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Who’s getting soaked?

August 23, 2010

Today’s Paul Krugman article rightfully condemns the noxious drive on the right to extend the Bush tax cuts for the rich.  We don’t need to search far in the online comments though to find the standard conservative rebuttal.  In just the seventh comment, a helpful gentleman tells us: “Soak the rich is an easy solution to all economic ills, except, when you run out of other people’s money, who will pay the piper?”.

This common argument has a surface logic that completely vanishes when one realizes that what is true on the micro individual level fails on the macro.  Purchasing power (money) redistributed from the rich doesn’t just disappear into a hole and ‘run out’; it’s spent on consumer goods and eventually flows back to the rich in the form of additional sales and profit.  Our conservative would probably then object that higher taxes on the rich reduces the incentive to invest but this is highly unlikely since the level of investment can be shown to be fairly unrelated to the tax rate.

The sad truth is that the rich are soaking the rest of society on an ongoing basis, on multiple levels, and on a planetary scale.   The maldistribution of wealth is a serious problem in and of itself since it leads to, among many things, disproportionate political power, exploitation of workers, and increased poverty and insecurity.  A key additional problem is that concentrated wealth asserts a right to totally control the creation of purchasing power – i.e. money.  The only times in the history of industrial capitalism that we see full employment, good living standards, and security are during periods when demand is greatly stimulated through foreign wars or bubble expansions  (in the US during WW1, the late 20’s, WW2, the Korean and Vietnam War, suburbanization in the post war period, and the late 90’s tech boom).  These periods of prosperity occurred because of credit based expansions in purchasing power.  They were organic processes in which the private sector essentially printed money through the expansion of bank credit.  (Refer to my discussion of this process here.)  Concentrated wealth insists that these expansions, these periods of money printing,  can only arise through its own efforts and society can have no significant role.  Governments can spend beyond what it taxes only if it borrows, at a suitable interest rate, from private wealth and remains subject to its veto through the wealth controlled bond market.  It is completely “unsound” for the government to consider monetary activities beyond these doctrines of ‘sound finance’.  The end result is that society will normally suffer from a shortage of ‘coin’ and will only realize a reasonable level of prosperity during exceptional booms.

The forces of concentration are soaking the individual in yet another way as well in that the number of industries in which he/she can generate purchasing power, i.e. make a living, is severely constrained.  Efficiencies of scale encourage huge conglomerations and most major industries today are dominated by just a handful of corporations.  Here are some examples:

Auto: 5 companies with US market share of 71%.  (Source)

Operating Systems: Microsoft with 91% global share. (Source)

Soft Drinks: 2 companies with 74% US share.  (Source)

Beer: 2 companies with 80% US share.  (Source)

Music Companies: 4 companies with 80% US share.  (Source)

Wireless: 4 companies with 89% US share.  (Source)

Airplane Manufacture: 2 companies with near 100% global share.  (Source)

Supermarkets: 5 companies with 50% US share.  (Source)

US Retail Market: Wal-mart with 11% US share.  (Source)

And I could go on and on from banking to pharmaceuticals to health care, to oil.  It’s all the same.  Economies of scale drive this consolidation and to achieve any reasonable chance of success a company increasingly needs to be large enough to compete on a global scale and therefore have access to enormous sums of capital.  While it’s certainly possible for a small size enterprise to compete against the dominance of big business, it’s increasingly unlikely to be successful.  An individual, then, is limited in how he/she can earn purchasing power.

He/she can try to find employment at one of the mega corporations but in the words of an organization and  management professor, “Globalization, corporate efficiency, and the tendency toward ever-greater consolidation keep pushing more and more people out of the largest corporations and that encourages more people to start their own businesses.”  But to think that a typical small business has a reasonable chance of competing in such an unlevel playing field borders on the absurd.  It’s a totally stacked deck.

The same applies for the individual seeking employment outside of big business.  Small business is struggling so wages will be lower and even less secure.  Government work is always an alternative but concentrated wealth ultimately limits what governments can spend.  The world of employment is increasingly an insecure and rootless form of existence.

It’s not quite as depressing as it sounds though.  We can accomplish a great deal if we re-conceptualize our understanding of money and purchasing power.  As I addressed here, we as society need to understand that we can generate purchasing power ourselves through the control of the currency.  We do not need to rely on concentrated wealth.  It’s a radical idea but it’s theoretically sound and it would be a significant step toward a far better society.

So here’s the situation in the world today: the rich control the political process and dominate the work environment.  They assert total control on monetary expansion and require austerity even when unemployment is endemic.  All major industries require enormous sums of capital making it extremely difficult for small businesses to compete, and technological efficiencies are sharply reducing opportunities for employment.  What an amazing thing that, with all these extraordinary burdens carried by the average person, someone can actually worry about the rich being soaked and still be considered sane.

From → Dynamics, Suppression

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