Is the Wealth of the Rich Legitimate? Part 3

In previous posts (here and here) I've examined two stories that the rich tell to explain why their wealth is legitimate. Or, more precisely, I've considered and rejected two arguments meant to show that the wealth of capitalists is legitimate. The first was that capitalists deserve their wealth because their incomes are exactly proportional to their productive contributions to society. The second was that the wealth of capitalists is their reward for taking risks. We saw that neither argument succeeded in showing that wealth of the rich is legitimate. But another important argument, which we have yet to consider, still looms large. That argument is that wealth of capitalists is legitimate because it flows into their hands by way of voluntary market transactions between individuals.

Before we look at that argument more closely, let me situate it within the overall context of attempts to justify capitalism. As I see it, there are three main strategies: consequentialist, rights-based and desert-based. We've already seen two desert-based attempts at justification. Desert-based arguments claim that the wealth of capitalists is legitimate because they can be said to deserve it (e.g. because it matches their productive contributions or because proportionally rewards some risky activity that yields a productive contribution). I examined two desert-based arguments already and argued that they were untenable.

Consequentialist arguments, on the other hand, claim that capitalist wealth is justified because it is a means to desirable consequences (e.g. overall economic growth, socially useful innovation, etc.). Most consequentialist arguments for capitalism focus on incentives (not on what we can be said to deserve or have a right to). We have seen at least one consequentialist argument already within the post on risk-taking, namely, that some capitalists need big shares of wealth in order to incentivize or motivate them to take risks to innovate. That particular argument is consequentialist because it says that big cash rewards (for capitalists) are a necessary means to good overall consequences (i.e. generating socially useful innovations). I'll examine consequentialist arguments in more detail in part 4, which will be the final installment of this series on the wealth of the rich. The main focus of this post, however, will be to refute rights-based justifications of capitalism. Rights-based arguments claim that capitalist wealth is legitimate because they acquired it through a series of legitimate, voluntary individual market transactions.

The typical rights-based argument for capitalism goes something like this: Provided that there is "no force or fraud", everything a capitalist can get from the market is legitimately theirs. Or, put another way, because the market is nothing more than a space for free individual exchange, everything that results from it is legitimate. Why should voluntary exchanges between individuals yield legitimate holdings? Because voluntary market exchange, it is argued, tends to exemplify individual freedom. On this view, people are free if they enjoy certain rights of non-interference. But because the market is (allegedly) no more than an aggregation of free, voluntary individual exchanges, it follows that any third party interference with market activity would curtail freedom (and violate the rights) of market participants.

The most famous statement of this argument was given by right-wing philosopher Robert Nozick in his 1974 book Anarchy, State and Utopia. In that book, he puts forward a thought experiment involving Wilt Chamberlain that purports to show that capitalist market distributions are just (and that any interference with them is illegitimate). The gist of it is this. Suppose that lots of people want to see Wilt Chamberlain play basketball. Suppose that they are each more than willing to part with $5 to see him. So, Chamberlain collects a $5 admission fee from each person who wants to come see him play. Each person, let us suppose, is freely and voluntarily making the choice to pay $5 for a ticket to see him play. At the end of the day, Chamberlain has amassed quite a fortune from ticket sales. But it looks as if he's done so in a way that is 100% unobjectionable. After all, hasn't he done no more than transacted with hundreds of individual persons, all of whom were very pleased to pay $5 to see him play?

Nozick's point is two-fold. First, it appears as though any interference with this process would be wrong. After all, would a third-party be justified in paternalistically judging that the fans shouldn't spend $5 on a ticket? Would it be fair if someone prevented Chamberlain from individually interacting with any of the fans who purchase the tickets? Nozick's point is that any interference with this process would be tantamount to "prohibiting capitalist acts between consenting adults." Put more plainly, it would interfere with the freedom (and the right to non-interference) of those involved. Second, it looks as if any redistribution of Chamberlain's earnings would unjustly tinker with his legitimate holdings. After all, if he acquired all of his earnings fair and square, and if each individual transaction freely gave them to him through a market exchange, what gives some third party the right to interfere? Wouldn't any redistribution, or social system that prevented such free exchanges, curtail the freedom of people like Chamberlain and his fans to come together for mutual gain?

Before I show why Nozick's argument doesn't work, let's get even clearer about what it attempts to show. Notice that Nozick is not saying that Wilt Chamberlain deserves the money he receives. Neither is he saying that the fans deserve to see him play. Desert doesn't enter into it. Nozick's own view--and other hard-Right defenders of capitalism are with him on this--is that it would require a lot of third party interference to actually have a society in which we could be sure that everyone got what they "deserved". In other words, he thought there would have to be some agency charged with monitoring whether someone was industrious, thrifty, lazy, etc. in order to see that they got what they deserved. So, unlike many a defender of capitalism, Nozick isn't naive enough to think that capitalism simply gives each what they deserve. What he does think, however, is that capitalism is the only system in which freedom from external interference reigns supreme. The Chamberlain example is supposed to show us that allowing voluntary market exchanges typically produces inequalities of wealth that are fully justified. Any other kind of social system--or any redistribution of Chamberlain's wealth--would, for Nozick, require that we sideline individual freedom for the sake of something else.

There are number of well-known problems with the argument. I make no claims to being original here--a good number of the most convincing criticisms are made by G.A. Cohen in Self-Ownership, Freedom and Equality.

One problem is that it is far from clear that a "voluntary" market exchange is therefore one that is freely entered into. This problem is simply not addressed by the WC parable. Take the case of price-gouging during natural disasters. Now, if I sell you a bottle of water for $100 in the aftermath of hurricane Katrina, and you're really thirsty, there's a sense in which I'm not coercing you to buy the bottle. You could walk away and try to find water somewhere else. So if you buy my $100 bottle of Aquafina, there's a sense in which it is voluntary. But are you free in such a case? Hardly. You are disempowered, desperate and vulnerable to exploitative treatment from people like me. Moreover, I'm in a dominant position with respect to you because I have some crucial thing you need to survive, and I am under no duress to give it to you whereas you are under a lot of pressure to get it. Lots of market exchanges, while not quite as vivid or extreme as this, are very similar. Market transactions between buyer (capitalist) and seller (worker) of labor-power are lopsided. And, of course, the worker is forced (and thereby made unfree) to sell her labor-power to a capitalist on the market because she has no other means to earn a living. Prenuptial agreements are often lopsided in favor of men because they have more bargaining power (maybe because of sexist social norms, maybe because they are the "bread winner", etc.). There are any number of examples here. The point is that market exchanges--from the perspective of freedom alone--look a lot less innocent than the WC example lets on once we examine the real world. Nozick isn't for the greatest overall amount of individual freedom in society. He's simply against certain restrictions on the property rights of owners of property. Accordingly, he rejects redistributing wealth from the 1% to the 99% in order to increase the aggregate amount of freedom in society. As I've noted elsewhere, this is one reason that the epithet "libertarian" simply cannot reasonably apply to those who defend capitalism.

Another problem is the following. The fans in the example are imagined to want nothing more than to see Chamberlain play. But there will surely be a gap between what they think they're getting and what will actually result from their aggregated transactions. The fact that they want to see WC play doesn't mean that they want him to individually amass a huge fortune. Neither does the fact that they're willing to pay $5 to see him play mean that they voluntarily consent to the power over others that a large mass of wealth might grant WC. Holdings in capitalist societies are, after all, not simply means of consumption, but sources of power. Suppose everything is put up for sale on the market, and that someone uses his wealth to purchase what were previously public streets in a particular city (I borrow this example from Elizabeth Anderson's paper "The ethical limitations of the market"). This quite obviously leaves open the door for a great deal of tyranny. When roads are publicly owned, I need not ask anyone for their permission to use them. I am free to move about where I please and I need not bow or scrape before some particular owner. But when the roads are the private property of another person, Nozick thinks the guns of the State must be used to protect whatever arbitrary decisions the owner makes regarding their property. So if, for example, the owner forced everyone to get his explicit permission to use the roads, that would be protected by the coercive power of law. Or, if he only allowed roads to be used on Tuesdays, that would fly as well. Or, he could charge an exorbitant fee. The point is that all the non-owners of the road would be subject to arbitrary restraints on their freedom of movement and association by owners. They would be forced to subject themselves to whatever crazy terms the owners demand. Nozick could have no complaint about any of this. Stronger still, Nozick would staunchly oppose any democratic decision-making process that aimed to regulate or reclaim ownership of the roads. Thus, we see what side he's really on: property owners come first, even if the vast majority is made less free as a result of their actions.

But Nozick wants us to think that the resulting consequences of the market transactions in the WC example are legitimate because each person voluntarily willed them into being. But, in fact, they didn't. All each fan did--from their individual perspective--was consent to pay a small sum to see WC play. They didn't consent to all of the macro-level economic consequences that might follow from allowing one person to amass large sums of wealth. Nor have the explicitly given WC their blessing to buy up public roads (or whatever else WC might do with his holdings).

All of this is concealed in Nozick's thought experiment. He asks us to blindly jump from the micro-level ("what could be wrong with parting with $5 to see WC play?") to the macro-level without asking how it is that the decisions within the former should justify consequences in the latter. More often than not, the large-scale consequences of market transactions are opaque to individual actors. And, what's more, often the choices of some market actors curtail the choices of others by impacting supply, demand, employment, investment, etc. So it would be absurd to say that the narrow perspective of the individual consumer lends legitimacy to the macro-consequences of the aggregation of millions of uncoordinated individual actions. When I purchase a can of soup, I may be said to have made some voluntary exchange with the owners of the grocery store. But I haven't freely consented to all of the consequences of that transaction, since I may not even know what they will be (or what they are likely to be). Yet Nozick wants to confer legitimacy on the large-scale outcomes of market transactions by appealing to our free consent in small-scale individual transactions. There's a massive gap in the argument here. Everyone knows that capitalism is arranged in such a way that individually "rational" actions produce collectively irrational outcomes that no particular individual endorses. Why should the individual attractiveness of buying a ticket to see WC for $5 grant legitimacy to those macro-level outcomes, particularly when it's hard to see them from the perspective of an individual consumer? It's almost as if Nozick is simply blotting out any critical analysis of the social system itself, preferring instead to keep us focused on small-scale transactions. The ideological effect of keeping us on the micro-level is profound.

Another problem is the following. Just because I'm willing to pay $5 to see Wilt Chamberlain play doesn't entail that I'm willing to pay Wilt Chamberlain that money. I might be willing to part with $5 to see him play, but I might not want him to acquire a disproportionate share of resources (because that would give him unjustifiable power over others, say). Maybe I'm willing to throw into a public pot to see WC, but I'm unwilling to allow one person to amass all of the earnings. Nozick simply glosses over the difference between these two--which clearly adds to the rhetorical power of his example.

There are deeper problems with the WC parable, however. Nozick wants to generalize the WC example to all of society. But once the market rules all spheres of public (and private) life, there's no space left for democracy at all. This doesn't bother Nozick himself, or many so-called "libertarians", because they aren't fans of democratic self-rule.

But suppose that Nozick had swallowed his disdain for democracy and argued instead that markets are democratic since, as in the WC example, people can "vote with their dollars." Notwithstanding the obvious undemocratic fact that "voting with dollars" means that those with more money get more votes, there are still other more fundamental reasons why markets are not democratic. The trading floor of a stock exchange is not like a public forum for deliberation and debate among equals. The market, as André Gorz describes it, "is a place where huge production and sales oligopolies...encounter a fragmented multiplicity of buyers who, because of their dispersed state, are totally powerless... [the consumer] is only able to choose between a variety of products, but he has no power to bring about the production of other articles, more suited to his needs, in place of those offered to him." The problem here is that markets respond to unreflective individualized wants--consumer preferences--expressed by buying or not buying something. Genuine democracy, however, is not fundamentally about unreflective individual wants. Democracy is about the exchange of public reasons between free and equal citizens about matters of collective concern. We could rephrase this in terms of exit vs. voice, consumer vs. citizen. Markets give the consumer (or the seller) freedom of exit. The buyer can simply walk away without buying, just as the seller can say "take it or leave it". But the consumer has no freedom of voice. That is, consumers have no power to shape the background conditions that structure the choices before them in the marketplace. Moreover, they have no say or voice in decisions about what gets produced, how it gets produced, etc. All they have is the freedom to buy or not buy--as consumers they lack any other means of having a voice in the basic structure of the economy. Notice that workers--if they are not organized--also lack freedom of voice and only have the power to quit their job (but no genuine say in their work conditions, what gets produced, etc.).

Freedom of voice, however, is central to any plausible notion of democracy. Democracy means that we collectively base our decisions on collective reasoned argument, not on unreflective individual consumer preferences. For example, if I'm in a convenience store looking to buy a candy bar, it would be absurd for the store owner to come and criticize, question and debate me about my taste in candy. I would be perfectly justified in saying, "look, I don't have to justify myself to you, I just want the goddamn snickers." But the same is not true of relations between citizens in a self-governing society. Democracy requires that we give public justifications--that others could in principle accept--when we advocate for doing this or that. When we democratically decide what to do, it must be based upon free discussion among equal citizens where nothing but the force of the better argument prevails (e.g. not power, not domination, not threats, etc.). Moreover, democratic processes require that citizens be able to hold one another to account. It wouldn't make sense to say that I "prefer" or merely "want" to cut the Pentagon budget in the same way that I prefer or merely want a snickers bar. Similarly, if you were working in a small group on some project, it would be ridiculous if you said "look, I just want to do X" and then followed all questions from your fellows with "look I just do, OK?". What this makes clear is that there is a profound difference between being a consumer and being a citizen in a self-governing society. Defenders of capitalism often generalize the model of the individual consumer to all spheres of life, thereby eliding more important roles such as that of the citizen.

Let me raise one further objection to the rights-based "entitlement" defense of capitalism. In order to transfer ownership titles through voluntary market exchanges, there have to be things--commodities--that can be bought or sold. But the market cannot create commodities--it is only a mechanism for transfer and exchange. Thus, the rights-based defense of capitalism is incomplete without a story about "just acquisition", that is, a story about how previously unowned things can legitimately become commodities (buyable and sellable on markets). I note, in passing, that any consistent advocate of the rights-based argument for capitalism would have to concede that massive redistributions of wealth and reparations would be necessary to correct for the enslavement, expropriation, violence, colonial domination and oppression that was a central part of how the riches of contemporary capitalism were created. Let us set that inconvenient fact aside, however, and ask a different question: how could unowned things in the world come to be legitimately owned by someone? Rousseau had an answer to this question: "the first man who, having enclosed a piece of land, took it into his head to say, "this is mine", and found people simple enough to believe him, was the true founder of civil society. The human race would have been spared endless crimes, wars, murders and horrors if someone had pulled up the stakes or filled in the ditch and cried out with his fellow men, "Do not listen to this impostor! You are lost if you forget the fruits of the earth belong to everyone, and the earth to no one!". In other words, why wasn't the "original acquisition" of previously unowned parts of the earth not a theft of what should be rightfully held in common? And there are further problems here: aren't some things distorted or degraded if they they are turned into commodities? Take friendship. Friendship, properly understood, may not be bought or sold and still remain friendship. Love is the same way. It also seems wrong to allow (as Nozick does) human beings to be bought and sold as property. Moreover, isn't there something wrong with allowing rights to free speech to be bought and sold on markets? And isn't it wrong to allow people to purchase and sell political influence, justice in the courts, political offices, fire protection, honors (e.g. the Pulitzer Prize), etc.? If this is true--and I think it's obvious that it is--we see quite clearly that generalizing the model of "voluntary market exchange" to all spheres of life makes no sense. It generates irrationalities, unfreedom, lack of democratic voice, and oppression.

So where does this leave us in terms of the rights-based defense of capitalism? What we've seen is that entitlement on the basis of voluntary exchange cannot be generalized to all spheres of life without giving up on the ideals of freedom, equality and democracy. But does that mean that a socialist society would forbid all voluntary exchanges? Of course not. The defining feature of socialism, after all, isn't located within the sphere of exchange or distribution but within production. Socialism has to do with who owns and controls society's means of production. Socialists argue that the people should democratically own and control them; capitalists argue that a small class should own them and all others should be excluded. So, socialists need not deny that there is a role for voluntary exchanges (whether they be in the form of gifts or in the form of market exchanges). What socialists do have to say, however, is that certain goods should not ever be treated like commodities. Political power, access to education, the means of production, human beings, etc. should never be bought and sold through market transactions. Let candy bars be bought and sold, but leave the important features of our shared life together under the jurisdiction of democracy from below.

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Is the Wealth of the Rich Legitimate? Part 2

In a previous post I argued that the wealth of the rich (more precisely: of capitalists) could not be justified by reference to the principle that "each person deserves that amount of wealth that reflects her productive contributions". Capitalists need not do anything productive in order to be capitalists. The pure capitalist earns everything from owning and nothing from working (that is, to the extent that a capitalist can be said to earn from working, she is to that extent not a pure capitalist).

But, as I discussed in the previous post, this story about desert and productive contributions is only one among many. Another (perhaps the most popular?) story that's told to legitimate the wealth of capitalists is that their wealth is a reward for having taken bold risks. Or, put another way, since the capitalist risks her capital when she invests it in some business venture, she deserves exclusive rights to all of the returns above and beyond costs paid out for raw materials, wages for workers, etc.

This story is told so frequently that it almost seems odd to question its plausibility. But how plausible is it?

Let's try to first figure out exactly what its saying. Is it saying that people should be rewarded in proportion to how much risk they take on? That can't be right. That would mean that the riskier I behave, the more I should be rewarded (whether or not the risk pays off). But, of course, it's a fact about risks that they can turn out for better or for worse (otherwise they wouldn't be risks). Risks always involve some element of luck and chance wherein the risk could turn out badly. But nobody in their right mind would say that the mere fact that I've taken on some risk (whether or not it pans out) means that I should be rewarded. For example, no one would say that some particular capitalist, just because they take on risks, deserves a return on their investment. If I, for example, invest in a business that has a 10% chance of succeeding, and it doesn't succeed, nobody thinks that this entitles me a cash "reward" of any kind.

But if that's not what's meant by "reward for risk", what is? Perhaps what's meant is that the capitalist's riches are her reward for having taken a risk that ended up panning out. If I bet against the odds and win, then it looks like what I get is my reward. Why not say the same about capitalists whose investments pay off?

There are several things to say here. First, it's just false that risky capitalist activity actually gets higher rewards when it pays off. Sometimes it does, sometimes it doesn't. And lots of capitalist activities aren't risky at all. An investment need not be risky to be very lucrative. If some public asset (a natural monopoly, say) is privatized and I get ownership of it, I may be able to charge fees and earn big profits even though there is virtually no risk. Or, consider that many financial institutions are, and they know that they are, "too big to fail."

We must also take into account that risk context sensitive in various respects. What may be risky for me (given my situation) may be less so for you (given your situation). Imagine a working class person who saved money for years to open up a small coffee shop. This is surely a risky activity since she will need to take out big loans on a project that could very easily go bust (and it's not as if they have millions to spare if it does). Now, imagine that I invest $40 million of a $140 million fortune in relatively low-risk securities that turn out to pay out big dividends. Instead of risking my capital on start-ups, I put it all in well-established, multinational corporations. So, I'm reaping large cash "rewards" from my investments, much larger (even in proportional terms) than the returns a successful small coffee shop owner will ever earn. But I am taking on very little risk whereas the newly petit bourgeois coffee shop owner is taking on a great deal of risk. There are innumerable examples of this sort. What they show is that capitalism doesn't, as a matter of fact, distribute wealth in accordance with the principle that riskier bets (that pan out) receive larger cash rewards than those that involve less risk.

But this isn't likely to satisfy defenders of the "risk and reward" view of why the capitalist's earnings are legitimate. They will probably reply by offering two different objections. The first has to do with the idea that capitalism is a fair game where the winner deserves to take all the spoils of victory. The second has to do with incentives and innovation. I'll examine (and refute) each in turn.

The first objection is as follows. Capitalism can be thought of as a fair game in which everyone (legally speaking) has a chance to be a successful capitalist. As long as the rules of this game are fair, then whatever outcome results from it is legitimate. So, for example, when I play blackjack and the casino hasn't rigged the game in their favor, and both the casino and I have consented to play the game, whatever I take home in winnings is legitimately mine. Capitalism, you might think, is the same way. If I risk $10 million on a risky investment and it pans out, why aren't I entitled to (or deserving of) all of the cash returns in the same way that I'm entitled to the cash returns of the game of black jack? In fact, wouldn't taxing the capitalist's profits be similar to stealing a gambler's winnings, even though she made a fair bet in both cases?

There are a number of things to say here. We might ask whether the "game" of capitalism really is fair (I shall argue that it isn't, and that the gambling/investing metaphor is misleading). But even if it is fair, we might still ask whether it makes sense to structure our economy like a winner-take-all casino game. I shall argue that there are deep problems (both structural as well as normative) with allowing the economy to be run like a casino.

Let's examine the fairness of the "game of capitalism." First, recall where capitalism comes from (read Part 8 of Capital for a detailed historical analysis): the expropriation and killing of indigenous peoples and European peasants, the forcible seizure and enclosure of commonly owned land, colonial domination and forced labor, the enslavement of human beings, and so on and so forth. And we could add that capitalism didn't leave imperialism, violence, oppression, racial domination, coercion, theft, and expropriation behind after the 17th and 18th century: these have been permanent features of the system throughout its existence. So the "game" is rigged from the start. There has never been a "level playing field" from which to begin the game.

But, suppose that there was a level playing field. Would that fix capitalism's problems? Would that mean that the "game of capitalism" is actually procedurally fair? I think not. First of all, not everyone can play the game of capitalism. In order to play, you must have something to invest (because that's one of the rules of the game). Now, defenders of capitalism will say that nobody is legally excluded from playing the game. But that's clearly a flawed argument. First of all, it's a fact that lots of people, indeed the vast majority of people, do not have the discretionary funds to play the game. David Schweickart makes the second point forcefully as follows.

Suppose you and I flip a fair coin; we each bet a dollar per round; heads I get your dollar, tails you get mine. The game is "fair" in the sense that we both face the same odds at any toss of the coin. However, a complication arises when we look at the game in light of its initial conditions. If I enter the game with $20 and you with $10, you are twice as likely as I to go bust. If you do go broke, and another player enters with $10, he will be three times more likely to be cleaned out than will I (because my initial stake has been supplemented by your losings)... So the large investor, although he has more to lose, is less likely to lose than is the small investor. Add to this that wealth gives one access to information, expert advice, and opportunities for diversification that the small investor lacks, and we see that the balance between magnitude of loss tilts toward the wealthy.

What this shows is that even textbook "ideal" capitalism isn't a fair game.

But there are further problems with this game, even if it was "fair". First of all, it presupposes that some people are playing the game--the capitalist investors--while others, who own no capital to invest, do the work--the workers. And while the capitalists are busy playing the casino-like game of capitalism, workers have no say in what is going on. Yet, and this is key, they stand to lose even more than the capitalists if the bet fails. That is, if a capitalist investor loses $10 million on a deal, but still has $3 million back at home, it's not as if he will be going hungry any time soon. But if 2,000 workers lose their jobs, we can be sure that they don't have million dollar nest eggs sitting at home waiting to be spent. Unemployment, as millions of Americans know first hand, can be absolutely devastating--particularly when wages and benefits are so meager even during periods of full-time employment. Capitalists, of course, stand to lose more in absolute dollar terms, but because of the diminishing marginal utility of money, it means much less to them. Think of the way that the economic crisis has gone thus far. The reckless, profit-driven investments of the financial sector produced a global crisis that has had devastating effects on working class living standards at the same time that it has primed the pumps for austerity administered from above. The point is this: casino capitalism is unfair because it presupposes a class of working people who can't play the game but, nonetheless, stand to lose a great deal if the capitalist's gambles don't pan out.

Imagine a capitalist who replies to a labor union as follows. "I risked all of my capital on this business, so who are you to collective bargain to get a piece of it? That's unfair because I assume all the risk, yet you want to share in the rewards." Now, we've already seen that this doesn't work because the workers do share in the risk--the risk of losing their job--even though they are guaranteed none of the winnings. But we can also add that it's not as if the workers were asked to share in the risk. It's not as if the boss will ever say: look, if you like, we can make this a worker-owned and worker-run collective in which we all share the risk (and the profit) equally. So it doesn't make sense to complain that workers share none of the risk.

One further thing to say regarding the idea that our economy is best thought of as a casino-like game in which the winner takes all. It is not clear that it makes any sense to structure basic economic institutions in this way at all. The economic system should exist to draw on the mutual benefits that we get from social cooperation. What we can accomplish together is far greater than what we can accomplish alone: that should be the basic organizing principle of any just economic system. The casino-style setup, however, exploits the fact that an economy requires mass participation, takes this mass participation for granted, and then haphazardly doles out lump sums to individuals who happen to get a good roll on the dice. That makes no sense to me. Let's use the power of economies of scale and increased productivity to maximize human capabilities, to meet socially recognized needs, to do great things together that we couldn't have done alone. Rather than being trapped inside a casino that I never asked to enter in the first place, I'd rather be a member of a self-governing community in which the condition for the free development of each individual is the free development of all.

But there is one last objection to my argument--which has to do with incentives and innovation--that I mentioned above. It goes as follows. A flourishing society requires that people take risks, innovate, try out new methods and techniques, and produce new things that may not ever pay off. I agree so far, but the objection isn't finished. It continues: in order to get people to take risks and innovate, they must be motivated by large cash rewards. And that means that capitalism is the only system in which innovation and risk-taking can flourish, because without the big cash rewards that the market hands out to successful businesses people wouldn't be motivated to innovate.

First of all, we've seen that capitalists don't need to do any innovating at all. They can pay someone else to do it. Capitalism--where there is private ownership of the means of production which are run in order to enrich the owners--does not distribute wealth in accordance with who is the most innovative or who takes on the most risk to make some socially useful good. There is no close connection between being a capitalist and being an innovator. R&D departments--many of them subsidized by public funds (this is called "externalizing costs")--do that. Much R&D is located within universities--which are more feudal, guild-like institutions than they are capitalist.

Second, it is demonstrably false that people need huge cash rewards in order to innovate and do great things. Great scientists, great novelists, great musicians and artists, and so forth rarely do what they do out of a single-minded focus on cash reward. Think of those who develop open-source software. I think it is true of a lot of people that if they were guaranteed a basic standard of living, they would be happy to spend a large portion of their time developing open-source, free software for the betterment of all. There are too many examples here to count. People, of course, want an adequate standard of living in which they don't want for any basic necessities, in which they have adequate leisure and a degree of discretionary spending. But that doesn't mean they have to have huge million-dollar rewards to socially-useful things.

Finally, capitalism thwarts a ton of really important innovation while it privileges others. Many know about the strange murder of the electric car. There are other examples of this kind --particularly green technologies that aren't profitable or undermine the profitability of natural resource extraction. In fact, we may never know how many great ideas are out there that haven't been given a try simply because capitalist production can't earn a profit off them (or because they take too much long-term planning or upfront investment, as is the case with much green technology). To be sure, there is a place for competition to determine who should win socially-produced funds for some new innovative project. But that doesn't require capitalism. Despite encroachment from corporations and moneyed interests, grant funding for scientific projects doesn't involve capitalist markets or profits.

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Is the Wealth of the Rich Legitimate? Part 1

Is the wealth of the rich in contemporary capitalist societies legitimate? Of course not. But the rich have a vested interest in making sure that the majority of the population --who aren't rich-- think that their wealth is legitimate. It hardly matters whether it's aristocratic privilege, family lineage, racial or sexual supremacy that makes a group dominant. It remains true that dominant groups almost always try to preserve the basis of their own dominance.

Dominant groups typically have two (analytically distinct, but in practice interwoven) means of maintaining dominance. The first is obvious. Dominant groups typically monopolize control of the means of exerting physical repression. If you push too hard against the status quo, dominant groups will always (if possible) push back with physical repression in order to protect their dominant status.

But dominant groups never maintain their dominance through naked violence alone. They have another means at their disposal: ideology. That is, dominant groups stabilize their rule by telling stories about why their rule is legitimate. Think of the "divine right" of Kings, the "positive good" doctrine that purported to justify the dominance of Slave owners, the so-called "civilizing mission" that Colonization attempted to carry out, the supposedly "scientific", technical expertise of bureaucrats. The stories the rich tell about the supposed legitimacy of their wealth are a key part of this long tradition of lying to the masses to protect privilege and power.

What are those stories? The most common one is that the rich deserve their wealth because they work hard to produce it. Because the wealthy (the "job creators"!) make such important productive contributions to society, the story goes, they deserve every cent they earn. Another story is that the rich deserve their wealth because they undertake a great deal of risk when they invest it. Yet another story that is told, perhaps the least plausible of all of them, is that the rich deserve their wealth because they sacrifice more than others (by saving and foregoing consumption). Finally, there is the claim that the wealth of the rich is legitimate because they are legally entitled to it in a regime of private property where ownership titles are distributed by way of voluntary exchanges.

Now, in practice these legitimating narratives are often run together and interwoven. The war of ideas is never as clear cut and organized as academic discourse aims to be. But for our purposes --that is, for the purpose of showing that all of these stories are pure fiction-- we'll examine them each separately in a series of blog posts (of which this is the first). In examining each, I'll follow closely along the lines of the arguments put forward in David Schweickart's excellent book Against Capitalism. Anyone interested in seeing a detailed, rigorous refutation of every familiar argument in favor of capitalism would do well to pick up a copy. In what follows, we'll just examine the first. The other stories will be taken up in subsequent blog posts.

The first story says that the wealth of the rich is legitimate because it is their reward for making productive contributions to society. A more technical way to say this would be the following: in a "purely competitive free market" what the wealthy earn directly corresponds to their marginal productive contribution in the economy. In neoclassical economic theory --which is little more than an elaborate way of cheerleading for (rather than critically analyzing) capitalism-- this is called the "marginal productivity theory of distribution." As an early defender of this view puts it, "the natural effect of capitalist competition is... to give each producer the amount of wealth that he specifically brings into existence."

Before we show why capitalism is not a system in which each receives according to what each produces, we need to do a bit of table setting. In order to produce anything at all, two things are required: labor and means of production (e.g. factory equipment, instruments, technical knowledge, land, space, etc.). It is a fact about capitalist societies that the vast majority of those who labor for a living do not own the means of production they use at work. The owners of the means of production are usually distinct from the group uses those means. Up to this point we've been talking about "the rich" or "the wealthy" --but to be more precise we're actually interested in capitalists (i.e. that group who earns a living by owning, rather than using, the means of production).

Now, everyone knows that those who labor (by using means of production) to produce goods make productive contributions to society. Auto workers, for example, use their own two hands to build cars that wouldn't have existed if they hadn't built them. Their productive contribution is clear, and so it is with all workers in society. But what we want to know is whether capitalists actually make any productive contributions to society in order to receive their income. If they did, and if capitalism rewarded their productive contributions proportionately, it would look like their wealth was pretty legitimate.

But what is the productive contribution of capitalists in our economy? Notice that we can't just define their productive contribution in terms of what they receive from the market, since that is circular. We want to know whether the market actually gives each what they deserve. So we can't very well say that what people deserve is what the market gives them --that begs the question. What we're trying to figure out is whether the market actually distributes according to productive contribution.

Some will say that the contribution capitalists is their entrepreneurial spirit and innovating attitude. Others will say that capitalists do a lot of work co-ordinating and managing the productive process. No doubt ingenuity and creativity are required to make a capitalist firm successful. Even a socialist society would require ingenuity, innovation and "entrepreneurial" spirit of some kind or other. Likewise, co-ordination and workplace organization are essential. But notice that capitalists can simply pay someone else to do all of the innovating, all of the managing, and all of the co-ordinating. And they often do. If I'm a capitalist, I can hire a management consultant, an industrial engineer, and a research and development team to do all of the managing, organizing and innovating. But I'm still a capitalist --and I'll still earn handsome sums of cash for myself (indeed, I'm in a position to earn far more than anyone else in the entire firm even though I don't do any real work). So in this case, where's the productive contribution that supposedly legitimizes my massive sums of wealth?

Some will say that what I'm doing is "providing capital". After all, we said that two things --means of production and labor-- were needed to produce goods. We know that workers make contributions by laboring to produce things. But it is, of course, true that the means of production (e.g. capital, the factory space, instruments, etc.) add value to the final product. And capitalists, by definition, own and control the means of production. So aren't they performing an essential productive function by providing it? Couldn't we say, then, that this is productive contribution that justifies capitalist wealth?

But let's think about this for a moment. What exactly is going on when a capitalist provides capital? They are doing nothing more than "allowing it to be used". They are doing no more than granting permission to make use of an already existing material thing --e.g. factory equipment, raw materials, etc. But, as Schweickart points out:

...an act of granting permission, in and of itself, is not a productive activity. If laborers cease to labor, production ceases in any society. But if owners cease to grant permission, production is affected only if their authority over the means of production is respected. If it is not, then production need not diminish at all. Workers can continue doing exactly what they were doing before --producing corn and bread and steel and machine tools and all the other commodities required by their society. Whatever the owners are doing when they grant permission for their assets to be used, it should not be called 'productive activity'.

To drive the point home, consider the following example.

Suppose a government suddenly nationalizes the means of production, then does nothing else but charge workers a tax to make use of it. We wouldn't say, would we, that the government is engaging in productive activity, or that the tax is a return for the government's productive contribution? Not even if the tax rate is exactly equal to the marginal product of the productive labor.

But some will reply here that there's a difference between providing physical means of production (e.g. raw materials, tools, factory equipment, etc.) and providing capital investment funds to finance a productive endeavor. Surely providing an already existing material thing --whether it be factory tools, land, etc.-- is not a productive activity. It is no more than granting permission. But isn't financing production by lending capital a productive activity that takes a great deal of skill? Schweickart gives us an excellent example here: "Consider a person with a chest full of cash, eager to invest. How he acquired it need not concern us. We want to understand how his disposal of it will increase production. To produce something, there must be brought together equipment, raw materials, and laborers. Let our investor lend his money to an entrepreneur who purchases these necessaries. The laborers are set to work with the machinery and raw materials, and soon goods are produced. It is all quite simple. But notice, this is also a matter of granting permission. The workers, the raw materials, and the machinery already exist. The workers could begin production themselves, except that property rights intervene. They cannot gain access to the machinery and raw materials, for these things are the property of others. To use them, one must have permission, which the entrepreneur secures by means of her borrowed capital." But permission is only needed if one respects the authority of the legal titles to ownership of the things needed to produce. So the workers could produce just as well without permission if they didn't respect that authority. It follows, then, that permission is in no way a productive contribution.

Take another of Schweickart's examples:

Suppose, instead of relying on our friend with the chest full of money, the government simply rolled out its presses to produce the same quantity of crisp bills and gave them to our entrepreneur. Exactly the same production would result. But would we want to call the printing of the money a productive activity? That would surely be misleading, perhaps dangerously so, tempting officials to believe that rolling the presses longer and longer would miraculously generate wealth.

The point of all of this is that "providing capital" is not a productive activity. But if that's true, then we are forced to conclude that capitalists, qua capitalists, make zero productive contributions even though the market gives them the lion's share of the surplus created by society. As even John Kenneth Galbraith put it,

No grant of feudal privilege has ever equaled, for effortless return, that of the grandparent who bought and endowed his descendent's with a thousand shares of General Motors or General Electric. The beneficiaries of this foresight have become and remain rich by no exercise or intelligence beyond the decision to do nothing, embracing as it did the decision not to sell.

Or, if you'd like another example, examine a graph showing real wages for workers and worker productivity from 1973 to the present. What you'll notice is that productivity goes way up whereas wages stagnate. Someone reaped all of the difference and got filthy rich, but it wasn't the workers who were producing more and more each year. Again, we see that market distributions don't reflect productive contributions.

So what explains the fact that capitalists own the vast majority of wealth in our society? They don't receive this wealth as a result of any productive contribution they make. When they earn interest or dividends on their invested wealth, they need not do anything productive at all. When they make millions from arbitrage, they haven't done anything productive whatsoever. So in virtue of what do they earn such vast sums of wealth? In virtue of their ownership. Whereas the vast majority of us have no choice but to earn a living from the work that we do, capitalists earn their riches merely by owning things. But if the vast majority --the 99%-- does 100% of the productive activities in society, how could be legitimate that the unproductive 1% owns and controls the lion's share of the wealth produced? Good question.

So, what I've shown is that a certain argument, i.e. that capitalism distributes wealth according to productive contributions, is false. In a series of upcoming posts, we'll look at other fairy tales told by the rich to protect their wealth and power.

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Kevin Drum misses the mark

I just saw this via Twitter. Mother Jones's Kevin Drum correctly draws our attention to the fact that a large majority of American adults don't want Medicare to be gutted. I find that unsurprising, but it's indeed worth pointing out. But he misses the mark when he suggests that it would be "interesting" to know how "people" (which people? which class? etc.) would respond to the same question were it paired with options such as "higher taxes, lower taxes, etc.". I quote:

I'd like to see a followup that paired each option with the taxes it would require. In other words, your options would be:

• Major changes & taxes about the same as today
• Minor changes & higher taxes
• No cost control & and significantly higher taxes

I'm willing to bet that the results would be roughly the same, with perhaps a chunk of the "no cost control" folks moving into the minor changes column.

But I might be wrong, so it would be worth finding out. These kinds of questions, after all, are pretty useless if they're not tied to anything else. I mean, who wouldn't be in favor of leaving everything the way it is if they don't understand that it might cost them more?

I have two things to say here. First of all, it's ideological and tendentious to put things in such general terms as "higher taxes" or "lower taxes". That's not how things work. The Republicans and Democrats, who've invested a lot of time and energy giving tax breaks to the rich in particular, know this. We need to know who is going to face higher taxes and who isn't. To remove class from the framing of the question is not to make the question more neutral. It is to skew it in a reprehensible way. It is to paper over very real (and, indeed, uncontroversial) facts about the way that wealth and income is distributed in our society. So we need to which taxes are to be raised, and who's going to pay them. Surely Drum doesn't think a flat-tax is better than a progressive tax. But if he thinks that, he should revise his suggestions since they have the same logic as a flat tax (i.e. make it impossible to only increase taxes on the rich).

Working class people justifiably worry about their taxes going up. Socialists don't dispute this. They don't like taxes as such. Now, to ask workers to sacrifice more in taxes isn't always a bad thing, depending on what they get in return (e.g. they pay more in taxes and get guaranteed health care, but cease to pay health insurance premiums that are much higher). But in general, it is a burden on working class and poor people to ask them to sacrifice more of their already small paychecks. Moreover they do all the work in this society and already pay their fair share... it's unjust and absurd to ask them to pay more. But for the well-to-do there is no comparable burden. We can use fancy economics language here: the law of diminishing marginal utility clearly entails that receiving $100 dollars when you're broke is of much greater significance than receiving $100 when you're Bill Gates. By the same token, losing $100 dollars is a tremendous burden to a poor person, but virtually negligible for Bill Gates. It is absurd to ignore all of this and talk abstractly about "higher taxes" as such, as though we were all already equal and on some level playing field wherein the question had the same significance for all of us.

Second, the original Medicare question was ideological as well. It frames things along a one-dimensional axis, where do nothing and do something are the options. I'm a socialist, and I probably endorse a "do quite a lot!" sort of position, but it's unclear that I share any common ground with Neanderthals like Paul Ryan who interpret "do quite a lot" to mean "gut Medicare like a trout". So the "major changes"/"minor changes"/"no changes" axis is already problematic. To be sure, we get some information from the question, since it is surely a more progressive position (in today's context, problematic though it is) to defend the Medicare status quo than to open it up to attack by reactionaries in both parties. But my point still stands: it is tendentious to frame things in this way, and it's not possible to express a preference for vastly increasing Medicare service in such a poll. That it is not on the political agenda right now is a separate problem. What the poll should try to do is find out what people really want- that way we can, in a non-question-begging way, determine the gap (which is sure to be quite large!) between people's aspirations and the reality of our political system.

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How to Fix the Deficit

Here. Of course, there are problems with the NYTimes options. The sorts of taxes they allow you to meddle with are excessively narrow and confined to those already in existence (what about an intangible property tax, for instance?) Moreover, they only let you raise taxes on the rich to "Clinton-era Levels" which were already indexed to the neoliberal era begun under Reagan. For instance, we must note that the top marginal rate of income taxation was low during the Clinton-era. It would do this country some good to let everyone use this gadget with the added option of raising the top marginal rate on income as high as they like.

Below is the history of the top marginal tax rate on income (i.e. the rate paid by the richest earners who constitute less than 1% of the population.... right now it means that the rich pays 35% on every dollar earned over $373,000):
What you should notice first is that it was raised significantly in the 1930s (from 26% to 60%, later from 60% to 80%). It remained above 60% from the 1930s until the 1980s when Reagan cut it back down to pre-Depression levels. That is, it remained significantly above 60% during the longest, most sustained period of economic growth in the history of the United States (the so-called "long boom" from WWII through the early 70s). When the NYTimes says "Clinton-era rates", they mean a meager 40% top rate, but there's no reason in principle why we shouldn't raise the top rate significantly higher than that right now. After all, in the 1950s it was even as high as 90% under Republican presidencies! So it's just false and disingenuous to claim, as Republicans (and many Democrats) do, that high top marginal rates mean anemic growth. In reality, the fight over taxing the rich has nothing to do with growth or efficiency, and everything to do with class power. That is, the profit-hungry ruling class doesn't want to pay for this crisis themselves: they want to force the working majority to clean up their mess. Their credo is: socialize the losses and risks, privatize the profits and earnings. And their sway in Congress is such that the lowly Democrats hardly even hesitated in pushing through an extension of the Bush Tax give-aways for earners over $250,000. Obama didn't even fight for his campaign promise to return taxes on the rich to pre-Bush levels, and I think that speaks volumes about what the Dems stand for. By further eroding the funding for the public goods that are now on the chopping block, they paved the way for the brutal cuts that are being proposed now. There is no reasonable way to interpret the "budget war" as a struggle between Right and Left. It is a struggle between hard-Right and soft-Right. It is a debate between two bullies about how many times to punch us in the stomach; it's not a debate about whether we deserve to be beat up at all.

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How To Argue About Taxes (and How Not To)

"Myopia afflicts the contemporary legislative process in the US in a dramatic and simple way, in the form of tables that set out the distribution of tax burdens associated with various tax reforms. Most government transfers are excluded from these burden tables, including, most importantly, Social Security and Medicare. It seems clear that a tax burden that is matched by an equivalent transfer is not, in the relevant sense, a burden at all... But the problem would not be solved even if all money transfers were included in the burden tables. That too would be arbitrary, so long as we excluded in-kind benefits such as roads, schools, and police, not to mention the entire legal system that defines and protects everyone's property rights. If literally all government benefits were taken into account, however, we would notice that almost no one suffers a net burden from government. We would be forced to conclude that there is no separate issue of the fair distribution of tax burdens, distinct from the entirely general issue of whether government secures distributive justice. This might be described as a question about the allocation of different benefits of taxation, expenditure, and other government policies to different individuals; but that looks very unlike the original question." (pp.14-15, The Myth of Ownership, Nagel and Murphy (Oxford: 2002)).

The point is that it is false to claim that we can intelligibly discuss "tax burdens" as an isolated matter apart from the social/economic system of which taxation is but a small part. In particular, it is preposterous and unjustifiable to merely examine or criticize "tax burdens", conceived of as levels of taxation on whatever (income, consumption, etc.) without also looking at the way that taxes are spent.

If, say, my income tax goes up by 5%, say by $1000/yr, and I get unlimited access to higher education (which is worth much more than $1000/yr), it would be absurd to say that my increased rate of taxation means an increased "burden". I haven't been burdened in the slightest- I've just netted quite a lot of value. It would be pointless to debate whether my 5% was, in itself, fair or unfair without considering what we get from taxation: services, a functioning society, basic social institutions, a more equal and fairer distribution of resources, etc.

But that is how the conversation is set up in mainstream "debates" about taxes. It is a discussion merely about "burdens" and whether they should be lifted just a bit or quite a lot. If it's not economists going on about what's most "efficient" or "best for growth" (as though these underspecified goals were the only values relevant to the determination of tax policy), it's politicians blathering about how to distribute the "tax burden" fairly. Now I don't want to suggest that we shouldn't pay attention to the distribution of tax rates. How tax rates are distributed is an extremely important- I've argued many times on this blog that working class tax rates should be decreased while corporate taxes, estate taxes, and the top marginal income tax rate should be steeply increased. It matters a great deal whether we have, say, a flat income tax or a progressive income tax, or whether capital gains and dividends are taxed at the same rate as wages.

Moreover, I'm not saying that taxes can never end up being a burden. For many people in the US, they absolutely are. For working class and poor people, deeply regressive taxes can end up being quite burdensome indeed. But they are burdensome on the assumption that basic needs go unmet despite the fact that people's relatively low income is taxed at a high rate. When a working class person faces high consumption taxes that increases the cost of food, that is clearly a net burden. But say that this same person pays high premiums for health insurance from a for-profit provider every month for inadequate coverage. If we were to institute a single-payer system, this person's taxes might well increase. But it would be false to say that this person is now enduring a new, increased burden. On the contrary, they would no longer have to pay high premiums to a for-profit insurance agency, and they would receive far more extensive care than they received before. What they pay in taxes is less than what they paid in premiums, and they now receive more extensive care for less money. This is clearly a net gain. The language of "burden" here is a red herring. Again, we can't make sense of the justice of tax policies without examining, among other things, what goes in and what goes out. If my taxes go up 2% and I get 25% more in terms of goods and services, it would be bizarre to say that I'm now burdened 2% more than before.

Thus, there is no abstract way to say whether a certain rate of taxation, all by itself, is burdensome or not- we can only know whether its burdensome by looking at the balance of what one pays in and what one gets out of it. We have to examine someone's class position. If we operationalize this in dollar terms, we could say that a particular policy was burdensome if and only if I paid far more into the system than I got out of it. And to calculate "what I get out of it" we have to add up a long list of social goods, institutions and services: roads and infrastructure, legal systems and courts, educational institutions, public parks, libraries, fire protection, Medicare/Medicaid, and so forth.

So, for the vast majority of us, taxation in general will not be a burden in this sense at all. Conversely, for the ruling class, taxation probably will be a "burden". They will, it seems, be required to pay more into the system than they are likely to take out of it in terms of services and public goods. Again, in a narrow sense, if the system of taxation is progressive (i.e. if the average rate of taxation increases with income) the rich will pay more into the system in dollar terms then they get out of it in services. But there are three reasons that nobody except ruling class parasites should worry about this.

First, it isn't quite right that the ruling class puts more in than they put out. In order for them to earn any profits whatsoever, they need a set of basic public institutions (legal system, police, military, courts, infrastructure, anti-trust regulators to guarantee competition, etc.) that make it possible to own property and have a market economy at all. Markets aren't "natural" in any sense whatsoever: they are conventional and require quite a lot of "big government intervention" in order to exist at all. Though we are encouraged to forget this and ignore it, the obvious fact is that private property is a legal convention, not a fact of nature. "We are all born into an elaborately structured legal system governing the acquisition, exchange, and transmission of property rights, and ownership comes to seem the most natural thing in the world. But the modern economy in which we earn our salaries, own our homes, bank accounts, retirement savings, and personal possessions, and in which we can use our resources to consume or invest, would be impossible without the framework provided by government supported by taxes". All of this must be in place in order for a capitalist economy to exist at all: the basic institutional framework underwriting markets are not "free", they must be paid for by tax revenues. So, to be sure, isn't exchanging equivalent for equivalent if we add up the taxes they pay alongside, say, the value of the education they procure from a free public university. But it's a fact that the ruling class needs a lot of government intervention (to break strikes, to intimidate protesters, to thwart social movements, to intervene globally to create a good business climate, to protect property, etc.) to make the profits that it makes. And that intervention is not free: there's a sense in which the ruling class owes the government "rent" for being there to create the conditions for profitability. Of course, power relationships mean that the ruling class is often in a position to get out paying this "rent"; thus they make working people pay it for them. They are, after all, just trying to maximize profits for themselves, even if this means socializing necessary risks and costs. The ruling class way of life is as follows: evade all costs, exploit ruthlessly, externalize risks and wastes, and jealously covet all the earnings that it can get its hands on.

Second, there can be no ethical objection to the idea of taxing the rich at much higher rates. On the contrary, there is something deeply unsavory, morally speaking, about the person with massive surpluses who refuses to relinquish any whatsoever to help those with nothing. The idea of paying according to one's means is a basic ethical principle that seems rather hard to reject. Such a principle correctly abhors the vices of avarice and miserly tendencies to hoard things for oneself. Moreover, it is absurd to ask Bill Gates to pay the same dollar amount in taxes as a working-class single mother. To object to that is to depart from our ordinary moral horizon entirely, so the ethical objection to taxing the rich hardly holds water. But, as we will see below, this moral/ethical element only arises on the condition that the pre-tax income of the ruling class is legitimate. But it is not. It is already tendentious for a ruling class person to say that their pre-tax income is "theirs" in some fundamental way (it is only "theirs" under a particular regime of property relations and public institutions which they willfully ignore in discussions of taxation). But even if it were "theirs", there are still very strong, and quite uncontroversial, ethical reasons to think that the "pay according to one's means" principle is sound. Cough it up, moneybags.

Third, it is false that the ruling class receives in profits exactly what they deserve as a result of their productive efforts. That's not how markets work. Markets aren't conscious, they aren't aware of who deserves what, and they certainly aren't in the business of rewarding people. Some of what determines market distributions is brute luck, some of it has to do with allocating resources in such a way that profit is maximized, some of it is short-sighted irrational craziness (as in the buildup to the recession we're in). In principle, I needn't do anything productive whatsoever to earn profits on an investment. Arbitrage is the most obvious example: this is when someone moves massive amounts of capital very quickly to exploit a small, temporary shift in exchange rates between, say, two currencies. This is how Soros made his billions. There is nothing productive whatsoever about such transactions. This is simply a case of money making money.

So, incomes in a market economy aren't in any sense based on what one "deserves". Often, many deserving people are denied employment simply because there is no way to profitably employ all of them. For the most part, incomes in a capitalist economy are determined by the office or position one occupies in the economy. And depending on the location of that office/position you have more or less economic power- and it is primarily the degree of economic bargaining power that determines your income. For example, if you're an un-unionzed worker in a labor market in which unemployment is high, then employers have a huge amount of economic power over you. They are in a position to push wages down in part because there are many workers competing against each other for scarce jobs. Because of your powerless position as an unemployed worker (you have nothing to take to market but your own capacity to work), your income is liable to be low. On the other hand, if you own large amounts of alienable productive resources (e.g. a factory, large amounts of resources) you are in a position to command a very high income indeed. It's not how productive you are or how hard you work, in the end, but what particular office you occupy within the system that largely determines your income.

Let us not forget that capitalism is a society in which the ownership of the means of production is concentrated in a small fraction of the population's hands. The majority of people in capitalism do not have large amounts of capital or land that they could invest for a profit; the only important productive asset most people have is their ability to labor. This means that those who own the means of production are in a position of power vis-a-vis others in that society, and thus they are in a position "to demand returns in the form of profit, interest, and rent". Most people, therefore, are not in a position of economic power such that they may extract profit, interest and rent from others.

Let me say a bit more about this to drive the point home. Marxists aren't claiming that capitalists and landowners never derive any income from, say, improvements to their land or labor they expend managing their firms. What fraction of income landlords and capitalist receive as a result of their labor is not, strictly speaking, what angers Marxists. What Marxists see as problematic is that fraction of income that capitalists and landlords receive, just because they are owners of capital or land. Their main complaint is about "money making more money" in a society in which the majority don't have such a luxury and must therefore work for every dollar they earn.

The basic problem here is that the ruling class can only earn profits on the condition that there is a large class of people who do all the labor necessary to produce profits in the first place. The ruling class can only make their massive fortunes on the condition that they own and control the means of production, whereas the majority of us do not. Their social/economic power comes from the fact that they control what we need to survive- jobs on the one hand, and goods and services on the other.

And as any child can tell you, if all the workers in a society simply stop working, the whole society grinds to a halt. If they were to stop working indefinitely, the ruling class would wither on the vine- they wouldn't even be able to continue to eat and procure their own means of subsistence. What this shows is that they are plainly dependent on a system of social labor. This is why the ruling class pulls out all the stops to prevent and to break strikes. Ruling class persons, then, are hardly self-created, isolated producers who create something out of nothing. They occupy a particular place in the economic system, and it is in virtue of their place vis-a-vis production that they are able to have the power they have, and earn the incomes that they do. So to say that there is some sense in which they "deserve" their pre-tax income is absurd. To say that they it is an illegitimate intervention into their private affairs for them to be taxed is patently false: their pre-tax income is only possible because of a massive, public system of social labor (which is not ignored at production time, but is happily ignored at tax time). Their income is not a private affair- they need the rest of us who do the work if they are to earn it! When the day comes that the ruling class produces everything they have entirely by themselves, on a deserted island, without the help of anyone else, then perhaps their complaint will have some merit. But of course they wouldn't be a ruling class anymore in such a case- they'd just be some weird person on a island who makes all their own stuff. They'd have no power over us and they'd have no way of exploiting our labor for profit.

But as long as they need the rest of us to have what they have, they should dispense with the bogus talk about the "privateness" of what they earn. It is public in every sense of the word- and it is justly taxed by society in order to fund the basic institutions, services, and goods that are required if any society is to flourish.

But though socialists support the demand to tax the rich, this isn't the goal of socialist politics. The goal of socialist politics isn't to achieve an "optimum" (whatever that would be) level of taxation on the ruling class; the goal of socialist politics is to transform society in such a way that there is no ruling class. The goal is to bring the basic structure of society under the democratic control of the people, rather than leaving it under the dictatorial control of the capitalist class.

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GE's Tax Bill? ZERO.

General Electric, the nation’s largest corporation, had a very good year in 2010.

The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion.

Read the rest here. Set aside the recent Democrat extension of the Bush tax giveaways to the wealthy. Just focus on the G.E. thing for a moment. When the Democrat-apologists trot out their tired arguments for why you should hold your nose and spend money, political energy, time and votes getting Democrats elected to office... just remember that this appalling class tax disparity went unchallenged by a Democrat-controlled House, a super-majority Senate, and a popular young President who talked big about change. It remains unchallenged, in fact, as the article makes clear, Obama applauds this kind of thing:

In January, President Obama named Jeffrey R. Immelt, General Electric’s chief executive, to head the President’s Council on Jobs and Competitiveness. “He understands what it takes for America to compete in the global economy,” Mr. Obama said.

That's the political face of the Democrats, folks. That's supposed to be the best we've got. Now, I would never deny that the Dems are often less offensively right-wing than the hapless Republicans. But let's not kid ourselves about who the Democrats are and who they represent. If you are truly on the Left, then you have to believe that there is a irresolvable contradiction between where we need to get to and what the Democratic Party (as a national, heavily business-influenced organization) aims to accomplish. We have to ask: where do progressives want to go, and can the Democrats take us there? You only have to think rather modest things like "we should have a national health care program (e.g. like Canada) that covers everyone unconditionally from cradle to grave" to find yourself in a position where you have to answer "no".

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Wall Street Records Record Revenues 2009-10

The five largest U.S. firms by investment-banking and trading revenue -- Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Morgan Stanley -- will likely have a better fourth quarter than the previous two periods, driven by equity underwriting and higher volume in stock and bond trading, according to data compiled by Bloomberg. Even if this quarter only matches the third, the banks’ revenue will top that of any year except 2009.

The surge has come after the five banks took a combined $135 billion from the Treasury Department’s Troubled Asset Relief Program and borrowed billions more from the Federal Reserve’s emergency-lending facilities in late 2008 and early 2009 following the collapse of Lehman Brothers Holdings Inc. Since then, the firms have benefited from low interest rates and the Fed’s purchases of fixed-income securities.

Read the rest here.

Can somebody please get these people some big tax breaks right away? I'm deeply worried about their well-being. It's not enough that they received gargantuan sums of public money through TARP. It's not enough that they're breaking records with the highest profits ever. So it's clear that they're desperately in need of huge tax breaks.

Good thing Obama and the Democrats are here to help them out. I'm sure the Dems will brag about having done so when they're running for re-election in 2012. This will surely make them more "competitive" in vying for corporate funds once campaigns get rolling.

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More Gifts to the Rich on the Way

Evidently, the Senate is poised to vote on Obama's "deal" with the Republicans in which massive tax breaks are extended to the richest of the rich in the midst of massive budget shortfalls at the state and municipal level. Obama and Co. are also entertaining the idea of extending the retirement age and slashing Medicare as they stand poised to deliver this massive Christmas gift to the ruling class.

Let's be clear. Though both of the corporate parties are talking about the "economic benefits" of these cuts, this is utter bullshit (and trust me, they know it is). This is what's really going on. The ruling class has a difficult time directly attacking social programs (though they are making quite a go of it right now). Thus they attack indirectly by eviscerating public social institutions with massive tax breaks for the rich. Now, as I've suggested elsewhere on this blog, they can't do this directly either: more cover is needed. That is, they can't sell tax breaks for the rich in the way that they'd really like to, e.g. "let us take everything we can get our filthy hands on and leave nothing for the vast majority!". They can't speak the language of petty interests; they must talk about "we" and "us" and justify what they do in general, universal language. Enter bullshit about "economic growth" and tax breaks.

Now, I think that every single word about economic stimulus and tax breaks is ideological in the pejorative sense; it takes our eye off of what matters and focuses the debate on an apolitical, dubious point of detail. But let me say a bit about why tax breaks for the rich and economic stimulus are, basically, topics that are best discussed separately. As Krugman recently put it:

The point is that while the deal will cost a lot — adding more to federal debt than the original Obama stimulus — it’s likely to get very little bang for the buck. Tax cuts for the wealthy will barely be spent at all; even middle-class tax cuts won’t add much to spending. And the business tax break will, I believe, do hardly anything to spur investment given the excess capacity businesses already have.

The actual stimulus in the plan comes from the other measures, mainly unemployment benefits and the payroll tax break. And these measures (a) won’t make more than a modest dent in unemployment and (b) will fade out quickly, with the good stuff going away at the end of 2011.

This is obvious. If you wanted bang-for-your-buck for each dollar spent (and, make no mistake, these massive tax breaks are tantamount to "government spending" in a sense, to the tune of $850 billion, all of which will be added to the deficit), you'd fucking build roads and hospitals and schools and train tracks and wind-power turbines. You'd actually do something with that chunk of change that really met ordinary people's needs and propped up effective demand.

These tax breaks have nothing to do with stimulus: they are part of a strategy hard-line class warfare from above. The priorities of those in Washington are clear: punish the people and shower the rich with extra funds (as though they haven't done well enough already).

Punishing the people is something Obama is getting quite good at. Now, some Democrat apologists will try to convince you that Obama's having "won" the measly extension of the unemployment benefits somehow represents the best of all possible worlds. Some of these jerks even cheering on the "deal". This is bullshit. As Malcolm X put it, "You can't drive a knife into a man's back nine inches, pull it out six inches, and call it progress." I'm not even sure if it's fair to say that the small, measly extension of unemployment benefits should count as "six inches".

In order to insulate their fantasy world from encroachment by reality, these apologists must convince themselves that Obama has no agency, that the Democrats are always 'forced' by the Republicans to do all of the shitty things they do, etc. But it's about time these apologists faced the music.

The Democrats, at the Federal and local level, are overseeing massive austerity measures at the same time that they are finding creative ways to lavish the richest of the rich with extra cash. They are cutting public transit at the same time that they lower taxes on corporations. They are for raising the retirement age while simultaneously lowering the top marginal income tax rate. They are for Wall Street, not the vast majority of us. They are for the ruling class, not the jobless.

We, the vast majority of ordinary Americans who make up the bottom 95% of the population, can do a whole lot better than this. Those who think we can't are cynics. Progressives need not pay attention to such conservative dullards, whose allegiances lie more with a corporate party apparatus than with the interests of the vast majority.

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Bernie Sanders Filibusters Obama's Giveaway to the Rich

Sanders, as usual, gives a full-throated defense of social-democratic values. It's heartening to hear someone, anyone, in the Congress say something remotely progressive. I wouldn't have said everything exactly the way that Sanders says it, but he's on target here: we're experiencing a one-sided class war from above and we need to fight it.

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The Case for Taxing the Rich

(See the Economic Policy Institute for the above images and more facts/figures).

As the first graph makes clear, the fifth of earners in the US have made staggering gains between 1979-2005. The disparities only get more extreme when you climb up the ladder within the top 1/5: the top 0.1% experienced an average $6 million increase in annual income whereas the bottom 1/5 of Americans experienced a mere $200 average increase. Make no mistake, this trend of increasing inequality amidst increasing growth represents a relentless class project of redistributing wealth from the bottom up to the top. By relentlessly pushing for cuts and privatization coupled with massive tax gifts for the super-rich, the ruling class has managed to redistribute wealth embodied in public goods to private coffers. The last 40 years have been a testament to their success.

Now, as the second graph makes clear, the Bush tax breaks for the rich only served to further increase this trend. These tax breaks were basically just decorative icing on the cake. Bush's cuts dropped the top marginal rate from 40% to 35%, but it had been 70% under Nixon and Carter's presidencies before Reagan dropped it to 30% in the early 80s. It's worth recalling that during Eisenhower's presidency in the 1950s the top marginal rate was 91%. This makes it clear that it's just plain false that a high top marginal rate of taxation is incompatible with capitalist expansion: the "long boom" from the 1945-1973 was probably the most stable, prosperous period in the history of US capitalism. The talk about an obvious connection between growth and top marginal rates, however, is almost always a red herring. The real issue is political and grounded in class interest: those in the top brackets have a strong interest in lowering their marginal rate and they'll marshal any rationalization (even obvious bullshit-on-stilts like the "laffer curve"... see image here) they believe is effective in order to do so.

They can't just say, baldly, "hey I want to get even richer so stop taxing me to pay for bridges and schools!". As I've noted elsewhere, the ruling class knows that it cannot address the population in the language of petty interests. In order to be effective it must speak the language of universality and rationality.

So to recap: the top marginal rate of taxation has dropped all the way from 91% in the 1950s to 35% today. Do the math: that's quite a gift, especially when you add in the fact that the majority of Americans have seen their real wages decline or stagnate during the same period (despite vastly increased productivity from 1980 to the present).

All of this, we should note, is just background. The real question we're supposed to be addressing is whether to let the Bush tax cuts expire for the rich. Once we have the facts on the table, however, the choice should be obvious unless your a self-serving, ruling class tool: we should repeal the gratuitous gifts given to the wealthy and bring the top marginal rate back to realistic rates. Why, when the Federal budget is such bad shape, should we give them $67 billion in gifts over the next two years when they're already rolling in more cash than they'll ever know what to do with?

To hear the ruling class and their political mouthpieces speak of "shared sacrifice" right now is laughable. They've been sacrificing the majority of us for 40 years as they've reaped more and more each decade. Last quarter, for instance, corporations posted the highest profits on record, even though the majority of us are still suffering the effects of the recession. On top of what they've been able to accumulate themselves, the ruling class has also pushed down our standard of living considerably during the last 40 years by breaking unions, cutting social services, privatizing and so on.

Now, after they've been punching us in the stomach for 40 years straight, they have the chutzpah to ask us to entertain the idea of "shared sacrifice". The only proper response to their suggestion is "fuck off". The ruling class loves the language of "we" and "us" when we're talking about risk and losses. But when it comes to profits and gains, they aren't so keen on including "us" in the equation, are they? When it's about money to be gained, it's all first-personal language about getting the "government off their backs".

If "shared sacrifice" has any meaning at all, it must mean that all parties share a burden according to their means to do so. So let the rich, who've amassed surpluses for themselves larger than the world has ever seen, do a bit of sacrificing. Let them at least pay the top marginal rates they paid under that "radical leftist" Richard Nixon for godsake. It's the least they can do, considering they've waged a one-sided class war against us for the last 40 years while wrecking the global economy with their reckless pursuit of short-term profits.

In fact, if we just eschewed the language of "sacrifice" entirely and simply asked the ruling class to clean up the mess they've made of the economy, they'd be paying much, much higher rates than they would under a regime of "shared sacrifice". A simple cost-benefit analysis, something the ruling class is fond of, quite clearly suggests the rich cost that the majority of us a lot more grief than they bring us in benefits. The entirely reasonable socialist intuition here is this: why, then, do we need to have a ruling class at all? They need us but we don't need them.

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