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Pooling vs. Redistribution

September 7th, 2013
Conservatives today have a favorite bugaboo: “redistribution of wealth." By itself rather innocuous-sounding, it is clear code for a variety of evils: taxes, stealing, and downright, outright communism. It has now commonly been replaced with the term "confiscation." What is strange is that redistribution, in its conventional form, is mostly admired, including by the very people who demonize it. Most people favor a progressive tax system, for example. Those who loathe redistribution nevertheless claim that the free market will redistribute, imagining that the wealth will circulate with wealthy people paying handsome wages in exchange for labor—as false a myth as you can find, of course. They approve of redistribution, they just naively and foolishly believe that wealthy people will do it unbidden—many even credulously believe that that is what is happening right now. What is not usually spoken of is the only alternative to redistribution: pooling of wealth. Most of the wealth in a society being drawn to one place and staying there. Not funding jobs or infrastructure, not moving through the economic engine. Just sitting there, its only purpose to draw more money to the pool. If you think that redistribution is distasteful, then the effects of pooling are downright catastrophic. We're seeing many of those effects right now, and they are going to get worse. And as wealth pools more and more, the usual corrective measure of higher tax rates will affect it less and less, because tax only reaches wealth that moves. To reach pooled wealth, you need the estate tax, which takes generations to reenter the economic cycle—and which wealthy people are clamoring to eliminate. The economy is an engine; capital is the fuel. Should wealth pool, the engine will stall. Redistribute, and the engine runs with efficiency. Even Romney understood the basic principle, he just believed, like so many conservatives, that the fuel runs between capital investors and corporations—from one part of the top to another part of the top—with money to workers being a by-product, if anything—instead of the actual path it must take for an economy to be dynamic, which is from bottom to top and top to bottom. A necessary observation is that while the bottom is forced to spend upward to live, the top has no such built-in force, and unless forced to redistribute downward, the top naturally tends to collect wealth and remove it from circulation. Conservatives have been systematically dismantling the forces we had created to accomplish this, including taxes and unions, thus making downward redistribution voluntary—which, in real terms, means the minimum necessary and no more. And the minimum is too slow a trickle to make our economy run. At the gut level, most people seem to know this. But too many people now have bought in to the scam that somehow managed redistribution is evil and destructive.

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  1. Troy
    September 8th, 2013 at 09:12 | #1

    the top naturally tends to collect wealth and remove it from circulation

    This is of course what I bang on online every day.

    I like to say “‘The 1%’ have millions of ways to beat money out of the poors, while the poors only have 2, one of them being a felony.”

    Housing costs, energy costs, corporate empires — all these extract trillions from working America.

    http://research.stlouisfed.org/fred2/graph/?g=mbi

    graphs the rising cost of living . . .

    blue is total housing expense / wages — up from 20% in the 1970s to 30% today.

    red is health care expenses / wages

    up from 5% in the 1950s to 25%, and going higher as the baby boom turns 60 and 70 . ..

    green is after-tax corporate profits / wages

    showing how corporatism is successfully keeping productivity gains away from wage earners since 2000.

    The important thing I’ve discovered (via Georgist thought) is that we just can’t dump money into the middle class economy and call it a day, since what will happen is the middle class will bid up the cost of housing in response and at the end of the day we’ll just have higher housing costs to show for this added income.

    This was the story of Japan’s 1980s bubble, and of course the recent US bubble.

    What is truly needed is to forcibly increase the SUPPLY of housing, health care, energy such that the scarcity factor is eliminated and margins in these areas fall to closer to the actual cost of production.

    A healthy economy requires money to REMAIN within the paycheck economy. The trillion-dollar leaks via housing, health-care, and other high-rent sectors are militating against widespread prosperity.

    Another factor is the US’s trade deficit, that’s also sucking hundreds of billions a year out of the paycheck economy.

    The US consumer gets cheaper stuff to buy, but the back-end of the deal is losing their employment eventually.

    The US has made so, so many mistakes these past 20-odd years. Not sure things are even salvageable anymore. Maybe technically, but the core problem is we’ve got 40% of the population successfully inoculated against this ‘marxist’ talk.

  2. Troy
    September 8th, 2013 at 09:56 | #2

    I happened to watch “それでも家を買いました” back in 1992 when it was on that LA UHF TV channel that showed Japanese TV dramas on the weekends.

    It was a pretty formative experience for me, this episode shows the mania that was the Japan housing bubble:

    http://www.youtube.com/watch?v=q80rbgxugFU

    It was no accident that this housing bubble arrived right when Japan’s baby boom was turning 30:

    http://research.stlouisfed.org/fred2/graph/?g=mbl

    blue line is Japan population age 25-54, red is age 15-24.

    But I am hopeful that Japan’s declining demographics will allow working Japanese to finally get off the treadmill rising housing costs.

    Certainly that’s been the story of 1990-now, a market that has been more or less flat.

    http://japanpropertycentral.com/wp-content/uploads/2013/03/Japan-Land-Prices-1986-2013.jpg

    The geniuses in the LDP want to inflate everything again to get that appreciation train rolling again, but for all I know they may just kill the Japanese economy outright.

    Also, as you write about, Japan’s health care sector is a lot more efficient (i.e. less rent-seeking) than the US’s — per-capita health costs are $3000, $5000 less than the US (!)

    http://www.pgpf.org/sites/default/files/sitecore/media%20library/PGPF/Chart-Archive/0006_health-care-oecd-crop.gif

    and what’s more, Japan’s baby boom is tiny compared to the US’s, so the population of elderly is beginning to peak already for Japan, meaning much more expansion of healthcare services won’t be necessary:

    http://www8.cao.go.jp/kourei/english/annualreport/2005/image/05-1-1-3.jpg

    pink is age 65-74 population, blue is age 75+ plus.

    The US, on the other hand, is going to simply see its age 65+ population skyrocket from here, since our baby boom lasted 18 years.

    http://research.stlouisfed.org/fred2/graph/?g=mbm

    blue shows the arrival of the US baby boom into the workforce, 1965-1980, and Japan’s smaller postwar boom that peaked in 1970.

    So the US is going to see 40M more retired people by 2030, in a system that is less than half as efficient than Japan’s.

    Healthcare provides some good jobs at least, but it’s something of The Parable of the Broken Window — it’s better to not need it in the first place, since all the expense of just maintaining health could be used instead to *add* new wealth for everyone.

    But back to the point, I kinda think Japan will be doing better than the US over the next 20-odd years.

    Hey, Tokyo’s got the Olympics, too, so this may be good news all around.

  3. Troy
    September 8th, 2013 at 11:58 | #3

    The economy is an engine; capital is the fuel

    Also, education in economics has been simply abysmal — I got through the California public educational system with zero exposure to it.

    Plus the dominant school — what can be called the neoclassical-neoliberal synthesis (Here’s a good blog post on that) — is utterly biased towards defending the increasing wealth gap.

    Even Krugman — who’s demonized as the 2nd coming of Trotsky — is/was a center-right neoliberal perfectly willing to defend the offshoring of US jobs back in the 1990s.

    But back to the above call-out . . . “capital” itself is not a fuel, it’s important to get these terms right because with incorrect terms, incorrect thinking results.

    Nobody teaches this any more, but “wealth” at its most basic is the state of being well, of having no unmet wants and needs.

    Goods and services that satisfy our needs and wants are thereby said to provide “utility”, and, confusingly, we use the term “wealth” to describe these goods — cars, homes, food. So to be “wealthy” is to have a lot of “stuff” now.

    The capability to produce these goods and services is also a form of wealth, what can be called “capital” wealth. Workforce skills are “human capital”, an honest, work-a-day society free of graft and fraud has high “societal capital”, of course factories and infrastructure are also capital, and there is also the natural capital wealth of productive fields and fisheries, something Japan hasn’t been too good at creating or preserving, especially thanks to Tepco.

    Now, savings can be capital, and savings can be consumed in the production of new wealth. But that’s not how the economy operates at the national scale.

    The truth of that matter is that since the 20th century productivity miracle, we’ve got wealth of all forms up to our ears, but the core problem is that we’ve allowed FDR’s “malefactors of great wealth” to retain title to most of it, while the working classes just run themselves further and further into debt trying to live in an economy structured like a Monopoly game, paying rents to “The 1%” on every square we land on.

    So “capital” isn’t really the fuel of the economy. Wealth-creation — the creation of NEW goods and services — is what fuels the economy. But when the producers of these goods and services don’t have the discretionary income (what’s left after taxes and housing) to purchase what they create, then the engine of capitalism seizes up.

  4. Troy
    September 11th, 2013 at 07:16 | #4

    http://www.usatoday.com/story/money/business/2013/09/10/pay-gap-richest-poorest/2793343/

    “The richest Americans haven’t claimed this large of a slice of total wealth since 1927, when the group claimed 18.7%. The analysis is based on data from Internal Revenue Service data.”

    One out of 100 claiming one out of out 5 income dollars.

    And what’s worse is that the top 5% rake in 33% of the national income.

    They don’t make this money from the Mines of Zanzibar or bottom of the sea, they pull this money out of the working class, via economic rents in housing, health care, energy, and other limited-entry fields.

    Entertainment too, I guess. But with housing and health care being $16,000 per capita now:

    http://research.stlouisfed.org/fred2/graph/?g=mhq

    (up from $10,000 in 2000) entertainment is not the massive tap that housing & health care is.

    And what gets me is that nobody really sees this — even Obama put in a good word for higher home prices not too long ago.

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