Money for Nothing
How the rich keep getting richer
Rich people love to tell us about the dangers of giving people money for nothing. If people don’t work for everything they get, they become lazy. Giving them something without work corrupts their morals.
Somehow, that advice only applies to working people. Rich people make nearly all their money without working. A capitalist folk saying goes, “Your money should work for you; you shouldn’t work for your money.” A DuckDuckGo search for that phrase brings up pages of web sites teaching people who already have money how to get more.
Senator Mitt Romney of Utah famously alleged that 47% of Americans are “takers,” wanting to be supported by the “makers” like him who create the wealth. This claim helped lose Romney the 2012 presidential election to Barack Obama, when videotape of his talk was leaked to the media. People pointed out that, as CEO of the Bain Capital investment firm, Romney had bought up healthy companies and sold off their assets to pay dividends to Bain customers, a process described in a book by Josh Kosman called The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy.
According to an article in the Washington Post by Jia Lynn Yang, “In at least some instances, companies acquired by Bain borrowed money in order to increase their dividend payments, ultimately leading to the collapse of what had been financially stable businesses,” a policy that cost thousands of American jobs.
I’m not saying that Mitt Romney is an evil man, whose face should be mashed in the dirt by a herd of stampeding buffalo. I might be thinking that, but it’s not my point. The point is that everything Bain Capital did was legal. The point is that Romney is still a senator who can oppose an ongoing universal basic income (UBI) because it would “discourage people from working.” (He did support a one-time $1,000 check.)
The point is that people with money write the rules under which the rich get continuously richer. The rich buy politicians and lobby them to create the story of money under which we live. As Australian journalist Caitlin Johnstone says, “We live in a system where immense wealth translates to immense political power. Add in the fact that wealth itself kills off empathy and compassion, and you’ve got a perfect recipe for a plutocratic dystopia dominated by antisocial personality disorder.”
What people like Romney do is not “working” in any socially meaningful sense. The processes by which money makes money mean that workers, like those laid off from the companies Bain Capital looted, are not making money. As Medium writer Indi Samarajiva wrote, “Working is for schmucks. Interest is for capitalists.”
How money makes money
How is it possible that money should make money? Is money a living thing that grows when you plant it somewhere? No, money grows only because we have created a system that grows it. Growing money works in a few traditional ways and several new ones.
• Interest payments — people who have money can lend it to others who want to put it to use, like attending college, buying a car or a house. If you buy a $15,000 car and put down $5000, someone lends you the other $10K. Depending on interest rates, you might wind up paying them back $11K, $14K, or more.
Lenders might argue that is a socially useful system, enabling people to buy and sell things they otherwise couldn’t. The real problem comes when lenders start charging interest on the interest that they are already owed (compound interest.) Many people are stuck paying off student loans until the day they die, because their payments go to repay interest, not to reduce the underlying debt. Most loans work this way now, and people who lend just keep getting richer from interest.
- Dividends are an investor’s share of the profits a company makes. If you buy shares in a company, you become a part-owner of the company, only without the responsibilities that private owners have. You just get a share of the company’s profits a few times a year.
- Capital gains are increases in the value of some investment after you buy it. The term usually applies to stocks and bonds when their prices rise, but it’s the same with real estate. If someone bought a house in San Francisco in the 1980s for $50,000, and it now sells for a million bucks, they have multiplied their wealth by a factor of 20, without their doing anything to create that wealth.
• Those traditional ways of growing money are questionable enough, but newer financial instruments are far shadier. Two, called collateralized debt obligations (CDOs) and credit default swaps (CDS) caused the real estate collapse and Great Recession of 2008. Millions of people lost their homes. The financiers who created and sold those instruments should have been bankrupted and/or put in jail, but because their wealth allowed them to sway legislators, regulators and presidents, nearly all of them walked away wealthier than before.
Capitalism does some good
Some of these schemes for enriching the already-wealthy do help society grow. People might need money to start up a worthwhile project; they might want help to improve their skills or start a business. It might sometimes be reasonable for borrowers to pay an extra charge to those who provide the start-up capital, or to sell a small piece of their operation to an investor to get things rolling. Lending and investing help create the enormous wealth we see in the upper half of America and the world (along with the associated environmental destruction.)
Other investments are more like gambling. CDOs, futures options, and many stock purchases fall into that category. They don’t help society at all. They’re just ways for rich people to get richer.
Nobody is suggesting getting rid of money. In our system, money is magic. It can turn a fur coat into a car or some jewelry into a European vacation. It can create skyscrapers. It would be very hard to run an economy without it. But we desperately need to change the story we tell each other about money. It must be a medium of exchange, not something to be hoarded.
There are alternatives
The Prophet Mohammed often said that hoarding wealth was against Allah’s will. He said if he were given a mountain of gold, he would keep none of it beyond what he could spend in three days in service of Allah. A few Muslim countries to this day forbid charging of interest.
We probably don’t want to go that far, but here are some things we could easily do:
• Charging compound interest could be banned. You would know when taking out a loan what the final charge would be.
• Interest rates on deposits could be negative. The EU and Sweden have done this for years. If money gradually lost value over time, there would be no incentive to hoard it. People who wanted more wealth would have to work to create it, and economic activity would increase. There would also be an increase in gift-giving.
• Money should not be allowed to buy power. We could start by strictly limiting contributions to political candidates. All lobbying should be called what it is: bribery. Ideally, there would be no lobbyists.
• Money should no longer have absolute power within corporations. Stockholders shouldn’t make all the decisions. All companies should have representatives of their workers and of their communities on their boards of directors. Germany and a few other wealthy countries already do this.
• Everyone should receive a substantial UBI payment every month, so they could start their own businesses or do work they liked, without fear of starvation or homelessness.
Such reforms would represent a massive change in our story of money. It’s almost a religious battle; is money God, or is it just a tool? It’s worth noting that Mitt Romney is a lifelong member of the Church of Jesus Christ of Latter-day Saints (the Mormons.) Mormons believe in hard work and getting rich as directives from God.
In that way, Mormons follow the Puritan work ethic on which the USA was founded. They believe wealth is a sign of God’s favor, and if Romney is an example, it doesn’t seem to matter much how you get it. That is the story we need to change. On our scale of values, people should rank higher than money.
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