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Why Americans Want Socialism

Why Americans Want Socialism


I don’t believe they really want socialism. Few even understand what it is. What they want is change. They see little hope for improvement in their situations, no matter how hard they work and sacrifice. They don’t see anyone in authority trying to help them. So, when someone offers what sound like easy answers, they jump aboard. As Harvard professor Ed Glaeser says (my paraphrase), people think of socialism as “hyperredistribution.” They are not looking to control the means of production per se, just redistributing the fruits of that production.

In one regard, Sanders is similar to Trump in 2016—an outsider whose message activates previously neglected voters. Trump went on to win. If Sanders gets the nomination, it’s easy to imagine scenarios where he wins, too.

That the US could plausibly swing from someone like Trump to someone like Sanders in the space of four years says, to me at least, that something bigger is happening. Until we fix it, desperate people will keep making desperate choices.

This week’s letter will be a little bit different in that I want to focus on why so many of our fellow citizens find socialist ideas attractive. And why, even in the face of that, I am a long-term optimist. For those paying attention, there has never been a time so potentially dangerous but still offering so many incredible opportunities. But first…

The Decade of Living Dangerously

Because of the frustrations of so many, both left and right, I think volatile swings between radically different political choices could become de rigeur for at least the next three election cycles, if not longer. The simple fact is that no political solution can deliver economic nirvana. But until something happens (like The Great Reset) to force unwelcome change, the cycle will continue. And that is a reality we as investors have to face.

That theme of “The Decade of Living Dangerously” is my focus for the 16th annual Strategic Investment Conference, May 11–14 in Scottsdale. It is a thinking investor’s conference. We will be looking at the entire investment landscape: technological, political, geo-political, private and public investments, from seemingly prosaic real estate to the latest new inventions, casting our eyes around the globe, looking for what the smartest investors in the world are doing to avoid danger and find opportunity.

Every year for the last 15 years, SIC attendees have walked away saying, “How could you ever top this?” And last year was special, with record-breaking attendance and over-the-top presentations. The closing day was amazing.

The SIC is my art form. I craft the experience to fit the needs of the time. Each SIC is different because we are looking at different overarching questions. I can honestly say it will be simply the best conference of the year for addressing the problems we face, along with the potential. The lineup of speakers, many of whom are provocative thought leaders, is designed to make us evaluate how our current portfolios will meet the challenges of the next few years and indeed the decade.

Among the already-confirmed faculty are investment legends Sam Zell, Leon Cooperman, and Felix Zulauf. Joining them are some of the smartest people I know… in market analytics, in investment strategy, geopolitics, fixed income, hard assets, evolving technologies, and more, including Ben Hunt of Epsilon Theory… political pollster Michael Barone… market analyst Jim Bianco… venture capitalist David Blumberg… Bain’s head of Macro Trends Karen Harris… DC insider Bruce Mehlman… economist Samuel Rines… longtime friend Barry Ritholtz… China expert Jonathan Ward… Technology wizard Cathie Wood plus heavyweight real estate analysts Ivy Zelman and Barry Habib.

Then there are SIC favorites Louis Gave of Gavekal, economist David Rosenberg, bond expert Lacy Hunt, geopolitical expert George Friedman, and the always popular money manager Mark Yusko.

As you may have heard, this year we are reducing the number of attendees by 40%, at the request of long-time attendees. Over half of our attendees have been to five SICs or more. We believe it will make for a more collegial and intimate conference experience, one you will not want to miss.

So please do yourself a favor and join us for one of the most exciting SICs ever. Don’t procrastinate. I am very sure we will sell out and you know you want to be there. So click the link and prepare to experience the most fulfilling three days of your investment life.

And now to our regular program…

What’s the Appeal?

To my generation, “socialism” is the second “S” in USSR. We grew up being taught the Soviet Union was a mortal foe bent on world domination. We didn’t have to wonder if this adversary had nuclear weapons; we knew it could drop them on us any time. Remember “duck and cover” drills?

Thankfully, the threat of imminent nuclear war receded, and attitudes changed in those who didn’t grow up with it. A 1974 poll showed 75% of Americans aged 25 to 34 thought the US had “moved dangerously close to socialism.” Now 50% of young Americans want to embrace what they think of as socialism.

Its meaning isn’t entirely clear to older generations, either. This Mises Institute article does a good job outlining the ideologies we call “socialism.” Broadly speaking, they involve various degrees of collectivizing property and redistributing wealth. Those can sound pretty attractive if you have no property or wealth, and threatening if you do.

This raises a question: If the US economy is performing so well, and the rising tide is lifting all boats, why is socialism getting any traction at all? Public opinion data says this shouldn’t be happening. Polls from Gallup and others find solid majorities saying their financial condition improved in recent years, or at least got no worse.

I see two answers to that. One is in the question itself. Your financial condition can be better than it was but still not where you think it should be. If you are no longer drowning and are instead treading water with no lifeboat in sight, then yes, your condition has “improved.” But you’re still looking for answers.

The broad “better or worse” responses are heavily weighted by political affiliation. Republicans say both their own condition and the economy are better. Democrats say both are worse. They can’t all be right.


Source: Quartz

Polls that ask more specific questions find a considerably less rosy scenario.

For instance, a December 2019 Bankrate.com survey found half of US workers didn’t get any kind of pay raise in the last year. Gains in average hourly earnings may have been heavily weighted toward a smaller number of workers who got much larger raises.

Another survey by Salary Finance of 2,700 US adults working at companies with 500+ employees found 32% saying they ran out of money between paychecks. That’s consistent with the Federal Reserve’s annual “SHED” survey, which last year found almost 40% of US adults would need to borrow money to cover a $400 emergency expense. It also found an additional 18% of Americans considered themselves “just getting by” and 7% “finding it difficult to get by.”

Perhaps not coincidentally, the Fed reported this month that household debt balances hit $14 trillion, an all-time high. This was actually low as a percentage of disposable income, but disposable income is again highly weighted toward the top. Many at the bottom are in debt up to their eyeballs. And we’re not even in recession yet. Hence the dark humor like this.


Source: Twitter

From what I see, it may be true that most Americans are in “better” financial condition. But I think Ray Dalio is right when he divides the country into a bottom 60% and top 40%. More than half the country is in various degrees of trouble, and they are open to anything they think might help them, including what they think of as socialism.

Affordability Crisis

Last week I quoted from an article by Annie Lowrey in The Atlantic, The Great Affordability Crisis Breaking America. We who watch macroeconomics tend to focus on aggregate numbers—unemployment rate, GDP growth, and so on. We can overlook the “micro” world hiding inside those numbers. Let me quote Ms. Lowrey at length because she says this well.

In the 2010s, the national unemployment rate dropped from a high of 9.9 percent to its current rate of just 3.5 percent. The economy expanded each and every year. Wages picked up for high-income workers as soon as the Great Recession ended, and picked up for lower-income workers in the second half of the decade. Americans’ confidence in the economy hit its highest point since 2000, right before the dot-com bubble burst. The headline economic numbers looked good, if not great.

But beyond the headline economic numbers, a multifarious and strangely invisible economic crisis metastasized: Let’s call it the Great Affordability Crisis. This crisis involved not just what families earned but the other half of the ledger, too—how they spent their earnings. In one of the best decades the American economy has ever recorded, families were bled dry by landlords, hospital administrators, university bursars, and child-care centers. For millions, a roaring economy felt precarious or downright terrible.

Viewing the economy through a cost-of-living paradigm helps explain why roughly two in five American adults would struggle to come up with $400 in an emergency so many years after the Great Recession ended. It helps explain why one in five adults is unable to pay the current month’s bills in full. It demonstrates why a surprise furnace-repair bill, parking ticket, court fee, or medical expense remains ruinous for so many American families, despite all the wealth this country has generated. Fully one in three households is classified as “financially fragile.”

Along with the rise of inequality, the slowdown in productivity growth, and the shrinking of the middle class, the spiraling cost of living has become a central facet of American economic life. It is a crisis amenable to policy solutions at the state, local, and federal levels—with all of the 2020 candidates, President Donald Trump included, teasing or pushing sweeping solutions for the problem. But absent those solutions, it looks certain to get worse for the foreseeable future—leaving households fragile, exacerbating the country’s inequality, slowing down growth, smothering productivity, and putting families’ dreams of security out of reach.

For many and maybe most Americans, life is a constant struggle to make ends meet. They see prices rising for the things they need to survive even as the president says there’s no inflation. The central bank that supposedly works for them actually wants more inflation, not less.

This hasn’t always been the case. Not so long ago, you could work your way through college with a part-time job, afford a small home or apartment in a city or suburb where jobs were available, see a doctor if you got sick, and send your kids to decent public schools. Those are now out of reach for millions. And while some certainly made poor choices, it is not entirely or even primarily their fault.

Many people perceive, with some justification, that the economy is rigged against them. Correct or not, that perception opened the door for Trump in 2016. We have seen significant improvement since then, but clearly not enough. The door is still open for anyone who can present a convincing argument their way is better. If “their way” is somewhere on the socialist spectrum, millions will be receptive to trying it.

There is a way to close that door, and it’s pretty simple: solve the problems that are making socialism seem attractive and capitalism seem evil. Unfortunately, I don’t see much interest from the people who would need to do it.

What I do see is a belief, not entirely wrong, that more economic growth will fix everything. The problem is it will take time and people are hurting now. And for reasons I have outlined in previous letters, our debt-burdened society has borrowed growth from the future. That Pied Piper of current growth is getting ready to be repaid.

Take healthcare. It is not the case that everything was fine before Obamacare. There were serious problems. For one, people under 65 with preexisting conditions were effectively uninsurable, unless they had employer coverage. Now health insurance is “available” to all but only at staggering cost.

Bernie Sanders, Elizabeth Warren, and others keep talking about a “wealth tax” to fund national health care, student loan forgiveness, and other benefits. Others talk about much higher income taxes. Or a return to higher corporate taxes. These are terrible ideas but I get why people want them.

It is gallows humor to note that the impulse to pay for the redistribution of income and wealth with higher taxes seemingly comes from the desire to balance the budget. We can pick death by higher taxes or bigger deficits. There are no other choices.

Ross beaty - John Mauldin
 

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Social Contract

Humans may be social creatures but today’s societies didn’t come easy. It took millennia of precarious survival-of-the-fittest to arrive at the “social contract” that defines human relations. The norms of how we treat each other, and how the state treats people, are incredibly important. And they are breaking down.

That’s not a pleasant thought but it is growing harder to deny. The McKinsey Global Institute has a new report, The social contract in the 21st century: Outcomes so far for workers, consumers, and savers in advanced economies. It is bleak reading. McKinsey’s findings in summary (my emphasis in bold):

… [W]hile opportunities for work have expanded and employment rates have risen to record levels in many countries, work polarization and income stagnation are real and widespread. The cost of many discretionary goods and services has fallen sharply, but basic necessities such as housing, healthcare, and education are absorbing an ever-larger proportion of incomes. Coupled with wage stagnation effects, this is eroding the welfare of the bottom three quintiles of the population by income level (roughly 500 million people in 22 countries). Public pensions are being scaled back—and roughly the same three quintiles of the population do not or cannot save enough to make up the difference.

These shifts point to an evolution in the “social contract”: the arrangements and expectations, often implicit, that govern the exchanges between individuals and institutions. Broadly, individuals have had to assume greater responsibility for their economic outcomes. While many have benefited from this evolution, for a significant number of individuals the changes are spurring uncertainty, pessimism, and a general loss of trust in institutions.

This isn’t imaginary and it is not solely about individual responsibility. Society really has changed in important, structural ways. Achieving stability, much less success, is far more difficult for younger generations than it was for me and my Boomer peers.

We can and should discuss how to ease those challenges without causing even greater harm in the process. But pretending they don’t exist, or telling people to pull themselves up by bootstraps they don’t have, isn’t the answer.

Urging people who live paycheck to paycheck to save more is not realistic. They have no money left after those fast-growing expenses. Almost all saving occurs in the top 20% and certainly in the top 40%. The lowest quintiles have negative savings, i.e., are going into debt.


Source: WSJ

If you work for minimum wage, or even $20 an hour with a family to support, and someone comes along and promises you $1000 a month, or to cover your student debt or medical services or child care? That solves a problem you have right now. The fact that giving even 40 million people $1000 a month would be a $480 billion additional tax-and-spend which would significantly impact the economy is just not in your personal equation.

For many, it’s already an easy choice. After a recession? And deeper economic malaise?

Rigged System

The “financialization” of the American economy has led to increasing income and wealth disparity. As much as it pains me to say it, the “system” really is rigged. Whatever the good intentions of the Federal Reserve in particular and the US government in general have been, it has distorted the economic feedback loops that balance a true market-based economic system.

The fact is we already have “socialism” today. It’s not the socialism we feared in 1974. We have socialized the risks of capitalism, to the benefit of a small portion of the country, while a larger portion struggles.

That’s why Bernie Sanders may be on your ballot this November, and why he could win if the economy worsens. And there’s a chance it will. I long ago said Japan was a bug in search of a windshield. Maybe I should have said China. In either case, it’s beginning to look like virus COVID-19 could be the windshield against which the global economy meets its maker.

I am not being gloom-and-doom. I really believe the world is getting better and I see opportunity everywhere. However, if there is a recession, and thus more people in pain… if we haven’t given people better answers, they may choose socialism by default.

Coupled with socialism by central banking and bureaucracy?

It’s late and time to hit the send button. Let me close quickly by saying that these questions will be on the SIC agenda. Have a great week!

Your swear I am an optimist analyst,

John Mauldin
John Mauldin

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Discussion

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char3c@hotmail.com
Feb. 27, 10:35 a.m.

From a friend, but missing the graphs as they would not upload:
I think “capitalism” is just as misunderstood as “socialism.” But “free market capitalism” is really not how the economies work in Nordic countries though, is it? Correct me if I’m wrong, but my outsider view of their economies is that they are more appropriately taxed and regulated (i.e. at higher rates than the US) to fund the social services within the countries. The “free market” capitalism espoused by the hard-core right (such as those from the radical Mises Institute, quoted in the article) takes more of a Darwinian economic approach with minimal-to-zilch regulation, minimal-to-zilch taxation, and thus minimal-to-zilch social services.

As I’ve noted before, looking at the two economic approaches in a binary, either/or fashion is overly simplistic. America’s capitalistic society has always incorporated socialistic aspects, such as police services, fire protection, primary education, library systems, etc. Governmental regulation of business is accepted by all but the most radical of extremists as being necessary for a healthy economy, recognizing that, among other things, the natural gravity of business is towards monopoly. Individual businesses prefer to benefit their individual businesses and thus work to avoid or eliminate competition, while greater competition benefits the economy as a whole. And to paraphrase Wilhelm, a healthy, knowledgeable, and secure workforce is much more productive and creative than a workforce that is sick, ignorant, and insecure. (Also see https://www.npr.org/2020/02/21/807133509/enjoy-the-extra-day-off-more-bosses-give-4-day-workweek-a-try)

The Mauldin guy does a pretty good job of framing the issue, noting particularly that when people say they want to live in a socialist country, they’re not saying they want government control over the means of production. People are making the accurate observation that the needle on the socialist/capitalist scale has swung too far to the capitalistic side and needs to swing back towards the more socialistic side. But Mauldin still approaches the subject as though all aspects of socialism are evil and all aspects of capitalism are as manna, even as he notes the current capitalistic-heavy capitalistic/socialistic mix has failed many, if not most, of those in this society. Worker productivity has increased significantly in the past 30+ years while wages occasionally barely beat inflation. People can see that and know that something’s rotten in most places not in the vicinity of Denmark - particularly when contrasted with corporate profits and those already in the upper end of the wealth scale. And he seems to treat taxes as Dracula treats garlic, ignoring how a more progressive and sustainable tax structure, such as the one we had in the 1960s, for example (≈70% top marginal rate) provided for a strong infrastructure, paid for military adventures overseas, provided a good social safety net with Social Security, Medicare, Medicaid, food stamps, basic education, local police/fire/library services, etc., funded the Apollo program to put a man on the Moon, ALL while allowing people to become billionaires and reducing the national debt.



https://www.npr.org/2019/12/05/783001561/why-americas-1-percenters-are-richer-than-europe-s

Billionaires paid lower tax rate than working class for first time in US history: study


https://www.washingtonpost.com/business/2019/10/08/first-time-history-us-billionaires-paid-lower-tax-rate-than-working-class-last-year/

The relatively small tax burden of the super rich is the product of decades of choices — some deliberate, others the result of indecisiveness or inertia — made by American lawmakers, Saez and Zucman say. Congress has repeatedly slashed top income tax rates, for instance, and cut taxes on capital gains and estates. Lawmakers also have failed to provide adequate funding for IRS enforcement efforts and allowed multinational companies to shelter their profits in low-tax nations.


But the tipping point came in 2017, with the passage of the Tax Cuts and Jobs Act. The legislation, championed by President Trump and then-House Speaker Paul D. Ryan (R-Wis.), was a windfall for the wealthy: It lowered the top income tax bracket and slashed the corporate tax rate.
By 2018, according to Saez and Zucman, the rich were already enjoying the fruits of that legislation: The average effective tax rate paid by the top 0.1 percent of households dropped by 2.5 percentage points. The benefits promised by the bill’s supporters — higher rates of growth and business investment and a shrinking deficit — have largely failed to materialize.
https://thehill.com/policy/finance/domestic-taxes/464935-billionaires-paid-lower-tax-rate-than-working-class-for-first
 

(I can’t find any graphs of the marginal rate overlaid with the national debt)


Other studies, slightly more scientific and scholarly than mine, suggest that a top marginal rate in the 70% range is, in fact, near the peak of the Laffer curve -


But this idea of a rational, practical, sustainable tax structure similar to what we had in the 60s is precisely what is being called “socialism” by the right wing today, and seemingly hinted at by this Mauldin guy. And “socialism” is what is cried often when suggestions of raising taxes on the rich come up. (As a logical point of debate, it’s about as blunt an object as you can get, but blunt objects often work on dull subjects.)

Beyond the fiscal logic of a more progressive tax structure is the understanding that economic justice is inextricably linked to societal justice. Just last night on the way home from Logan’s game, I heard part of a radio interview with a retired NYC police officer who was pointing out how he and others had provided evidence of Harvey Weinstein’s assaults to his superiors years ago, only to have them ignore the evidence and case because of Weinstein’s wealth and celebrity. The officer recounted other times where the wealthy got away with crimes where others would have been tried and locked up. The story was on Weinstein because of his recent conviction but the officer took the opportunity to point out that there’s a pattern of the well-healed getting off scot-free. Not just NYC but ev er y where.

The wealthy often feel they’re deserving of superior treatment in every situation. I remember reading in the WSJ (maybe this article, but I can’t see it behind the pay wall) about how Finland used a “day fine” to calculate the fine for a speeding ticket. The example given was for a “27-year-old Finnish Internet entrepreneur” who was fined tens of thousands of dollars for a speeding ticket.

Finland’s system for calculating fines is relatively simple: It starts with an estimate of the amount of spending money a Finn has for one day, and then divides that by two—the resulting number is considered a reasonable amount of spending money to deprive the offender of. Then, based on the severity of the crime, the system has rules for how many days the offender must go without that money. Going about 15 mph over the speed limit gets you a multiplier of 12 days, and going 25 mph over carries a 22-day multiplier…


Sweden, Denmark, Germany, Austria, France, and Switzerland also have some sliding-scale fines, or “day-fines,” in place, but in America, flat-rate fines are the norm. Since the late 80s, when day-fines were first seriously tested in the U.S., they have remained unusual and even exotic.

But to advocate for the American adoption of day-fines isn’t to engage in the standard grass-is-greener worship of Scandinavia that’s in style right now. It’s logical. Yes, day-fines might dissuade the rich from breaking the law; after all, wealthier people have been shown to drive more recklessly than those who make less money, and Steve Jobs was known to park in handicapped spots and drive around without license plates.

But more importantly, day-fines could introduce some fairness to a legal system that many have convincingly shown to be biased against the poor. Last week, the Department of Justice released a comprehensive report on how fines have been doled out in Ferguson, Missouri. “Ferguson’s law enforcement practices are shaped by the City’s focus on revenue rather than by public safety needs,” it concluded…
https://www.theatlantic.com/business/archive/2015/03/finland-home-of-the-103000-speeding-ticket/387484/

(BTW - The handicapped parking space Jobs parked in was on Apple’s campus. He wasn’t parking in the handicapped spaces at the mall and hospital. And Jobs disliked car tags, so he’d lease a new one every six months to avoid having to put a tag on his car - a California legal loophole that was closed last year.)


My recollection of the WSJ article I read, was the author was making the argument that ≈“one of the benefits of being wealthy is to be able to flout/skirt/minimize the effects of these fines.” IOW -  Part of the perceived benefit of being wealthy is to be able to ignore the laws.

As the last paragraph on the day fines notes, these pro-wealth/anti-poor biases often become systemically ingrained in our governmental institutions, making them UNdemocratic. This is why it makes sense to reframe the “progressive vs regressive” tax debate as “democratic vs fascistic” taxation. The concentration of more and more wealth into fewer and fewer hands is demonstrably undemocratic. It allows and even encourages the few with the most economic power to wield it politically to the detriment of most everyone else in society.

AOC Thinks Concentrated Wealth Is Incompatible With Democracy. So Did Our Founders.

JAN. 24, 2019

In 1835, Alexis de Tocqueville produced one of the earliest accounts of the American dream. In his famous study of the Jacksonian U.S., the Frenchman wrote that Americans possessed “the charm of anticipated success” — a ubiquitous optimism that he attributed to our country’s democratic character, and to the “general equality of condition” that prevailed among its “people.”
On Wednesday night, Sean Hannity took de Tocqueville to task. In the Fox News’ host’s telling, general economic equality is not a precondition for the American dream, but rather, an insurmountable obstacle to it — because the American dream is (apparently) to earn more than $10 million year without having to pay a top marginal tax rate higher than 37 percent.
Of course, Hannity did not actually frame his argument as a rebuke of de Tocqueville. His true target was Alexandria Ocasio-Cortez.
After popularizing the idea of a 70 percent top marginal tax rate earlier this month, the freshman congresswoman recently suggested that the mere existence of billionaires was both immoral, and a threat to American democracy. “I do think that a system that allows billionaires to exist when there are parts of Alabama where people are still getting ringworm because they don’t have access to public health is wrong,” Ocasio-Cortez told the writer Ta-Nehisi Coates, during an interview on Martin Luther King Day. One day later, the congresswoman approvingly quoted an op-ed by the economists Gabriel Zucman and Emmanuel Saez, which argued that the purpose of high taxes on the wealthy wasn’t merely to generate revenue, but rather, to safeguard “democracy against oligarchy.”…
Hannity was hardly alone in deriding AOC’s antipathy for billionaires as fundamentally un-American. But in reality, there’s nothing foreign or communistic about the idea that concentrated wealth is incompatible with democracy, or all-too compatible with mass poverty. Republicans might call such notions radical. But many of our republic’s founders would have called them common sense.
Compare AOC’s first argument — that the simultaneous existence of billionaires and poverty is immoral, and thus justifies steeply progressive taxation — with Thomas Jefferson’s reflections in 1785. During a visit to the French countryside, Jefferson found himself scandalized by “the condition of the labouring poor.” In a letter to James Madison, Jefferson wrote that the extremity of European inequality was not only morally suspect, but economically inefficient. Aristocrats had grown so wealthy, they were happy to leave their lands uncultivated, even as masses of idle workers were eager to improve it. Thus, these proto-billionaires undermined both the peasants’ ability to transcend mere subsistence, and their society’s capacity to develop economically…
Ocasio-Cortez’s second argument against the existence of billionaires — that concentrated wealth is incompatible with genuine democracy — was something close to conventional wisdom among the founders (including those who opposed democracy).
America’s first political theorists took these truths to be self-evident: that a person could not exercise political liberty if he did not possess a modicum of economic autonomy, and that disparities in wealth inevitably produced disparities of political power…
[AOC’s] insistence that true democracy is incompatible with America’s present distribution of property — in which the richest 0.1 percent of Americans command as much wealth as the poorest 90 percent — would have struck Jefferson & Co. as tautological. And a largebody of political science research suggests that their shared intuition is correct…

RELATED
Ocasio-Cortez’s 70 Percent Top Tax Rate Is a Moderate, Evidence-Based Policy
The Right’s Case Against Soaking the Rich Is Dirt Poor
The Trump Tax Cuts Did One Thing: Give Rich People More Money


https://nymag.com/intelligencer/2019/01/ocasio-cortez-aocs-billionaires-taxes-hannity-american-democracy.html

 

I didn’t realize that in paraphrasing Wilhelm, I was also echoing Tony Benn with the “healthy, knowledgable, and secure workforce” comment earlier, but Benn stuck with me when I first heard him years ago. This is a great, if short, interview clip with Benn in SiCKO where he notes the connection with equality and democracy, and compares democracy with socialism and capitalism - in just 4 minutes! -


https://www.youtube.com/watch?v=9LnY-jy_cE0&feature=emb_logo

“An educated, healthy, and confident nation is harder to govern [control].” Which explains why Republicans have worked so hard for so many decades to fight against universal healthcare, stymie and subvert public education, and is constantly throwing Willie Horton, “swarthy” Arabs, and rapist Mexican bogeymen out there to frighten the mindless minions. And now it’s the “socialists” coming to destroy Bubba and take away his double-wide by raising taxes on the top quintile. SSDD.

LL

P.S.
Capital in the Twenty-First Century by Thomas Piketty [Instaread summary] 

Key Takeaway 7: Inequality in the twenty-first century is different from that of earlier eras in that it is partially fueled by massive income divergence. A confiscatory tax on very high incomes could help to address this problem.

Analysis - In the 1800s, the richest people often didn’t work at all; their income came entirely from capital and rents. Today, however, the wealthy are much more likely to work and, in many cases, have extremely high incomes. This is especially the case in the US, where high CEO pay has become notorious.

The Ballooning of top executive pay began under President Ronald Reagan in the 1980s. Before that time, the US had pioneered the use of confiscatory tax rates to rein in excessive income and promote equality. Taxes on top earners could be over 70%. Following the slumping economy of the 1970s, conservatives argued that high taxes were stifling the economy. This argument won out, and Congress slashed top tax rates in the US to around 40%. As a result, CEOs, who often control their own compensation packages, have no incentive to rein in their salaries.

One way to illustrate the growing income gap is to compare the pay of a CEO at a given firm to the median worker pay at the same firm. a 2015 report found that in the US, CEOs are paid on average 204 times as much as the median worker in their firms. The report found that four CEOs earned fully a thousand times as much as their median workers. CEO David Zaslav of Discovery Communications had the biggest pay inequity. He earned $156.1 million in 2014, which means his compensation was 1,951 times that of Discovery Communication’s median worker, who earned $80,000. This is a huge disparity in itself, but it looms even larger if one considers that the inequality is multiplied year over year. The median worker can save much les in each year than Zaslav. That means Zaslav’s fortune will be thousands and thousands of times greater than the median worker’s when he passes it on to his heirs. With their wealth, connections, and access to the best education, Zaslav’s heirs in turn will be in a position to earn exorbitant salaries themselves.

Surging top incomes could potetially create a new kind of inequality in which those at the top have both huge reserves of capital and massive yearly incomes. Without intervention, this could mean more lopsided inequality than the levels seen in the 18th or early 19th centuries.


Key Takeaway 8: A global tax on capital is needed to control inequality and prevent injustice and instability.


Analysis - Growing inequality can corrupt political systems because individuals with massive wealth can influence politicians in unjust ways. Inequality also creates resentment, exacerbates poverty, and can lead to political anger, frustration, and violence.


A capital tax on all wealth would be the ideal way to help counteract the tendency of capital and wealth to accumulate. Even a small ta would be useful because it would force the wealthy to disclose their assets. At present, there are no good, comprehensive records of the distribution of wealth. It is difficult to make policy when the extent of inequality is unknown. Even a nominal tax on capital, therefore, could have enormous benefits in making global inequalities transparent and comprehensible.


A global tax is probably utopian. But regional taxes would be a step in the right direction. Countries, especially in Europe, are afraid to tax capital because they worry that businesses or individuals will simply move across the border if they are taxed. An EU captial tax could be a first step towards more global agreements.


The importantce of a global tax was emphasized in 2016 with the release of the Panama Papers, leaked documents from a Panamanian law firm, Mossack Fonseca. The Panama Papers show how the firm has been helping wealthy and politically powerful people create companies to hold their assets. The companies hid the real ownership of the assets and thereby deceive tax collectors.


The tax shelters have been used by wealthy people throughout the world including politicians in Russia and in Iceland and have caused scandals. The Panama Papers also show that the wealthy routinely fail to pay their taxes. In fact, the best estimates suggest that there are $7.6 trillion in offshore tax havens worldwide, which is around 8% of the world’s wealth. Taxing that money could help governments provide services for the poor and middle classes. Instead, the money simply accumulates in offshore bank accounts, making the powerful even more so. A global tax on capital, or at the very least, better global coordination to deter tax evasion, is desperately needed to address these injustices.

 

 

David Schanding
Feb. 24, 10:09 a.m.

I see that others have similar responses to my thoughts, so I’ll be brief. You’re right in saying that looking at averages gives a false reading, as upper incomes have done considerably better than lower ones. We seem to look at healthcare as a commodity to purchase. In looking at several other developed countries, healthcare is a right, and people pay sufficient taxes to cover it. Denmark has ‘free’ healthcare and ‘free education’ if my tour guide was accurate, but they pay much higher income taxes to get these. And the tradeoff may be worth this security. Rebalancing incomes between very wealthy and most of the rest (lower 60% used in the article) seems paramount, but I think there needs to be a better solution than simply adding a wealth tax. This should be an interesting, and scary, election coming up.

eslie.shaw@duke-energy.com
Feb. 24, 6:46 a.m.

I feel or country is beholden to those with the deepest pockets. The Congress does not help the common voter only the corporations that donate and the money to lobby. How else can you explain the mess our health care system, education system and environmental policies are?  Take a look at Denmark and compare to s to them. If the gap between the haves and have nots gets to wide you have a full on revolution. I’m proving social programs will elevate some of the pressure.  Look back to 1950 a one income family could afford a house a car, on parent cold stay home and raise the family. That has been eroded by greed. To keep the same standard both need to work and take on consumer debt. We should be fixing this instead of cutting the corp tax rate.

Stuart Harnden
Feb. 23, 12:13 p.m.

John,

Excellent, excellent article, all you say points to the issue of how our less fortunate people feel betrayed, angry, disenfranchised, see what their parents have and don’t see themselves doing the same thing, etc.  It would take an essay much longer than this to explain it all, but on a Macro View, our younger generations have been screwed by, yes, us, the bankers, crony capitalism, our
re-education system from beginning to end , corporate greed, corruption in politics of major proportions, etc.  We no longer have a free capitalistic system, it’s now an oligarchy, run by billionaire oligarchs.  Our economy can only produce so much, and so much isn’t getting to the people that produce it.  I keep reverting to the French Revolution, where King Louis IV and Marie Antoinette built lavish gold plated palaces, one for each one of their fancies…all the while the people lived in poverty.  There came a time when those people were willing to risk it all to change it, seeing no hope in the future.  This is exactly what I see imminent in our country, and others.  No matter who is President, what party is in power, these issues are on our doorstep and must be addressed.  History does repeat itself, not exactly, but as they say, it rhymes.  Look out if the DNC once again pulls the plug on Bernie.

Stuart Harnden

hoynielsens@hotmail.com
Feb. 23, 11:08 a.m.

The irony will have it that this morning I read an opinion piece in one of the legacy danish newspapers with the title: “The lord have mercy on us if Bernie Sanders becomes U.S president”

The prediction from Bernies beloved Denmark is a collapse in U.S finances and a subsequent much weaker U.S including military might, wrecking havoc on the current world order. Here Trump - usually not praised - is recognized for strengthening US military and for forcing the Euro zone to do so amidst increasing aggression from the Russia.

Having dealt with both Medicare and IRS on a professional level, it scares the bejesus out of me to think that these gargantuan, byzantine institutions should be tasked to run national healthcare…including dental and vision for good measure. Just because the homogeneous, and U.S large city sized, populations of Norway and Denmark can pull off socialized medicare, by all rowing the same viking boat pulling the oars equally and with mutual understanding that goes back to the viking age, does not mean the sprawling melting pot of 330 million citizens can and should do the same. Having said that, I am absolutely in favor of a smarter run, more efficient and modern U.S in which there are some reasonable distribution of incomes, with special emphasis on affordable access to education and healthcare. I don’t believe this country has to go all Denmark, but perhaps Denmark light. From a Danish expat living in the U.S since the early 2000’s it is clear that the country is not innovating itself, taking bold action but rather descending in a manner of an old worn out business as usual, which clearly needs an update for the 21st century. That re-innovation is much more on display in the Scandinavian countries. 

But like John points out in this fine piece - with a country in which 1/3 of the population is living paycheck to paycheck, or there about - we are beginning the initial approach to where a population will bring out the pitchforks and politics very quickly can turn tumultuous and very ugly.

On a side note - as a Gen X, I am sad to see old men in their last decade of functional life fighting for leadership. We desperately need the baby boomers to step down and let millennial’s begin to run this country - at least they have a very real stake.           

drbradford@hotmail.co.uk
Feb. 23, 3:53 a.m.

Capitalism has gone too far - this coming from somebody who is generally right wing - governments have been in hock to large corporations for too long, reducing consumer protection, allowing mergers reducing competition and raising barriers to entry, allowing large numbers of generally unskilled/barely skilled labour into western economies to reduce real wages, he list goes on…

...bring on the revolution…sadly I dont think it would be a return to “real” capitalism..it’ll be too far to the left

Carla Coggins 18963
Feb. 23, 2:38 a.m.

I thought that the Federal Reserves clients were the banks, not the people. Is my thinking correct? The Federal Reserve is trying to make banks happy.
The head of the Federal Reserve is picked by the President of the United States, but other than that,they can do what they want without accountability to the citizens of the United States.

Nick Proferes
Feb. 23, 1:01 a.m.

Great piece John, and I’m pleased to see you recognize that the US already has socialism in place, as most western countries do. It is on a continuum not some absolute point in the spectrum.  Thankfully, I live in a country which is more socialistic (Australia) and while there is never enough money in the healthcare/pension/education/whatever system(s) my costs of living are far less than those in the US and we have far less gaps between those wealthy and those poor.  One thing has struck me about the current political circus, while it is fair enough to quiz and attack Sanders over the costs of his programmes and how they will funded, no one seems to be asking how he will get them through congress?  Obama went into government with a promise to fix the healthcare system but even with Democrat control of both houses, what came out after all the bunfights and legal challenges was about 1/10 of what was needed and had no hope of solving the key underlying issues.  So, as I see it, even if Sanders gets in (and I hope he does) he will be ineffective at getting meaningful healthcare reform (let alone all the other changes he wants) just as Trump has been ineffective at unwinding Obamacare as he promised to do.  Either way, Trump or Sanders, the gridlock, name calling, and lack of common goals will continue for another four years.

eric.weeks@me.com
Feb. 23, 12:20 a.m.

This was a good article, thank you for pulling this all together.

You make a commentary that we would need to institute some form of additional taxation to pay for nationalized healthcare.  This completely ignores that Americans already pay exponentially more for their healthcare than another other first world country.  The average premium for family coverage is over $19,000 per year, with roughly 2/3 of that paid by employers and 1/3 of that paid by employees.  We just don’t call the existing expenditures “taxes” today.

So, if we do move to an increased number of people covered under a nationalized plan (in addition to the current plan for people over age 65, a successful social plan given the lack of a hue and cry to end it), this funding is really just a change in terminology from “employer expense” and “employee paid premium” to an employment “tax”, similar to social security (another social plan with no hue and cry to eliminate it). 

Now, whether the total expense increases or decreases is a fair argument.  Some will say that the government runs programs inefficiently.  On the other hand, there are many, many billions of healthcare dollars spent by organizations and their employees paid to the insurance companies to extremely highly paid executives and returns to shareholders that would be eliminated under a nationalized model.  Also, all hospitals, physicians and other providers spend enormous amounts of money to employ people to prepare bills, review medical documentation to maximize billing and fight with insurance companies over payment.  This is money spent that delivers no value to patients. It seems likely that moving from our current system to a single payor system would be largely a wash (or better) between a future single government inefficiency and the myriad and numerous current inefficiencies.  This is especially likely given that all other industrialized nations provide national healthcare for a much lower cost - and a great many with outcomes that greatly exceed those in America.

Healthcare is a very complex subject and Medicare for All as currently proposed by the major candidates has some inherent issues within it, such as the rates that Medicare currently pay to hospitals and physicians is unsustainable if that would be paid for all of our healthcare services, because currently that $19,000 per family cost is subsidizing the losses incurred by those payments given by Medicare and Medicaid (which is known in the industry as “cost shifting”).  So, there is a lot more to be fleshed out as we (hopefully) move forward with expanding healthcare to everyone - in a financially sustainable manner - and stop fighting over whose name is on a particular bill or initiative.  This should be “OurCare”.

You do such a good job covering complex topics, bringing in actual data and trying to be objective.  However, easy comments such as changing the healthcare system would cause new taxes to explode - without talking about the enormous premium costs currently paid by employers and employees that would be eliminated (or recharacterized to be called “taxes”) fundamentally distorts the real paradigm that needs to be worked through.  We can give all of our fellow citizens the same care that almost every other modern country has - and give our workforce the ability to change jobs and learn new skills without being chained to their current job because they can’t afford healthcare.  And we can do that by better utilizing the money that we are already spending.  These healthcare cost issues are greatly impacting a great many people as you note, so having a robust discussion that includes both the real potential merits and pitfalls of alternatives of both sides (and not just taking the easy viewpoint of “taxes bad” without acknowledging current expenditures that can be repurposed) would elevate this discourse yet another notch.

mark@blackburnegroup.co.nz
Feb. 22, 7:57 p.m.

Speaking as a non American it appears clear that many American citizens are desperate for change due to ongoing and deepening financial pressures, as commented on frequently by JM. This desperation reflects in a willingness to latch on to whatever demagogue offers the prospect of “saving” them, however illusory that may be. The Trump v Sanders comments by JM reflect this. And the growing swing to Socialism, I suspect without any real understanding of what that means. People just want change!.

I suggest however that the issue is not Socialism v Capitalism, rather that capitalism as currently reflected in US has been grossly distorted and corrupted by entrenched interests whom appear to have a one way ratchet to capture all the benefits for a self entitled elite.

The ultimate manifestation of this has to be “Main Street bailing out Wall Street”. True capitalism would have allowed the creative destruction to occur. The Great Reset JM talks about would have been a lot less damaging then than kicking the can down the road for future generations [our children] to deal with. 

The sugar rush of QE/low interest rates further benefits the elite with assets while the costs impacting working class Americans[medical/education/housing] escalate in excess of any wage increases. And low interest rates perpetuate the “Zombie’ companies previously commented on by JM, which in turn suppress development of competitive alternatives.

As an aside with interest being the largest cost of a property owner/developer who stands to benefit from Trumps continued pressure on the Fed to lower rates even further. Just saying!.

Which brings me to the American political system. I suggest the current US application of “capitalism” is corrupted due to the corruption of the political system.  The ability of lobbyists to influence politicians and protect vested interests appears positively obscene, this is what really needs to change if America the supposed leader of the free world is to improve from 25th on the Democracy Index https://en.wikipedia.org/wiki/Democracy_Index [below Chile and one above Malta, with no disrespect to those countries, merely to provide context].

The blatant vote buying, Gerrymandering of electorates and ongoing manipulation of voter rolls does democracy no credit. These concerns reinforced by the obvious and increasing politicisation/intimidation of the US civil service and judiciary.

Your future is in your hands, grab it or suffer the consequences [or your children will].

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