Tuesday, December 28, 2010


Buried in this article is a very interesting line of thought for liberals:

Compare these circumstances to those of 1911, a century ago. Even in the wealthier countries, the average person had little formal education, worked six days a week or more, often at hard physical labor, never took vacations, and could not access most of the world’s culture. The living standards of Carnegie and Rockefeller towered above those of typical Americans, not just in terms of money but also in terms of comfort. Most people today may not articulate this truth to themselves in so many words, but they sense it keenly enough. So when average people read about or see income inequality, they don’t feel the moral outrage that radiates from the more passionate egalitarian quarters of society. Instead, they think their lives are pretty good and that they either earned through hard work or lucked into a healthy share of the American dream. (The persistently unemployed, of course, are a different matter, and I will return to them later.) It is pretty easy to convince a lot of Americans that unemployment and poverty are social problems because discrete examples of both are visible on the evening news, or maybe even in or at the periphery of one’s own life. It’s much harder to get those same people worked up about generalized measures of inequality.

This is why, for example, large numbers of Americans oppose the idea of an estate tax even though the current form of the tax, slated to return in 2011, is very unlikely to affect them or their estates. In narrowly self-interested terms, that view may be irrational, but most Americans are unwilling to frame national issues in terms of rich versus poor. There’s a great deal of hostility toward various government bailouts, but the idea of “undeserving” recipients is the key factor in those feelings. Resentment against Wall Street gamesters hasn’t spilled over much into resentment against the wealthy more generally. The bailout for General Motors’ labor unions wasn’t so popular either—again, obviously not because of any bias against the wealthy but because a basic sense of fairness was violated. As of November 2010, congressional Democrats are of a mixed mind as to whether the Bush tax cuts should expire for those whose annual income exceeds $250,000; that is in large part because their constituents bear no animus toward rich people, only toward undeservedly rich people.

The question is, what is "undeservedly rich"?

Warren Buffet and United For a Fair Economy posit that all wealth is derived from society, and indeed, there is much truth there. A business cannot sell unless there is a collection of consumers ready to buy. That business relies on the population for its workers. It relies on the resources of that society, the infrastructure, and the raw materials that it or its suppliers need to produce goods which ultimately are provided for free by Mother Earth...indeed, it is estimated that a fair price for those raw materials, like air and water and minerals, would equal the cumulative gross domestic product of every economy on the planet, thus making world net profit precisely zero. 

Clearly, one can make the case that between the raw materials and labor pool, society should devolve the majority of revenues from any business (the value-added tax is an attempt to put this into practice, however marginally). In practice, the individual entrepreneur is the one who stands to most benefit from commerce. In truth, he risks an awful lot too, but that's a different article. We're talking here about the ones who succeed.

I think we'd all agree that a guy who opens up a shoe repair shop and works long hard hours for little money building his business is entitled to some kind of payoff for his hard work. In practice, the truth is very different: success usually occurs more from sheer blind luck than from hard work. You can work really hard and make nothing of a company, but add a little luck, and you have success.  

And I think we'd all agree that the guy who makes megamillions from his raw talent at hitting a ball with a bat is probably less deserving. Except we forget he had to work really hard and yes, he plays a game but he plays it well enough to attract fans who pay the club even more money than he pays (here we're back to society as customer), and the money would either go to him or the even richer fellow (or woman) who owns the club.
In truth, both the shoe mogul and the ballplayer owe us a debt, and it is when they do not pay that debt that we get angry. Bailout a banker and we get mad, especially when a banker pays that loan back in a much shorter time that expected. Why did he need bailing out?
And yet, there's this curious construct that has us blaming the guy next door for taking a chance similar to the banker and biting off more than he could chew. The homeowner with the ubermortgage doesn't have the ability to take a loss on his house (like the banker, he can deduct interest off his bottom line, however). If the banker sells a house for less than he mortgaged it out, he can deduct that loss. If a homeowner sells a house for less than his mortgage, not only is he still in hock to the lender, but he can't even deduct the loss off his taxes.
Yet, we blame the homeowner and rant about bailing him out, but the banker may get our contempt, but we still enrich him with the use of his bank and his credit cards!
Tyler Cowen, the author of the article cited above, posits that the people who should be getting our contempt are the people who play with other people's money, and yet we tend to cut them slack because they are more removed from our day-to-day perspectives, yet they make enormous sums of money off our backs with very little risk.
From the mergermania of the 1980s to the recent housing bubble, these speculators have made trillions of dollars doing nothing but playing with our lives, our fortunes and our sacred honors.
You say you want a revolution? I know where to begin.