Capitalism and Income Inequality

Capitalism is a system of wealth creation characterized by private ownership of the means of production (land, buildings, factories, labor, patents, intellectual property, etc.), where products are made and sold in unregulated markets to generate the revenues that sustain production and provide profits for the owners to use as they see fit.

capitalism

Capitalism works best in a stable legal environment, where laws protect owners sufficiently that their ability to produce products is unimpeded.

Under this definition, Capitalism differs little from Slavery, until the legal environment secures certain rights to labor.

In the USA, the legal environment takes the form of a constitutional republic undergirded by a bill of rights. The bill-of-rights secures certain safeguards to labor in the arenas of religion, speech, arms, assembly, petitions and so on. The constitutional republic secures representative government, which enables labor to choose its political leaders.

The owners of businesses make up a small percentage of the population and would be insignificant players in the parts of the legal environment where voting majorities determine the operation of government, if they were not protected by privileges which, as a practical matter, are not enjoyed by labor.

In the United States the powers of government are divided into the three branches to provide checks on usurpation of powers. Further checks on government power are provided by business owners—specifically those individuals who own media and entertainment; individuals who direct cartels in certain industries like defense, medicine, agriculture, transportation, information technology and pharmaceuticals; and those individuals who own and operate private militias.

Cartel money

It is well understood by independent economists and historians (those who don’t work for the cartels) that without intervention by government, Capitalism exhibits a strong tendency to concentrate wealth into the hands of the owners of businesses, even when these owners show no interest in manipulating the legal environment to maximize their advantages.

The inability of Capitalism to generate a vigorous and sustainable middle class is well understood and is the reason why economists tend to advocate for government programs to redistribute wealth to the lower-earning labor sector.

tank production world war II

Here is an important historical example: after World War II millions of GIs returned home to the United States after defeating Germany and Japan. The owners of businesses tied to the war had profited from the war and wanted to do something extra for the soldiers who fought to protect them. 

woman stacking artillery shell world war II

Because the tax code at that time limited how much revenue these owners could keep for themselves they looked for ways to dump their windfalls into worthy causes. They worked with government to fashion programs for low cost education, home loans and other perks for returning GIs.  Within a few years of the start of these initiatives America built a middle class.  

So what eventually happened? In the years after 1980, a new generation of business-owners arose who managed to convince Congress and the president that taxes on large incomes should be reduced from 92% to 28%. These business-owners were the sons and grandsons, for the most part, of the very same men who built the middle class in the first place.

What is the effect of these tax rate changes? What do these changes mean for society and labor, where the vast majority of Americans live?

And let’s be clear. The 92% tax rate on earnings above $250,000 during the Roosevelt-Truman-Eisenhower-Kennedy-Nixon-Carter years was a de-facto cap on high-incomes. Work-arounds did exist for the very few who had access to stock-brokers and the stock market, but for everyone else incomes were capped.

Let’s look to the medical profession for an example. After 1980 the dramatic reduction of top tax-rates eliminated what had been a practical limit on incomes. Doctors, many of whom operated as business owners, understood that the limits were off and they could keep as much money as they could get their hands on. They increased fees at a frenetic pace.

Medical Professioin

Medical care costs became prohibitive for the majority of workers. As a result many found themselves migrating into programs like Medicaid and Medicare. Many found themselves locked into jobs they disliked, because quitting meant losing insurance.  Today medical care is so expensive that the Affordable Care Act was passed to stave off a possible collapse.

With no limits on incomes, many doctors are, today, overcharging these health-programs for services; some are committing crimes to maximize their incomes. The temptation of unlimited income has started a frenzy for dollars that shows no signs of abating.

In the USA, this chasing after unlimited income has overtaken every profession and institution. Businesses and public institutions are being systematically looted by the professionals who run them. Owners drive down wages, because they can keep the difference for themselves. Operators drive businesses nearly into bankruptcy to glean as much money as they can in as short a time as possible, so they can retire to a private island, perhaps.

bankers looting

Concentration of wealth is influencing what society produces to the disadvantage of labor and the poor. Expensive luxury items (like hundred million dollar homes) are produced to satisfy the appetites of the wealthy, while products and services (like schools, clean water, nutritious food) needed by labor are neglected.

These trends (and we could enumerate dozens more) are not new. Every civilization that has allowed unreasonable concentrations of wealth has come to a bad end. Common citizens are demoralized, excesses are committed, cynicism and cruelty increase.

gated community

An example is gated neighborhoods. It is humiliating to be ostracized by the privileged. Humiliation of citizens without redress breeds despair, which leads to many pathologies destructive to society.

segregation forever

Segregation is an impulse strongly felt by a slave state. It behooves us in the USA—a country with the reputation for promoting the cruelest form of slavery ever practiced on earth—to guard against any trend (like gated-living) that smells of segregation or slavery.

Unlimited wealth tempts those who have it to seek military power. Many wealthy individuals have created militias to enhance their power. Everyone knows about the Mafia, but respectable individuals with good public relations organizations have established private militias as well. A family in Michigan owns an air force and drones in addition to soldiers who work under contract with the US military to fill in gaps overseas.

militia

A concentration of wealth combined with military power can become a clear and present danger to our liberty and way of life.

Now, I’d like to write a few sentences about Ayn Rand, who—more than any other public figure I know—provided the moral justification for the rabid sequestration of wealth by our privileged elites.  

I met this squat, chain-smoking, thick-accented Russian woman fifty years ago after reading all her books and newsletters up to that time. Her books have a certain seductive logic to them that appeals to average people and certain billionaires. Her utopian ideology, described in her book, The Virtue of Selfishness, undergirds the Tea Party and many other extremest groups.

virtue of selfishness cartoon

Like most utopian visions, her logic is flawless yet leads to ridiculous conclusions false on their face. As fantasy, her fiction has a certain appeal. But to turn a country over to its richest citizens to do as they please is folly and counter to every form of democracy and free society.

Let me ask some questions. Who spies on us more? The government or the companies we work for? Who looks at our social media sites, our credit ratings, where we live, and what our hobbies are—the government or the companies we work for?

Who discourages us from speaking our minds? Who stops us from discussing religion? Who intimidates us from protesting social injustice? Who blacklists us in our profession if we “go-rogue” ? Who controls how much money we make?

Clearly, the companies we work for exercise all these powers. What does the government do? It collects taxes and arrests us, if we commit a crime. What do companies do? They control our lives. Think about it. What are we? Slaves? The answer is, yes. Think about it.

team player

Under Capitalism, business owners are an existential threat to our freedom. But we have a representative government. It behooves us to use the government to our advantage, not only to limit the powers of business owners over our personal lives, but to limit the incomes and estate sizes of private individuals through appropriate tax policies. And we must forbid the acquisition of military style powers by civilians. These are the reasonable prerogatives of a free people.

How do we preserve the best elements of Capitalism—a proven wealth generator—while eliminating the threats it can impose on our liberties and, for most of us, our standard of living?

My proposal is this: Pass a maximum-income law. This law would set the maximum income from all sources as a multiple of the minimum wage.

Let’s say the multiple is set to 1,000. Then, if the minimum wage is $20,000 per year, the maximum income from all sources would be 1,000 times that, or $20 million.

In the same way, the maximum size of an estate could be set at some multiple of the maximum income. Let’s say the multiple is set by law at 20. Then the maximum size of an estate would be 20 times $20 million, or a maximum of $400 million.

Now these multiples are only an example. It may be that folks decide a multiple of 1,000 is too high and vote to set the multiple at something lower, say 100 or 50 like it was during the 1950s and 60s.

image

What’s important is to set maximums high enough to preserve incentives to create wealth, while at the same time reducing the incentive to loot that unlimited incomes encourage. Unreasonable profits which might end up in the owner’s pocket would then more likely be distributed inside the company to workers or to the existential needs of the company itself. Wealth not distributed inside the company would be given to charity or society (through the mechanism of taxes) to be spent on programs beneficial to labor.

Of course, very large concentrations of wealth are necessary for economic development. This is where public corporations and public banks come into play. I hope to devote a blog to the role of corporations in society sometime in the future. For now let me suggest that our country might be better off if corporations and financial institutions were made truly public and regulated like public utilities.

A challenge presented by this proposal is to apply these income and estate-size limits internationally to prevent individuals and cartels overseas from gaining advantages that would threaten our country and its citizens.

UN world a happy place

The United Nations International Court of Justice and the International Criminal Court could be enlisted in this effort. The United States government has the influence and power within the international community to make it happen.

Another challenge worth mentioning is that although this proposal only puts limits on a few thousand, or perhaps a few tens-of-thousands of individuals, these are the people who actually run the world. It might be hard to convince them to go along.

UN tank

But we should try.  After all, the grandfathers of the current generation of the wealthy shared their wealth to the benefit of our country. I don’t believe that any billionaire thinks it hurt any of them in any way that counts for anything.

Billy Lee

3 Replies to “Capitalism and Income Inequality”

  1. Good post! Things do get more nuanced and complicated the closer we examine them, that’s sure. And greed coupled with no limits is never good for the poor and the powerless which the majority of Americans are, sorry to say. Thanks, Molly.

  2. I agree with your idea of setting a limit to a person’s wealth. It’s a shame that in reality there are 45 people in this world who control most of the wealth and don’t see the need to change this disparity. Most businessmen/women seem to want to hold on to their own wealth and become hyper paranoid by any attempts to limit their wealth. But I think history is on your side in this argument.

    However, I take offense at some of your examples, specifically of the medical profession. The high cost of medicine today is not a result of doctors no longer having salary caps–in large part it is due to specialization, the cost of technical advances, more specialized labor force and the inability of poor people to pay for their care. Of course there is medical fraud, but there are still many dedicated professionals out there who entered the medical field in order to save lives and make a difference in the health of mankind. And many of those dedicated professionals are leaving the medical field in droves because they cannot make a living practicing medicine and have lost their voice in making medical decisions to the insurance companies.

  3. Imagine my surprise, when–on the way to work this morning–I am listening to Sirius radio– the Catholic Channel–and the topic of conversation is “income inequality”–what the Pope is saying about it, and what Obama is saying about it. You should get a channel on Sirius and Pontificate there……

Comments are closed.