Tax the Markets!

Today, the world faces multiple interacting crises, most of which now approach catastrophic proportions. With every new research report on climate disruption, species extinction, ecological destruction, or various population, economic, or political disturbances, it becomes clear that many are at or approaching a tipping point toward chaos.

Political authorities remain unable even to formulate, no less take effective countermeasures. Idealistic if inadequate targets set for pleasant outcomes become meaningless gestures. Meanwhile, kleptocratic oligarchy grows stronger.

Economic pundits – who mostly follow the lead of the financial elites that profit from driving the endless-growth economy toward the brink of collapse – offer feverish pitches to “stay the course.” The super-rich force their lackeys in Congress to pass extreme tax cuts for themselves, which benefit the millionaire/billionaire senators too. The national debt soars as a result and it appears that “nothing can be done” to stave off national, no less global disaster.

stock market chartBut wait, there’s more, so much more. As the plutocrats drive the nation toward bankruptcy, chaos, and collapse, giant corporations remain awash in both cash, much held overseas, and cheap debt as they exploit low-interest rates to finance their operations and excessive executive pay.

At the same time, “Recent research suggests that “60%–90% of daily equity trading is now performed by algorithmic trading, up from 25% in 2004.” These trades skim profits from slight moves in equity pricing over nanoseconds. They drive market moves more than human trading while making their rich institutional executives even richer. Is that what a stock market is for? Well, yes, if you are a rich institutional trader.

Markets are Not Magic

All markets are social phenomena, the complex sum of many transactions. They emerge and develop in the interaction of humans who seek to gain from their trading. Well, that’s fine and dandy. Modern developments, however, make it clear that no “invisible hand” guides trading algorithms to produce the best of all possible financial worlds for all, or even for many.

The promoters of free markets have always insisted that they are necessary to achieve the best economic outcome for all in society. How has that been working out for you? Markets are, in fact, social creations, designed to serve the interests of their members, not the rest of us. Today, oligarchy is replacing democracy as wealth concentrates and drives politics.

Now, here is where we get in trouble with the devotees of Ayn Rand who run the country as well as the markets. Rand’s pseudo-philosophy of “objectivism” assumes that government has no legitimate role in serving the general welfare of the citizenry of the nation states. Well, I beg to differ. Members of the financial elite use the “market forces” they control to line their own pockets at our expense. It’s the biggest scam ever.

Governing in the Public Interest

A major role of government should be precisely to protect the public from the excesses of capital markets and the speculative extractive projects it finances around the world. The federal government is supposed to regulate elements of the economy as needed in the public interest. Absent such supervision, the consequences of the “creative destruction” of the most powerful institutions of the industrial era have now reached catastrophic proportion. The people must now act in our own defense.

Consider the fact that if Congress were to impose a transaction tax of just a few pennies on each trade on the financial markets, the effect on profits would be negligible. Yet, due to the volume of transactions, a seriously large stream of revenue would flow to the U.S. Treasury. So, yes, we can afford to take definitive action to mitigate climate catastrophe, achieve social, economic, and climate justice, and, well, maybe even survive as a species. That will happen only when the U.S. federal government breaks free of its plutocratic overlords and begins to serve the Public Interest.

Panama Papers: Plutocracy, Kleptocracy, or Both?

plutocracy  [ploo-tok-ruh-see]

noun, plural plutocracies.

  1. the rule or power of wealth or of the wealthy.
  2. a government or state in which the wealthy class rules.
  3. a class or group ruling, or exercising power or influence, by virtue of its wealth.

kleptocracy  [klep-tok-ruh-see]

noun, plural kleptocracies.

  1. a government or state in which those in power exploit national resources and steal; rule by a thief or thieves.

1815-20; klepto- (combining form of Greek kléptēs thief) + -cracy

Related forms:

kleptocrat [klep-tuh-krat] (Show IPA), noun

kleptocratic [klep-tuhkrat-ik] (Show IPA), adjective

[Dictionary.com Unabridged, Based on the Random House Dictionary, © Random House, Inc. 2016.]

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Never begin an essay with a dictionary definition. It is bad form. You should assume the readers of your work understand the words you write.

Well, the Panama Papers may provide us an excuse to violate that rule. In fact, I offer here two dictionary definitions, because the two words involved are so close in meaning. Is a plutocracy also a kleptocracy? Are most societies run by the wealthiest members also societies in which the rulers are thieves? Given revelations published in the “Panama Papers,” and given what many people have suspected all along, that would appear to be the case.

Who Rules?

In various posts on this site I have used the word plutocracy to describe the fact that in the industrialized world, if not the rest of the world as well, the wealthy class rules politics, culture, and the economy. We maintain a façade of democracy, but really…who rules? Ask William Domhoff,[i] who has studied the ruling class in America since before I was in graduate school in the 1960s. Domhoff cleverly got into the social circles of the very rich and observed their behavior just like and ethnographer might observe some remote tribe in the Amazon rain forest. C. Wright Mills,[ii] in his classic, The Power Elite, wrote of the extended reach of the political, military, and economic elites that President Dwight Eisenhower had warned us against in his farewell address to the nation in 1961 with the iconic phrase, “The Military Industrial Complex.”

Mills, Domhoff, and others were astute observers of the trends already present in the U.S. in the 1950s and 1960s, already shaping the corporate state. I wonder whether they could grasp how far the concentration of power would go and what form it has taken today. But the crimes of the extremely rich are far more complex and deep rooted and pervasive than such otherwise exceptionally valuable analyses would suggest. And the corporate state has grown deeper and more complex with the help of digital technology than could have been imagined over a half century ago. The leveraging of the political power by digital technology has produced an astoundingly concentrated plutocracy in the U.S. and elsewhere in the industrial world.

Another Kind of “Big Data”

We usually think of “big data” as all the demographic and personal data big organizations collect on all of us to better market their products and perform political surveillance. But there is another kind, data on the economic infrastructure of the political and financial elites of the world.

It is only by way of the power of “big data” and the professional persistence of the members of the International Consortium of Investigative Journalists could all of this been exposed in its massive detail. These dedicated journalists carried out textual database analyses of 11.5 million digital files or about 2.5 terabytes of data anonymously leaked from a Panamanian law firm. By the collective efforts of investigative journalists around the world, the first indications of the vast scope of global corruption of the super-rich was brought to light. The revelations so far only scratch the surface of deep global kleptocracy.

More recent social science has revealed the characteristics of the new corporate state that feed the kleptocracy. Sheldon Wolin’s work developing the theory of “inverted totalitarianism”[iii] shows how the corporate state operates as a complex organizational dictatorship under the guise of democratic forms but not substance. Wolin’s project focused on the operational characteristics of the corporate state, but not how the rich and powerful steal from the commonwealth.

Plutocracy IS Kleptocracy

The integration of the nation-state with the corporate and financial elites form the corporate state, controlled by those elites. The Panama Papers give some indication of how widespread among the super-rich some key techniques of global kleptocracy. Many people had heard of secret overseas accounts held by corrupt politicians and the super-rich in places like the Cayman Islands. But most people had no idea of the extent of their use by political and financial elites to hide and launder bribes and stolen money, and to avoid taxes on profits, both legal and illegal. The kleptocracy many suspected has been revealed in far more detail than anyone imagined possible. And so far, only the tip of the data-iceberg has been exposed to the light of investigative journalism.

So, what does all this mean? Well, first, it is clear that much more depth and breadth of corruption pervades the global political economy than even the most cynical critic imagined. Second, the data reveal that, given the corruption exposed, nothing short of massive transformation of the political process can realign global politics and economics with the interests of the publics they are supposed to serve.

Remember, all corporations are chartered by the government, supposedly for particular economic purposes that are allowable by presumably being consistent with the public interest. Today, that has become a fiction waiting to be made real again, even as the fiction of corporate personhood has reached its ascendancy. Realigning political economy with the public interest will be a hard battle to win. But the physical necessity of fighting global warming will force the hand of the both the corporate state and the super-rich. Little time remains. Will their economic interests continue to override the human interest in survival?

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[i] G. William Domhoff, Who Rules America ? 1st ed. 1967

[ii] C. Wright Mills, The Power Elite. New York: Grove Press, 1962

[iii] Sheldon Wolin, Democracy Incorporated: Managed Democracy and the Specter of Inverted Totalitarianism. Princeton: Princeton University Press, 2008.

The Upside-Down Economy

The idea that the financial markets are the essential force that drives economic growth and progress, has dominated political thinking for too long. The financial markets and their agents have dominated politics and the Congress over recent decades more than ever before. After all, it took several decades for the financial elite to accomplish the complete abandonment of the controls instituted to prohibit the financial market excesses that caused the Great Depression. We are at greater risk today of an even bigger crash than 1929.

The U.S. and world economies are stumbling on the precipice of part II of the “Great Recession” of 2008. The global integration of financial markets and institutions put the entire world at risk and none of it has any democratic foundation. It is all happening against the will of the people and in opposition to the public interest. The massive contraction of the middle class and the swelling of the ranks of the poor are now undeniable. The so called “recovery” has been all about the financial elites and the stock market. Corporations are awash in cash. Those who lost jobs that had a livable wage can now only find minimal-wage jobs and must work at least two to pay rent. The real economy falters and the financial markets are built on quicksand.

The Disappearing Real Economy

The economy is upside down because real economic activity – the production and exchange of goods and services needed by the people in their everyday lives – no longer drives the global economic system. The most powerful economic force in the world today consists of the actions of multinational corporations attempting to continually grow consumption by reducing the costs of growing production. International “free trade” is in effect the removal of production from the nation – outsourcing.

To minimize cost and maximize output, capital is moved to poor nations with the least labor costs and environmental controls. Economic “globalization” allows U.S. corporations to import cheap goods for our increasingly poor workers to buy at Wal-Mart with credit cards. That, of course, reduces the availability of production jobs here by exploiting the destitute elsewhere. While capital is easily mobile globally, labor is relatively immobile. The globalization of capital drives wages down so that U.S. citizens can only buy cheap imported goods.

Continuing down the ruinous path of the Wall Street financial elite is supported by a lot of political rationalization. The fact that work, pay, production, and consumption are what any real human economy is actually about, is simply ignored. On the one hand, we are told that capital must be free to find its “highest and best use.” That will enable the capitalists – falsely characterized as “the job creators” – to invest in new technology and production, thereby improving employment. Well, how has that worked out? The new technologies have mostly reduced the need for skilled labor in the U.S. The free international movement of capital – they call it “free trade” – has increased demand for unskilled cheap labor abroad. Who benefits? The wealthy investors in “globalization.” Who suffers? Workers everywhere suffer the loss of control over their lives and the inability to earn a living wage.

Feed the Rich, Starve the Poor

The myth that the super rich somehow need a tax break pervades the political discourse even though wealthy corporations and individuals pay less in taxes than ever. The delusion is that such public largess economically favoring the already rich would allow them to invest in the real economy. The “news” media – owned by the same mega-corporations that feed the super-rich – go along with that fiction even in the face of several decades of decline of American work, pay, production, and consumption.

All the while, the rich continue to get richer, paying less and less taxes, by controlling politics and indebting the nation. Both the U.S. Congress and the President are elected by having access to massive political funding by so-called “political action committees” (PACs). Legislation is actually written by the biggest financial lobbyists in the Congress – the lobbyists for the financial elite that is enriched by the “globalized” economy. Worldwide corporate theft, subsidized by the U.S. government, is a scam of unparalleled proportion.

Simply put, in a real economy it is income from employment that drives economic health. Employment provides individuals and families with incomes to buy the necessities and niceties of life. It is employment that produces goods and services people need. The income from employment allows consumption to drive production. Financial speculation among the super-rich has distorted the real economy by “financializing” it and ruined all that.

That is why the economy is so upside-down today. Financial speculation drives investment in cheap overseas production, leading to domestic poverty and declining ability to buy what is produced elsewhere. It is all driven by the greed of the financial elite, not by any national economic policy. Big investment banks’ speculating in abstract financial instruments – derivatives and the like – are allowed to create phantom money by depleting the real economy in the form of consumer and government debt.

In a real economy the Big Banks would be invested in actual productive activity. But because of outsourcing, underemployment, and low wages, workers cannot afford goods produced domestically as cheap goods from abroad flood the shelves of the big-box stores. At the same time, the propaganda of marketing and advertising encourage more and more consumption of less and less meaningful products. Low wages force reliance on consumer credit, increasing indebtedness to the corporations controlled by the financial elite. It is an upside-down economy.

Growing suppression of public education and critical thinking facilitates the manipulation of consumer behavior. People keep trying to buy whatever represents the imagery of the consumer culture that dominates their experience. “Affluenza” afflicts some of the few who experience new wealth. But the pervasive desire for the trappings of affluence – driven by pervasive marketing propaganda – drives consumer behavior, leaving little room for “free will” in economic behavior. Mass media images dominate consumer as well as political thought. Cultural images of “the good life” all involve increased unthinking consumption of corporate products.

Converging Crises and Catastrophic Collapse

In the present context, certain fundamental factors are at work. The vast accumulation of “phantom wealth” by the Big Banks via the “bailout” has encouraged further speculation and facilitated more economic concentration. The easy availability of cheap loans to corporations already awash in cash has not resulted in their investing in the domestic economy. All that cash and cheap credit is used for mergers and acquisitions, which further concentrate corporate wealth. A stock market booms while the main-street economy remains stagnant with vast numbers of workers unemployed or underemployed. Stock market growth is without foundation in the real economy. It has little basis in actual economic value, its growth is speculative, and is at increasing risk of collapse.

After the greatest financial heist of the public treasury ever, we must ask why such vast accumulated wealth has no benefit to the real economy. Overextended consumers can no longer rely on home equity and credit cards to make up for those decades of stagnant to regressive wages. It becomes clear that another few hundred million more dollars in the coffers of billionaires will not be invested in domestic production for the suppressed consumer demand for necessities that results from stagnant domestic employment and over-indebtedness.

It is not as if this is all happening in the abstract. Real world allocation of capital has planetary consequences. The distortions of mass production induced by extractive capital are global in scope. With a world population of over seven billion people and the drive to emulate Western patterns of consumption, the carrying capacity of the planet’s ecologies is already exceeded. Whatever one’s interpretation of the world’s economic system and imagined alternatives, the convergence of overproduction, consumer culture, overpopulation, looming crises of food production, resource wars, and climate chaos, all foreshadow a catastrophic collapse of existing economic and social systems. Only a massive human effort to reorganize the way we live on this planet can avoid human tragedy on a scale as yet mostly unimagined.