Saturday, October 20, 2012

Wealth creates poverty

Inequality isn't just not nice, it is destructive.

In my reading about ancient Rome, author Michael Parenti (The Assassination of Julius Caesar) had a snappy phrase about economic dynamics: "wealth creates poverty". . (See it on youtube)

It got me wondering why this is such a durable theme and how it works in detail. Classical history is instructive as a perpetual contest between wealthy elites and the plebian masses. Rule by aristocrats was the rule, (property restictions were almost universal as tests for office and voting), but when they went too far, they faced revolt by the masses they depended on to till the fields, row the ships, and fight the wars. Several times the plebians of Rome took the civilized approach of seceding- "going galt", as it were. In contrast, aristocrats can not secede because they can not support themselves. They depend on their position in a working social system to be able to parasitize upon it.


The aristocratic elite had one tool in antiquity that they no longer have, which is education and training. With our diffusion of education, especially writing, reading, and related communication technologies, there is much less differentiation conferred by the kind of education that was once available to only the upperest of upper crusts. As we see painfully in this campaign season, our candidates may be very smart, but are not particularly well-learned compared to an average person with a bit of motivation. Nor is their rhetoric any kind of model, as was supposedly that of the ancient Romans. (Though to my mind, Cicero seems more a windbag than a model of eloquence.)

Education was often confused with birth and inborn nobility, gentility, etc. But the more we know about human genetics and the vast amount of intermixing going on all over our history / prehistory, the less of a case one can make for inborn lineage differences that are truly distinctive and significant. (Just look at that Royal family!) Perhaps now with our more thorough assortive mating via intelligence testing, high school tracking, and university admission, there may be longer term effects, but I doubt that as well.


Debt is perhaps the most powerful direct weapon, and a constant source of misery and conflict in ancient Rome. Given the relatively limited needs of the rich, (who after all are rich because they spend less money than they have), there are far more people willing to be employed than needed, (especially once the rich have captured all the land), leading to labor competition, leading to low wages. Low wages lead often enough to the inability to maintain even the low existence workers are accustomed to, leading to a need for debt, like payday loans, credit cards, etc.

The rich do have money and may be willing to lend it, but typically impose onerous terms, as well as a legal system that supports their ability to collect. In ancient Rome, this meant debtors selling themselves or their children into slavery to satisfy debts. Today, it merely means countless families stripped of their assets and prospects by way of predatory mortgages, and a bankruptcy regime made significantly harsher just in time for the current crisis.

Many cultures have tried to restrict usery, or even outlaw lending entirely, such as early Christianity and Islam up to the current day. Not terribly practical, but on the other hand, regulating lending is (or would indeed be) a very powerful way to restrict this perennial source of opportunism and class entrenchment.


Similar to debt, there are a wide range of other business practices by which the rich get richer. The hedge fund 2/20 payment system is an example, raking in money to managers who rarely provide commensurate benefits, while fleecing the slightly less well off in this case, rather than the outright poor. The investment world is full of such scams, from excessive mutual fund fees to nano-second arbitrage by Goldman Sachs, and insider trading. Of course is possible for poorer business people to fleece the rich as well. But they have less means to take this path, using, for instance, the professional assistance of high-priced lawyers. And the overriding power relations dictate that the poor are held more strictly to account in the legal and social system.

In Rome, the patricians basically stole the public lands that had been cultivated by the poor, through a combination of debt peonage, purchase, and outright force. Employing slaves instead on their new villas, they left the poor free Romans with little to do other than join the army or mill about in the slums of Rome.


Briefly, since I have discussed this elsewhere, the rich are rich in part because they save what they get rather than spending it. Excessive saving leads to low economic activity, squeezing those who work for a living, lowering wages, creating a spiral of depression- one of the most damaging economic phenomena. Being rich in antiquity often meant making gifts to the public- statues, temples, baths, games. But as the Roman empire ground on, such public spirit seems to have declined, and the rich became richer, building ever-larger gated communities (i.e. villas, the precursor to the feudal estate) and piling up their wealth, which was often only recirculated through political witch hunts, murders, and expropriations. Progressive taxation and inheritance taxes seem a more civilized method!


As touched on above, if the judicial system is run by the rich, and public policy is run by the rich, then it is likely to serve the rich. The Roman consitution went through several iterations where the people demanded powers, were placated by institutional reforms, which were eviscerated by later aristocratic innovations. When plebians were allowed into the Senate, their allegiance to their class (via the tribunate) slowly died and they became part of the ruling economic as well as social class. After Julius Caesar upended the Republican system by the threat of long-term dictatorial and popular rule, the ruling class first assassinated him and then came to a grand bargain with his successor Augustas in which he maintained their economic and social position, without any bothersome populism.

The current moment is vexing in this respect. The Republican party is commonly known to be the party of the rich. It is also well known to have authored the current economic crisis, by relaxing an entire ecosystem of regulations which then set the stage for mortgage fraud, underwriting fraud, credit rating agency fraud, and a variety of other predatory banking practices, after which the Republican party was principally responsible for showering money on those same institutions and same managers to bail them out.

One would think that their popularity would be low. But instead we appear to have a squillionaire Republican presidential candidate promising explicitly to relax financial regulations yet again and to forgive yet more taxes for the rich, all sold with the mantra that they are "job creators" who, by some magical means, if they are made as rich as Crassus, will trickle a little bit back down to the masses, rather than, say, building more gated McMansions for themselves as they have in the past, and off-shoring the remainder to the Cayman islands. And this candidate is polling at even odds to win. It is unthinkable in a true democracy.


Which brings us to ideology. Even more than politics, if one controls the ideology and narrative of a society, (via the corporatized media in our age, and the intellectual and historian elite in Rome), then one does not have to resort to crass fraud and armed robbery maintain one's privileged position. Genteel fraud and robbery will do. In Rome, we still inherit the historical prism of the aristocracy, who were the only historians. Thus we regard the fall of the "Republic" as a catastrophe, even though it had relatively little to do with democracy as we understand it today, but as largely a Senatorial oligarchy atop a virtually fascist state.

In our day, the Republican war on the inheritance tax offers an object lesson. Repealing it is another item on the Republican candidate's agenda, as though freedom and the American way depend on liberating super-wealthy families from the specter of this "death tax". Yet why should the children of the rich inherit great wealth? While we may "celebrate success" as the Republicans reminded us during their convention, they want their children excused from exertion or the need for success of any kind, putting to the lie their professions of faith in "equal opportunity", an "opportunity society", and the like. In my book, inheritance taxes should be 100%.

So there is a contest for the wealth of a society, usually won by those who are already rich. The economic and other elites try to fleece the lower classes as docorously and thoroughly as possible while getting their services as cheaply as possible. They have many advantages, leading to the general historical rule that societies become more unequal with time unless specific policies (of redistribution, debt forgiveness, and other amelioration) are devised, or until a revolution occurs (France), or until the inequality so ripens into economic sclerosis that ruins the society utterly (Rome).

  • Oligarchies self-destruct when they get too greedy.
  • Must the lying be so mindless? What do Romney's problems with arithmetic say about our educational system?
  • Tax cuts for job creators don't create jobs. And if they are revenue neutral on the wealthy- i.e. not actually tax cuts- they wouldn't do anything even in theory. So who buys this stuff?
  • Watch the hands... Romney's hands in action. 
  • Bill Black launches into an ocean of mixed metaphors.
  • Fraud at Bain- who would have suspected at such an upstanding company!? An object lesson in how the rest of us are screwed by those with the most money to throw around.
  • Debating a psychopath- probably not so easy. But psychopaths are really not so bad!
  • IBM makes a business of breaking employment laws to become company of poorly paid Indians and highly paid US chiefs (plus US servants, as needed).
  • Let's kill high frequency trading.
  • Luck, economics, and just deserts.

1 comment:

  1. Great post, Burk. It's such an obvious thing to conclude (although we often don't) - savings creates poverty in the aggregate. Thanks for the historical perspective.

    I don't think I could agree with a 100% estate tax, but a hefty one for sure.

    BTW, my brother is a financial advisor. He likes the estate tax being high, not just because he's fairly liberal, but because it gets him a lot of business when the rich have to find clever ways to "tweak" its effect. Usually this takes the form of a life insurance purchase with a person or charity as the beneficiary.