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Mike hopes to see the world turned upside down through local communities banding together for social change, especially churches which have recognized the radical calling to be good news to the poor, to set free the prisoners and oppressed, and to become the social embodiment of the reign of God on earth as it is in heaven.

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Showing posts with label transfer of wealth. Show all posts
Showing posts with label transfer of wealth. Show all posts

Monday, May 31, 2010

Reverse Flow: Flip-Flopping the U.S. Economy

One feature of economic systems, as in ecosystems, is the flow of resources from one region to another.   For instance in an ecosystem, nutrients flow up the food chain.  If pollutants get into the system, they flow that direction too and concentrate in the top predators.  Rivers flow downhill, winding wherever the ridges and ravines of the landscape guide them, carving out their paths as they go.  In economic systems, money and wealth also flow through winding, complex paths.  Economic systems are human constructions, although the more complex they become the less direct control people have over them, for good or for ill.  People and organizations regularly intervene in the flow of resources in an attempt to redirect their flow.  Sometimes they do this with an eye toward the common good, but other times with an eye to personal gain.

There is an interesting history of redirecting the flow of rivers.  One of the more famous cases is the Chicago River, which used to flow into Lake Michigan.  As the city and its industry grew, the river became more and more polluted, and its toxic flow into Lake Michigan put poisons into the water supply of Chicago.  Eventually, a plan to reverse its flow through industrial canals so that it eventually flowed into the Mississippi Basin helped preserve the waters of Lake Michigan.  Of course, it means the sewage and pollution flowed somewhere else.

The Soviet Union, known for its massive statist vision of industrial progress, long debated and planned for reversing a portion of the flow of Siberian rivers whose waters were "wasted" by emptying into the Arctic Ocean.  Regions with growing industry, agriculture, and population could use the water better for the benefit of the Union.  The internal debates dealt not only with the methods and costs of water transfers, but also on the affect on the climate, especially in the northern regions.  Many argued that the reversal of waters would lead to a shorter growing season and colder winters.  Eventually the plans were dropped, although the mayor of Moscow has revived the idea to reverse a portion of the flow of the Ob river to serve other regions.

China has planned numerous water redirection proposals in order to deal with its growing industrialization and population needs.  Russia fears dams and canals in China will bring desertification to some of its important industrial and agricultural regions.  India and Bangladesh face even greater fear of ecological and economic damage from a plan to divert water from the Tsangpo-Brahmaputra River to the Yellow River.  Some of the most densely populated regions of the world are watered by the Brahmaputra, which flows east along the northern side of the Himalayas in China before turning south, then west through Nagaland and Bangladesh.  China's plan would send much of this water north and east, eventually thousands of miles away into Bohai Bay off the Yellow Sea, not far from Beijing and in the direction of Korea.

The point of talking about river reversals is that in each of these cases, some who had the capacity to redirect the flow of water did so, although not necessarily to the benefit of all who could be affected.  As China and India compete for industrial growth, and as each deals with a history of population growth, water becomes an ever more precious commodity.  The capacity to control the flow of this resource can become a path to survival and prosperity for some, and for impoverishment and death for others.  Even the powerful central administration of the Soviet Union could not amass the social and political power within the nation-state to reverse the flow of water resources according to its vision of a new society.  The Chicago River's transport of sewage benefits many people, but pollutes the Mississippi River basin and potentially many urban and rural water supplies as it crosses Illinois.

Various parties, even those who claim to believe in free markets, are constantly evaluating the flow of resources in the economy and trying to think of ways to redirect the flow.  It is fairly accurate to conclude that those who insist on doctrines of the free market conveniently interpret freedom to be their own freedom while limiting the freedom of others.  They organize, spend, lobby, and manipulate to bend the laws governing economics in their favor and against the interests of those they consider their opponents or adversaries.  Many seek monopolistic structures whereby they can become the de facto market regulators in place of government regulation, or with the assistance of government regulation. 

An examination of the economic policy changes and their results in the forty years since 1980 ends up looking much like reversing the flow of rivers.  Paul Krugman's column, "The Old Enemies," of a week ago spurred me to see this comparison.  Here is an excerpt.

If you really want to know what’s going on, watch the corporations.

How can you do that? Follow the money — donations by corporate political action committees.

Look, for example, at the campaign contributions of commercial banks — traditionally Republican-leaning, but only mildly so. So far this year, according to The Washington Post, 63 percent of spending by banks’ corporate PACs has gone to Republicans, up from 53 percent last year. Securities and investment firms, traditionally Democratic-leaning, are now giving more money to Republicans. And oil and gas companies, always Republican-leaning, have gone all out, bestowing 76 percent of their largess on the G.O.P.

These are extraordinary numbers given the normal tendency of corporate money to flow to the party in power. Corporate America, however, really, truly hates the current administration. Wall Street, for example, is in “a state of bitter, seething, hysterical fury” toward the president, writes John Heilemann of New York magazine. What’s going on?

One answer is taxes — not so much on corporations themselves as on the people who run them. The Obama administration plans to raise tax rates on upper brackets back to Clinton-era levels. Furthermore, health reform will in part be paid for with surtaxes on high-income individuals. All this will amount to a significant financial hit to C.E.O.’s, investment bankers and other masters of the universe.

Now, don’t cry for these people: they’ll still be doing extremely well, and by and large they’ll be paying little more as a percentage of their income than they did in the 1990s. Yet the fact that the tax increases they’re facing are reasonable doesn’t stop them from being very, very angry.

Nor are taxes the whole story.

Many Obama supporters have been disappointed by what they see as the administration’s mildness on regulatory issues — its embrace of limited financial reform that doesn’t break up the biggest banks, its support for offshore drilling, and so on. Yet corporate interests are balking at even modest changes from the permissiveness of the Bush era.

From the outside, this rage against regulation seems bizarre. I mean, what did they expect? The financial industry, in particular, ran wild under deregulation, eventually bringing on a crisis that has left 15 million Americans unemployed, and required large-scale taxpayer-financed bailouts to avoid an even worse outcome. Did Wall Street expect to emerge from all that without facing some new restrictions? Apparently it did.
His comments made me look back again to refresh my memory of the tax rates of the federal income tax.  In preparation for war and in time of war, during the late 1930s through the 1950s, marginal tax rates for those earning high incomes stayed around 90%.  Those earning and amassing great wealth were expected to pay most of it back into the system to support military families, war efforts, road building, crime prevention, agricultural infrastructure, small business support, unemployment, assistance to the poor--including children, widows, and others.  It was only fair that a system which prospered because of the hard work of the masses would structure a downward flow of resources from those who were benefiting most from the economy toward those on whose backs those benefits had grown, and to those who were most vulnerable to the harsh effects of economic processes.

It would be remiss not to remind readers that the lower tiers of everyone's income are taxed the same.  As a person's income rises, the higher tiers of that income become taxed at higher rates.  For most of the twentieth century, the federal tax rates had many tiers.  As one's income rose, one paid a lower tax rate on the lower amounts, then progressively higher rates on the additional amounts.  It made for complicated math, but it made good sense for trying to strengthen the entire economy.  There are still several "tax brackets," but the percentage differences are much smaller than they used to be.

In the prosperous 1960s, the top marginal tax rate declined to the 70% range, where it remained until 1981.  Having moved beyond World War II and the Korean War, having repurposed industry away from the build-up of conventional war materiel, the U.S. revised the taxation system to allow those at the top of the economy to retain three times as much as they previously had of their marginally high incomes.

Starting in the 1980s, the top tax rates dropped drastically.  The reasoning was that so many tax loopholes and exemptions existed, the people in the highest brackets were mostly avoiding paying those rates.  If loopholes and exemptions could be eliminated, then maybe they would end up paying their fair share with lower tax rates.  Ever since that time, people whose income is higher than 80% of the nation have paid a significantly lower portion of their income in taxes.  Yet they have grown to pay a larger share of the total federal tax bill because their incomes have increased four times faster than the lower income portion of the population.

Thus the last part of the twentieth century witnessed changes in the flow of resources within the U.S. economy.  Ross Perot's famous "giant sucking sound" was redirecting the flow of wage income away from U.S. workers and toward overseas workers, not merely in the Americas, but also in China and other Pacific economies, and even a few African economies.  On the taxation front, the wealthiest U.S. taxpayers now had to pay only half of the percentage of their marginally higher incomes than had previously been the case.  A major policy for redistribution of wealth was fully underway, with the help of government policies on trade, taxation, and labor.  But these were not the only massive wealth transfers happening.  Another regulatory change also redirected the flow of resources.

Usury caps had for centuries helped to prevent overconcentration of wealth among a few.  Keeping interest rates at relatively low levels slows the transfer of wealth from the lower-income groups toward the wealthy lords of finance.  As interest rates rise, debtors find it harder to get out of debt.  The history of sharecropping, company towns with company stores, tenant farming, and other such systems illustrates again and again that the power of lenders has to be held in check for the benefits of the economy to accrue in a fair and just manner.  Usury laws imposing interest rate caps are one of the best methods to do this.  But around 1980, a series of changes in law eliminated the regulation on interest charged by banks, credit card financiers, and other financial institutions.  The massive growth of consumer credit, the housing bubble, and many more destructive trends have led to huge transfers of wealth from average workers toward a financial elite through bonuses, short-term gains, and eventually through bailouts of the banking, finance, and insurance industries.

On one side, changes in tax policies reduced the flow of resources toward shared benefits and the common good.  In the middle, the flow of resources to U.S. workers stopped growing or declined, as wages flowed overseas.  On the other side, the income of low- and middle-income people began to flow into profits for the financial industry through a system designed to keep people perpetually in debt through high interest rates, exorbitant fees, and deceptive policies.  Like reversing the flow of a river, the resources stop going where they used to.  Instead, they go elsewhere to benefit a few and harm others.  This is not an argument for never meddling.  It is an argument for making decisions with the good of all people in mind.  That is what the biblical teachings on economic life tell us:  put in place economic structures that will prevent permanent indebtedness, harsh economic class divisions, and rewards for manipulating money markets.

Monday, July 27, 2009

Economic Recovery for All 8: Faith Perspectives, Pt 4

This entry completes the statement on the economy released on July 22, 2009, in Durham, NC. There are eight entries. For the full current list of endorsers as of this posting, see the first entry.

THEOLOGICAL REFLECTION ON THE ECONOMY
A Working Paper for North Carolina United Power
from an Interchange Among Theological Educators
July 2009


III. Faith Perspectives on Responding to the Crisis

B. Biblical, Theological, and Ethical Principles Guiding NCUP Actions and Campaigns in Response to the Economic Crisis

8. Shared economic risks and benefits

All societies become accustomed to doing things a certain way; however, there are many possibilities for organizing a flourishing economy. The predominant systems of investment and borrowing may be familiar, but that does not mean there might not be other, perhaps better, ways to invest, produce, and prosper. Rather than shifting almost all the economic risks toward the borrower, especially toward small borrowers, and the assured benefits primarily to the lender, there should be a way for risks and benefits to be shared more equitably.

Why should a family that has toiled for many years, paying bills and paying down a mortgage, be financially devastated by a change of fortune, when a financial institution prefers to write off their mortgage as a loss rather than work out a means of mutual and equitable benefit? As Paul wrote to the Corinthians, "whoever plows should plow in hope and whoever threshes should thresh in hope of a share in the crop (1 Cor. 9:10). Martin Luther wrote, "If you would have interest in my profits, you must also have an interest in my losses. . . . The owners of income, who will not put up with that, are just as pious as robbers and murderers, and wrest from the poor man his property and his living" ("A Treatise on Usury").

C. Conclusions

Too often, people imagine that the economy is a competition over scarce resources. Yet while creation is finite there is no fixed limit on the prosperity that humanity can share. Unlimited acquisition and idiosyncratic use of possessions fall off of the path to human flourishing. Such hoarding of goods is theft, and it begs for divine judgment.

Rather than hoarding, sharing our blessings sets the tone of biblical economics. We are blessed that we might bless others. All that we have comes by God’s grace, and we must be gracious toward one another.

Without standards against usury, the massive transfer of wealth from the middle class workers to a wealthy elite will continue. As long as a powerful few have freedom to do as they please concerning the consumer credit of the many, the economic system will not serve the common good. No magical hidden hand will correct economic oppression.

To get out of the current mess, we will need an economic reform which acknowledges our mutual dependence and obligations and turns aside from the way of selfish individualism and competition for status and conspicuous wealth.

What kind of an economic recovery leaves giant banks standing while the average worker’s life gets harder and harder? It is not an economic recovery when billions can bail out executive jobs but nothing can bail out the rest of the jobs. There is not justice when everyone’s tax dollars can pay off banks’ bad debts, but the average taxpaying citizens are left on their own to drown in their debts. Debt relief for millionaires and homelessness for working people—that’s not the kind of economy we believe in.

Economic justice is not merely a fantasy or impossible ideal. There are practical ways to put it into practice. Communities of faith have demonstrated these possibilities in the past and present. Justice need not be limited to small economic experiments. Making real steps toward justice is fully compatible with rational and pragmatic economics. It is time for people of faith to speak this truth to power.

Monday, March 30, 2009

Bailout 15: The Myth of the American Free Market

Dean Baker hit a homerun today when commenting on the constant claims that the U. S. free market is endangered by government intervention. He points out that the market is not free. It is structured in a way that money is transferred regularly from some to others.

American Style Capitalism: Tax Joe the Plumber to Give Handouts to Robert Rubin

The media are busy perpetuating a myth that the United States has been a beacon of "free market" capitalism. This is a lie. The United States never had free market capitalism and certainly the system in place over the last three decades hardly qualifies.

The U.S. put in place policies designed to transfer income from the poor and middle class to the wealthy. This is most evident now with the hundreds of billions of dollars being spent bailing out the banks. For the last three decades, the banks and their top executives, made vast fortunes using a free government insurance policy called "too big to fail," under which bond holders and other creditors could lend money to the banks knowing that the government would honor their debts if they ever got into trouble.

It is an outright lie to call this a "free market." This is a huge government handout. This insurance policy is enormously valuable and the banks did not have to pay a penny for it. The banks are ardent opponents of free market capitalism. None of them have advocated that they be allowed to collapse.

So, the issue over different types of capitalism that is coming up at the G-20 summit is whether the government exists primarily to redistribute money to the wealthy or to serve some other social end.
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