Wednesday, October 13, 2010

Linda McQuaig and Neil Brooks' "The Trouble with Billionaires"

Linda McQuaig has built a reputation as a muckraking journalist writing books that defend the "little people" and expose the schemes of the rapacious and the feet of clay of the rich and powerful. Her latest book with Neil Brooks continues this fine tradition.

Here's a quote from Chapter 1 'Return of the Plutocrats' to give you a taste of this book:
Hedge funds -- pools of capital restricted to wealthy investors -- are the ultimate symbol of the new Gilded Age that's emerged in the last few decades. They barely existed before 1980, but have quickly become key vehicles for unregulated financial speculation by the super-rich. By the end of the 1990s, there were 515 of these funds, managing $500 billion; by 2005, there were 2,200 funds, handling almost $1.5 trillion for the world's wealthy elite. Since hedge fund managers take a percentage -- generally 2 percent of the value of their accounts and 20 percent of the profits -- these individuals have catapulted themselves into a stratosphere of income compensation that is in a league all of its own, vastly higher than even the wildly extravagant CEO pay levels at leading multinational corporations.

And the financial crisis of 2008 turned out to be nothing more than a brief downward blip for the hedge fund industry. As the Wall Street meltdown pushed the world economy into a brutal recession in 2008, hedge fund managers' pay fell by about 50 percent. Even at that dramatically reduced level, the top thenty-five managers still earned an average of $464 million each. To put that in perspective (as much as it's possible to put something like that in perspective), let's stack it up against the income of John D. Rockerfeller, who in his day and for many decades afterward seved as the legendary Richest Man Imaginable. In 1894, at the height of the Gilded Age, Rockerfeller had a staggeringly large income of $1.25 million ($30 million in today's dollars) -- whcih was 7,000 times the average U.S. per capita income at the time. Yet in 2008 the average income of the top twenty-five hedge fund managers (not the otp guy, just the average of the top guys) was 12,000 times that of the average American.

And by 20009, while the world economy remained deeply mired in recession, the hedge fund industry had bounced back fully; the total pay of tis top managers exceeded even the record year of 2007, when Paulson alone, in the top slot, had received $3.7 billion. The new top spot was now claimed by the hedge fund manager David Tepper, who collected $4 billion, basically by betting that the U.S. government would likely come to the rescue of the big banks (Paulson ranked fourth, with a piddling $2.3 billion). Overall, the top twenty-five headge fund managers made $25.3 billion in 2009 -- averaging a little more than $1 billion each, more than double the $464 million average of the previous year. This meant that the average income of the top twenty-five hedge fund managers in 2009 had risen to the point that it was now more than 24,000 times that of the average American.
This book is well worth your time reading. It will enlighten you to the problem of growing inequality and the two-tier society put into motion by Ronald Reagan, that smiling actor who convinced average Americans that the future was best as a trickle down, eat the crumbs off the table of the rich promise.

Here are some of the chapter headings in this book:
  • Return of the Plutocrats

  • Why Bill Gates Doesn't Deserve His Fortune

  • Why Other Billionaires are Even Less Deserving

  • Hank Aaron and the Myths about Motivation

  • Why Billionaires are Bad for Your Health

  • Why Billionaires are Bad for Democracy

  • Revamping the Ovarian Lottery
Here is a bit from the chapter on Bill Gates and the question of his "deserving" his billions:
Indeed, it's hard to figure out the rationale for the huge discrepancies in today's incomes when so much of what any of us are able to accomplish is due to all the learning and knowledge accumulated in the centuries preceding us. As Alperovitz and Daly put it, "Before anyone is a 'talented' entrepreneur or a 'menial' labourer, or anything inbetween, most of the economic gains that get distributed to individuals in a give year or period are derived from what is inherited from the past, not created by them in the present."

All this inevitably raises the question of who should benefit from the wealth made possible by this huge technological inheritance. As Alperovitz and Daly note, "All of this knowledge -- the overwhelming source of all modern wealth -- comes to us today through no effort of our own. It is the generous and unearned gift of the past."

As things currently stand, the overwhelming beneficiary is whoever (like Bill Gates) manages to adapt some aspect of our technological inheritance into a marginally new product that gains market dominance -- often through a combination of luck, opportunism, and ruthlessness. But why should Bill Gates or any other individual take such an extraordinarily large share of the jackpot? Does the technological inheritance that made his marginally new product possible really belong so exclusively to him? If it belongs more properly to all of us, and if this inheritance is the overwhelming source of all wealth today, shouldn't society as a whole enjoy a larger share of the bounty?
In the chapter on Hank Aaron and Motivation she talks about John Locke and the theory of "property" and shows the sleight of hand that removes traditional public ownership and replaces it with private ownership. Then she attacks the arguments that rich need "special breaks" to encourage them to work hard:
So the data doesn't support the argument that large incentives at the top are necessary to encourage economic growth. It should also be noted that, even if it could be shown that such incentives do promote growth, there is a further prong to the argument that would need to be proved -- that overall economic growth benefits society as a whole, as opposed to simply rewarding those at the top. But the evidence for any broadly shared benefits is even weaker. During the most recent U.S. business cycle, from 1989 to 2006,a staggering 91 percent of all income growth went to the top-earning 10 percent of households, with a hefty 59 percent going to just the top 1 percent. The bottom 90 percent of households received a meagre 9 percent of all the income growth. Indeed, from 1979 to 2006, the bottom 90 percent saw their share of the national income decline, while the share enjoyed by the top 1 percent increased by 204 percent, and that of the top 0.01 percent went up by a phenomenal 425 percent.

The most thorough recenty empirical study on this issue found little evidence to support the notion that a rising tide lifts all boats. ... The authors concluded that the bottom 90 percent are likely to be much better off if growth is slow and equal, rather than rapid and unequal. Their findings were perhaps best summarized in the headline reporting their study in The Wall Street Journal: "Trickle-down economics fails to deliver as promised."
And she looks at how rewarding the few at the top at the expense of everybody else tends to undermine economic growth:
Economists Robert Frank and Philip J. Cook make the provocative argument that winner-take-all compensation may actually lead to behaviour that impedes economic growth. They suggest that today's exceptionally high pay levels draw ever-increasing numbers of participants to compete for the few top-paying jobs. Only a tiny fraction of the aspirants can hope to make it into these dream jobs, and those who don't often end up squandering other talents they would have otherwise developed. Imagine, for instance, a teenaged boy with good marks in science and math who also happens to be the star of his high school baseball team. If he goes to university and gets an engineering degree, he will almost certainly end up with a job earning at least $50,000 a year and make a useful contribution to society as an engineer. Not bad, but of course it pales in comparison to the dream of being a professional ballplayer and earning, say $6 million or more a year. If the ever-mounting pay of major league players encourages the boy to pursue his baseball dream, rather than his studies, that little bit harder, chances are things will turn out badly for him -- and for society, to which he'll likely end up contributing less without a major leagure career or an engineering degree.
From her chapter The True Badge of Citizenship:
Perhaps the most potent argument put forward by the abnti-tax movement in recent years has been the notion that taxes are unduly coercive, that they amount to an assault on freedom. Among those who played a role in popularizing this idea was Robert Nozick, whose widely celebrated Anarchy, State, and Utopia won the U.S. National Book Price in 1975 and was selected as one of the hundred most influential books since World War II by the Times Literary Supplement. Nozick set the tone for the anti-tax militancy to follow when he wrote that "taxation of earnings from labour is on a par with forced labour."

This is a stunning assertion. Equating it with forced labour turns the traditional concept of taxation as integrally connected to democracy upside down. Democracy is about empowerment; forced labour is a form of slavery -- the exact opposite of empowerment. But does Nozick's claim make any sense? Are individuals really disempowered by taxation?

In truth, taxing the income that individuals earn from their labour leaves them free to determine almost every significant aspect of their self-development: whether to labour, which labouring activities to pursue, how long and under what conditions to labour -- all aspects that are denied by forced labour. Taxation only reduces the reward that they receive from their work -- a reduction that, as members of society, they have a role in determining. Under slavery, there is no pay and no say over conditions.


The attempt by conservaitves to present taxes as coercive also conveniently ignores the extensive coercion involved in property rights, which conservatives wholeheartedly endorse.

Indeed, conservatives see property rights as the very baiss of freedom. But while property rights do extend freedom to some, they deny those same freedoms to others.
This book is full of excellent arguments, wonderfully documented facts about the effort over the last 30 to 40 years by the ultra-rich and their lackeys, the right wing policians, to subvert the intellectual foundations of society, the undermine the legacy of democratic institutions, and to divide the country into the very few "winner take all" elite versus the 99+% rest of us who are consigned to slip slowly into a faceless mass of "the workers" whose only role is to labour long and hard to ensure the ultra-rich can "party on" and enjoy their status as an oligarchy of wealth and corruption.

This book should be a must read for everyone. It will help you understand those glacial forces that slowly, imperceptibly have profoundly changed the landscape of our society. I put this book in the same class as Paul Krugman's The Conscience of a Liberal. These books are the essential armour needed to go out and do battle to save civilization from the rapacity of ultra-rich and their political agenda.

You can get a feel for Linda McQuaig's earlier books from her Wikipedia article:
She came to prominence with her best-selling 1993 book The Wealthy Banker's Wife, which challenged the argument that universal social programs such as the child welfare benefit (which had recently been discontinued) could be less expensive if funds were not paid to well-off people (such as the wife in the title). McQuaig noted that in Western Europe, such programs were common and even the Queen of the Netherlands received the benefit when she had young children.

This theme was explored further in her 1995 book Shooting the Hippo, which argued that, contrary to what was being propagated by the Liberal government (and the outgoing Conservatives) and the Bank of Canada, the country's large deficit was not caused by the so-called "enormous costs of social programs." The book details in full the government's plan to slash all social spending and to drastically increase interest rates in order to eliminate the national debt and to curb inflation. McQuaig countered these claims by arguing that two thirds of Canada's debt had actually been created by these same high interest rates; the high rate of interest on Canada's initial loan, and that social spending had little, if anything, to do with increasing the debt burden.

In her 1998 book, The Cult of Impotence, McQuaig challenged assumptions about the effect of globalization on industrial economies and the argument that market forces could not be controlled by government intervention. She argued that attempts to rein in inflation because of the largely theoretical benefits to economic growth from zero inflation were actually causing high unemployment and that a move towards moderate inflation and high employment would naturally raise government revenues and reduce government welfare spending.

In All You Can Eat, McQuaig challenged the system of regressive taxation that led to the unequaled accumulation of wealth by the top 1% of the Canadian population since the early 1980s. Her proposition was that by cutting taxes and government benefits, the wealthy had benefited primarily at the cost of the less advantaged, including the middle class, whose real wages and wealth had barely grown during that period of time.

Her 2004 book It's The Crude, Dude: War, Big Oil and the Fight for the Planet is an investigation of United States foreign policy from the assumption that it acts in order to secure its supply of petroleum products, particularly in light of the recent actions of the United States in Iraq.

In her latest book Holding the Bully's Coat: Canada and the US Empire (2007), McQuaig argues that Canada should reject the role of adjunct to the United States and find its own way in the world.

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