What’s the Matter with Kansas?
By Bob Wood, TMO
I left off the last article with a conclusion that more fairness in our economic system would be a good thing for all of us. Today, fairness is often substituted with scary words like Socialism and Marxism meant to cut the debate off before it can gain any traction.
Name calling is an effective tool for stifling honest debate. I just did a Google search on ‘’name calling and propaganda’’ and got 138,000 hits. Many of you likely recall the frequent use of the term ‘’Islamo-fascist’’ during the re-election campaign of George Bush in 2004. Any rational scrutiny of both sides of that term would soon render it nonsensical. But for so many conservative voters, it was also quite effective.
Watch anyone getting air time on one of the major financial news networks advocating for a more equal distribution of the gains made from enterprise and the other side need only accuse the other of being a closet Marxist and watchers will agree and tune out the substance of the argument.
We see that again with the release this year of the book Capital in the 21st Century by Thomas Piketty. Among the suggestions reached at the end of this 700 page book, which even many critics agreed was well researched for over a decade, was for higher taxes on the rich including a wealth tax.
My point on this work is not whether he will be proven right or wrong. It’s with the polarized debate it generated, and how so many people have taken an adverse view on something that seems rather obviously correct.
Now, if anyone advocates raising taxes on the rich, there will be predictable push back. Critics of this book include libertarian writers at Reason.com to Capitalist defenders at the Financial Times and Forbes magazine. That should have been expected. The richest among us like things just the way they are, fought to get them there, and will defend the status quo vigorously.
Most enlightening to me is not that the usual suspects on the right or the media that support their policy preferences so quickly pushed back against the recommendations in the Piketty book. No, it’s in the reader reviews of the book that I see what interests me. I think of it as a snapshot of public opinion.
While highly rated overall, there are over 200 one star ratings posted on the book’s page on Amazon.com. Look at those only and see how many times the name calling is used to discredit the work. The usual accusations that the writer is a Socialist or a Marxist appear frequently.
What puzzles me is that the people who should be pushing back on an increase in taxes on the rich, or a wealth tax, seem unlikely to have the time or inclination to post book reviews on this site. I will assume, for what that’s worth, that most, if not all of those posting harsh rebuttals to the book stand to benefit the most from a more fair distribution of profits from work and contributions to wealth creation in America.
To be clear on one point; there is nothing inherently wrong or unusual about wealth inequality. To a degree, I’m all for it. Even countries that admit to leaning so far left as to be considered more Socialistic have rich and poor people living there. And the high tax rates in America during the 1940’s and 1950’s didn’t stop enterprising people from getting extremely wealthy, as it should be.
For someone who works harder and produces more, he or she certainly deserves more than someone who disinterestedly punches a clock at a job that could be performed by many others in their place. Risk taking with earned capital should offer its own rewards. Incentives work.
The problem today is the extremes at which inequality has reached. Just as in the 1920’s, which today’s era is most compared with, that imbalance can produce outcomes which hurt the overall economy and vitality of the country for rich and poor alike. Witness the Crash and Great Depression following that era of high inequality. Who got hurt more by the crash in the stock market then, the rich, or the poor who owned little if any shares?
No, inequality didn’t cause the Depression or the crash in stocks. It just severely hampered the ensuing recovery. There just weren’t enough people with the means to spend to carry the load.
The title of this article refers to a book I read a couple of years back written by Thomas Frank. In it, he examined how voters in Kansas consistently voted for people who sold out their best interests. As more good jobs fled the state, those who pushed through legislation making it possible were most likely to get elected, or re-elected by the people there.
But just as voters in Kansas reliably vote for politicians that then enact legislation that goes against their best interests, so many critics of Piketty’s book object loudly to reforms that would directly benefit them. My main concern is in how we got to this point.
So many seem eager to believe the one side of the debate that most closely aligns with them politically. Why not objectively examine both sides of the issue and make up your own mind. Trust those lying eyes of yours. Go read the rebuttal from Forbes, the Financial Times or Reason.com. They’re easy to find using a search.
Then for the other side, consider this blog post from Barry Ritholtz from March 10th of this year, citing a list of people who agree with Piketty’s assertion that inequality hurts economic growth. The list includes many prominent academics and some of today’s leading capitalists.
According to the post, this is a serious issue today, to wit;
‘’Inequality in America today is twice as bad as in ancient Rome, worse than it was in Tsarist Russia, Gilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America.’’
‘’Numerous investors and entrepreneurs agree that runaway inequality hurts the economy, including:
• More than half of all international investors polled by Bloomberg
• Billionaire and legendary investment adviser Jeremy Grantham
• Billionaire and hedge fund manager Stanley Druckenmiller
• Billionaire Bill Gates
• Billionaire Warren Buffet
• Billionaire Nick Hanauer
• Numerous other billionaires and top investors
Academics also in agreement include current and former Federal Reserve Chairs Janet Yellen and Ben Bernanke, economists John Kenneth Galbraith, Joseph Stiglitz and Robert Shiller, former FDIC Chair Sheila Bair and dozens of university professors from places like Harvard, Stanford and Notre Dame.
Check the link here and see the entire post and the long list of those who agree that some fairness would benefit all of us.
My question for those who strenuously object to the conclusions in Mr. Piketty’s book is simple; what do they understand about economics and capitalism that this long list of academics and the most successful business minds of our day do not?
A famed Capitalist of an era long since passed, Henry Ford, offered a living wage of $5 a day, much to the objection of his fellow business leaders. Ford knew that a higher wage would help strengthen the pool of buyers for his cars.
He was right, and still got wonderfully wealthy in the bargain. Businesses in Germany have found a way to pay higher wages and have an economic vitality that is the envy of the rest of Europe. Places like The Philippines and Bangladesh have been offering very low wage workers to foreign businesses for decades, and their economic situation remains far behind the developed world.
It seems only at times of war that we hear the call for coming together to achieve common goals. ‘’United we stand’’! Yes, until it might cost a few dollars more in pay for workers which would help foster unity at home and a stronger economy for all.
Then it’s back to every man for himself. Again, there is surely a better way. And I much prefer being in the company of those listed above who agree with me. The trick now is how to convince a few of the people who’ve branded me a Marxist too!
16-41
2014
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