USC law & business professor latest to pretend rich pay enough taxes in the United States

Reading Professor Edward Kleinbard’s opinion piece titled “Don’t Soak the Rich” in the New York Times reminds me of Mark Twain. Not that Kleinbard can write fluently and passionately in a variety of styles and dialects. No, Kleinbard makes me think of America’s greatest novelist because in Twain’s expression, “Figures never lie, but liars figure,” Kleinbard would be the liar.

I’m not accusing Kleinbard of telling out-and-out fibs, at least not more than maybe one. What the good doctor does is use figures to lie.

Kleinbard, a professor of law and business at the University of Southern California, manipulates statistics and gives only part of the facts to make his case, which is simple:  Government spending is the key to reducing inequality and social welfare programs help the economy, but we should finance them like they do in Europe, by raising everyone’s taxes, not just the taxes of the wealthy. Kleinbard reports that here in the United States, we pay on average 22% of our taxes, whereas in economically strong Germany, people pay 41%. He proposed funding more needed government programs by raising our average to match Germany’s. He never gives a reason why rich folk shouldn’t pay more than others except to say that a chief executive officer earning 200% more than her employees does not get 200 times the benefit from our investments in highways, which is a back-handed argument that the rich should pay less of a percentage of their income in taxes than the poor and middle class do.

It all seems to make sense if you look at his words uncritically. But take a closer look and you can quickly recognize four types of lies he tells to make his case:

  1. Kleinbard lies by omission: He advocates more government spending on social services and infrastructure without raising taxes on the wealthy, while forgetting to mention that we used to have a pretty good social service net and a wonderful research, development and infrastructure investment program back in the days when the rich were paying more in taxes than they do now. The two super trends of the last 35 years of Reaganomics are lower taxes on the wealthy and less government spending.  By not mentioning this history, Kleinbard can pretend that we have a clean slate and are trying to figure out how best to fund an increase in government spending.
  2. Kleinbard tells a straightout lie: Kleinbard’s explicit whopper is to assert that a CEO who makes 200 times what her employees does not get 200 times the benefit of government spending.  Dear Dr. Kleingloss—I mean Kleinbard—do you think that a CEO doesn’t benefit every time a consumer, employee or vendor drives to her facilities on a road paid by government spending? And do you think the CEO’s benefit is not greater than the employees who take a smaller piece of the wealth pie created by that economic activity? How about the spending on security that not only protects customers, but gives them the confidence to venture out and shop?  We only see a law of diminishing returns in benefits from taxes if we look solely at the individual and ignore, as Kleinbard does, the benefit derived by the individual through benefits to other individuals. As an economist, Kleinbard should understand this concept, which I why I believe he is fibbing when he avers that the CEO does not get 200 times the benefit from tax spending that her employees do.
  3. Kleinbard lies by his use of hypothetical numbers: As noted, in building his weak case for keeping taxes low on the wealthy, Kleinbard compares the income made by a hypothetical CEO to what her employees make. The problem is the 200 to one ratio is so far off the mark that it constitutes a lie because it makes us think that 200 to one is close to the truth. But it’s not. Recent surveys compute that U.S. CEOs make on average from 331 to 345 times what their average employees make, and CEOs of the l00 largest public companies make 774 times the minimum wage. By the way, in Germany, CEOs make 142 what their average employees make; in Spain it’s 127 and in Switzerland, it’s 147. Most readers will assume that Kleinbard’s 200 to one is realistic, when in fact it’s a gross underestimate of the enormous difference in earning capacity between those at the very top of the heap and everyone else in the United States.
  4. Kleinbard lies by making an incomplete comparison: Kleinbard compares the 22% that we all pay in taxes in the United States to 41% in Germany. But he neglects the other part of the comparison—that German (and other Western European and Japanese) executives get a smaller part of the income pie to begin with. You can’t just compare the apples to apples, you also have to compare the oranges, and when you do, it should rapidly become apparent that we can’t raise everyone’s tax load to 41% unless we also split the income pie more equitably so that CEO’s make a smaller multiple of their average employees.

To his benefit, Kleinbard never tries to make the disproven case that you have to have low taxes on (rich) job creators, so they can do their thing. But the case he does make—just raise taxes on everyone—is full of logical holes that he tries to cover with his multiple deceptions.

On second thought, Kleinbard’s essay reminds me less of Twain than of the French writer Julien Benda, who wrote “The Betrayal of the Intellectuals” in which he bemoaned the fact that so many intellectuals in western Europe in the 19th and early 20th centuries went against what their expertise told them was true so they could support false notions such as racism held by the ruling elite. Kleinbard is one of a large number of mediocrities who prefer to propose specious arguments that support the 1% than to address our real economic challenges.   It’s the 21st century betrayal of the intellectuals.

In the idealized world of television commercials, we care at least as much about dogs as we do about children

Television commercials collectively present an idealized version of the real world. It’s the real world as imagined by the collective minds of the companies that advertise.  “Ad World” is primarily a suburban, middle-class world of two-car, two-parent families and affluent singles surrounded by great friends. The ads always make clear that buying products and services is the road to happiness. Even when depicting single-parent families as Wal-Mart sometimes does in holiday season advertising, the overtone is positive and happy in Ad World—if the family has any problems, they can all be solved in the usual manner: by buying something.

One big question for those who investigate the impact of advertising and other mass media on society in general is the degree to which the idealized version of advertising reflects the real world and how much advertising actually shapes the real world.

Whether descriptive of the real world or prescriptive of what advertisers want that world to be, the values depicted in Ad World can lead to some very disturbing conclusions about America and the American people.

For example, let’s take a look at dogs in current advertising. It’s almost impossible to find a TV commercial that features a family without a dog. Dogs also inhabit commercials that depict the lives of the singles crowd in Ad World. The broadcast of the most recent Super Bowl, for example, included television spots featuring dogs for Doritos, Cheerios, Budweiser, MetLife, Toyota and Audi.

The trend to feature dogs in TV commercials started about 20 years ago, and every year it seems to intensify. The past few years have produced a number of very disturbing spots in which dogs are equated to humans, as much a part of a family as children or as the most important loved one. There was the spot for Cinnamon Toast Crunch a few years ago in which a 30’s something single woman compared eating the sugary cereal to the sensual feeling her dog must get when its belly is scratched. Or Traveler’s Insurance longtime ad series in which a dog is not only part of the family, but a role model for how human beings should act.

Consider a current commercial for Budweiser that focuses on how important it is to come home for loved ones who depend on you after a night of boozing. The denouement of the narrative is when a sad dog perks up because its owner has come home after spending the night away. The owner explains that he stayed at a friend’s house because he had a little too much to drink and didn’t want to drive home.  Like many dog owners, the young man acts as if he believes that the dog can really understand what he’s saying.

This commercial could have featured a girlfriend, parent, roommate, brother or teenaged child as the symbol of “those we love who depend on us,” but the writers and the corporation that hired them selected a dog.

Are any of my dear readers—dog lovers or not—exasperated with me and ready to cry out, “They’re just trying to be cute”? Of course they are, but they are also communicating that dogs are as important as people, an ancillary message of so much TV advertising nowadays.

Let’s look at two other ads, both for dog products.  In one spot, by a company named Blue, a narrator talks to the audience while we see happy images of a mother doing housework and her son and dog at play. The narrator is directing his words at the mother and by implication to all mothers. The message of the narrator is that you (mothers) care about all the people you love and want them all to eat nutritious food. Then the narrator goes on to explain all the great nutritional advantages of Blue dog food in language that out of context we would assume applied to humans. While the spot for Budweiser uses a dog symbolize all loved ones, this spot for Blue avers that the dog is as much of the family and as loved as the child.

The same sentiment equating (and I would say conflating) dogs with children takes place in a Pet Smart ad which discusses and displays the various treats one can get for one’s dog at Pet Smart to celebrate Halloween.  Dogs after all are part of the family. You wouldn’t want them to be without their treats. I wonder if the people who buy Halloween-themed food and costumes for their dogs also take them trick-or-treating?

We all know cat ladies, but in the idealized world of television commercials, only dogs attain the special place in people’s hearts of children or friends.  The number of commercials for food and other products for dogs far outnumber the number for cats. More significantly, cats never appear in commercials for other products, whereas you can see dogs in TV commercials for everything from laundry soap to automobiles.

It’s easy to figure out why corporate America would want to put a pet every yard, to join two cars in every garage and five cell phones in every house. Whatever the pet, the more people bond with the animal, more likely they will purchase goods and services for the animal. The pet becomes another thing to spend money on, and better than a car or a wardrobe, the spending is for someone you love, creating a strong emotional dynamic to the commercial transaction.

But why dogs?

I would hate to think that Ad World reflects reality accurately. I would hate to think that large numbers of people actually do prefer dogs to humans, or treat their dogs better than they treat the people they know. I would like to think that Ad World is an unreal place that only describes the aspirations that corporate America has for all of us. To my mind in a world in which people have food insecurity and public high schools have to give their pupils obsolete text books, all pets are a frivolity. I would be happy to see a small tax placed on all purchases of pets and products for pets, with the funds earmarked for programs to help poor and disadvantaged children.

Such a tax would be impossible in Ad World, of course, because in Ad World there are no poor people and the only hungry people are those about to sit down to a fast-food meal, pizza and beer or a bowl of chips.

Let’s distinguish between sentiment against the actions of the Israeli government and pure anti-Semitism

The current wave of anti-Semitism in Western Europe is much more complicated than traditional European hatred of Jews, but it is also much less virulent and much less widespread.  Thanks to the efforts of virtually all governments and the European equivalent of the mainstream media, anti-Semitic feelings are marginalized in all of the states of the European Common Market with the possible exception of Hungary.

The complications derive from the split of the population of anti-Semites into two parts, one of which also distrusts and looks down upon the other. I’m talking of course about the growing Islamic minorities and the very small fringe of right-wing anti-Semites who continue the secular anti-Semitic traditions that dominated the 19th and first part of the 20th centuries in Europe.  The traditional anti-Semites dislike Muslims as much as or more than they hate Jews.

A further complication is the political situation in the Middle East. Whether inclined to support the countries which supply Europe with oil or disturbed at the growing list of Israeli atrocities against Palestinians, a pool of fellow travelers stands ready to join the small fringe of Jew haters at any particular time or to respond to any specific issue involving Jews.

Of course, anti-Semites have always been able to find reasons to hate Jews—first for their supposed role in the death of their god, then for being usurers and the agents of exploitation (e.g., for the Hanseatic League in the Polish wheat fields), and then as the quintessential “other” during the early modern era when racist philosophies dominated so much western thought. Now it’s possible to hate Jews because they support Israel and are equated with Israelis and Israeli policies.

The conflation of Jews with Israel is a mistake made by both Islamic and Christian anti-Semites. Progressive Jews such as me are disappointed when we see disappointment in Israel mentioned as a reason for the rise in anti-Semitic activity. We want the mass media to make a distinction between anti-Israeli opinion, which is often based in fact, and purely irrational Jew-hating.

Unfortunately, no such distinction is made among Jews either, at least in the United States. A major part of the education of Jewish youth in both after-school and day school programs revolves around connecting the Jewish religion and Jewish people with not just the land of Israel, but with the state of Israel as well. There are many programs that bring teens and young adults to the mother land—called “birthright” trips. The indoctrination doesn’t end with adulthood, as synagogues and Jewish federations all over the United States sponsor frequent tours and missions to Israel, all of which contain several appeals for funds to support the Israeli state. The mainstream American Jewish media questions Israeli actions in the occupied lands about as much as the U.S. mainstream media questions the assertion that the Ukrainian situation is all Russia’s fault. In virtually every Jewish setting, Jews are constantly barraged with twin ideological premises: 1) There can be no Judaism without Israel; 2) Israel can do no wrong.

How can we expect those susceptible to the siren song of anti-Semitism not to use every transgression by Israel as a reason to turn against the Jews when they see the Jewish establishment everywhere knee-jerk approval of every Israeli action, no matter how cruel or bellicose?  And how can we blame the anti-Semites for hiding behind Middle East politics as their excuse for Jew-hating when we see so many frequent anti-Islamic comments made in the news media by ultra-right and religious Jews?

The easiest way to reduce anti-Semitism in Europe and elsewhere is for the American and European Jewish establishments to start criticizing Israel when it is wrong and to put real pressure on Israel to settle their differences at the negotiating table, not with armed conflict that sacrifices innocent victims and policies that deny people basic human and civil rights.  Splitting anti-Israel sentiment from anti-Semitic sentiment will reduce anti-Semitism as many begin to realize that it’s not inherent for Jewish culture and the Jewish religion to create and enforce apartheid-like conditions or to care little about harming civilians in an armed conflict. Rather it’s the actions of a governing elite hounded by special interest groups and in power for too long that has led Israel to its current predicament. Sounds like what happens all the time in the good old U. S. of A.!

People around the world don’t hate Christians because of American actions in Viet Nam, Central America and Iraq, but many people do hate Muslims because of the actions of a few terrorists and rogue governments such as Syria. That’s wrong, and it’s equally as wrong to hate Jews because of the actions of Israel. But if Jews want this wellspring of anti-Semitism to dry up, their actions must support their belief that Israel  does not equal Judaism. And that means criticizing Israel when its bombs indiscriminately, kills masses of children or begins building a new round of settlements in the occupied lands.

It will take many steps to re-instill progressive values into American politics, but the start is a democratic sweep in November

It’s becoming increasingly hard for a progressive to like the current run of Democratic candidates. So many of the candidates running for Congress, Senate and statewide offices are centrist or right-wing whose politics are not even barely acceptable to the traditional progressive wing of the Democratic party.

So why should progressives, liberals and traditional Democrats vote if their choices are such pro-business, right-leaning centrists Dems as Andrew Cuomo (New York), Andre Romanoff (Colorado) and Ann McLane Kuster (New Hampshire) or obnoxiously right-wing Republicans?

For one reason—making the Democratic party beholden to progressives is the first step to re-instilling progressive values into our political system.

The right wing didn’t build the conservative fortress that is the contemporary American political scene in one day or one decade. They started whittling away at basic Democratic ideas from the time of Reagan and before—taking a few steps at a time: first one tax cut for the wealthy, then another, and then another. First crushing the air traffic controllers, then weakening rules that help unions organize, then going after public school teachers and the pensions of all public workers. Flooding the media with misleading studies falsely claiming that lowering taxes on the wealthy increases employment; falsely claiming that extending unemployment makes people want to stay home; falsely claiming that businesses don’t need regulation to do the right thing regarding safety and the environment; falsely claiming that moving to renewable fuels will shrink the economy; falsely claiming that returning the minimum wage to its buying power in the 1970’s would cost jobs.  Bit by bit, ever so slowly, the right wing pushed the country to the right.

And it’s only this gradualist approach that’s going to work if we are to return the country—on a 35-year binge of bad ideas—back to on the progressive path of the 1930’s-1970’s.

And it starts with this November’s vote: Politicians care about two things and two things only—money and votes. The more progressive the position, the less money the 1% will put up, but we can still beat them by getting out the vote.

If we can achieve the voter turnout of the 2008 and 2012 presidential elections, the Democrats will keep control of the Senate and eat into the Republican House majority (gerrymandering after the 2010 elections may make the House a lost cause until 2016). Everyone will know that it was turn out of traditionally Democratic groups such as the poor, young and minorities that swung the 2014 election to the Democrats.

In short, the Dems will be beholden to progressives.

Then comes the second step—insisting that every Democrat in office or running for office in 2015 and 2016 espouse basic progressive principles.  It is imperative that progressives start a letter-writing program to all their elected Democratic officials giving them an ultimatum: support these causes or else we will vote for someone who will.

It would be wonderful it the most progressive government officials such as Elizabeth Warren and Bill De Blasio should steal a page from New Gingrich circa 1994 and put together a new Contract with America and make a public display of asking every Democratic candidate to sign it.

If I were to write The Progressive Contract for American, it would contain the following basic legislative and regulatory demands:

    1. Pass laws that overrule the Citizens United decision that unleashed the ability of large corporations and wealthy individuals to turn elections through massive infusions of money.
    2. Raise the minimum wage to $15 an hour
    3. Develop regulations that make it easier for unions to organize workers and harder for companies to stop them.
    4. Raise taxes on incomes of more than $250,000 and place an annual wealth tax on all personal assets over $10 million, including fine art and real estate.
    5. Add a small transactional tax to all stock trades.
    6. Raise tariffs on select foreign goods so that they get no price advantage because their countries of origin have lower worker wages or lower safety and environmental standards.
    7. Pass legislation that ends harmful corporate practices, including pretending the company is headquartered in another country, reclassifying U.S. income as foreign income and outsourcing basic operational jobs to lower wage and benefit costs.
    8. Begin a massive investment in repairing our roads, bridges and public school buildings.
    9. Begin a massive investment in solar and wind energy, advanced technologies to increase energy efficiency, technologies to mitigate the most severe effects of global warming, space exploration and medical research.
    10. Go to a single payer system for purchase of prescription drugs for Medicare and Medicaid.
    11. Create an immigration policy that includes a road to citizenship and lifts quotas across the board and not just for high-salaried workers.
    12. Invest in vocational training programs at public high schools and community colleges so that those who are not suited for jobs that require college degrees can get low-cost training.
    13. End all federal and state aid to charter schools that do not perform better than their neighborhood equivalent in two years or who lose 30% of their teaching staff within any 12-month period; put a cap on what charter school executives can make and a floor equal to the pay of public school teachers in the region on what charters school teachers make.
    14. Pass federal and state laws permitting gay marriage and protecting the right of a woman to have an abortion.
    15. Stop allowing arms sales to any foreign governments and stop loaning foreign governments money to buy U.S. arms.

Progressives may not agree with everything I am proposing, but there is plenty of time to hash over those details. The main thing now is to vote on November 4 and vote for the only party that listens to the 99%—even though at the current moment it is listening with one ear closed and the other also hearing hedge-fund billionaires.

Proctor & Gamble’s attempt to rebrand Metamucil will likely get mired in deep you-know-what

In the world of marketing, the second hardest thing to do is to establish a brand. The hardest is to change the brand.

But that’s what Metamucil is trying to do with an integrated marketing campaign that includes placing ads that look like teases for articles on the Yahoo! homepage and airing television commercials starring Michael Strahan, former professional football star and morning talk show host.

In the TV spot, Strahan talks about the Meta effect, which for him means that he doesn’t get hungry between meals. He mouths the campaign’s slogan “See how one small change can lead to good things” and applies it exclusively to the challenge of not getting hungry between meals. The implication, of course, is that Metamucil will help you lose weight. (Is it time for a joke yet?—something like: “Yeah it will help you lose a lot of weight…and quickly!)

When you hit the link in the Yahoo! “sponsored content” ad, it takes you to a web page with a photo of Strahan next to packages of Metamucil and a large circle within which we can read the entire branding message:  Experience the Meta effect. See how one small change can lead to good things.

Below this billboard is another one with a headline in a circle “Make a Change with Meta” next to which is text: “Try Meta products and you might be inspired to” followed by a list of other small changes one could make to improve health, such as taking the stairs instead of the elevator or eating only half a muffin.  The billboard asserts that one small healthy choice often leads to another. The implication is that taking Metamucil can be the start of many small changes, which together will transform the individual.

Next come lists of the health benefits that three Metamucil products provide: the standard product, Metamucil bars and a new product, MetaBiotic. The three lists cover a wide range of benefits, including:

  • Helps you feel less hungry
  • Helps you maintain healthy blood sugar level
  • Helps lower cholesterol and promote heart health
  • Helps promote digestive health
  • Maintains digestive balance
  • Helps satisfy hunger as a healthy snack (the bar)

Anyone notice what’s missing?

Nowhere in any ad does Metamucil talk about the one thing that people know about it: It’s a laxative!

This lack of connection between Metamucil and what people already know about it dooms this rebranding campaign.

Metamucil holds a firmly-established place in culture and our cultural vocabulary. (By cultural vocabulary I mean the cultural artifacts like entertainment, art, commercials and historical moments that virtually everyone in a culture recognizes and uses).  Metamucil will make just about everyone think of constipation, especially as it affects the elderly. If you don’t believe me, try googling “jokes about Metamucil.” I did, and here’s what I found in the first few pages of search results:

  • Did you hear about the new Matzos? They’re made from Wheat and Metamucil. They’re called, “Let My People Go.”
  • The 77-year-old senator John Glenn said this time in orbit, he’s got more food choices—he can mix his Tang with Geritol or Metamucil.
  • You know you’re old if your house catches fire and the first thing you grab is your Metamucil.
  • Yo mama so old, she eats Metamucil for breakfast.
  • A writer reviewing the movie, “The Expendables,” which stars a large number of aging action stars, states: “Judging by the reviews, the latest entry in the Metamucil Squad franchise is only good for laughs of the unintentional variety.”
  • The 10 least popular Halloween handouts: # 3: Metamucil in a straw.
  • You’re so old you sprinkle Metamucil on your Metamucil

When someone mentions Metamucil, virtually everyone cracks a smile and thinks of constipation, and particularly as that dreaded ailment affects the elderly.

I understand the Metamucil strategy. By broadening the reasons to take Metamucil, Proctor & Gamble hopes to expand the market base and move more product more quickly (and maybe more easily). The problem is that the existing perception of Metamucil is strongly engrained in our culture.  I’m certain that many people when they see Michael Strahan talking about not getting hungry between meals make such jokes as “that’s because he’s too busy in the bathroom” or just exclaiming,” He’s full of it.” The many clever if scabrous ways that people can mock a nostrum for constipation are just too tempting.

Replacing one brand message with another is never easy. The classic example occurred decades ago when Anacin realized that its little pills had more painkilling ingredients than other over-the-counter remedies for minor aches and pains. It dumped millions in a pilot marketing program to tell one metropolitan area that it had more painkiller. And sales went up in the region—by about 17%. Unfortunately, the public already thought of a competitor’s product as having the most painkilling ingredients. Without spending any additional advertising dollars, the competitor increased sales by more than 30%. Anacin was able to make people care about painkilling strength, but unable to overcome the public’s prior perception of the brands.

And at least painkilling was what everyone always knew Anacin did. For decades, we’ve been told that Metamucil does one thing and one thing only—helps you go #2. We hear it in the commercials and we hear it in all the jokes.  Now we’re supposed to believe that Metamucil does a bunch of other stuff, and that probably isn’t going to happen, no matter how much P&G spends.

The makers of Metamucil may have been better off coming up with a new name for a new line of products that might have the same contents as Metamucil, but would not be tied to the meaning conveyed to most people by the word “Metamucil.” Meanwhile, P&G could have done maintenance advertising for the Metamucil line and tried to squeeze as much profit as it could out of the old brand—quickly and without much effort.

It wasn’t a natural law but human greed & disregard of suffering that led to today’s great inequality of wealth & income

The past few days, OpEdge has been printing excerpts from the article I wrote on Thomas Piketty’ Capitalism in the 21st Century, which appeared in the most recent Jewish Currents

This final excerpt from the article discusses my criticism of Piketty’s postulation of r>g as a natural law that over time tends to create ever greater inequality in capitalist economies.

While Capitalism in the 21st Century is a delight to read and has many important insights, it is not without its faults. For one thing, Piketty says that r>g is a natural law, meaning it is not a theoretical construct but a law that describes an inevitable economic process.

There are two problems with this assertion. For one thing, Piketty’s history begins only in 1800; the obvious question is whether his rule applies before the Industrial Revolution. Is it possible that social breakdowns such as the French Revolution, the fall of the Tang and Song dynasties, and the decline of the Roman Empire came about because the rich had finally taken too much from the economy, i.e.,  r>g produced such a great disparity of wealth that the economy fell apart or people rebelled? Did catastrophic events such as the Black Plague or the Little Ice Age of the 17th century create instant resets that ameliorated wealth inequality? Barbara Tuchman reports in A Distant Mirror that after the Black Plague, the price of labor in Europe soared to a record high (still not surpassed in world history) because of a shortage of workers. All of this predates Piketty’s history and goes undiscussed.

A more significant flaw in Piketty’s postulation of a natural law is that it attributes growing inequality to blind forces inherent in capitalism and market economies. But the increase in inequality between 1970 and the present day ensued as a direct result of specific actions by groups of human beings. These actions included: shifting the tax burden away from the wealthy and placing it on the poor and middle class; union-busting policies by governments; allowing the minimum wage to lag behind inflation; privatization of government services and wealth throughout most of the world; lowering taxes while cutting government spending on education, retirement and social-welfare programs; and funding wars not through taxation, but through debt held primarily by the wealthy.

Real people — most of them in the pay of the wealthy and corporations — enacted these policies. They were not the result of some natural force, except the natural tendency of humans to think only of their own short-term interests and not in the long-term interests of the community.

Most quibbles about Capitalism in the Twenty-First Century are criticisms of Piketty’s unrealistic solution for reversing the trend to ever-greater inequality of wealth and income throughout the world. He proposes a worldwide annual tax on extreme wealth by all governments, plus a very steep, progressive worldwide income tax on top of current income taxes. Based on his analysis of past income tax rates, Piketty proposes that we could implement a marginal rate of 70 percent on income above $500,000 or a $1 million. The government would transfer this wealth back to the poor and middle class with government programs. Piketty says that unless all nations of the world agree to these taxes, the wealthy will transfer their income and wealth to those that don’t agree to the plan. It is, however, pie-in-the-sky thinking to imagine that all the countries in the world will get together and suddenly decide to play Robin Hood.

It might be more realistic to take the same kind of gradualist approach that the wealthy have taken since the mid-1970s to take a greater share of the wealth-and-income pie. The 90 percent could grab back a little at a time by gradually changing policies in the industrialized world. For example, former Secretary of Labor Robert Reich proposed ten incremental changes we can make in the United States in a recent article by Robert Reich in The Nation (“10 Practical Steps to Reverse Growing Inequality”), including raising the minimum wage to $15 an hour, unionizing low-wage workers, making the tax on Social Security and Medicare progressive, raising the estate tax, and eliminating big money from politics.

I also believe Piketty is wrong to view the diminishment of economic inequality as a primary goal of society, as wrong as those who propose freedom from government regulation as a goal. To my mind, we would be far better off if we instead based the constraints we put on the “free market” on the idea that all human beings deserve a minimum standard of living, which includes free health care and education, a living wage, a safe work place, an unpolluted environment, and a comfortable retirement.

Certainly, ensuring that we all enjoy these economic basics will require us to raise taxes on the wealthy. Where else will we get the funds to do it? But to hold shrinking inequality as a goal in and of itself doesn’t directly address the myriad problems we face. Martin Feldstein is right in his criticism of Capitalism in the Twenty-First Century when he says that the problem is not inequality but the persistence of poverty. Of course, as a defender of the interests of the ultra-wealthy, the solutions that Feldstein proposes will only lead to greater wealth and income inequality.

As I write in the article, Capitalism in the Twenty-First Century is a formative and groundbreaking work that will be studied and cited by economists and will direct the political discourse in democratic countries for decades to come.  I highly recommend to all readers.

Comments of most right-wing critics of Piketty’s Capitalism in the 21st Century suggest they haven’t read the whole book

Here is another excerpt from my on essay on Thomas Piketty’s Capitalism in the 21st Century. You can read the full article in the latest issue of Jewish Currents: 

A few years back, when government debt trumped all other macroeconomic concerns in the news media, a fairly shoddy economic study called This Time Is Different: Eight Centuries of Financial Folly, by economists Carmen M. Reinhart and Kenneth Rogoff, caught the attention of the news media because it concluded that countries with public debt greater than 90 percent of gross domestic product suffered measurably slower economic growth. Politicians and journalists throughout the world used this “new discovery” to bolster assertions that governments everywhere had to reduce debt instead of pumping money into the economy to create jobs. The problem was that Reinhart and Rogoff miscalculated in a number of places and even made counting errors. With their bad math corrected, no real correlation was found between levels of debt and economic growth.

The Occupy movement next grabbed the attention of the media, which began to devote significant time and space to the growing inequality of wealth and income in the United States and worldwide. That set the stage for Thomas Piketty’s left-leaning Capital in the Twenty-First Century to become the “hot book” of our day, a cause célèbre or bête noir, depending on the political views of whoever is commenting.

Summing up years of research by Piketty, a professor at the Paris School of Economics, and his frequent collaborator, UC-Berkeley economics professor Emmanuel Saez, Capital in the Twenty-First Century presents a detailed history of how wealth and income have shifted in the developed world since 1800, and documents the dramatic increase in inequality of wealth and income over the past thirty-five years. Most significantly for the book’s notoriety, Piketty proposes a grand theory of inequality that proposes that in all but high-growth economies, wealth inequality will naturally increase because the return on capital tends always to exceed the rate of economic growth.

For a technical work jam-packed with economic theory, Capital in the Twenty-First Century has sold a tremendous number of copies. Left-leaning pundits and economists have supported Piketty’s research and findings while often disagreeing with his proposal on how to decrease wealth inequality throughout the world. The right and mainstream have had fits trying to disprove Piketty’s findings.

Most of their criticism crumbles under routine inspection. Daniel Shuchman and critics in The Economist, for example, have stated that Piketty’s analysis ignores ways in which wealth and income trickle down, such as through non-profit funding of community activities. These writers merely demonstrate that they haven’t read the book cover to cover, since Piketty addresses these issues extensively.

Tyler Cowan in Foreign Affairs and Martin Feldstein in the Wall Street Journal atomize wealth in a feeble attempt to prove that it doesn’t tend to concentrate. Each of these authors looks at wealthy individuals, pointing out that old fortunes like the Rockefellers’ and Astors’ get diluted over time. If they had instead looked at the wealthy as a class, they would see that Piketty is right to conclude that inequality has increased, even if the monogrammed initials on the cufflinks and bracelets have changed.

Feldstein and the Financial Times claim to have found errors in the data, but Piketty has refuted every one of their objections, in most cases by pointing out that the writer had not read the footnotes or charts that accounted for what they were calling mistakes. Unlike the dubious premise about debt and economic growth put forth by Reinhart and Rogoff, Piketty’s overall theory stands up to scrutiny.

When both supporters and detractors of Capital in the Twenty-First Century compare it to Karl Marx’ Capital, they demonstrate a lack of familiarity with Marx’ 1867 tome. Piketty neither recreates nor transforms Marx, who made a detailed, step-by-step analysis of capital, its origin, its uses, and its relationship to labor. Piketty devotes 577 pages (in a very easy-to-read translation by Arthur Goldhammer) to one sole aspect of capital: its tendency to accumulate in fewer and fewer hands.

Marx postulated that labor creates all surplus value from the exchange of money for a commodity. By contrast, Piketty accepts at the very beginning that both capital and labor contribute to the production and delivery of goods and services and focuses exclusively on the distribution of wealth and income. Marx slowly and carefully constructed an overarching economic theory, whereas Piketty tells a history.

Piketty has written one of the most important books of economics since World War II, but is’ not without its flaws. In tomorrow’s OpEdge, I’ll discuss them.

OpEdge gives extensive analysis of Piketty’s Capital in the 21st Century in latest Jewish Currents

Those few (and perhaps imaginary) souls who have been wondering why OpEdge has been relatively quiet about Thomas Piketty’s Capitalism in the 21st Century can fret no more. I’ve been holding fire waiting for the publication of my extensive essay in Jewish Currents which analyzes and critiques Piketty, discusses its relationship to Marx’s Capital and dispenses with the book’s right-wing critics.  That’s the downside of writing for a quarterly publication: you find that you can’t respond to the hot topic immediately. On the other hand, I have the benefit of being able to put the uproar surrounding the initial appearance of Capital in the 21st Century into some perspective.

I’m going to excerpt the article over the next three OpEdge columns, but I urge readers to delve into the full essay at Jewish Currents. In fact, even non-Jewish readers will find a number of fascinating articles in the latest issue.

Let’s start with review of what Piketty wrote:

The grand outline of Piketty’s narrative is simple: At the beginning of the 19th century, there was a great inequality of wealth in Europe, but not in the U.S. American wealth began to concentrate during the Gilded Age of the late 19th century, when on both sides of the Atlantic Ocean manufacturing assets and financial instruments began to complement and then replace land as the primary types of capital. Unlike Marx, Piketty considers land a type of capital.

Piketty depicts the two World Wars as a kind of suicide of capital that led to the social welfare programs in Europe and the U.S. The height of wealth equality in both came during the high-growth decades after World War II, which the last thirty years of low growth have reversed, until inequality of wealth in the U.S. has now reached historic proportions.

The growth of a middle class that owns property, “the patrimonial middle class,” was the principal structural transformation in the distribution of wealth in developed countries in the 20th century, says Piketty. In 1900-1910, the middle class was almost as poor as the poor, while the top 10 percent owned 90 percent of all wealth (and the top 1 percent owned 50 percent of all wealth). Today, the middle class, which Piketty defines as the middle 40 percent of income and wealth, does much better than the poor, which he defines as the bottom 50 percent.

Piketty seeks to understand this history by reducing it to an equation, r>g, where r is the rate of return on capital and g is the growth rate of economic output. The premise of the equation — and of Piketty’s entire system — is that the rate of return on capital is virtually always greater than the growth in economic output. Over time, owners of capital tend to take more of the pie, leaving less for everyone else.

During high-growth eras, r>g does not matter, since a rising tide tends to lift all boats. But as he demonstrates, most of recorded history has seen very low rates of economic growth. It was almost nonexistent before the 1700s, if we take account of population growth, and was a meager 1 percent from about 1800 to the end of World War II.

Comparison of the upper decile (top 10 percent) and upper centile (top 1 percent) to everyone else reveals many insights about wealth inequality. For example, Piketty finds that one of the main reasons wealth inequality shrank so much in Europe between 1914-1945 was because the top centile continued to live a lifestyle requiring eighty to one hundred times the average income, even though the war, inflation and higher taxes were eating into their income and capital. The result: their heirs inherited smaller fortunes. The concentration of wealth in Europe never recovered from the shocks of 1914-1945, in which the upper decile’s share of wealth fell from 90 percent to 60-70 percent; it’s now 65 percent.

In the U.S., inequality of wealth was small in 1800, increased dramatically during the 19th century, saw a less steep decline in 1914-’45, and has soared since then to 70 percent for the top decile and 35 percent for the top centile.

Piketty finds two worldwide trends driving the slide towards greater wealth inequality since 1970:

      1. Privatization of government wealth, which accounted for 10-25 percent of the increase in private worth in the eight leading Western economies and created oligarchs in all of the countries once part of the Eastern Bloc.
      2. The preference of Western countries to borrow from and pay interest to the wealthy rather than funding government programs and war expenditures by raising taxes.

Some have argued that our meritocracy explains much of the growing inequality of income over the past forty-odd years, as those who add more value to the community and economy make significantly more money. While a believer in meritocracy, Piketty nonetheless concludes that “marginal productivity” (by which he means workers who are more highly skilled) explains only some of the growing wage inequality, not most of it. He proposes that “social norms” determine how much people make at various occupations and shape income inequality, and he does not buy into the myth promoted by both liberals and conservatives that the best way to increase workers’ share of wealth is to make them more productive through education. Most wage inequality, he says, results from decisions made by those who control the distribution of wealth and income, and since the Reagan presidency they have tended to give themselves more and their employees less. Piketty traces a transfer since 1970 of 15 percent of national income from the poorest 90 percent to the top decile, with the richest centile getting 60 percent of all income gain between 1977 and 2007 — resulting in a distribution of income in the U.S. today as unequal as at any time in recorded history

He calls the U.S. a “hypermeritocratic society,” but also expresses doubt that the society is truly a meritocracy. Like many progressives, he wonders whether the highest earners — mostly corporate heads, but also investment bankers, hedge fund managers, and elite athletes and entertainers — deserve such a large portion of the booty.  As he points out, executive pay did not skyrocket until marginal tax rates came down; the increase had nothing to do with the productivity of the executives.

Piketty further believes that the increase in inequality created the 2008 financial crisis: One consequence of greater inequality of income was a decrease in purchasing power in the middle and lower classes, he observes, which made it more likely that these households would take on debt. Unscrupulous banks took advantage by writing loans that fueled an unsustainable housing debt bubble.

Capital in the Twenty-First Century predicts a grim future if nothing is done to counteract growing inequality. Piketty conceives of a world in a not-too-distant time in which every country is run by an oligarchy of billionaires.

Throughout his book, Piketty entertains and educates us with gee-whiz facts and observations that explode many of the common myths we hear in the mainstream news media about the superiority of the unregulated free market, U.S. exceptionalism, and the nature of economic growth. Here are some of the many pearls of wisdom that Piketty shares:

      • Wealth inequality within single generations is much greater than inequality between generations, although older people tend to have more money. In other words, intergenerational warfare has not replaced class warfare, as some pundits have proclaimed.
      • The share of income of the highest centile is the same in developing countries as in rich countries. The highest share of income given to the top 1 percent is, of course, in the United States. So much for our bashing of oligarchs in other countries.
      • In all known societies of all eras, the least wealthy half of the society has always owned virtually nothing.
      • Before the French Revolution, the Catholic Church owned 7-8 percent of wealth of France, compared to the 6-7 percent of American wealth owned by nonprofit organizations today.

In tomorrow’s OpEdge column, we’ll take a look at the criticism aimed at Capitalism in the 21st Century by right-wing economists.

Holder may have done some good things, but he also betrayed his country by not prosecuting torturers

It’s fun to see the differences between the mainstream media’s coverage of Eric Holder’s resignation as U.S. Attorney General and that of the right-wing media. The mainstream is praising Holder, in particular for his department’s actions to protect voting rights, decision not to defend the federal law against same-sex marriage, supporting sentencing reform and going after corporate criminals. The right-wing media is glad to see him go, mostly for the same reasons.  I write “fun” and not “illuminating,” because we learn nothing new from how the various media are analyzing Holder’s impact. Most people could have predicted that the New York Times would basically like Holder, while the Wall Street Journal would hate him.

But in the battle to define Holder’s legacy, virtually all the news media are leaving out the disgraceful decision that Holder and his boss, President Barack Obama, made early in their first term: not to pursue criminal cases against the traitors who betrayed American ideals and broke U.S. laws by creating a global gulag of torture chambers. Obama, Holder and their coterie of advisors declared that the past was the past and that it was better for the country to move on.  True, the torture stopped (as far as we know), but those like Dick Cheney, John Yoo, Jay Bybee and David Addington were let off the hook with not even a slap on the wrist.

Remember what these men ordered others to do: Pushed prisoners’ heads underwater until they were about to drown, pulled them up under and then plunged the heads into water again, multiple times. Made prisoners stand with their hands tied in an uncomfortable position for days on end.  Stripped and blindfolded prisoners. Set vicious dogs on them. Pushed lit cigarettes into their ears. Made them roll over excrement. Humiliated them by making them masturbate then taking photos of it.

Some of these prisoners were hard-boiled terrorists, but others were merely fellow travelers or completely innocent.  None of them received the due process that should be the right of anyone who goes through the U.S. judicial system, citizen or not. Of course, they never had the opportunity to go through the system, but instead were illegally dumped into torture chambers.

What did the torturers and everyone else learn from Holder and Obama’s refusal to prosecute the creators and implementers of the torture policy: That it’s okay to break whatever law and moral code that you like in the United States—as long as you are in power.

Whatever Holder’s legacy, refusing to prosecute the torturers is a blood-red stain on it that can never be expunged. Like Gerald Ford pardoning his former boss, Richard Nixon, it attempts to put a lid on a stinking cesspool which instead should have been drained and cleaned.

Success of People’s Climate Change March depends on how media covers it

Like many of my friends, I’m excited about marching in the People’s Climate Change March this Sunday in New York City. Organizers are hoping it will be the largest demonstration in history in support of solutions to climate change. The march on Manhattan’s West Side coincides with the start of the United Nations 2014 Climate Summit two days later.

By the grace of good luck, the Peoples Climate Change March and the U.N. summit come on the heels of a new study that demonstrates what anyone with common sense should have always known: that weaning the world’s economy off carbon-based fuels will not wreck the economy. For years, intellectual factotums of the oil and electrical generation industries have insisted that replacing carbon-based fuels with solar and wind power would hurt the economy.  Their arguments didn’t take into account that designing, making and servicing solar and wind equipment created jobs or that using less oil, coal and natural gas saved money that companies and individuals could spend, creating jobs elsewhere in the economy.

I haven’t marched in a demonstration since 2008, so I’m psyched! I’m hoping that the turnout runs into the hundreds of thousands.

But be it the largest climate change demonstration or a bust, the success of the march will depend less on how many and who walks and more on the attitude of the news media. The news media will define how many people showed up, and their numbers often stray from reality. The news media will determine whether the march is forgotten three years later or goes down in history.

I first learned this lesson during the Viet Nam War era—my youth—when the news media underestimated the attendance at every antiwar demonstration in the early years of protest—before the media followed the country and started to oppose the war.

The 2010 election exemplifies how the new media can make or break a march. There were three marches and demonstrations on Independence Mall in Washington DC during the election season:

  • March of Tea Party organized by and featuring Glen Beck
  • March of progressives organized by unions
  • March organized by Jon Stewart, Stephen Colbert and the Comedy Central which was also a demonstration for progressive causes.

Despite the fact that the most reputable estimator, the one used by CBS—AirPhotosLive—estimated all three demonstrations to have attracted 75,000-100,000, the two progressive demonstrations are lost to history already, while the Tea Party affair is mentioned in virtually all contemporary recounting of the 2010 election.

The mainstream media virtually ignored the union demonstration in the weeks before it occurred, whereas it orchestrated a build-up for the Tea Party demonstration more suited to the first inauguration of a president who won in a landslide.

An apt analogy, since some right-wing liars claimed that as many people attended the rally as made the scene at Barack Obama’s first inauguration—just less than 2.0 million, a number that injected new meaning into the expression, the big lie.

Aided and abetted by the right-wing media, mainstream newspapers tended to float a number of figures for the Tea Party demonstration—the favorite being 400,000. But never did a mainstream print publication claim any number above 100,000 without attributing to someone suspect—nor did most right-wing media for that matter. It was a mass example of the Matt Drudge effect, which occurs when instead of reporting something scurrilous and unprovable, a mainstream reporters says that someone with a poor record of reliability said it, someone like Matt Drudge or the late Andrew Breitbart.

It was the mainstream news media that overhyped the Tea Party’s 2010 Washington DC demonstration, the mainstream news media that irresponsibly misreported the numbers, the mainstream news media that ignored the demonstration of progressives organized by the unions and the mainstream’s leading pundits who have made the Tea Party march a major political milestone in 21st century politics.

As much as I wish for a large turnout at the Peoples Climate Change March on Sunday, I wish harder that recent studies, extreme weather and polar melting have convinced the ownership of the mainstream media to like the march and embrace the cause by reporting accurately.