Why Robin Hood Was Wrong
This is number 5 in my series of answers to questions about #fixingcapitalism. Today’s journey is courtesy of Cris Hyll who posed a very challenging question about “starting points.” Cris wants to know how we can ever achieve fairness when we are starting from a position of such massive inequality.
Many are proposing explicit redistribution of wealth via punitive taxation, or dilutionary techniques such as basic income in an effort to solve this problem. The idea is that we have to take away the wealth stored by the wealthy in order to put our capitalist system on a sound footing again. But is it true?
Last week I wrote about what I see as the primary reasons for the unfairness we are experiencing under the neoliberal vision of capitalism:
- That our collective fear of government debt and deficits is systematically depriving the lower income groups of the opportunities they need to succeed, balance-sheet-wise.
- That the overuse of interest-rate hikes to control inflation has further tilted the scales towards the wealthy by creating dilutionary free money and also by shifting income from borrowers to savers.
There are some others, like the use of tax relief on the wealthy in an attempt to stimulate the economy. (That will never ever work, it just gives more fuel to the capital bubble that we have seen move from mortgages to commodities and now to venture funds). So let’s suppose we stop doing those things; that we agree to run a big enough deficit in each period to employ everyone willing and able to work at a fully-participating wage. And we also agree to keep interest-rates near zero indefinitely. Then, everyone who is able and willing to work will also be able to earn enough money to be a spender, a saver and an investor. Will that be enough to realize real freedom, fairness and prosperity? Cris doesn’t think so. Cris is worried about the fact that the people who already have significant wealth will continue to enjoy advantages over those who do not. Let’s consider some of them.
First, there are all of the opportunities that money itself provides, like the ability to invest in equities or even risk-free government bonds, or to save money aside for educational and entrepreneurial experiences which lead towards increased income and wealth.
Then there are the more nebulous advantages that people with money in our society tend to enjoy, and not just by coincidence; strong social and professional networks that provide access to our most powerful institutions as employees, customers and investors. We also benefit from behaviors and appearances that enable easy passage beyond the gatekeepers of the corporate and political worlds. HR folks call it “culture fit”, or used to. If a person has either or both of these advantages, they may very well overcome financial losses that would be crippling to someone that doesn’t have them.
First let’s deal with the direct advantages of money.
Most obvious are the investment options that possession of money creates. Money can be invested for continually compounding returns, or so say the finance textbooks. It’s easy to see how someone might think that this gives the haves an insurmountable edge over the have-nots. But I believe that if capitalism really works then it has to be able work its way out of a massively imbalanced configuration by the same mechanism that it can work itself out of a small imbalance. I will go even farther and say that I believe that trade is a never-ending quest for balance in a vast sea of imbalances. I will go even farther than that and say that I think imbalances are actually the source of all of the monetary opportunities available to individuals in a capitalist system. We are all tied together in a vast network of balance-sheets, and the freedom we each enjoy within that network is always the result of some sort of imbalance in some part of the system. The system distributes value in a process which removes these imbalances. The possibility of acquiring net assets by participating in the elimination of some imbalance is what we know as opportunity.
This is all a way of arguing that if we open up the fiscal spending channel and keep interest-rates really low, and don’t raise taxes on anyone, that I expect to see several things happen.
Sales volumes will increase.
People who could barely earn enough to eat will suddenly have enough income to spend on necessities, but also on things that they have never been able to afford before.
Investment will increase.
As sales of consumer products rise, the wealthy, who have been holding cash that they would like to use for investment, will find the truly viable investment opportunities they have been seeking, as consumers experience fatter wallets for the first time in decades.
Wages will increase.
The increased stock of funds reserved for spending will motivate wage increases to hire and retain employees. But the money to pay those employees will come from increased sales, not from shareholders. This is true even if productivity remains flat. The products will still be sold at a profit and those profits will continue to accrue to the shareholders.
Share ownership will increase.
But the shareholders will not only include the wealthy as is too much the case currently. Being full-participants means that the middle-class will have the money to purchase equities and they will again participate meaningfully in the associated gains, which will be significant because stock values will be boosted by the profits from increased sales flows, while stock prices will be boosted by increased investment flows from a resurgent middle-class.
So, sales will increase, wages will increase, profits will increase, and distribution of the profits will increase, and the overall effect will be a gradual erosion of the wealth imbalance that has grown extreme under the strictures of neoliberal macroeconomic policy. But I am at pains to stress that the imbalance of wealth will be eroded in a way which deprives the already wealthy of nothing, because it will be in a context of broad price-stability, massive economic growth and significant opportunities for profitable investment in new companies, not to mention rising values of existing corporate equities.
But the most disruptive force imaginable is not the public stock market. It is the market for new companies built and funded by individuals from communities which have previously been denied fully-participating access to our capitalist system. This is why it is critical that people from every community have the ability to save money to launch new companies, along with the ability to buy products from those companies.
Now let’s consider the indirect advantages.
This is all my polite way of saying that white people will no longer be holding the keys to the success of non-white people under New Capitalism. This is also my way of answering the second set of concerns about the more nebulous advantages that are possessed by the wealthy. Even if the country-club mentality is unaffected by the emergence of new accounting realities, those new realities will enable marginalized groups to acquire the means of consumption and production and ownership, all on their own. This comes directly from extending the opportunity of public-sector employment to every individual.
However there is one caveat that must be discussed. On top of the commitment to offer a fully-participating wage to anyone willing and able to work, our public spending programs must be executed in a fair way. For example, we are going to need to open a bunch of new government research labs. No fair putting them only in communities of the wealthy white elites just because that’s where the most highly-educated workforce is already located. Spending more doesn’t mean spending without analysis. We need government to always spend with an eye towards the macroeconomic consequences of its behavior. Fairness means neither undercompensating nor overcompensating communities for their contributions to the public sector. It needs to spend in a balanced, non-discriminatory way, otherwise the financial scales may continue to tilt towards the incumbent elites.
So, I believe that capitalism is a never-ending quest to find balance in a sea of imbalances and if we operate the public side of capitalism in the right way that all of the forces I describe will act together so that eventually people will have the amount of money they have earned based on the amount of value that they themselves have created.
That is really the best I can do to convince you using words. To be able to really see all of these forces in action at once requires an advanced computer model of the sort my Robocube Corporation developing. But I will say this; the vision of New Capitalism will live or die by the truth of my belief that capitalism is a system that seeks balance if it is only given the right foundation of public support. The existing imbalance of wealth will be extremely fragile once the fiscal conservative policy strategy that created it has been removed.
I don’t know what I will do if I turn out to be wrong. Maybe I’ll become a socialist. Maybe I’ll go back to being cynical. Maybe I’ll go back to programming. But as long as I can see the possibility of #fixingcapitalism I will keep working, and fighting to make it an actual.
