September 19, 2018 6:14 AM   Subscribe

You Might Have Earned It, But Don't Forget That Your Wealth Came from Society - "The distribution of that wealth doesn't rest on markets or on social perceptions of who deserves what but on the ability of the powerful to use their power to retain whatever of the value society generates that they can." (via)
It is impossible to imagine Bill Gates’s wealth without Bill Gates’s ingenuity and effort. But it is far easier to imagine Bill Gates’s wealth being produced by someone other than Bill Gates within the institutions of modern American economic society than it is to imagine Bill Gates generating Bill Gates’s wealth in a different time and place – in France in the 1700s, or in the Central African Republic today – in which society was or is less tolerant of entrepreneurial capitalism and the accumulation of personal billions, and where the community of engineers that gave rise to and became America’s tech sector is absent. Indeed, at some point in Microsoft’s history it was Microsoft the information-processing organism that was more critical to Bill Gates’s wealth accumulation than Bill Gates himself. People, essentially, do not create their own fortunes. They inherit them, come to them through the occupation of some state-protected niche, or, if they are very brilliant and very lucky, through infusing a particular group of men and women with the germ of an idea, which, in time and with just the right environment, allows that group to evolve into an organism suited to the creation of economic value, a very large chunk of which the founder can then capture for himself.
A Wealthless Recovery? Asset Ownership and the Uneven Recovery from the Great Recession - "Furthermore, because these declines in wealth for the Bottom 90 are driven in part by declines in asset ownership, the outlook for the Bottom 90 as the economic recovery continues will depend on asset ownership rates... This suggests the wealth gaps uncovered in this Note may persist despite the continued economic recovery, as those families will not experience wealth gains from the rise in housing and stock prices since 2016."

SWF+UBD - "Charter a large sovereign ('social') wealth fund and use its profits to fund a universal basic dividend... It is likely to create new space for redistributive taxation rather than vying for a fixed-size pie. In principle, a SWF+UBD has some extraordinarily desirable qualities. It turns the very mechanism by which capitalist dynamics concentrate wealth into a few hands into a means of disbursing wealth widely."
An Alaska-sized fund, while it might only hold 6% or 7% of total US assets, would likely hold disproportionate positions in the larger, more liquid, firms that dominate the economy. “The public” would then be a 10% or 20% shareholder in blue-chip megafirms. And given the dispersion and passivity of shareholders in large public companies, a 10% to 20% interest can exercise considerable influence over the operation of the firm. So we have to consider a balance of two opposing effects: From the outside, the broad public might identify more with business interests, which at this scale would not meaningfully be its own, and so become less sympathetic to labor, environment, anti-trust, social-justice, and other forms of activism that might otherwise hold firms to account. But from the inside, the broad public would have more direct influence over corporate behavior. Which of these effects would dominate is, I think, anybody’s guess...

But we’ve failed to really consider Bruenig’s proposal until we acknowledge that, for his purposes, this kind of scale would be a virtue, not a problem. Bruenig is, as we all should be, concerned about the incredible inequality of wealth in the contemporary United States (and, indeed, in most countries, including the Nordics which are much more wealth-unequal than they are income-unequal). Bruenig’s reasoning is pretty straightforward — if the SWF comes to hold all the wealth, and if every citizen has an equal share of the SWF, then wealth inequality is pretty much over.
  • Maybe This Financial System Can't Be Fixed - "Better risk management isn't enough. We need a different paradigm."
  • The Fed's Floor System: Sayonara? - "To see why, recall that the Fed moved to a floor operating system in late 2008 by paying interest on excess reserves (IOER) at a rate higher than comparable short-term market interest rates... it allowed the Fed to manage bank liquidity and monetary policy independently, changing the size of its balance sheet to control liquidity, and the IOER rate to alter its monetary policy stance. Maintaining this floor system, therefore, requires keeping the IOER rate at or above comparable market interest rates, so that banks will be willing to hold on to any reserves that come their way. The recent uptick in treasury bill issuance seems to be undermining this requirement and raises the possibility that the Fed could be inadvertently forced off of the floor system by fiscal policy."
  • The Narrow Bank - "The novelty introduced by a retail-facing TNB is that the customer's funds would be parked directly at the central bank instead of an intervening commercial bank. So central bank interest payments could flow straight to the narrow bank rather than being sucked up by an intermediary. And so it would be possible, in theory at least, for TNB to offer retail depositors not only a useful payments option but also a financially meaningful flow of interest. That seems like a decent financial innovation, no?"
  • The digital Chicago plan - "The Chicago Plan, one of the most important ideas to emerge from the Great Depression of the 1930s, sought to abolish banks as we know them. The plan, promoted by a group of economists including Irving Fisher, pushed for all customer deposits to be backed by reserves at the central bank." Banking in a Digital Fiat Currency Regime - "Among other virtues, this paper by @rohangrey offers a concise, simple, no bullshit no spitfights, description of how modern commercial banking works. He then advocates largely replacing it with a very different, much clearer system. Can we afford clarity?"
  • Blockchain, Cryptocurrencies and Central Banks (slides) - "Great presentation on the possibility of central bank digital currency."
World After Capital: The Promise and Peril of the Digital Knowledge Loop
- "We need to leave the Industrial Age behind and enter the Knowledge Age."
We have based our economies around the Job Loop, which is trapping a lot of our attention. We have based our laws about information access on locking up information and selling it like industrial products. And we have developed a culture that supports our participation in the industrial economy, both as workers and consumers. Both collectively and individually, we have adopted a range of assumptions and beliefs that enable us to structure our lives around our jobs and to fuel the economy through consumption.

Put differently, the Industrial Age is a system of many interlocking parts. Systems have a lot of inertia and carry on for a long time. Just having digital technology available doesn’t change that. As we saw earlier, digital technology simply harnessed to the existing system results in a huge concentration of power and a massively stretched income and wealth distribution. And worse yet, it tilts the Digital Knowledge Loop away from its promise and towards peril.

What is at stake is nothing short of the survival of the human species. We are facing problems, such as climate change, that can only be surmounted if we make the Digital Knowledge Loop work for us. We must reap its promise and limit its perils. In order to accomplish the necessary transition into the Knowledge Age, we need to make dramatic changes in regulation and self-regulation. These are the subject of Part Three.
How and why should we study 'economic complexity'? - "The differences between the economies of Switzerland and Guatemala go beyond differences in size. The Swiss economy has different inputs that can be used to produce a very different mix of outputs. In other words, the Swiss economy has different 'productive capabilities'... Ricardo Hausmann and Cesar Hidalgo argue that productive capabilities are all the inputs, technologies and ideas that, in combination, determine the frontiers of what an economy can produce. They argue that productive capabilities include all sorts of things: infrastructure, land, laws, machines, people, books, and collective knowledge."
posted by kliuless (14 comments total) 54 users marked this as a favorite
What is wealth? Is it synonymous with money?

As I understand it, money is a medium of exchange. In that case, it isn't a thing in itself, but an agreement between people. So doesn't it follow that the agreement is owned by everyone who participates?

Put another way: if people start opting out of an agreement, the agreement itself loses utility. Isn't this the principle of economic sanctions? To exclude miscreants from the party, and to devalue their currency? Isn't it also the problem with hoarding?

Ultimately, doesn't this mean that money is not owned per se, but is created and shared among all? And that while some people control inordinate amounts of money, there is some onus on them to use that money for the greater economic good?
posted by rustipi at 6:37 AM on September 19, 2018 [3 favorites]

It takes a real leap of faith for a society to adopt money, because on the surface it requires crazy behavior: I walk into a shop, and someone gives me something with real value, like a loaf of bread, that took time and effort and physical resources to create, and I brazenly walk right out with it having left nothing behind but some gaudy scraps of paper and a few metal discs.  And I can get away with this because some time earlier I taught a kid how to multiply fractions, and that kid's mom gave me these tokens that, though intrinsically worthless, represent to the stranger behind the bakery counter that I therefore deserve a loaf of bread.  Which isn't to say that people are consciously thinking of the moral underpinnings of money when they accept it; they accept it because they trust that in due time they'll be able to trade it for stuff they want.  But the moral underpinnings are important — they're why money achieved the universal buy-in that makes it useful.

But after that buy-in has been achieved, it's very easy for money to come unmoored from its moral underpinnings, and in recent decades money has done an increasingly shitty job of signifying what people deserve, as it has flowed from people doing productive work to those who merely dick around with the tally sheets.  A very basic example of this sort of thing is gambling.  When the baker takes the five dollars I paid him for the loaf of bread and uses it to buy an ice cream cone, it essentially amounts to my telling the ice cream shop proprietor that the baker has contributed a loaf of bread's worth of value to the world, and that he deserves an ice cream cone for his trouble.  But if instead the baker loses that five dollars to his neighbor in a poker hand, that is not a withdrawal from the common wealth of society.  It is simply a transfer of my testimonial to someone for whom it was not intended.  And when the neighbor buys an ice cream cone with his winnings, I am now vouching for someone who doesn't deserve it, because getting lucky in a card game adds nothing to our pool of goods and services.  So not only did an ice cream cone go to the wrong person, but the gamblers have effectively made a liar out of me...
-From Adam Cadre's essay on The Wolf of Wall Street
posted by Iridic at 7:22 AM on September 19, 2018 [15 favorites]

Scarcity relative to demand creates relative value. Am I missing something?
posted by ZenMasterThis at 7:40 AM on September 19, 2018 [1 favorite]

labor and the raw materials crafted through labor create value. scarcity relative to effective demand creates prices. prices and value are different things.
posted by Reclusive Novelist Thomas Pynchon at 8:09 AM on September 19, 2018 [12 favorites]

These articles seem to ignore the fact that tons of wealth has been generated, and funneled directly to the wealthiest individuals in the form of tax cuts, tax shelters, and shifting costs onto wage-earners while also suppressing wages. We didn't have a wealthless recovery at all, we just had several major industries lose billions of dollars of their own assets/shareholders' investment through irresponsible management, and we wrote them a check for their losses out of taxpayer funds.

Meanwhile, everyone who lost their job and their assets as a result of said mismanagement had to eat the loss, and find their own new job and work their own way out of debt, while corporations used the economy as an excuse to cut overhead and suppress wages while obligating employees to double or triple their productivity. Then everyone acted like wage-earners with poor budgeting skills were to blame for the recession and not the banks who made a business out of inflating their assets and fraudulently leveraging them several times over.

Look at Wells Fargo, which serves as a perfect example. They were a major player in the mortgage crisis, then they got busted fraudulently inflating their accounts and illegally retaliating against whistleblowers, then illegally repossessing customers' cars and foreclosing on their houses--one scandal after another that has netted them tens of billions of dollars in profit. WF has been fined repeatedly, but what does that actually accomplish when no other real consequences come down on companies like this? They can simply factor it in as a cost of doing business.
posted by Autumnheart at 8:37 AM on September 19, 2018 [11 favorites]

I believe Gates was asked once in an interview if he would have been a different kind of rich person in a different time, like a rail baron or something. I recall he looked kind of annoyed with the question and basically said no that he wasn't interested in railroads.

it was simultaneously very insightful and a really stupid question.
posted by GuyZero at 8:46 AM on September 19, 2018 [3 favorites]

I wonder how much wealth/power is inherited from generation to generation.
posted by ZeusHumms at 8:56 AM on September 19, 2018 [2 favorites]

Your wealth may have come from society, but so did your poverty.

Just saying.
posted by East14thTaco at 9:02 AM on September 19, 2018 [2 favorites]

What is wealth? Is it synonymous with money?

I think what you may be asking here might be answered with the following: wealth is money (and potentially other forms of property) that a given individual owns.

Many of these conversations get bogged down because people are messy about talking about "wealth" vs. "income". One can have a high income, but not much wealth, if you live paycheck to paycheck. It is possible to have a 6-figure salary and spend it all as it's coming in. At the same time, it's possible to have amassed a lot of money in the past but currently be making a small income.

I find some of these discussions a bit weird because there's a segment of wealthy people for whom "income" is actually directly related to what they spend: if the bulk of your income comes from capital gains rather than salary, then you only have income when you're selling an asset in order to pay your bills.

So I think the answer to your question is "Yes, wealth is money. But it's not the same thing as income, and if we're talking about income inequality, talking about wealth is not quite the same thing."
posted by grae at 9:06 AM on September 19, 2018 [2 favorites]

I just don't think the edge cases of 'high income/low wealth' or 'all-wealth, no income' are worth discussing, because all of that is so tilted in favor of the wealthy and 'high income/low wealth' should be described as 'irresponsible/incompetent' with the same low-information sensationalism that low-income people are subjected to.

I mean, the only reason that assets like stocks aren't taxed yearly on capital gains is because they are already privileged assets (compared to your home for example) and the magic of compounding allows them to grow exponentially as long as you essentially leave them alone.

There are no low income equivalents.
posted by The_Vegetables at 9:43 AM on September 19, 2018 [2 favorites]

And by 'discussing' I actually mean creating special policy around to deal with them. We should be leveling the playing field.
posted by The_Vegetables at 9:44 AM on September 19, 2018

there's a segment of wealthy people for whom "income" is actually directly related to what they spend: if the bulk of your income comes from capital gains rather than salary, then you only have income when you're selling an asset in order to pay your bills.

I've seen this cited as an argument for why Jeff Bezos, for example, isn't a stingy, uncharitable bastard. "He doesn't actually have three trillion nickels piled up in a Scrooge McDuck pool, you see. It's all locked up in Amazon stock! What's he supposed to do—sell off shares every time he walks past a hard-up wino? Think of the capital gains tax!"

But even without selling stock, Bezos would find it easier than anyone in history to lay hands on a billion dollars, a reality-altering amount of money. He could announce a dividend today and pay himself hundreds of millions out of Amazon's ample cash reserves. He could walk into any bank in the world and establish a line of credit that a human lifetime could not exhaust. And before any active expenditure of money, he could alleviate an enormous amount of suffering and change hundreds of thousands of lives simply by paying his warehouse workers a living wage.
posted by Iridic at 10:04 AM on September 19, 2018 [8 favorites]

totally agree wealth comes from the systems of consolidation. much moreso than the individuals.
aren't they all pyramid schemes really. and pyramids like to have personages sitting atop of them.
but is the food chain a pyramid scheme of sorts? we sit atop as apex predators?

for future thoughts on capital, i like the 8 forms of capital lens.
posted by danjo at 11:14 AM on September 19, 2018 [1 favorite]

These articles seem to ignore the fact that tons of wealth has been generated, and funneled directly to the wealthiest individuals in the form of tax cuts, tax shelters, and shifting costs onto wage-earners while also suppressing wages.

that is what they are mostly about? optimal (for whom!) corporate control, regulation and taxation, the political power of who decides and its consequences. SWF+UBD in particular goes pretty deep into this :P
posted by kliuless at 3:06 PM on September 19, 2018

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