The Grand Illusion
According to a recent article in the Economist, the United States has become “America the Overregulated,” and that’s quite a claim, especially from a British publication. There’s been a great deal of rhetoric about the amount of “unnecessary” federal regulations, particularly from the far right, but also across the political spectrum. Given the opposition to excessive regulation, why does it continue?
The simple, and largely accurate, answer is because there’s political pressure for more regulations to protect everything from workers to threatened and endangered species. Personally, I believe the majority of that pressure comes because of real concerns, but that raises another question. Why do we need regulations to deal with these concerns?
That’s where matters get interesting. One reason often cited is that, in a world economy, goods are purchased largely on price, and companies will do anything they can to keep costs down – unless effective regulations preclude practices that are unsafe, unhealthy, polluting, or environmentally degrading. Yet… over the past two years, U.S. corporate profits have soared, while wages have remained largely stagnant. At the same time, more and more wealth and income have gone to the top 1/10th of one percent of the U.S. population. People – those who have jobs – are working harder and longer, and usually under more stress, just to keep what they have… but the rich get richer.
Maybe… just maybe, we’ve been looking at only part of the problem. Would all of those regulations be necessary if there weren’t so much pressure to be more and more profitable? And that such profitability depends on lower costs and greater productivity? What if those at the top of the pyramid, and I’m talking about the 1/10th of one percent, not the top one or two percent, didn’t get to keep over 85% of their income?
Would investment bankers and CEOs be quite so inclined to push everything and everyone to the wall to get their $100 million bonuses if the government took 90% of everything over, say, $10 million?
A study from the University of Southern California found that a high percentage of young investment bankers who worked 80-120 weeks developed a wide range of stress-related illnesses and conditions that would likely reduce their life expectancy and that such conditions contributed to the high rate of burn-out in the field. We’ve also seen a huge growth in the use of steroids and other substances that build muscles in young adulthood, especially for young men seeking a professional athletic career, but such artificially enhanced muscular abilities almost invariably result in early death among those who wish to be professional athletes. Would the temptation be quite so great, if 90% of those $10-$100 million contracts went to the government? Would all the outsourcing take place if there weren’t so much pressure to be more and more profitable?
It seems to me that a great deal of the excesses in our society have been driven by greed… but if government were the beneficiary of the greatest excesses of that greed… would the pressures be so great to cut all the corners? Would regulation after regulation be so necessary to curb the excesses of the financial sector? Or to protect workers from greater and greater pressure to produce more and more with less and less?
Just a thought.
Greed is good. Accept it. That’s the basics of economy, turning greed from a liability into an asset. Everyone wants to get the best value they can; they can shop for employers as well as for products; employees, as well as markets. No, of course a prospective employee doesn’t have the same power as a company employing thousands worldwide; nor should they. But much of the economy isn’t (yet, nor will be if government can be kept in check) in the hands of vast corporations, but in the hands of many small to mid-size businesses; and those are being suffocated by red tape, mandatory medical coverage, etc.
If investment bankers can’t handle the stress, they should do something else. If athletes can’t compete without using dangerous substances, they should do something else.
Government has too much money already, it just spends more than it has. It needs to do less and spend less, not take in more.
Government produces few tangible products except perhaps roads (and that mostly under contract), it merely takes money and freedom in exchange for providing limited and frequently inadequate safeguards or infrastructure. All too many of the contracts are corrupt. And the federal government in particular is of little use in improving the average person’s life. Schools, most roads, ambulances, fire departments, police, utilities, trash pickup, many other more or less essential services people regularly deal with, all are local or in some cases private.
In a sense, the desire for profit does cause the conditions that lead to more regulations. That’s called crony capitalism, like the sweet arrangement GE has enjoyed by pandering to the green lobby and by having their CEO in a prominent economic advisory position to the current administration. Despite that, GE is eager to outsource jobs.
http://en.wikipedia.org/wiki/Jeffrey_R._Immelt#Obama_administration
There are two sides to less regulation: yes, it involves more risk of private misbehavior, but it also removes an incentive for lobbying to obtain favorable treatment; the less government is entangled with private industry, the better it will be able to consistently enforce a much smaller set of regulations.
Relationships between various entities, be they federal and state, or government and private, should be at an appropriate distance, with little incentive for either to reach arrangements involving excessive mutual favors, whether above-board or under the table. More should be done by the states, without either federal money or federal strings attached; and if it’s not politically feasible to raise state taxes for some purposes, that might just be a good sign that they shouldn’t be pursued by any level of government.
As such, while I generally don’t oppose the notion of the pseudo-personhood of corporations, I think that at the very least, all contributions (individual or corporate) to any candidate, party, PAC, or issue lobbying entity should be a matter of immediate and comprehensive public record…and available for all interested players to use for opposition research, of course. Likewise most consultative functions not pertaining to legitimately classified topics. Give the skeletons an airing, it’s about time!
While I can’t come straight out against your argument Mr. Hamilton (I am fundamentally apposed to ‘Greed is Good’ even before any facts or reasonings are given) I will say your point of argument would be inherently flawed because it would paint a gray line in identifying corruption.
In essence your concept is stating that greed is good for me (or even that a state led policy which allows people to vary polices is better then a level playing field across an entire country.) But not for others who may effect me. Why can’t the government be greedy if greed is good. Why not politicians or businesses get or spend money to their own benefit while maintaining a separate public image such as companies would like to do with less regulated business models.
In my opinion a country’s moral compass must be the same for all. And I don’t see how one could expect to make the people needed to fill the Non-Corruptible stations in a society when the rest of society is rewarded for only thinking of self, profits, and that ‘Greed is Good’.
-rehcra
Please allow me a little latitude in going for the shock value by starting with “greed is good”.
What’s actually good is that self-interest can easily lead to an _exchange_ of self-interest, and even lead to some _voluntary_ (not government organized or maintained!) cooperation for the common good, as well as competition – and don’t forget that even competition promotes many efficiencies and even discoveries.
“Greedy” capitalism is part of what makes possible a very high level of private charity in the US, compared to the rest of the world.
There is, not zero, but little, that government intervention can do to improve that, and very much it can do to make it worse. We have been erring on the side of government doing too much for some time now. It needs to do less, but not simply by hacking away 90%; the 10% (or whatever) that remains needs to be such that there is a continuing incentive for those both inside and outside of government to behave in a manner conducive to the common good, beyond the considerations of any given election cycle. Not some new government program, not social engineering. Promoting not just a better economy, but better upwards mobility, would be a good start. Libertarians would claim that near zero government would be the best way to do that. I think that compared to where we are now, they’re definitely on to something, but I also think that carried as far as some of them would, they’re wildly naive.
A highly progressive tax does NOT promote upwards mobility. It _reduces_ it, both at the level where someone is reaching for real self-sufficiency, and at the higher level where someone has a profitable small business ($500K sounds comfortable for an individual, but isn’t much for a business, and getting hit with an escalating scale of both taxes and expensive regulations as they grow won’t contribute to creating jobs).
If the politicians and bureaucrats that make up a government were conscientious, cooperative, and selfless people working tirelessly for the common good of every citizen then this idea is a good one. Unfortunately, this would replace one flawed and greedy group with another. With this added financial muscle adding to state power, would they try to micromanage the lives of the citizen with even more regulation? Let’s take it one step further: what would stop them from giving into the temptation to nationalize the whole economy and cut out the corporate heads etc. altogether?
Except… when we did have a far higher maximum tax rate, no one was trying to nationalize everything.
The temptation was avoided then apparently. Different time. Now? I’m not willing to give a more bloated and more ideologically driven government apparatus the opportunity again. I guess I’m just pessimistic when it comes to a growing ‘Nanny’ State and their grasping for even greater power to intrude. Especially when a state’s authorities are as dangerously incompetent as the following video example. The State authorities as Co-parents. Where does it end? Just one example in a long list of reasons to distrust these ‘good intentioned’ bureaucrats paving the road to you know where.
http://www.sunnewsnetwork.ca/video/featured/news/868018287001/failing-a-family/1483239763001/page/2
I think it’s more than a stretch to assume more progressive taxes would lead to nationalization.
The real data shows that when tax rates on higher incomes were higher, corporations invested more time in research & development, investment in the business, and in employee recruitment and training. Corporations and the leaders of corporations found that it was better to invest money in their business (and thereby the economy) than paying the extra amount in taxes. In this sense, higher taxes aren’t a solution to the government’s budget shortfall–but it is a huge boost to the economy, to innovation, and to employment. In effect, then, past and current data suggest that R. Hamilton’s pronouncement that “greed is good” is a vastly misguided approach toward the economy.
the fundamental thing most economists are missing is really what drives job creation and profit in general. That thing is demand, as the 1% get more and more richer (earning money that the could never possibly spend in their life time every year) and the middle class continues to errode you will see demand from the middle class will drop and the only possible countries with customers will be the emerging economies in India and China (which BTW tightly regulate pricing and salaries at all levels) as they now growing a healthy middle class.
I’m an 84 year old fart who has self-published four sci-fi novels and a couple of memoirs. I’ve bought and read all of your books and particlarly admired SCHOLAR. Great character construction. I have already paid for PRINCEPS.
Regards
Dean Warren
Part of the problem is that whenever there is regulation – people and organizations dream up ways to get around or exempted from it – or the beaurocracy has no incentive/motivation to enforce said regulation. The coalmine explosion of recent fame – ‘surprise’ inspections had prior notification. Problems were covered up during the inspection (if it occured at all) then SNAFU. I recall a news story recently about EPA inspections of a plant that was leaking VOC – making the entire town sick – the VERY EQUIPMENT that should have detected the leaks (and alarmed) had been OOC for years but was never even looked at by the annual inspectors.
Why does the irrational notion persist that the economy is simply a fixed size pie, such that rich people being rich means someone else is poorer? That’s simply not the case…most years, the economy _grows_, even if very slightly. The rich are simply in a better position to grab the lion’s share of the growth. If the middle class is getting poorer / smaller, look for other causes than richer rich people!
Like it or not, those who are rich have greater control over the allocation of resources than do the middle class or the poor. If you think otherwise, then you’re either ignorant or deluding yourself. Do the rich have absolute control? Of course not, but they have far greater influence, especially on a person by person basis, than do those of other income levels. Just how else do you think all those investment bankers got special tax breaks? And those are tax breaks that help the economy far, far, less than do those for the poor. And I’m no champion of the “poor by choice,” of whom there are far too many, but neither am I an apologist for the wealthy, nor do I appreciate those who are.
Inequality and democracy are incompatible, something Aristotle noticed 2400 years ago. Some in a democracy gain wealth. This results in an oligarchy. Because those people want their children to preserve their societal positions, they end up creating an aristocracy. Only once things get too bad do the people rise up and restore democracy. (See his book on politics).
Government is by definition a mechanism of redistribution. To stay in power governments have to keep the people who maintain them in power happy. In autocracies, few people are required to keep the dictator in power. Thus if they are given a share of the taxes, or mineral wealth, they each gain a lot of money, which makes it worthwhile for them to support the government. In democracies, the winning party depends on many people for its power. This means it cannot divvy up the money into large enough chunks to make people support them. Instead the people are given money in form of public benefits (roads, schools, medical services, government boondoggles or tax loopholes). A good introduction to this is the “Dictator’s Handbook”.
Simple probability shows that in any system where some are richer and others are poorer, it is most likely scenario is for the rich to get richer and the poor to get poorer. This should be quite obvious since a single mistake or misfortune can wipe out a poor family. A rich family on the other hand can grease palms to improve its lot. Only taxation that redistributes wealth to maximize equality will prevent the rich from getting richer and the poor from getting poorer.
The last decades have seen very low tax rates for the rich. Unsurprisingly this has resulted in disproportionate increases of wealth for the richest 0.1%. With that wealth they have been able to strongly influence policy. A trivial example are the Bush Tax Cuts which benefited the richest americans disproportionately, during a time of war when they could have been expected to chip in. This has resulted in their amassing even more resources and controlling the debate even more effectively. For instance, there is no genuine scientific debate about climate change or the fact the ocean is acidifying faster than at any time since the Paleocene-Eocene Maximum 56 million years ago (a mass extinction), or the fact we humans are causing it. However you would not know this from the media coverage or the leading republican candidates who believe peak oil is a “liberal conspiracy”. The net result is that “we the people” choose from the candidates chosen by the rich based on talking points crafted by the rich.
Since the rich choose the government, the governing party must keep them happy to stay in power. That means the more influence the rich have on determining who governs, the more our government stops behaving like a democracy and starts behaving like an autocracy. The signs that this is happening are all around us. Need I mention indefinite detention? the execution of US citizens without trial? the loss of habeas corpus, enshrined in law for over 1000 years? super-pacs? the Chutzpah of corporate raider running for office after the worst financial crisis since the great depression? the further curtailing of the first amendment (H.R. 347)? the fact not a single banker has gone to prison but many demonstrators have? the fact more whistleblowers are facing prison than at any time in US history, but we must look to the future when it comes to any violations of US law perpetrated by the previous administration?
It’s probably too late, but yes, I do believe that a taxation regime that discouraged vast inequality between citizens would go a long way towards preserving our democracy and our freedoms.
A simpler way of looking at the problem is to ask a simple question–is power to direct a human a commodity?
If it is, another question arises–does the commodity lose its value if it is produced in large amounts and what is its role in inducing supply and demand?
Why will people avoid becoming Garbage cleaners even if they make more than some white collar professions? Would the same decision be made if the garbage cleaners got to live in the Federal Court buildings?
The structures in place to induce work fall apart without equal thought given to the social reality of human power structures–supply and demand are only as effective as the stories/culture of a society.
Are the stories/culture of modern society, modern? Has our culture caught up with automation and with it its effects on the Commodity of Power?