It is becoming clear to me that billionaires should not exist. Maybe I could abide a person with one billion dollars, but a multi-billionaire should not be a thing. Populist lore says that they deserve it for being smarter than other people or harder working (at least those who didn't inherit their wealth). I never fully subscribed to that belief, though I did not used to begrudge billionaires their billions. That is changing. This blog post is my attempt to organize my thoughts and pinpoint the reasons for this change in thinking.
To begin, I want to state that I don't believe billionaires are problematic just because they have a billion (or several hundred billion) dollar net worth. Some billionaires do lots of good in the world with their money. Some are corrupted by their money and do lots of evil in the world. Most find themselves somewhere in between those two extremes. On the whole, however, having so much money concentrated with so few people is a net negative for our society whether those accumulating the money intend that or not. That concentration of wealth is only getting worse. Something needs to be done about it democratically and civilly before it leads to bloody revolution as has historically been the outcome. (See the French Revolution, for example)
As an interesting anomaly, America avoided the bloody revolution route the last time it found itself with an extreme concentration of wealth in the hands of the Gilded Age robber barons in the late 1800s. Instead, progressive reforms were implemented by the people. They got fed up enough to overthrow the corrupt politicians and create laws that favored the many rather than the few. Unfortunately, the masses are being successfully manipulated by the billionaires and politicians presently and the hardship is not widespread enough to overcome the politics of fear to take action now. This will change when the economy takes a nosedive. In the Gilded age, it took the panic of 1893 and the suffering concomitant with it to enable this change. Will we have a similar market crash in 202x to do the same this time around or will the billionaires and politicians consolidated enough control to suppress any populist measures and just let people suffer? Let them eat cake? I cannot predict where this will go, but with history as a guide, things are going to get worse before they will get better. If everybody studied history and learned the lessons from it, we would collectively have taken action years ago and stopped things from even getting as bad as they are now.
Why are Billionaires?
An examination of where billionaires' wealth comes from should be enlightening.
With the exception of inherited wealth, every single one of these comes from a business of some sort. Even inherited wealth ultimately comes from business if you go back to the original generation of the wealth. Sports or entertainment stars who are worth >$1B have done so through business. Sports is a business. Movies are a business. Nobody has manifested wealth without business. Business beget billionaires, so business is where our focus should be.
When a company becomes worth three trillion dollars for example, a handful of founders or stockholders may be worth many billions. Some say they deserve that for creating a company that is valuable. But why is the company that valuable? The company's stock is valued that highly, because it is transferring money from its customers to its shareholders at such a high rate that it is worth $3T to the owners. Economically speaking, it valued at $3T based on the present value of expected future cash flows. Customers are paying enough for the good or service to enable that company to generate profits that make it worth $3T. Who are their customers? You and me. The bottom 99.9% of people. Really, everyone. Maybe your new car costs $5000 more than it should if the car company didn't need to enrich its execs and shareholders to excess. Maybe your coffee costs 50 cents more for the same reason. And your gasoline. And computer. And so on. Multiply those increases on everything you consume, and it adds up to a lot of money. The same goes for another 330 million Americans. The billionaires are billionaires at our expense. They aren't magically creating wealth out of thin air. They are transferring wealth from our pockets to theirs.
I'm not really outraged at that. That's just the way capitalism works and should work. Billionaires aren't evil just because they have developed a product people want and are willing to pay for. "Great", you say. "There's no problem here. Blog over, we can all go home happy". Not so fast. We need to examine the methods businesses use to generate those profits. To increase profit, you can either reduce costs or charge more for your product. All of these things come more easily the larger the company is. A large company can buy out competitors to reduce competition. They can pay lower wages to employees because they eliminated all of the jobs at the competition. They can exploit the physical environment because nobody [typically] holds them accountable for the pollution they generate. The system, meaning our governing laws and regulations, is currently configured to further increase this wealth transfer to the billionaires. Think about all of the money in politics. It buys lobbyists who write legislation. We now know it buys Supreme Court Justices. (How come billionaires want to pay for Clarence Thomas's vacations, but none have ever offered to pay for mine?). It buys politicians. The system is doing everything it can to keep the money funneling to the billionaires.
Example: The
Citizen's United supreme court case removed restrictions and has allowed corporate money to flow into politics at an unlimited place. As a direct consequence, we now see corporate billionaires playing a front and center role in politics. Why? So they can influence politicians to increase their profits and wealth. Elon Musk is the poster boy for this. He funnels lots of money into an election and gets rewarded with control of a government organization that has the power to fire all of the people who were responsible for putting checks and balances on his corporations and exploiting the environment, workers, suppliers etc. and even those handling government contracts for his businesses. The scale of the money involved is skewed enough that nobody can compete. Even collectively. Musk is worth an astounding $500B. Say he committed just 10% of that, $50B to buying a government. It would take 50,000 millionaires contributing every cent they owned just to balance that out.
Common Ground
Can we all agree this concentration of wealth in so few people is bad? It gives the wealthy extraordinary control of resources (including labor) and government. Meanwhile, the bulk of the country cannot afford enough food and almost nobody can afford healthcare. The government shutdown brought an astounding fact to my attention: 48 million Americans are receiving SNAP benefits because they can't afford to eat. Note that SNAP has a work requirement for most cases and income verification. These are people with jobs that can't afford enough food, not lazy people suckling off the government teat. That is one out of every eight people in the US. Why is there not enough money for people to eat? The answer is because the wealth is being captured by the wealthy at an increasing rate and the pool of money available for everybody else is shrinking.
A Solution
I have a solution to propose: tax business size progressively. Let's say you are a local grocery store with one shop and yearly revenues of $5M. That store should enjoy a nice low tax rate of, say 10%. Now that store wants to merge with another local grocery store in the same town that also has revenues of $5M. This new entity with $10M in revenue would get taxed at a higher rate. Say 15%. This progressive tax would make up for the decrease in competition in the market and resultant higher prices for goods and lower wages paid to employees. Now that grocery company wants to grow into a regional chain with revenues of $100M. Now they should have to pay a 50% tax rate. Now say they want to turn into a global empire like Amazon with $650B in yearly revenue. They should enjoy a 90% tax rate to offset the extreme transfer of wealth from the many to the few.
The goal is to disincentivize companies from growing too large and all of the negative consequences that come with it. Let's have 1000 millionaires instead of 1 billionaire. That is much more stable for society. Remember the financial crisis of 2008? Companies that were deemed "too big to fail" had to be bailed out by us, the taxpayers because their collapse would have been exceedingly detrimental to society. There should be no such thing as "too big to fail."
Some would argue that with a bunch of small companies instead of one large conglomerate everything would be more expensive. I agree and disagree. Some individual products may be more expensive because they don't enjoy the same economies of scale that come from a large company, but at the same time, your wages will likely be higher and more than offset the price increases as you aren't having to pay the ridiculous salaries of Fortune 500 executives or support trillion dollar stock prices. Taken as a whole, today (and since the 1980s), wealth is being shifted from the 99% to the 1%. Anything that either stops that shift or reverses it will make the 99% better off overall. It may not even need to be a significantly confiscatory tax to achieve this outcome.
The astute may note that many trillion dollar companies may not have any "profits" to tax. This is due to the convoluted nature of our tax laws and various loopholes and exemptions. The tax I propose should be implemented more like a progressive tax on revenues, not profits. Kind of like a progressive VAT. This would greatly simplify accounting and not allow companies to use creative accounting to get around paying tax. The percentages I used as examples above would obviously have to be adjusted if they are applied to revenues rather than profits. Paying a 90% tax on revenue is probably way too much. I don't know. Some smart economists could figure this out, or we trial and error our way to appropriate rates.
Are There Better Solutions?
Senator Warren of Massachusetts has long espoused a wealth tax on the ultra-rich as a means to redistribute wealth. I think a tax on corporate size can achieve the same goal without the externalities of a wealth tax and the negative associations with redistribution among a segment of Americans. A wealth tax might is a short-term solution, but long term it would have the effect of diluting ownership in the companies, as much of the wealth of the ultra-rich is held in stock of the companies they founded. To me, this seems a little unfair (to the billionaires who aren't evil, at least). It is kind of like treating the symptoms rather than eliminating the disease. By taxing companies progressively as they grow, there is no dilution of ownership. Brilliant, hard-working founders are still rewarded and incentivized to grow their companies and increase profits. The progressive taxation helps ensure that exploitive power of size is kept in check and not used to stifle competition.
There are some other civil options that can be debated, such as boycotts. I don't believe these solve the root cause of the problem, either. They may work once or twice, or fail completely. We are already seeing a split in the economy where the top 10% of people are doing fine and represent the bulk of the spending and GDP. What happens if we have reached a point where the large corporations don't really need the bottom 90% economically anymore? That 10% doesn't much care, as a whole. Just look at the airlines as mentioned in my Hodgepodge Blog last week. We wouldn't be having to deal with checked bag fees, fees for seat assignments, fees for a humanitarian amount of legroom if enough people didn't pay for them. If nobody were paying for these, airlines would drop the practice. But we can't even do that because there is no collective organization to fight back. With representative government we [are supposed to] have elected leaders looking out for our best interests. Unfortunately, they, as a body, are not looking out for our interests. They are looking out for the interests of those who get them elected. But here lies hope. The people can fight back. Educate and arm yourself with knowledge. Recognize what the most serious structural problems are in our society, the ones that can lead to a total collapse of society (e.g. extreme inequality) and vote for those who will do something about it, not the ones beholden to corruption and billionaire interests.
Comments
Post a Comment