individual plutocrats are personally admirable, but their collective efforts inevitably crowd the rest of us into poverty. Their offspring may do well, but most will regress to the mean, becoming merely rich mediocrities. Unless some talented political superstar emerges (perhaps the renegade child of a plutocrat) and turns our society around, such mediocrities will flourish for the next generation or two.
Perhaps the Chinese have the only way to limit the plutocracy. As Freeland says, "China's plutocrats don't fight the state because they are the state -- and when any of them forget that, they are treated with summary brutality: between 2003 and 2011, at least 14 Chinese billionaires were executed."
Crawford Kilian is a contributing editor of The Tyee.

Plutocracy Rising



BillMoyers.com
Bill Moyers

Plutocracy Rising

Full Show: Plutocracy Rising

BILL MOYERS: This week on Moyers & Company…
MATT TAIBBI: We have this kind of community of rich people who genuinely believe that they are the wealth creators and that they should get every advantage and break whereas everybody else is a parasite and they're living off of them.
CHRYSTIA FREELAND: How dare they have the gall to actually argue that too much regulation of American financial services is what is killing the economy.
ANNOUNCER: Funding is provided by:
Carnegie Corporation of New York, celebrating 100 years of philanthropy, and committed to doing real and permanent good in the world.
The Kohlberg Foundation.
Independent Production Fund, with support from The Partridge Foundation, a John and Polly Guth Charitable Fund.
The Clements Foundation.
Park Foundation, dedicated to heightening public awareness of critical issues.
The Herb Alpert Foundation, supporting organizations whose mission is to promote compassion and creativity in our society.
The Bernard and Audre Rapoport Foundation.
The John D. And Catherine T. Macarthur Foundation, committed to building a more just, verdant, and peaceful world. More information at Macfound.Org.”
Anne Gumowitz.
The Betsy And Jesse Fink Foundation.
The HKH Foundation.
Barbara G. Fleischman.
And by our sole corporate sponsor, Mutual of America, designing customized individual and group retirement products. That’s why we’re your retirement company.
BILL MOYERS: Welcome. The new Gilded Age is roaring down on us, an uncaged tiger on a rampage. Walk out to the street in front of our office and turn right and you can see the symbol of it: a fancy new skyscraper going up two blocks away. When finished, this high rise among high rises will tower a thousand feet, the tallest residential building in the city.
The New York Times has dubbed it "the global billionaires club," and for good reason. At least of two of the apartments are under contract for more than $90 million each. Others, more modest, range in price from $45 million to more than 50 million.
Simultaneously, the powers-that-be have just awarded Donald Trump -- yes, that Donald Trump -- the right to run a golf course in the Bronx which taxpayers are spending at least $97 million to build. What “amounts to a public subsidy,” says the indignant city comptroller, "for a luxury golf course." Good grief. A handout to the plutocrat's plutocrat.
This, in a city where economic inequality rivals that of a third-world country. Of America's 25 largest cities, New York is now the most unequal. The median income for the bottom 20% last year was less than $9,000, while the top one percent of New Yorkers has an average annual income of $2.2 million.
Across America, this divide between the superrich and everyone else has become a yawning chasm and studies indicate it may stifle jobs and growth for years to come. At no time in modern history has the top one hundredth of one percent owned more of our wealth or paid so low a tax rate. But in neither of the two presidential debates so far has the vastness of this astounding inequality gap been discussed. Not by Mitt Romney, who is the embodiment of the predatory world of financial capitalism. And not even by Barack Obama, whose party once fought for working men and women against the economic royalists.
So just in time, if not too late, comes this definitive examination of inequality: Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else. Its author is Chrystia Freeland, whose journalism is steeped in years of covering robber barons from Russia to Mexico and India. Once deputy editor of The Globe and Mail in Canada and a correspondent for The Financial Times and The Economist, she is now the editor of Thomson Reuters Digital.
We're joined by the perceptive and merciless Matt Taibbi, who has made the magazine Rolling Stone a go-to source for understanding the financial scandals that roil America. Who can forget his 2009 article on "The Great American Bubble Machine," which described investment bank Goldman Sachs as quote, "a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”?
Welcome to you both.
MATT TAIBBI: Thank you.
BILL MOYERS: Income inequality has soared to the highest level since the Great Depression, with the top one percent taking 93 percent of the income earned in the first year after the recovery, the first full year after the recovery. Why are the two candidates not talking about inequality growing at breakneck speed?
CHRYSTIA FREELAND: You know, I think because it is still a taboo in American political life and in American cultural life. One of the economists I talk to he works for the World Bank. And he said to me, you know, and he's a specialist in income inequality.
And he said, "When you go to think tanks you say you'd like to do a study about poverty, they say, 'That's fine. That's great. We're happy to fund it,' because writing about poverty makes everybody feel good and feel that they're being charitable and beneficent. But if you say, 'Actually, I want to study income inequality,' and even most dangerously, 'I want to study what's happening at the very top of the distribution," what Branko Milanović said to me is the think tanks immediately pull away because they say, "Our donors won't like it."
And that actually challenges the whole economic setup of the United States and of western capitalism. It’s very, very threatening. And I think that that’s why you've had the billionaire class. You know, the minute Barack Obama, I would actually say rather gently suggested that the millionaires and the billionaires should pay a little bit more, you had immediate cries of class warfare from the plutocrats. And very emotional. You know, there was an activist investor who sent an e-mail to his friends. The subject line is, "battered wives." And in the e-mail he compares himself and his fellow multi-millionaires to battered wives who are being beaten by the president. He actually uses those words.
MATT TAIBBI: And I thought it was really interesting in your book how you pointed out that Bill Clinton, himself, responded to Obama's criticism by saying, "You know, I would have done it a little bit differently. I think, you know, you can't attack these people for their success." And I think that's very relevant because if you go back in time, it wasn't always this way.
But I think the shift really began with Clinton and the New Democrats. I think after, you know, Walter Mondale lost in 1984, the Democrats decided, "You know, we're never going to lose the funding battle again." And they began this sort of imperceptible shift, where they continued to campaign on social issues the same way they had before.
They retained their liberalism in that sense. But economically, they began to side more and more with Wall Street and more and more with the very rich. And they've, I think we've now reached the point where neither party really represents the very poor in the way that the Democrats maybe used to. And so, that there's, that's why, you know, you don't see it in the debates, because neither party is really an advocate for that kind of left behind class anymore.
CHRYSTIA FREELAND: It is the people at the bottom, as Matt says. But it's also the people in the middle.
MATT TAIBBI: Right.
CHRYSTIA FREELAND: You know, the middle class is being--
MATT TAIBBI: Decimated, yeah.
CHRYSTIA FREELAND: --hammered. Those jobs are hollowed out. And where are the people pulling back and saying, "Okay, technology revolution, we love it." Globalization, I love that too. And I think it's great people are being raised up in India and China and now Africa. But let's think about how our society and our politics need to change to accommodate this. And no one is doing that. And meanwhile, the guys at the top, who are making, who are doing so, so well actually are saying, "We need to slant the political system even more in our own favor."
BILL MOYERS: Why are we so passive about this?
MATT TAIBBI: Well, I think the, first of all the poor in this country have been incredibly demoralized whether it's the relentless attention of, you know, bill collectors. Or if you go to poor neighborhoods, you know, I was out in Queens last night interviewing a kid who's been stopped and frisked 70 times already. He's 22 years old. You have this constant interference by the police if you live in a bad neighborhood.
There're all these obstacles to getting up and rising up and having your own voice. And also I think in the media we get these relentless messages that being poor is actually your own fault and that people who are rich deserve to be rich. And a lot of Americans are disillusioned about their situation. They believe, they actually do believe on some level that if they're poor, they deserve to be that way. I think they're, and so they're reluctant to go out and revolt the way maybe Europeans in the last century, early in the last century would have.
BILL MOYERS: Left unanswered, left unanswered where does this vast inequality take America?
CHRYSTIA FREELAND: Well, I think to a very bad place. And I see two real and present dangers. One is that you see an increase of the political capture.
BILL MOYERS: Of what?
CHRYSTIA FREELAND: Of the political capture. So of the people at the very, very top, capturing the political system. And most crucially, I think something that an economist, a guy called Willem Buiter, who's the chief economist at Citigroup, he calls it cognitive capture. Where he says, look, it's not like this vast conspiracy. It's not as if, you know, everyone is on the payroll of the plutocrats.
And this guy, okay, he is now the chief economist of Citigroup. He wrote this when he was an academic economist. But so it's, he's hardly, you know, some kind of Marxist on the barricades. His argument was that part of the reason the financial crisis happened is the entire intellectual establishment, not just people inside investment banks, but regulators, academic economists, financial journalists, had all been captured by the financial sector's vision of how the economy should work. And in particular, light touch regulation.
And I think there is a broader cognitive capture of, you know, you might call it the intellectual class, the public intellectuals, around maybe the inevitability of plutocracy. You know, as Matt was saying, this notion that if you're poor, it's your own fault. You're part of this dependent 47 percent. Unions are very bad. All of that sort of stuff.
So I think that that cognitive capture increases. And I think what you see increasingly is, you know, elites like to think of themselves as acting in the collective interest, even as they act in their personal vested interest. And so what I think you'll end up seeing is social mobility, which is already decreasing in the United States, being increasingly squeezed. You see particularly powerful sectors, finance, oil. I would say the technology sector is going to be next in line, getting lots of government subsidies.
And meanwhile, I think you see much less money spent on the things that the middle class and the poor need. That's why have this, you know, full bore attack on entitlements, right? Why is the plutocracy so enthusiastic about cutting entitlement spending? Because they don't need it. But they're very worried about their tax dollars funding it.
MATT TAIBBI: Right. Where was that outrage when the $5 trillion or $6 trillion in bailouts was coming their way?
CHRYSTIA FREELAND: Right. So I really worry about that. And then the other thing that I worry about is you do start actually stifling economic growth. So, you know, if you want my dystopia scenario for the United States, it is that America's moving into a more Latin American structure of the economy.
BILL MOYERS: People at the top, rich. And a lot of people—
CHRYSTIA FREELAND: A few incredibly rich, you know, having just great lives. And then people at the bottom really struggling.
MATT TAIBBI: We both lived that. We saw that in Russia and it happened in the mid-'90s. And—
BILL MOYERS: Yeah, you both cut your teeth in journalism covering Russia. What do you take away from that that is relevant to what's happening in this country?
MATT TAIBBI: You know, I, that experience completely shaped the way I look at the present situation in the, in America. In the mid-'90s, suddenly when Russia became a "capitalist society" you suddenly has this instant division of the entire society into this very, very tiny group of people at the top who had more money than anybody in the world. And then there was everybody else who had nothing. And—
BILL MOYERS: And they got it through privatization, the government sold off the resources of--
CHRYSTIA FREELAND: "Sold" in quotation marks--
BILL MOYERS: Yeah. So--
MATT TAIBBI: But that was, that's the key part that I think people don't understand, is that what happened in Russian was really a merger of state and private power that empowered this one tiny little class. There was this moment in Russia's history called loans-for-shares. The loans-for-shares privatizations, where a few people, a lot of them were ex-KGB types, were essentially handed the jewels of Russian industry by the people in the Yeltsin government. There were companies that were put in charge of their own auctions. So they--
CHRYSTIA FREELAND: They were all in charge of their own auctions.
MATT TAIBBI: They were all in charge of their own auctions. So they, you would have an auction for an oil company and a bank would be put in charge of that auction. And the bank magically, you know, would win the auction for the oil company, which was worth, you know, billions or even hundreds of billions of dollars. And that's how they instantly created this super wealthy class of people. And everybody else had nothing. This one story, for me this image that I'll never forget. I went to a coal mine up in the Russian arctic north where workers hadn't been paid their salaries for nine, ten months at a time. And when I went to the mine, the mine owners, the first thing they wanted to do was to take me to their bright shiny new lounge that they had built for themselves and show off their brand new slate pool table that they had built with the money that they weren't paying to their workers.
And that, to me, perfectly expressed the divide in modern Russian society. You had these people who were living off nothing on the one hand. And then you had these super wealthy people who had been enabled who had just kept the money for themselves. And that's I think, you know, it's a caricature of what we're experiencing here in America. But I think that's where the world is drifting toward now.
BILL MOYERS: You write about some of these super rich, not only with insight, but with empathy. That is, you've gotten to talk to a lot of them. You have moved among them as a financial journalist, been to Davos and other places like that. And I'm wondering, how did you crack what is clearly a tight knit world?
CHRYSTIA FREELAND: Well, I guess the way journalists do it, just by talking to people, writing about them. I think you write stories that show people that actually you're interested in what they're doing. And what I would also say is, you know, I believe in capitalism. And I also actually believe in globalization and the technology revolution. If you gave me the option of turning the clock back to the 1950s, I wouldn't do it. Partly because I'm a woman and things were not that great for us then.
BILL MOYERS: Well.
CHRYSTIA FREELAND: And, you know, it's important, you know, I think a mistake that the left can make in criticizing income inequality is to behave as if this is entirely a political confection. It's entirely about political capture. There are no genuine, legitimate and actually benign economic forces driving it. Because I think there are. I think the winner take all economic dynamic is something that is existing separate from the politics. The politics in the United States are exacerbating that division rather than mitigating it.
But I do think that when you pull back and look at the global picture, which is something that was important for me to do in the book, it becomes a little bit harder to say, "this particular American tax break," or even, "this particular American financial reform is the only thing driving income inequality," because the really remarkable thing is the extent to which this is a global phenomenon.
It's happening across the western industrialized world. I'm Canadian. So I'm practically born a socialist in the view of many Americans. But even in Canada, income inequality is increasing. It's even, you know, for a while in the economic literature the one outlier was France. And so, insofar as economists make jokes they would say, "oh, the French. They have to be exceptional even in this area." But now you're seeing it increase in France too. And you're seeing it increase in the emerging market economies. So I think we do have to accept that there are some economic drivers.
Now those economic drivers are partly put in place by the politics. It was politics that allowed globalization to happen. And in the United States really crucially, and I think you can't emphasize this too much. Look at what happened with the tax code. I mean, in the 1950s, this era when America felt itself to be a very conservative society, and it was, the top marginal tax rate was above 90 percent.
BILL MOYERS: Yeah, 91 percent, I believe.
CHRYSTIA FREELAND: Right, just think about that. Imagine if Barack Obama had said in the debate this week, "You know what Governor Romney? I think America in the '50s was a wonderful place. That was the age of the greatest generation. They, too, faced a real budget deficit they had to pay off. And the people at the very top were willing to pay a 90 percent top marginal tax rate. Would you be willing to do that, Governor?" I mean, imagine if he had said that.
BILL MOYERS: You cover some of the same crowd that Chrystia's writing about, but you do so with a, with complete irreverence. Do you still gain access to them? Or have all the doors been slammed in your face?
MATT TAIBBI: Well, the very, very top people won't talk to me. You know, I don't have access to the same people that Chrystia maybe talks to. But I do talk to a lot of people who work on Wall Street. In fact I got started down the road of this whole topic, you know, after I wrote a couple of articles. And then suddenly on this there was this outpouring of people from Wall Street who suddenly wanted to talk to me because they were upset about the direction that the financial services industry was taking.
So I'm hearing a lot from people sort of from the middle on down on Wall Street. And what they're really upset about is corruption. Is this merging of state and private power, where the losers don't lose anymore. I think the people who get really upset are small hedge funds, small banks. And they see companies like, you know, Citigroup and Goldman Sachs and J.P. Morgan Chase make mistake after mistake. And they get rewarded for it what with bailouts and even greater market share than they had before.
And so, you know, my analysis is informed by those people. And I think, you know, I think Chrystia and I agree about a lot of things about, particularly about the growing divide and how extreme it's become. My analysis just might be a little bit angrier just because the, you know, from the point of view that I'm particularly looking at is the corruption and the use of force and state power to keep divide where it is and increase it.
BILL MOYERS: You both have pointed out that we tend to talk as if Wall Street and the plutocracy were a monolith. But it's not. Do you think there is a civil war within the one percent?
MATT TAIBBI: There is absolutely a schism developing in this community. Think about it just on one level, on the level of banking, right? If you have these too big to fail banks, everybody in the world knows that nobody's going to l allow the very biggest commercial banks to go out of business. It will never happen. 2008 proved it, that if they ever get in trouble the government will come in and rescue them. So what does that mean for those banks?
It means that it allows them to borrow money more cheaply because anybody who lends them money knows they're always going to get paid off. The government if, in the worst case scenario, they're going to get paid off. So this gives them an inherent financial advantage over the small, regional commercial bank, which does not have that implied government guarantee. And so those people are furious.
They're furious that they have to compete against these gigantic monoliths that have the implicit backing of the U.S. government. Then there's the other problem of corruption. I mean, I hear all the time from hedge funds you know, these smaller guys who believe that some of the big investment banks are selling them out to even bigger hedge funds, that are, you know, giving away information about their positions to even bigger clients so that somebody else can trade against them.
Or maybe the banks themselves are front running their positions and trading against their own clients. There's this schism developing between the smaller guy the medium size financial player and the very, very big too big to fail companies that are perceived as getting a break, and getting the backing of the government. And also are perceived as getting away with stuff that they wouldn't get away with.
CHRYSTIA FREELAND: I agree with Matt. And I think what you’re really seeing , actually, it's sort of the battle of the millionaires versus the billionaires because this winner take all dynamic is not just between, you know, the 10 percent and the 90 percent or the one percent and the 99 percent.
What's quite interesting and leads me to really believe that there're some deep economic forces involved is it's happening just as much within the top one percent. We saw it in the recovery. You sited those statistics, Bill, about 93 percent of the recovery going to the one percent. Thirty-seven percent of the recovery went to the top 0.01 percent.
So even in there, there's, you know, even more of a gap. And the people one layer down can be very, very aggrieved precisely because, you know, they see what's going on. They see that unfairness. And it makes them really, really mad.
You know, one of the things that I found as I was writing my book and talking to plutocrats was, you know, as Matt says, these are very, very smart people. And many of them, not all, some—
BILL MOYERS: They work very hard too, don't they?
CHRYSTIA FREELAND: This is not Downton Abbey. These are not people, this is not a landed gentry. These are people who even, and even if they're sort of a Mitt Romney or a Bill Gates who grew up very affluent, their actual business, they did build themselves. They built in a society that was very supportive of that, but they built it. So, you know, they're hardworking. They have to be thoughtful about the world because they're making investments.
And what I found was very interesting was they were very keen to divide the world into the good plutocrats and the bad plutocrats. And what was very funny was everyone was happy to make that division. But everyone felt that they themselves and their particular type of business belonged to good plutocrats, and somebody else belonged to bad ones. So you talk to the Silicon Valley guys, they love talking about this, especially after the financial crisis because their view was, "Of course income inequality is a problem. Of course there has been state capture by those bad guys in New York. "We however, are the innovators. We created value ourselves. We are completely pure and good. And these issues really have nothing to do with us."
BILL MOYERS: Do you think they think they're really defending honest capitalism?
MATT TAIBBI: Oh, absolutely. I, you know, the one thing that's consistent in my exposure to the financial services industry is that the people who work within it, and particularly the people you know, at the very, very top, sincerely believe that they have not done anything wrong. And, you know, when you bring up things like the mass sale of fraudulent mortgage backed securities, it's just like you say.
It's always somebody else who made that mistake. You know, "We didn't know at the time that we were selling billions and billions of dollars of junk and we were dumping this on pension funds and foreign trade unions." It was always somebody else who was doing that. And they also have built up this very, very powerful insulating psychological justification for their lifestyles. They've adopted this sort of Randian point of view, where--
BILL MOYERS: Ayn Rand.
MATT TAIBBI: Yeah exactly, you know, they genuinely believe that they are the wealth creators and that they should get every advantage and break whereas everybody else is a parasite and they're living off of them. So when you bring up to them, for instance, how is it that nobody, despite this mass epidemic of fraud that appears to have happened before the 2008 crash, how come nobody of consequence has gone to jail after that?
They always, you know, they always argue against more regulation and more enforcement because they say, "We need room to, we need air to breathe, we need room to create jobs. And this is just counterproductive to put people in jail. It'll cast a pall over society.
CHRYSTIA FREELAND: If I may say so Bill, this very sincere, absolutely, absolutely sincere self-justification, I think, is one of the most dangerous things that's happening because in our society, and I would say this is particularly powerful in America. Really since the Reagan era, there has been this vision of the successful businessperson as really a leader for the whole society. And there has been a view that the businessperson, what he thinks, and, by the way, all of my plutocrats are men.
But, you know, what he thinks about how society should be ordered, we should all listen to because he, after all, is the hero of our time, is the hero of capitalist narrative. And I think it's so important for us to really understand that what is good for an individual business, particularly in this age of very high income inequality and the ways of thinking, the ideas that are no doubt absolutely the right ones for this particular business, may very well not be good for society as a whole.
BILL MOYERS: Both of you write in different ways that, with irony, that they threaten the system that created them.
MATT TAIBBI: Well this was another thing, another image from Russia that always stuck in my mind. And I studied in Russia when it was still communist. I remember going through the countryside. And you had all these villages and people walked around in the villages.
And then suddenly in the mid to late '90s in Russia you drove through the Russian countryside. And suddenly there were these big brick houses that had these huge walls on the outside, these big brick walls with guards on the outside. It was the rich had sort of built this wall that insulated them from the rest of society.
They were living, there was one society on one side of those walls, and then one society on the other side of it. And I think that's where we're headed now. We have this kind of community of rich people who sort of live, hop from place to place. And they never have any sort of intercourse with the rest of the world.
BILL MOYERS: Disconnected?
MATT TAIBBI: They're completely disconnected. And so they've built this kind of nation where inside, it's all, you know, nice and everything works logically. And it makes sense to them. But they never really see what goes on on the outside.
BILL MOYERS: Do they feel entitled?
CHRYSTIA FREELAND: Yes. Absolutely. And, you--
BILL MOYERS: For what reason?
CHRYSTIA FREELAND: Because they are treated so well. So my favorite story about this was when I was at Heathrow Airport, about to go to a fancy conference. And I ran into someone also going to a fancy conference, a Silicon Valley senior technology person. You know, I didn't have a car. But he had a car coming to picking him up and so he offered to share the ride. So we're in the car and this technology guy said to me, when you live our life, you are surrounded by such power and such entitlement, you lose touch with reality." And his very personal example was he said, "I was recently staying at this lovely Four Seasons Hotel. And I was beside the pool. I was eating a melon. And my spoon fell to the ground. And he said, "Before I could summon anyone, someone rushed up to me with three spoons of different sizes on a linen napkin so that, God forbid, you know, I shouldn't have the wrong size spoon."
And what he said was, "You know, what was amazing to me," he's talking about himself, "is when I reentered my real life," he said, "I was kind of a jerk because I like, I expected to live a life where I was constantly being presented with three spoons of different sizes. And I just I couldn't deal with the frustrations of everyday life." What makes this a totally ironic story is here he's telling this kind of self-aware story about the plutocracy.
But when we had been in the airport waiting for the car, he was on the phone, screaming at someone about "Where is my car," et cetera, et cetera.
So this is, you know, morning in Heathrow. Middle of the night, you know, in San Francisco. And he's yelling at someone there because she hasn't organized his car and we had to wait for five minutes. And then he tells me this story about how entitlement can make you not an ideal person. That kind of says it all, right?
BILL MOYERS: But political behavior's another thing. And there's no doubt in either of your minds, is there, that they tilt the rules in their favor through their influence and power over the politicians.
MATT TAIBBI: Absolutely. I mean--
BILL MOYERS: I mean, our own government relaxed the regulations, upended the rules, leveled the laws to make way for them.
MATT TAIBBI: They have this power and influence over the government to and they've been continually deregulating the atmosphere to legalize whatever it is that they want to do, whether it's, you know, merging insurance companies and investment banks, whatever it is. The derivatives, the Commodity Futures Modernization Act of 2000, they lobbied heavily to create a completely deregulated atmosphere for that. And we saw what happened with that in 2008 with the collapse of companies like AIG. They've been incredibly successful in creating their own landscape where they get to do business the way they want to do business.
CHRYSTIA FREELAND: And what I think is crucial is, this is not framed as, "I want government to do this so I can get rich and my company can prosper." This is framed as "We need to do these things for the greater good." And this is where I think another big problem in America today is a disempowering and a devaluing of the role of government and of its authority as an independent, respected arbitrating body in the center of the ring. And one of the great contrasts for me in the past decade has been looking at what happened in bank regulation in the United States and looking at what happened in Canada. Matt has just spoken about bank mergers. And with hindsight, you know, one of the great brave decisions taken by the Canadian government was to not allow the Canadian banks to merge. They wanted to. Huge lobbying effort. And they made the same arguments about, "Oh, if we can't merge, we'll never operate on a global scale. You know, Canada will be left behind. We'll be a provincial backwater." And the government just said no. And that decision I think flows directly into the Canadian government's ability to regulate the financial sector.
Leverage at U.S. levels was not allowed. And the consequence was Canada didn't have a financial crisis. It's the only G7 country that didn't have to bail out its banks. So government can actually hold the line. Government can--
BILL MOYERS: But not if it's captured, Chrystia.
CHRYSTIA FREELAND: Not if it's captured. Not if it's captured. And so--
BILL MOYERS: And it is captured—
MATT TAIBBI: But now we're completely captured, with the banking example, now we have these banks that are literally too big to fail in America because we didn't do the same thing.
CHRYSTIA FREELAND: But government can act. I mean, I think it's important not to have a counsel of despair. That you can have a sophisticated, industrialized western economy. People can live, you know, civilized lives. They can have bankers. Their bankers even, maybe they're not going to earn $25 million. But they can earn $5 million or $6 million.
They can be perfectly affluent. And government can actually stand up to its banks and stand up to other sectors of industry and say, "You know what? I'm sure that would be great for you guys. My judgment is it's wrong for the country. And you're not going to do it."
BILL MOYERS: They resent any criticism, despite all the advantages and entitlements they have. They also exhibit disdain, as Mitt Romney made clear in that infamous or famous 47 percent video. You know, when he talked about other people being dependent on government.
MATT TAIBBI: I've heard that attitude more than once, and not just from Mitt Romney. I think it's, again, it's consistent with this mindset that there is an intellectual atmosphere that these people I think have to work within in order to justify a lot of what they do, because you have to be completely disconnected from the real world in order to do things like sell fraudulent mortgages to a state pension fund. If you're actually thinking about that, you know, you're taking somebody's life savings away when you do that. But you can't think about that.
BILL MOYERS: Matt, you quoted the billionaire Charlie Munger of Berkshire Hathaway, who said that anyone who wants to complain about the Wall Street bailout should realize they were, "absolutely required to save your civilization." What did he mean by that?
MATT TAIBBI: Well, again, this group of people believe that all of civilization depends on their health and their wellbeing. So when they were threatened in 2008, when they were all about to collapse, it made absolute sense to them that the government should immediately intervene and give them as much money as they needed, to not only to get back on their feet, but to restore their lifestyles to the level that they had been accustomed to.
CHRYSTIA FREELAND: So I'm going to, here, step in as a voice in favor of the bailout. I think that Munger was right. I do actually believe--
BILL MOYERS: Saving civilization?
CHRYSTIA FREELAND: Yeah, I think it was. I think that the bailouts were absolutely essential. I think that, had there not been a bailout, which, by the way, let's remember, voices on the right as well as the left were objecting to the bailout at the time. I think had there not been a bailout, you would've had a much more severe crisis. You would've had a full financial collapse and a much, much deeper economic recession. Now, I think where you can and should criticize is first of all, why was the crisis allowed to happen in the first place and the regulatory failure beforehand. I think second of all, you know, where were the strings attached? And actually Charlie Munger's great business partner, Warren Buffett, drove a much harder bargain with Goldman Sachs than the U.S. Treasury did.
You know, 2008 is not so long ago. And already, the anti-regulation chorus is so strong. You know, I think the re-regulation was not done well at all.
But the fact that people are already making a very, you know, powerful and proud argument against government regulation, bankers are making this argument. I mean, how dare they. How dare they have the gall to actually argue that too much regulation of American financial services is what is killing the economy.
MATT TAIBBI: Right. Right. Just to be clear, I actually agree that the bailouts were necessary. What I completely disagree with was the way they were done. They just simply threw a whole bunch of money at this community and didn't have any conditions at all. They didn't sweep in and change any rules. You know, and after the S&L crisis, for instance, we went in and there were massive criminal investigations.
We put 1,000 people in jail. There were no such investigations this time around. So this was just making everybody well again and restoring everybody to the status quo, which I think was a major mistake because it produced precisely the result we're talking about now. It allowed everybody to think that the previous status quo was okay.
BILL MOYERS: Let me talk about the CEO class because it seems almost every day now there's a new story of some CEO, some boss of a big company who's attempting to tell voters to vote as they say.
CHRYSTIA FREELAND: If you really see yourself as a job creator, someone who is not just pursuing their business interest in getting richer, but someone who is creating jobs, doing great things for America and for your workers, and you also sincerely believe that Barack Obama is a bad guy, then you feel you have to help your workers to understand this. You know, you have to let them know that you, the job creator, believe that this job creation of which they are the fortunate beneficiaries, you know, that engine is going to slow down. It's going to grind to a halt.
BILL MOYERS: Do you see this as different from what unions do in urging their voters to go out and vote for the candidates of their choice? Do you see it differently?
MATT TAIBBI: I think it's a little different just because there's an implied threat. It's very, very vague, but, you know, if the CEO of your company suggests to you that you have to vote for Mitt Romney or you have to give money to the Romney campaign, I think the tendency to, you know, to not break ranks, is going to be a little stronger than maybe it would be in a union.
But I think it grows out of this, you know, companies and corporations, they're not democracies. They're authoritarian structures. And the people who work in those companies-- they start to adopt those attitudes after a while. And especially the people at the very top.
I think they've begun to actually believe that their authority extends beyond that. And I just think that people– it’s a little bit different when it’s something your boss tells you to do something than when your union brothers tell you something.
BILL MOYERS: Matt, you have written a lot about the tax code and these plutocrats. Exactly how do they work the tax system?
MATT TAIBBI: Well the plainest example is Mitt Romney. I mean, you know, if you look at his tax returns, he paid, you know, rates of 14, 13 percent. That's totally normal in this world if you work in a private equity fund. Your income is—
BILL MOYERS: Again, he's not an exception, he's an embodiment.
MATT TAIBBI: He's an embodiment. In the financial services industry for sure, the very, very rich mostly receive income as capital gains or if they're private equity people, as carried interest.
In both of those, the max rate is 15 percent. So people who make $20 million, $30 million, $50 million a year like Mitt Romney and like, you know, Steve Schwarzman of whoever it is, they pay half the tax rate of, you know, a nurse or a doctor or a fireman or a teacher. And it's considered totally normal in that world.
BILL MOYERS: So they really do consider tax reform a threat?
MATT TAIBBI: Absolutely. I mean every time that there's been any discussion about rolling back the carried interest tax break in particular, there's suddenly been this intense, you know, hurricane of lobbying. And it never seems to get rolled back. Barack Obama promised to repeal that tax break and didn't do it.
BILL MOYERS: Give us a working definition in the vernacular of carried interest.
CHRYSTIA FREELAND: So basically, what this means is that if you're in, if you work in a private equity firm, the money that you earn– so, you invest a little bit of your own money. And the gains that you make on that investment would be treated under any definition as a capital gain taxed at 15 percent. But you also earn money because you are investing on behalf of all of your investors.
That money that you earn, it's called carried interest. And it is treated as a capital gain in the same ways that the gains to the investors are treated.
The economic arguments in favor of the carried interest tax break are so weak. I mean, even Mike Bloomberg, who is, you know—
BILL MOYERS: The tenth richest man—
CHRYSTIA FREELAND: --very far from being a socialist. He has come out and said he doesn't support it. And it says something to you about the power of a very well heeled, very focused lobby group. That, you know, Barack Obama is president. He is opposed to this. He says he's opposed to it. Even Mike Bloomberg is opposed to it. So there's a body of Wall Street opinion that thinks it should go away. It's still there.
BILL MOYERS: But when there was an effort, when the Obama White House and others made an effort to revoke carried interest, the fight was led by people like Democrat Senator Chuck Schumer, representing Wall Street--
MATT TAIBBI: It’s always the New Yorkers.
BILL MOYERS: Yes, the New Yorkers. Of course, that's their constituency, they would say if they were sitting here. But the Democratic Party didn't come to the aid and relief of working people at that time.
MATT TAIBBI: Well right, because again, it's because you have a small, very, very concentrated lobby that is very, very noisy and is very, very specific in what it wants and what it needs. And then there's the rest of us who, how many people are really thinking about the carried interest tax break? So the advocacy against the carried interest tax break is dispersed. It's sort of random. It's not focused, whereas the advocacy for it is incredibly organized. It's disciplined. And it has a ton of money.
CHRYSTIA FREELAND: And it is bipartisan.
BILL MOYERS: Who's looking out for the rest of us?
MATT TAIBBI: Well, there are, I mean, there definitely are good people in Washington. You know, I meet and talk to a lot of them. There are a lot of honest politicians who are trying to do the right thing. But the-- my experience, the money issue is so overwhelming to people in Congress that--
BILL MOYERS: Raising money for their campaign?
MATT TAIBBI: Raising money for their campaigns. It's so central to their daily lives, really. And especially in the House, where you have to essentially start raising money the instant you get elected because the reelection campaign is only a couple years away that -- it's just too overwhelming for most legislators to get past that issue.
BILL MOYERS: Despite how the plutocrats have reacted to Barack Obama, he does not seem to be like FDR, taking on the economic royalists or like Theodore Roosevelt, fighting the guys he says are taking the country down. How do you explain Obama's attitude toward these plutocrats?
CHRYSTIA FREELAND: Barack Obama in many ways is one of them. He is educated the way a plutocrat is educated. He had an opportunity to join the plutocracy. He could very easily right now be a top corporate lawyer. And they know that.
He thinks the way they do. He's a technocrat in the accepted manner of the current plutocracy. And I think they like that. I think that's why he had such a strong reception in 2008. So I think that's one element. Another element though, and I think that this is something that sort of bothers them, is he isn't over-awed by them. And that kind of bugs them too, because they do think they’re pretty great.
MATT TAIBBI: To answer your question about, you know, why doesn't he take the sort of fist shaking attitude of an FDR or a Teddy Roosevelt, I just think Barack Obama has surrounded himself with people, like Larry Summers, like Bob Rubin. And I think he's accepted a lot of the justifications and the arguments that come from Wall Street and the business community.
So I don't think he feels genuine class based rage towards this community. I just don't think that's in him. You know, I think the-- if you listen to Rush Limbaugh and Sean Hannity and the likes, they really believe that somewhere under there, there's this raging socialist. And, you know, there's Lenin ready to break out and put them all up against the wall in a firing squad. That guy just isn't there. He really is more one of them than they think.
BILL MOYERS: So you don't think he's fighting a class warfare as the right says he is?
MATT TAIBBI: Definitely not. No. No, I think he's very emotionally and culturally much closer to those people than he is to the rest of us.
CHRYSTIA FREELAND: No, but he is moving-- he is and I don't think he says this as directly as perhaps, you know, some of his supporters would like. He is challenging this notion of the successful businessman as the hero and the driver of the American narrative. And that actually is a big-- if you think it through to its logical conclusion, that is a big challenge. And I think that accounts for this hurt. This seemingly completely disproportionate emotional reaction.
MATT TAIBBI: He's made a rhetorical mistake in the way he's occasionally described this community. And that's what's inspiring this whole reaction against him, this feeling that we are like battered wives because they've occasionally been described as rich.
CHRYSTIA FREELAND: So it's easy to laugh about this, and we should. But this hurt feelings, the fact that this is really playing out in the emotional space as well as in the balance sheet space, I think is really an important point. I think it's hard for us civilians to get it because it seems so absurd. You know, really? That would hurt your feelings? Are you so thin skinned? But it is real. And I think that it's real for a reason, which is I think that Barack Obama, the Democratic party, but also the political discourse more generally is posing an existential threat, or certainly an existential question to the plutocrats, which makes them very, very anxious.
BILL MOYERS: I haven't heard that, Chrystia.
CHRYSTIA FREELAND: Well, I'll tell—
BILL MOYERS: Barack Obama said—
CHRYSTIA FREELAND:
--I'll tell you what it is-- BILL MOYERS:
--in the debate this week that-- CHRYSTIA FREELAND: No, but I'll tell you—
BILL MOYERS: --he sounded like, he said, "I'm for free enterprise, I'm for--"
CHRYSTIA FREELAND: And I'm for free enterprise too. But what he had started to say—
BILL MOYERS: That sounds very tough on them.
CHRYSTIA FREELAND: No, but there is an underlying point that he does make. I think he should make it more explicitly which is to say that American capitalism is not working the way it was in the '50s. That we are not living in a time when a rising tide is lifting all boats. That we are seeing the people at the very top take off. Their economic fortunes actually disconnect from those and from --
BILL MOYERS: Stratospherically leaving earth.
CHRYSTIA FREELAND: --most everybody else. And they're not dependent. You know, that old Henry Ford model, where you needed the middle class to be well paid to buy Henry Ford's stuff, that that has broken down. And we can argue a lot, and we should, about the reasons. But the facts are that it has. And to say that, to actually state that, is profoundly threatening because it starts to break down this equation of my wealth equals my virtue.
The size of my bank account doesn't-- it isn't just good for me. It is a manifestation of my civic contribution. And that, in some ways, is Mitt Romney's campaign. He's saying, "I'm a successful businessman. So I will make a good president." And Barack Obama, he is actually saying, "You know what? I don't think that that equation works and is automatic." And actually, in saying that, the plutocrats are not wrong to detect there a very powerful ideological challenge.
BILL MOYERS: If plutocrats keep on winning, if they manage to avoid tax reform, if they keep low regulation, if they get a president who is sympathetic to them or even enables them, what's ahead for us?
MATT TAIBBI: Well, I mean, I fear that what's ahead is just a continual worsening of the situation. You know, what we've seen in our lifetime even since we've come back from Russia is this decimation of the middle class in America.
If we continue on this path, what we'll end up with is, you know, is Russia or some other third world country where, again, you have this handful of people who are protected and who have expanding wealth. And then there's this sort of massive population of everybody else. And that's what I worry about.
CHRYSTIA FREELAND: I would like to really issue a clarion call to progressives because I think the sort of the progressive public intellectuals are to blame as well. I think a big reason people aren't protesting is no one is offering sufficiently compelling alternatives and solutions.
And when you think back to the history of the Industrial Revolution, the Progressive Era, the New Deal, these were brand new ideas and brand new institutions designed to cope with changed economic circumstances. What I think is the challenge for everyone who is worried about this, and I think all of us should be worried about it. We should be terrified. But I think we need to start taking the next step. And we need to realize the 1950s are not coming back. What angers me sometimes about these debates is people talking about manufacturing jobs coming back.
That-- it's just not going to happen. So let's really face the facts of how the world economy works. And really come up with what needs to be the political and social response.
And frankly, you know, I see the right not interested in addressing this issue at all. And I see the left not offering enough new thinking. And people know that. And that's why people aren't on the barricades. There's no manifesto to be waving.
MATT TAIBBI: One caveat I would like to just throw anytime you propose anything that has any kind of government, you know, component to it, there's this automatic criticism that it's communist and socialist. So, when you come up with a solution, the boundaries are let's come with a solution that doesn't have-- that can't be criticized as being communist or socialist. And that is incredibly difficult for people to work around.
CHRYSTIA FREELAND: Okay, but let’s at least see the new ideas. I mean, my argument is we are living through equally profound economic transformations. And we're just trying to rehash and re-tinker with the twentieth century institutions. I don't think it's enough.
BILL MOYERS: Matt Taibbi, Chrystia Freeland, thank you very much for being with me.
MATT TAIBBI: Thank you.
CHRYSTIA FREELAND: Thank you, Bill.
BILL MOYERS: Here’s a significant revelation of which you may not be aware. The plutocrats know it and love it, and the rest of us should be forewarned. When the Supreme Court made its infamous Citizens United decision, liberating plutocrats to buy our elections fair and square, the justices may have effectively overturned rules that kept bosses from ordering employees to do political work on company time. Election law expert Trevor Potter told us that now “corporations argue that it is a constitutionally protected use of corporate ‘resources’ to order employees to do political work or attend campaign events—even if the employee opposes the candidate, or is threatened with being fired for failure to do what the corporation asks.”
Reporter Mike Elk at In These Times magazine came across a recording of Governor Mitt Romney on a conference call in June with some business executives. The Governor told them there is quote, “nothing illegal about you talking to your employees about what you believe is best for the business, because I think that will figure into their election decision, their voting decision and of course doing that with your family and your kids as well.”
And here’s Governor Romney two months later, campaigning at an Ohio coal mine:
MITT ROMNEY: This is a time for truth. I listened to an ad on the way here. I’ll tell you, you got a great boss. He runs a great operation here. And he—Bob? Where are you Bob? There he is.
BILL MOYERS: Look at all those miners around him, steadfastly standing in support, right? They work for a company called Murray Energy and attendance at the rally, without pay, was mandatory. Murray Energy is notorious for violating safety regulations, sometimes resulting in injuries and deaths. And the company has paid millions in fines. The CEO, Bob Murray, a well-known climate change denier and cutthroat businessman, insists that his employees contribute to his favorite anti-regulatory candidates, or else. In one letter uncovered by “The New Republic” magazine, Murray wrote quote, “We have been insulted by every salaried employee who does not support our efforts.” So much for voting rights and the secret ballot at Murray Energy.
Mike Elk discovered that the Koch Brothers, David and Charles – who have pledged to spend $60 million defeating President Obama – have sent a “voter information packet” to the employees of Georgia Pacific, one of their subsidiaries. It includes a list of recommended candidates, pro-Romney and anti-Obama editorials written by the Koch’s and a cover letter from the company president. If we elect the wrong people, Dave Robertson writes, “Many of our more than 50,000 US employees and contractors may suffer the consequences, including higher gasoline prices, runaway inflation, and other ills.” Other ills? Like losing your job?
This is snowballing. Timeshare king David Siegel of Westgate Resorts reportedly has threatened to fire employees if Barack Obama is re-elected and Arthur Allen, who runs ASG Software Solutions, e-mailed his employees, “If we fail as a nation to make the right choice on November 6th, and we lose our independence as a company, I don’t want to hear any complaints regarding the fallout that will most likely come.”
Back in the first Gilded Age, in the 19th century, bosses and company towns lined up their workers and marched them to vote as a block. As we said at the beginning of this broadcast, the Gilded Age is back with a vengeance. Welcome to the plutocracy. The remains of the ol’ USA.
That’s it for this week. On our website, BillMoyers.com, at your request, we’re starting a book club. Our first is Chrystia Freeland’s “Plutocrats.” Read the book, ask questions, share your thoughts. Then let’s have a lively conversation.
That’s at BillMoyers.com. I’ll see you there and I’ll see you here, next time.
© 2013 Public Affairs Television, Inc. All rights reserved.

Sunday, January 6, 2013

Economics 9-1-1: The Tower of Terror, Plutonomics

Daily Kos


Economics 9-1-1: The Tower of Terror, Plutonomics

Economics 9-1-1: The Tower of Terror, Plutonomics

It's been a long time since I posted anything on D-KOS. I've been occupied waiting for agents' rejection notices for my first political suspense novel. Not to worry 10 people have found that self-published needle in a haystack on Amazon. Thank god for those few relatives who still read. Anyway, it was a sidebar, "Plutonomics," in the June The Hightower Lowdown that got caught sideways in that dark uncomfortable place. That then irritated me into writing what follows.
Due the length of this post, it has been broken up into 3 parts. I'm catering to our short attention span which is really a result of a world that is moving faster than the speed of thought.

    Part I: Wealth, huh, good God. What is it good for?
    Part II: Taxes? We don't want no taxes. We don't need no taxes! I don't have to show you any stinkin' taxes!
    Part III: Won't somebody please help that poor man?

Part II and III rest will be posted during the next few days.
 
Part I: Wealth, huh, good God. What is it good for?

Thesis:

Wealth does not create more jobs; need does. In a healthy capitalistic system, one which creates a long term economic stability, satisfying the needs of the bottom 90% of workers provides the greatest stability. Wealth becomes a byproduct of employment. Guarantying high levels of wealth to the top 1% creates an overall unstable economy for the vast majority of Americans, the bottom 90%. Wealth in the hands of the plutocrats, plutonomics, is a hindrance to stable high employment and sustained new job creation. 

Definitions

Plutocracy: An elite or ruling class of people whose power derives from their wealth. Government controlled by the wealthy. (Basically, the richest 1% of U.S. Households)

Plutonomy: A term coined in 2005 by Citicorp's Ajay Kapur to describe the economy of the past three decades. Economy controlled by Plutocrats; Economic system run by and for the benefit of the Plutocracy.

Five years after Kapur created the term Plutonomy, the plutonomic system has become so entrenched that its dominance will soon, if it hasn't already, turn into permanence. That's not good.

According to Kapur, understanding this new economy and the importance of preserving it is simple. "The World is dividing into two blocs - the Plutonomy and the rest. The U.S.,UK, and Canada are the key Plutonomies - economies powered by the wealthy. Continental Europe (ex-Italy) and Japan are in the egalitarian bloc."

Kapur's contention is that the plutocracy (the economic ruling class) drives the economy and, thus, needs to be protected. However, the other side of this economic protection is the diminished importance of the "average consumer," and that is not a pretty picture; it means unemployment and depressed wages for a huge portion of Americans (the bottom 90%), the "average consumer."
Actually, it's even worse than that. For Kapur and the plutocrats, "There is no "average consumer" in a Plutonomy. Consensus analyses focusing on the "average" consumer are flawed from the start. The Plutonomy Stock Basket outperformed MSCI AC World* by 6.8% per year since 1985. Does even better if equities beat housing." Note that his focus is on who is winning the financial market and not the health of the job market.

(*The MSCI World is a stock market index of 1500 'world' stocks. It is maintained by MSCI Inc., formerly Morgan Stanley Capital International)
Though we, the bottom 90%, weren't aware of it, we have been the magician's assistant in a vanishing act that probably will not reappear. We are invisible to the plutocrats. We don't count in their plutonomy because an "average consumer" is no longer necessary to create wealth for the top tier. We just don't matter and neither does our employment. They just need enough of us working to create the luxury items that they wish to purchase and the services they need to use. (If we don't wake up, we're all going to be vying for the honor of mowing their lawns and dusting their lladros.)

Since the wealthy have the bulk of - well - the wealth - ("the top 1% of households also account for 33% of net worth, greater than the bottom 90% of households put together. It gets better (or worse, depending on your political stripe) - the top 1% of households account for 40% of financial net worth, more than the bottom 95% of households put together.") and they purchase luxury items and employ domestic workers and gardeners, production and services trend toward those areas.

Therein lies the obvious problem. 1% of the population buys far fewer items than the 90%. That logic is obvious. From there too many people seem to drop the economic thread that would allow them to understand how stable employment is attained. Nonetheless, the logic is not difficult to follow. It takes fewer people to produce goods and services for the 1% than it does for the bottom 90%. Think of it this way: it's the employment power (which is not the same as purchasing power, i.e. money) of 1 million households versus 60 million households. The wealthy have more purchasing power by virtue of their money, but they have far less employment power.

Most Americans, at the urging of economic media pundits, make the mistake of thinking that the health of the financial markets creates long term stable employment, but the markets are a major factor in creating wealth in a plutonomic system for the top 1%, the plutocrats, not long term stable employment for the bottom 90%.

(What follows is a simple, even simplistic explanation of the fallacy that wealth creates jobs. Don't have a cow. I know there are holes in it.) If the number of workers needed to make a luxury car versus the number needed to make a normal car is roughly the same then the "average consumers'" purchases would generate far more employment. (If the bottom 90% had the money to purchase new cars - which, increasingly, they don't.) The plutocrats (the 1 million wealthiest households) may buy as many as 4 cars at $80,000 to $200,000 each, but the number of workers needed to make the 4 million cars is a fraction (6.7%) of what it takes to make 1 car for each of the 60 million households, the bottom 90%.

However, that logic is the last thing the plutocrats want the bottom 90% to realize. They want us to believe that their wealth, not our needs, creates the jobs. However, businesses criterion for creating jobs has far less to do with wealth than they would like us to believe. The notion that increased profits result in increased employment and/or wages is inaccurate. No businesses that wishes to stay solvent base their expansion on profits. They base it on the need for their product or services. Premature expansion has killed many businesses. It is true that money is needed to expand a business when it wants to meet increased demand, but readily available cash on hand is not a necessity. In fact, tapping into cash reserves is not necessarily wise, arranging additional financing is preferable. The business may need the reserves for survival if things go bad.
Right now there's still a lot of wealth in the economy, enough to revitalize the economy, but it is in the hands of the wealthy, and there are just not enough of them (1%) to create enough need that would result in a healthy level of stable employment. So there's far less employment and the bottom 90% suffers. Wealth does not create more jobs; need does. Satisfying the needs of the bottom 90% creates a healthy sustainable economy.

Wealth, huh, good God
What is it good for
Absolutely nothing
Listen to me


Part II: "Taxes? We don't want no taxes. We don't need no taxes! I don't have to show you any stinkin' taxes!"
 
Thesis:

Wealth does not create more jobs; need does. In a healthy capitalistic system, one which creates a long term economic stability, satisfying the needs of the bottom 90% of workers provides the greatest stability. Wealth becomes a byproduct of employment. Guarantying high levels of wealth to the top 10%, and especially 1% creates an overall unstable economy for the vast majority of Americans, the bottom 90%. Plutonomics is a hindrance to stable high employment and sustained new job creation. 

Definitions

Plutocracy: An elite or ruling class of people whose power derives from their wealth. Government controlled by the wealthy. (Basically, the richest 1% of U.S. Households)

Plutonomy: A term coined in 2005 by Citicorp's Ajay Kapur to describe the economy of the past three decades. Economy controlled by Plutocrats; Economic system run by and for the benefit of the Plutocracy.

The main impetus for business people and companies is the attainment of wealth. Rarely is it the pure pleasure of creating or expanding a product or service. They are in business to make money.  If the only or fastest way to make more money is through expansion to meet demand then that's what a business will do; however, if people and businesses can make that money through tax breaks, then they can moderate or forgo the risk of expansion. The huge increase in wealth over the past three decades has not resulted in high employment and increased wages because that wealth has gone to the wealthy. In fact the bottom 90% are worse off now as a result of the wealth or rather of the distribution of the wealth.

My point is this: tax breaks, especially huge tax breaks for the wealthy, are a disincentive and counterproductive. Tax breaks tied to increasing wages is fine. Tax breaks tied to expanding a business to employ more people is fine, but tax breaks just so the wealthy, the plutocrats, can have more money is counterproductive. They are more likely to gamble it on the stock market or buy a luxury car or a house in the Hamptons and live off capital gains. That is dead money; it employs few people if any.

That same tax break shifted to the bottom 90% will be spent on necessities. The increased purchases require more goods to be made to meet the increasing need; thus, more people must be employed. When employment is high, money chases workers and wages and salaries rise. That in turn gives more people more money and a healthy employment cycles ensues. Money in the hands of the wealthy does not have that effect because there are a lot fewer of them. They have more purchasing power than the bottom 90%, but they have far less employment power. (If the money that the big corporations spend on lobbyist to garner greater tax breaks were given to their workers, it would do a lot more for the economic well-being of the country. I know. I'm dreaming.)

Additionally, economic stability, which high employment and a more even distribution of wealth creates, is disadvantageous for the wealthy because the opportunity to accumulate property and stocks at bargain prices decreases. When this economic fiasco finally calms, they will have far more wealth than before. Some already have made enormous profits. (Note that the major financial institutions are larger than they were before the crisis because some of them, with the aid of the fed, merged. Too big to fail is now way too big to fail and far too big to control. During the financial crisis, too big to fail was really too big not to be a plutonomy.)  

However, regardless of how damaging plutonomy is for the working class, there is no indication that this plutonomic system will change soon or maybe at all; in fact, it will get worse because the money and power brokers are hard at work trying to get those in the 90% that are still employed to accept the concept of the jobless recovery.

Why such a grand effort? High unemployment works to the advantage of plutocrats (the rich and powerful) because it drives wages down. In bad times people accept that because they are just happy to have a job. Decreased wages mean fewer purchases and that means fewer workers are needed. And the cycle continues, except for the wealthy. The stability of the top 1% is not negatively effected. The bonuses and exorbitant salaries don't change and their life style doesn't change.

End of Part II: Tomorrow Part III: Won't somebody please help that poor man?"


Econ 9-1-1: Part III: Won't somebody please help that poor man?

 
Thesis:

Wealth does not create more jobs; need does. In a healthy capitalistic system, one which creates a long term economic stability, satisfying the needs of the bottom 90% of workers provides the greatest stability. Wealth becomes a byproduct of employment. Guarantying high levels of wealth to the top 10%, and especially 1% creates an overall unstable economy for the vast majority of Americans, the bottom 90%. Plutonomics is a hindrance to stable high employment and sustained new job creation. 

Econ 9-1-1: Part I: Wealth, huh, good God. What is it good for?
Econ 9-1-1: Part II: "Taxes? We don't want no taxes. We don't need no taxes! I don't have to show you any stinkin' taxes!"

Why doesn't our government do something about plutonomics?

Definitions

Plutocracy: An elite or ruling class of people whose power derives from their wealth. Government controlled by the wealthy. (Basically, the richest 1% of U.S. Households)

Plutonomy: A term coined in 2005 by Citicorp's Ajay Kapur to describe the economy of the past three decades. Economy controlled by Plutocrats; Economic system run by and for the benefit of the Plutocracy.

Why doesn't our government do something about plutonomics?

They have. They've adopted it. They love it. They can't get enough of it. It has become clear that, for several reasons, plutonomy is now the economic system preferred by the majority of congress, the previous four presidents, and possibly our current president. It's easy to understand why. First, it provides members of congress with a readily available source of large campaign contributions (with the Supreme Ruling, even larger in the future). It is the lifeblood of their reelection, their further employment, their continued affluence, and their growing influence. Second, protecting the plutonomy is a guarantee of a place in the sun after resignation, electoral defeat or retirement. Terms in congress have become internships for corporate boards of directors, lobbying firms, think tanks, well paid corporate positions, lucrative speaking engagements and paid gigs at main stream media outlets. Third, and not insignificantly, they are lifted into the upper echelons of high society. They get to breathe the rarified air of the rich, powerful and famous. Fourth, they wanted to get rich and at the same time believe the bottom 90% would be alright. That way they wouldn't have to nudge their conscience from its thirty year nap; so, they decided to ignore the obvious.
For wishful politicians plutonomy was a case of, "please be true, please be true, please be true - whoops - well, I'm rich, too bad for you." Then to hold their job they took a page or scene from "How to Succeed in Business Without Really Trying." They blustered, blew hot air, stirred emotions and created mush. It's really not hard to understand; it's just hard for the working class to justify.

Thus, Libermann's support for the public health insurance option vanishes as he approaches retirement and looks to position himself for a seat on the board of directors of an insurance company. It wasn't a change in position over principle; it was an audition. Since 1989 Chris Dodd has received $13.9 million from the finance, insurance and real estate sector. After Dodd announces his retirement he no longer has to pretend to support strong financial regulation. He declares a two man regulatory finance subcommittee, then cuts it in half and pushes to replace the proposed independent, standalone Consumer Financial Protection Agency with a weak Bureau of Financial Protection inside the Treasury. It is a Wall Street job interview.

Why don't the invisible "average consumers" do something about plutonomics?

First, part of it has been the great selling job that the Republicans and many Democrats have done. In fact, even though he sent this snowball rolling down hill, some Democrats still admire Ronald Reagan, the sacred icon of the Republican party. On second thought, many Americans are unaware of his responsibility for the debt, demise of unions, depressed wages and decreased services. They see him as the nice old man sitting atop his steed with a smile and his hat stylishly cocked to one side. His promise of a good life for everyone was too tempting to ignore. The promise that we could have it all was an allure that we couldn't resist.

Second, they gave us an enemy. Never mind that it was our own government. The presentation of a scapegoat for our failures was soothing. It wasn't us; it was them, them out there. Government is not the solution; it's part of the problem. They let us separate America from the government of the United States. They were able to separate the Constitution from the government that the Constitution set up. We had found the enemy and it was us, no them - wait - we're not too blame. As my daughter humorously says to every mistake, "I didn't do it." We had separated ourselves from our government. It was no longer what they did, it was what they were and we had nothing to do with it. All we had to do was convince ourselves that we didn't live in a democracy; so, even though we elected these people, we yelled, "Tyranny." Even though we could replace them we shouted, "Sic Semper Tyrannis." Very clever self deceit.

Third, we admire the wealthy. We are 90% of the population, and although we are more angry, we continue to grovel at the feet of the powerful and wealthy and to be used by them. With the Supreme Court ruling on corporate political contribution, we could be groveling even more. Too many people in this country still worship the wealthy because they worship wealth. They want to be them, so they dare not attack them. It's the same psychology that causes people to buy Inquirer, Star, and People and tune into a tour of an athlete's "crib."

Fourth, we don't know what's going on until its already gone on. We really don't know who these politicians are before we elect them; so, it's hard to know how important their personal wealth is compared to their constituents well-being. To top it off, they have no compunction about lying to us about the importance of wealth or the extent of their personal wealth. Add our gullibility and carelessness to that, and artful politicians know that we can be swayed by clichés, and cleverly crafted sound bites that edge the truth aside. We have allowed politicians to sell bribery as lobbying. The main stream media's reliance on advertising from the plutocrats has made their judgement unreliable. They are part of the plutocracy and are dependent on a vibrant plutonomy. While we say that we don't trust politicians, we keep trying to. Their reelection is almost assured. We let media labels and revelations about their personal lives influence our decisions about their qualifications as lawmakers.

Fifth, We are easily distracted by side issues that have no effect on our economic well-being. We vote based on abortion, stem cell research, gun control, illicit affairs, religion, gay-rights, immigration, marijuana legalization.

Sixth, We're just f'n lazy. We do not take the time nor put out the effort necessary to find out the truth. The information is available but it is up to us to look because MSM has a vested interest in believing the information of the plutocrats.

We need to grow up. The childish admiration of the plutocrats (the wealthy and famous) is an insidious distraction. It blinds us. It prevents us from seeing what is really happening, and if we can't see, we can't act. Time is running out if we want our children to have a prayer for a decent life. They deserve it more than we do. We are letting this happen.

This brings me back to my thesis. Wealth does not create more jobs; need does. In a healthy capitalistic economy, one which is satisfying the needs of all the people (even the outcaste 90%), wealth is a byproduct of employment, and it rightly should be. A capitalistic system that does not create products and services intended to satisfy the increasing needs of the vast majority of people does not create stable employment; thus, it results in an unstable economy for the bottom 90%.

We need to replace the Plutonomy with Populonomy, a populist economy based on the needs of the 90%, an economy that benefits the 90%. Money needs to be shifted from the top 1% of wealthy people and corporations to the 90%. That means a return a the 1940's and 1950's graduated income tax scale and an increase in capital gains taxes. Only then will we see a true change in the employment and spending power that will stabilize the economy.

A final note: In this disastrous economy, raising taxes on wealthy people and corporations is not redistribution of wealth. It is re-employment. It is money for job creation.