There are basically only four ways to accumulate a billion dollars – and none of them is a product of so-called free market capitalism. Billionaires themselves aren’t the problem. The real failure is in how our economy is organized. The way to fix it is getting rid of monopolies, stopping the use of insider information, preventing the rich from buying off politicians, and making it harder for the super-rich to avoid paying taxes.
One way to make a billion is to exploit a monopoly.
Jeff Bezos is worth $150 billion. You might say he deserves this because he founded and built Amazon. But Amazon is a monopoly with nearly 50 percent of all e-commerce retail sales in America (and e-commerce is one of the largest sectors of all retail sales). Consumers have few alternatives.
Nor do many suppliers who sell through Amazon; for the first 25 years of its existence, Amazon wouldn’t let them sell at a lower price anywhere else. And Amazon’s business is protected by patents granted Amazon by the U.S. government and enforced by government.
If we had tough anti-monopoly laws, and if the government didn’t grant Amazon so many patents and trademarks, Bezos would be worth far less.
The same applies to people like George Lucas, Oprah Winfrey, or any other figure whose brands, ideas or creations depend on copyrights and trademarks, which are laws that have been dramatically extended in recent decades.
If these were shortened, these people would be worth far less, too.
A second way to make a billion is to get insider information unavailable to other investors.
The hedge-fund maven Steven A. Cohen is worth an estimated $12.8 billion. Now, how did he do it? According to a criminal complaint filed by the Justice Department, insider trading at Cohen’s SAC Capital was “substantial, pervasive, and on a scale without known precedent in the hedge fund industry.”
Eight of Cohen’s present or former employees pleaded guilty or convicted for using insider information. Cohen got off with a fine, changed the name of the firm, and apparently is still at it.
A third way to make a billion is to pay off politicians.
The Trump tax cut was estimated to save Charles and David Koch– each of whose net worth is estimated to be about $50 billion – and their Koch Industries – 1 to 1.4 billion dollars a year,not even counting tax savings on offshore profits and a shrunken estate tax.
The Kochs and their affiliated groups spent an estimated $20 million lobbying for the Trump tax cut, including major donations to politicians.
Not a bad return on investment: More than a billion dollars a year back for $20 million put in.
Koch Industries has also been a major beneficiary of government programs to fill the Strategic Petroleum Reserve, provide roads and access to virgin growth forests, use eminent domain to seize private land for oil and gas pipelines, get oil subsidies, andprofit off federal lands.
A fourth way to be a billionaire is to get the money from rich parents or relatives.
About 60 percent of all the wealth in America today is inherited.
That’s because, under U.S. tax law – which is itself largely a product of lobbying by the wealthy – the capital gains of one generation are wiped out when those assets are transferred to the next, and the estate tax is so tiny that only 0.2 percent of estates were even subject to it in 2017.
America is creating a new aristocracy of people who never worked a day in their lives.
Let’s abolish billionaires by changing the way the economy is organized.
This doesn’t mean confiscating the wealth and assets of the super rich. It does mean getting rid of monopolies, stopping the use of insider information, preventing the rich from buying off politicians, and making it harder for the super-rich to avoid paying taxes.
In other words, creating a system in which economic gains are shared more widely.
Entrepreneurs like Jeff Bezos would be just as motivated by say, a $100 million or even $50 million.
But the cost to our democracy of billionaires with enough wealth and power to dictate the rules of capitalism for their own benefit is incalculable.
Conservatives are desperate to absolve the 1 percent by Ryan Cooper in The Week, July 2019
Over a decade ago, economists Thomas Piketty and Emmanuel Saez helped launch the problem of “the top one percent” into the political mainstream, as shorthand for the idea that the very rich were sucking up most of the fruits of economic growth. Their original papers breaking down the stunning scale of American inequality were picked up by Occupy Wall Street in 2011, which made “we are the 99 percent” one of their signature chants.
This has unsurprisingly inspired a cottage industry of one-percenter apologia. The very rich themselves, along with the think tanks and foundations they fund, have made quibbling with Piketty and Saez practically an entire academic discipline. Recently, The New York Times’ David Brooks tried to scapegoat the top 20 percent, while the American Enterprise Institute’s Lyman Stone pinned the blame on the entire Baby Boom generation. Neither are convincing.
Brooks asserts that “the big divide in America is not between the top 1 percent and the bottom 99. It’s between the top 20 percent and the rest.” He lambastes the “highly educated Americans who are pulling away from everybody else and who have built zoning restrictions and meritocratic barriers to make sure outsiders can’t catch up.” He provides no evidence for this whatsoever, and the argument collapses when subjected to the slightest scrutiny. For one thing, as economist Gabriel Zucman points out, it is simply false to say the top 20 percent as a whole are “pulling away” from the rest.
No, @nytdavidbrooks tremendous gains are not going to the top 20%. They are going to top 1%. Key to understand GOP.https://nyti.ms/2terRCH 533 1:04 PM – Jun 27, 2017
Growth in American inequality over the last generation is very obviously concentrated at the tippy-top of the income distribution. From 1980-2014, the top 1 percent as a whole did very well, but the top 0.1 percent did about twice as well again, and the top 0.001 percent about four times as well. Meanwhile, the following four percent (that is, the top 5 percent excluding the top 1 percent) only gained moderately. The following 5 percent (top 10 to the top 5 percent) are treading water. And the bottom half of the top 20 percent actually lost ground over this period.
Brooks’ reference to “highly educated” is just as wrong. The implication here is that people with advanced degrees are earning lots of money with their fancy diplomas while mobilizing to cut off access to education for everyone else. But as economist Marshall Steinbaum writes, this model of income as explained by “human capital” doesn’t work at all. The top one percent are not notably better educated than even the top 25 percent, and there are vast income differences between people with the same degrees depending on where they work. Inequality is far more about which people happen to land in very profitable firms, and especially who owns lots of wealth that throws off vast sums in capital gains. Since the year 2000, all the of income gains of the top one percent have come from capital income.
Brooks himself is almost certainly a one percenter. New York Times columnists get a handsome salary, and they can probably make even more than that doing speaking gigs, writing books, and teaching classes about humility at Yale. A few years ago he sold his mansion for nearly $4.5 million.
That brings me to Stone. Brooks’ reference to “zoning restrictions” was likely inspired by Stone’s essay in The Atlantic arguing that the Boomers “ruined everything” through their “rush to respond to a social ill with control, with extra rules and procedures, with the commanding power of the state.” He cites zoning three-quarters of the country for detached single-family homes, requiring occupational licenses for many jobs, and throwing millions in prison.
Now, Stone is partly correct about many things. Effectively banning dense housing in most of the country is a bad thing. And mass incarceration is of course a terrible atrocity — and one which missed the likely actual driver of the 20th-century crime wave, namely lead poisoning. But occupational licensing is not a Boomer-specific phenomenon (there were medieval guilds hundreds of years ago, after all), and it is nowhere close to the top of the list as to why the working class is struggling, if it even is a problem in the first place. Indeed, disruptions of taxi regulations through Uber and Lyft led to a collapse in worker wages and market chaos. A recent working paper found that occupational licensing reduces gender and racial wage gaps. Labor is not a commodity and treating it like one is not a magic route to better wages.
More importantly, Stone’s account of Baby Boomers’ supposed rush to over-regulate everything completely passes over instances in which democratic state power was withdrawn from the economy. The New Deal put in place an enormous regulatory apparatus that was largely dismantled starting in the 1970s. Nowhere does Stone mention the deregulation of trucking, airlines, telecommunications, or finance, nor the abandonment of anti-trust regulations. Monopolies are not mentioned, and neither is the Great Recession. Unions are mentioned only once in passing.
These are howling absences in an article purporting to blame the plight of young people on “commanding state power.” It’s like writing an article on sea level rise without mentioning carbon dioxide.
At any rate, one can criticize the political choices of the top 20 percent who aren’t part of the top one percent. As I have argued, they are constantly taken for a ride by the real oligarchs, who use them as a convenient cudgel to beat back social insurance, only to turn on a dime and use them to pay for massive tax cuts.
But the inescapable reality is that over the past generation or so, the economy has been structurally rigged to benefit the very rich almost exclusively. The fact that conservatives must twist themselves into such ludicrous contortions to pin the blame on others is itself compelling evidence that an oligarchy of the top one percent is the real problem with the American economy.
We can afford to make the investments that would create a peaceful, democratic, and equitable economy. Indeed, we can�t afford not to make these investments.
**
Felicia Wong, New Rules, New Politics, Boston Review. If the U.S. economy is doing so well, why can’t 40 percent of Americans afford a $400 emergency? An intro to the new economics that’s exposing the price we pay for tolerating the “sclerosis born of elites’ chokehold on power.”
Takers and Makers: Who are the Real Value Creators? Where value meets profit meets economic rent. By Mariana Mazzucato
We often hear businesses, entrepreneurs or sectors talking about themselves as ‘wealth-creating’. The contexts may differ – finance, big pharma or small start-ups – but the self-descriptions are similar: I am a particularly productive member of the economy, my activities create wealth, I take big ‘risks’, and so I deserve a higher income than people who simply benefit from the spillovers of this activity. But what if, in the end, these descriptions are simply just stories? Narratives created in order to justify inequalities of wealth and income, massively rewarding the few who are able to convince governments and society that they deserve high rewards, while the rest of us make do with the leftovers.
If value is defined by price – set by the supposed forces of supply and demand – then as long as an activity fetches a price (legally), it is seen as creating value. So if you earn a lot you must be a value creator. I will argue that the way the word ‘value’ is used in modern economics has made it easier for value-extracting activities to masquerade as value-creating activities. And in the process rents (unearned income) get confused with profits (earned income); inequality rises, and investment in the real economy falls. What’s more, if we cannot differentiate value creation from value extraction, it becomes nearly impossible to reward the former over the latter. If the goal is to produce growth that is more innovation-led (smart growth), more inclusive and more sustainable, we need a better understanding of value to steer us.
This is not an abstract debate. It has far-reaching consequences – social and political as well as economic – for everyone. How we discuss value affects the way all of us, from giant corporations to the most modest shopper, behave as actors in the economy and in turn feeds back into the economy, and how we measure its performance. This is what philosophers call ‘performativity’: how we talk about things affects behaviour, and in turn how we theorize things. In other words, it is a self-fulfilling prophecy.
If we cannot define what we mean by value, we cannot be sure to produce it, nor to share it fairly, nor to sustain economic growth. The understanding of value, then, is critical to all the other conversations we need to have about where our economy is going and how to change its course.
Why Value Theory Matters
The disappearance of value from the economic debate hides what should be alive, public and actively contested. If the assumption that value is in the eye of the beholder is not questioned, some activities will be deemed to be value- creating and others will not, simply because someone – usually someone with a vested interest– says so, perhaps more eloquently than others. Activities can hop from one side of the production boundary to the other with a click of the mouse and hardly anyone notices. If bankers, estate agents and bookmakers claim to create value rather than extract it, mainstream economics offers no basis on which to challenge them, even though the public might view their claims with scepticism. Who can gainsay Lloyd Blankfein when he declares that Goldman Sachs employees are among the most productive in the world? Or when pharmaceutical companies argue that the exorbitantly high price of one of their drugs is due to the value it produces? Government officials can become convinced (or ‘captured’) by stories about wealth creation, as was recently evidenced by the US government’s approval of a leukemia drug treatment at half a million dollars, precisely using the ‘ value- based pricing’ model pitched by the industry – even when the taxpayer contributed $200 million dollars towards its discovery.
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Second, the lack of analysis of value has massive implications for one particular area: the distribution of income between different members of society. When value is determined by price (rather than vice versa), the level and distribution of income seem justified as long as there is a market for the goods and services which, when bought and sold, generate that income. All income, according to this logic, is earned income: gone is any analysis of activities in terms of whether they are productive or unproductive.
Yet this reasoning is circular, a closed loop. Incomes are justified by the production of something that is of value. But how do we measure value? By whether it earns income. You earn income because you are productive and you are productive because you earn income. So with a wave of a wand, the concept of unearned income vanishes. If income means that we are productive, and we deserve income whenever we are productive, how can income possibly be unearned? As we shall see in Chapter 3, this circular reasoning is reflected in how national accounts – which track and measure production and wealth in the economy– are drawn up. In theory, no income may be judged too high, because in a market economy competition prevents anyone from earning more than he or she deserves. In practice, markets are what economists call imperfect, so prices and wages are often set by the powerful and paid by the weak.
In the prevailing view, prices are set by supply and demand, and any deviation from what is considered the competitive price (based on marginal revenues) must be due to some imperfection which, if removed, will produce the correct distribution of income between actors. The possibility that some activities perpetually earn rent because they are perceived as valuable, while actually blocking the creation of value and/or destroying existing value, is hardly discussed.
Indeed, for economists there is no longer any story other than that of the subjective theory of value, with the market driven by supply and demand. Once impediments to competition are removed, the outcome should benefit everyone. How different notions of value might affect the distribution of revenues between workers, public agencies, managers and shareholders at, say, Google, General Electric or BAE Systems, goes unquestioned.
Third, in trying to steer the economy in particular directions, policymakers are – whether they recognize it or not – inevitably influenced by ideas about value. The rate of GDP growth is obviously important in a world where billions of people still live in dire poverty. But some of the most important economic questions today are about how to achieve a particular type of growth. Today, there is a lot of talk about the need to make growth ‘smarter’ (led by investments in innovation), more sustainable (greener) and more inclusive (producing less inequality).
Contrary to the widespread assumption that policy should be directionless, simply removing barriers and focusing on ‘levelling the playing field’ for businesses, an immense amount of policymaking is needed to reach these particular objectives. Growth will not somehow go in this direction by itself. Different types of policy are needed to tilt the playing field in the direction deemed desirable. This is very different from the usual assumption that policy should be directionless, simply removing barriers so that businesses can get on with smooth production.
Deciding which activities are more important than others is critical in setting a direction for the economy: put simply, those activities thought to be more important in achieving particular objectives have to be increased and less important ones reduced. We already do this. Certain types of tax credits, for, say, R&D, try to stimulate more investment in innovation. We subsidize education and training for students because as a society we want more young people to go to university or enter the workforce with better skills. Behind such policies may be economic models that show how investment in ‘human capital’ – people’s knowledge and capabilities – benefits a country’s growth by increasing its productive capacity. Similarly, today’s deepening concern that the financial sector in some countries is too large – compared, for example, to manufacturing – might be informed by theories of what kind of economy we want to be living in and the size and role of finance within it.
But the distinction between productive and unproductive activities has rarely been the result of ‘scientific’ measurement. Rather, ascribing value, or the lack of it, has always involved malleable socio- economic arguments which derive from a particular political perspective – which is sometimes explicit, sometimes not. The definition of value is always as much about politics, and about particular views on how society ought to be constructed, as it is about narrowly defined economics. Measurements are not neutral: they affect behaviour and vice versa (this is the concept of performativity which we encountered in the Preface).
So the point is not to create a stark divide, labelling some activities as productive and categorizing others as unproductive rent- seeking. I believe we must instead be more forthright in linking our understanding of value creation to the way in which activities (whether in the financial sector or the real economy) should be structured, and how this is connected to the distribution of the rewards generated.
Only in this way will the current narrative about value creation be subject to greater scrutiny, and statements such as ‘I am a wealth creator’ measured against credible ideas about where that wealth comes from. A pharmaceutical company’s value- based pricing might then be scrutinized with a more collective value- creation process in mind, one in which public money funds a large portion of pharmaceutical research – from which that company benefits – in the highest- risk stage. Similarly, the 20 per cent share that venture capitalists usually get when a high- tech small company goes public on the stock market may be seen as excessive in light of the actual, not mythological, risk they have taken in investing in the company’s development. And if an investment bank makes an enormous profit from the exchange rate instability that affects a country, that profit can be seen as what it really is: rent.
Adapted from The Value of Everything by Mariana Mazzucato. Copyright © 2018 by Penguin Random House UK.
2018 June 30
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This week on
Inequality.org Brian Wakamo, We Have the Money to Fix Our Food System. Imagine supporting farmers markets, child nutrition, and local agriculture with money we spend on factory farms. Elsewhere on the Web Dedrick Asante-Muhammad and Chuck Collins, Time right to enact reparations, Journal Courier. Until we face the reality of our history — and our present — our society will continue to be marked by arrested development, unequal opportunity and an immoral, living legacy of white socio-economic supremacy. Felicia Wong, New Rules, New Politics, Boston Review. If the U.S. economy is doing so well, why can’t 40 percent of Americans afford a $400 emergency? An intro to the new economics that’s exposing the price we pay for tolerating the “sclerosis born of elites’ chokehold on power.” Byrd Pinkerton and Dylan Matthews, Dead people leave billions in their wills. How long do we have to listen to them? Vox. Could anything be worse than letting billionaires set our public policies? Yes. Letting dead billionaires distort the choices we make. Mariana Mazzucato, Takers and Makers: Who are the Real Value Creators? Evonomics. Dissecting the narratives that justify huge rewards for the few. Julia Carrie Wong, ‘We all suffer’: why San Francisco techies hate the city they transformed, Guardian. Our Golden Gate reality: “When everyone around you is either rich or destitute, being rich doesn’t feel that rich.” David Grusky, Peter Hall, and Hazel Rose Markus, The Rise of Opportunity Markets: How Did It Happen and What Can We Do? Dædalus. Wealthy parents are seamlessly turning money into high-quality resumes for their kids and creating “the perception that merit just happens to coincide with money.” Ryan Cooper, Conservatives are desperate to absolve the 1 percent, The Week. The very rich, along with the think tanks and foundations they fund, have made quibbling with economists Thomas Piketty and Emmanuel Saez practically an entire academic discipline. Robert Reich, Should we abolish billionaires? AlterNet. The cost of letting billionaires have enough wealth and power to dictate the rules of capitalism for their own benefit: incalculable. Christopher Rugaber, Why wealth gap has grown despite record-long economic growth, Associated Press. Economic rewards are streaming to the top. Still. |
