I wrote a very quick blog yesterday morning — knocked off in a minute probably — that has attracted over 20 comments so far.
In it I said in response to a whinge in the Wall Street Journal on the richest in many communities seeing their taxes increase to pay for the impact of the recession:
Quite right too.
1) They caused the crash
2) They benefited most from the bail out
3) They have the capacity to pay.
Your problem is?
The inevitable right wing reaction arose.
And now a hint that I am, for some reason, a Marxist. But I’m sorry — that doesn’t stick, not at all. As I said to one commentator this morning (edited slightly):
What I can say is this: we need a major culture change
I’m not, as you imply, a Marxist. I am a social democrat. Yes, that’s left of centre. Of course it is. It’s also bang in mainstream politics. Unlike most who comment here who are way out on the political extreme of the right.
And as a chartered accountant with considerable business experience I can offer three opinions.
First, the system is not working. Isn’t that plainly obvious?
Second the change required is not minor, it is systemic. Again, isn’t that obvious?
Third, that change requires reallocations of resources within and between societies.
From developed to developing countries.
From banks to real productive activity.
From saving to investment.
From net exporters to net importers by changing the balance of trade — please note Germany and China.
From those with wealth to those without.
The crisis is a reflection of these imbalances.
Defending the status quo - saying in effect the wealthiest (and you say you are one of those) can maintain their wealth is your right.
But I can say without a shadow of a doubt that these imbalances caused the crisis.
And reallocation is required to restore balance.
Does that make me a Marxist?
No. It makes me a hard headed analyst who might pay more tax as a result.
Now - what’s your choice? Do you want to solve this problem? Or perpetuate it? Because let me assure you — nothing but redistribution will resolve it.
I am convinced of that. But let me also add a little more explanation for all those who like to say the recession was caused by bankers alone, or governments allowing easy credit alone, or (although I've never heard this said), offshore alone. None of these is true, although each has merit in part.
The reality is more significant. Ordinary people — the vast majority of people — were in reality priced out of some basics of living, like housing, by an elite. That elite — the holders of the vast majority of wealth — forced up the price of many assets — housing in particular. The result was people had to borrow more and more, and one income households had to become two income households and still borrow more and more, just to secure a roof over their heads.
And at the same time that elite, which has had almost total control of resources and yet has proven markedly unable to decide what to do with them, proved enormously reluctant to take risk by investing in the meeting of needs. It did instead spend enormous amounts on creating wants capable of being satisfied through the supply of financial services products, all promoted by their control of the media. Those wants did not generate much wellbeing — we know people’s happiness has not risen much if at all since the 1970s — but they and, more importantly, the resulting financial services products, did result in yet further reallocations of wealth to a decided minority.
Why did those people have to borrow so much? For one reason: whilst overall income was rising in society wages have not or certainly not very much, not in real terms, not for most people. This is especially true in the USA.
And when it became obvious that those who, on the margins at first, had borrowed beyond their means could not repay bad debts arose and some asset repricing took place.
This is real reason why we had a crash: the imbalance in returns between wages and capital. Capital — unproductive capital at that — saw monetary returns rise from the creation of unsustainable financial assets. And people could no longer service those assets — which is why they were unsustainable.
So far a sticking plaster has been put on this. Some (only some) of the assets have been written off. But many more might need to be — especially if cuts send us into a double dip recession, unemployment rises and real wages fall — as they might well do.
But as with the other imbalances I note above — and they are important too, especially those created by Germany and China in particular — we’re not going to solve this problem until the wage / capital return imbalance is solved. Real wages have to rise. Capital returns on artificial assets have to fall. As Wolfgang Sch?§uble, Germany’s finance minister, has said this week:
I’m convinced the markets are really out of control. That is why we need really effective regulation, in the sense of creating a properly functioning market mechanism.
I share that view. It does not make him a Marxist, nor me one.
As he also said:
We must regulate over-the-counter transactions, and we must also focus on the ratio of financial transactions to the real exchange of goods and services. They bear no relationship to each other. I understand that we need new financial instruments to cope with the huge financial tasks that we face. But, forgive my saying so, minimum profits of 25 per cent are simply unimaginable in the real economy. It isn’t healthy.
Again, exactly right.
But add to that the fact that throughout business, and almost universally amongst those with wealth, the claim is made that labour is too greedy when I contend it is just as glaringly obvious that the return to labour is wrong as it is that the return to hedge funds is wrong. If the return to labour had been right labour could have afforded to put a roof over its head without borrowing excessively to do so, or to meet its perceived needs and wants in the market place.
Now you can call that a Marxist economic analysis if you so wish — but Marx was an economist, after all. But that doesn’t make me a Marxist. It just makes me a hard headed analyst. Admittedly, one who’s damned sure he’s right. And that wealth will have to be redistributed as a result. And that attacking real wage rates at this moment — as the Con Dems are proposing — is just another example of their poor economic thinking.
But let’s stop the banal name calling because I happen to suggest redistribution is a pre-condition of solving our economic crisis when it glaringly obviously is, shall we? And shall we instead discuss how to do this with minimal impact in the form of stress on society as a whole — which is a much more interesting issue?
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To be fair, your correspondent did not imply that you are a Marxist. He merely characterised your recent strident tone as “like an 80’s student selling ‘Socialist Worker’ clutching their newly discovered copy of ‘Das Kapital.’ i.e. Please cut out the ‘them & us’ conceited attitude as it undermines your underlying message which is valuable and needs to be heard …”.
I, too, have noticed that you have become quick to dismiss many correspondents who dare to take issue with you as idiots. Perhaps, unconsciously, you channel the character of the incumbent Prime Minister. Now that the irascible, arrogant, inflexible Brown has (thank all the gods) been replaced by the pragmatic, equable, collegiate Cameron may we possibly look forward to a commensurate mellowing in your debating style? 😉
But oh boy the way you and your mates rounded on that fellow Ray Gordon was pretty nasty stuff. He seemed quite decent, from humble beginnings and you still hate him for being successful ( although it seems ok for you to have made a good living out of accountancy). And that’s your problem Richard – your ideals are lofty and honourable, but your personal prejudices let your cause down time after time. You call yourself a social democrat, but you use the language of an extremist, shoving labels on and abusing anyone who disagrees with your narrow world view.
@Albert M. Bankment
To be fair – he was not alone – others sought to say the same thing
And to be honest – nothing has changed and nothing will change
This is not a development of the last month or so
I have always been accusing of suffering fools badly
I do
Especially ones who use silly monikers
And I see no reason why I should suffer fools in any other way. I am resolutely unreasonable for good reason. As GBS said:
” The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”
And therein lies the tale of David Cameron – a man without purpose beyond the pursuit of power, he knows not why, meaning he can accommodate at will to secure it and then not know what to do with it. Of course he’s entirely reasonable as a result
And perhaps little will happen as a consequence
One can hope
The difficulty is that he surrounds himself with too many fools and cannot spot them
That’s why he’s dangerous
So, mellow? Me? Forget it.
I read “The Spirit Level” over the last few weeks. It wasn’t easy and it wasn’t fun. Don’t take it with you on your Summer holidays! But it made the case for reducing inequality with brutal clarity. The evidence just piles up and up that the consequences of increasing disparity are not acceptable. Elsewhere I have read that we are looking at a likely reduction in life expectancy in this country. That is really damning as increasing life expectancy has been one of the hallmarks of Progress.
@Freeborn Man
Have you ever read what is said about me?
I’m a pussycat compared to what most commentators say about me on their own blogs
And have you ever stood back for a minute and looked at the whole rhetoric designed to glorify those who exploit in society, who cheat taxes in our society, who abuse natural resources, who free-ride on the back of the workforce, who deny those who work for them decent wages, and yet are still praised to the hilt?
Oh come on
Get real
Just because what I say is unusual does not mean it is wrong, or offensive
It is a necessary corrective
And to describe it as narrow is absurd
Millions would have no problem agreeing
The key to the problem is the price of the land underneath the housing as the cost of putting together bricks and mortar has not gone out of control.The answer is a Land Value Tax which varies with land price inflation to keep land values under control.But you have always been against LVT.So you’ve got no shots in your locker.
@DBC Reed
Neither I or the Tax Justice Network have ever said we don’t support LVT
I do so it’s only a partial solution
@Richard M
Your reply to Albert M Bankment clearly demonstrates a shocking arrogance and self awareness of which you so often accuse those of us who disagree with you. Your attempted defence of your actions and words on the basis of not suffering fools gladly and seeking change through being unreasonable is flimsy in the extreme. People are entitled to hold different views from you, without being labelled right wing and/or neo libertarian, and they are as equally entitled to espouse these views to other as you are. I agree that this is your blog and you can censor it to your heart’s dislike, but I suspect that just reading comments from people who sycophantically agree with you might get a little tedious. As I have commented before, a lot of your ideas have merit and require consideration and wider debate. Your insulting of people who don’t agree with you detracts from your message.
‘Fraid don’t understand “I do so its only a partial solution” Is there a typo or missing punctuation? If its only a partial solution, what’s the other part? Why not see how far this partial solution gets us and then using a bit of pragmatism ,try to reach the parts LVT does n’t reach?
To tell you the truth, am a tad taken aback by this “partial” critique: LVT-ers are generally told that LVT is too full-on and uncompromising.
The interesting thing is, some of the Marxist analysts anticipated the current crisis before almost anyone else. For example, UCLA Marxist economic historian Robert Brenner’s “The Economics of Global Turbulence” – published in 2007 but largely written in the late 1990s – argues that developed countries have been forced into creating ever-larger bubbles (first the dot com bubble, then the housing bubble of the 2000s) to maintain high growth rates in the face of falling returns to investments in the productive sectors of the economy. FT columnist John Kay – not an obvious Marxist – has a very similar theory of what is causing these successive bubbles. So in this context, I’d argue that being called a “Marxist” is actually a big complement!
While I don’t endorse Marxist policy solutions (whatever that may mean nowadays), I think many elements of modern Marxist analysis of the current problems in the economy are very valid – and have a lot in common with Keynesian perspectives (the 1930s economist Kalecki combined Marxian and Keynesian economic theory to great effect and again, many of his insights are still valid today.
Richard, but not everyone who aspires to make success of their life is a bad person, not everyone who runs their own business exploits workers, not everyone who has money is tax dodger and not everyone who works inthe private sector is loaded. Come on, you know that.
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“And that wealth will have to be redistributed as a result. And that attacking real wage rates at this moment — as the Con Dems are proposing — is just another example of their poor economic thinking.”
There is also the distinct possibility (through the £150K punitive tax rate (£100K as proposed by some)) that you actually do not tax the wealthy but actually punish the hardworking in favour of some who are perhaps not so hardworking and are happy to live a partly subsidised lifestyle.
You tend to generalise that everybody who earns over £X is wealthy, has abused the system, taken advantage of cheap loans, probably a banker, caused the crash, sends their children to a private school, is a tax cheat. worships tax havens and above all is a Tory. So let’s soak the swine.
I would be quite intersted to know just what you regard as wealthy – is it asset-based or does it depend on earnings (in which case what is your £X) or any other criteria.
@DBC Reed
Sorry – it should have said “but it’s only a partial solution”
In other words LVT is a good tax
But it is not able to replace other taxes
Land is not the source of all wealth
Labour has a major part to play too
Capital is an accumulation of property rights based on these and is not in itself wealth generating
That is why it should be taxed more heavily
@Richard
90% of readers of this blog never read the comments
They know that as is the case on most blogs – and Comment is Free is a prime example – people for whom they have rightful contempt dominate the comments
They hold those people in contempt for good reason. Just as all sensible people loathe the BNP so all people who value the freedom democracy brings, the security the welfare state brings, the prosperity the mixed economy brings and the well being living in a stable strong state affords loathe those from the libertarian right and those who argue that small government is the solution for society
They know that this is an argument to permit abuse
They know that in the society these people want their would be considerable suffering, discrimination, bullying and worse
I am entirely convinced that right wing libertarianism is one of the biggest threats to society we face
I’m not polite to racists
I’m not going to be polite to libertarians either
If they wish to destroy the society I live in, if they want to victimise people who live in this country, if they wish to abuse the planet, if they ant to destroy my children’s future I will say they are an enemy of the majority in this country
I espouse our democracy
You’re welcome to say I should be quiet
But I’ll tell you in no uncertain terms where you can go if you do
It’s precisely because people have not done what I do – argue passionately for the merits of the mixed economy – over many years we’re in the mess we’re in
If you want to live in an extreme, undemocratic, society feel free to leave. That’s your choice
But if you want to live in a decent, compassionate, caring, society in which each person is valued, full employment is considered a right and obligations are taken seriously – including the obligation to pay tax as well as to maintain oneself when possible, then you’re welcome to stay
But stop whining when I point out those who are seeking to destroy our society, please
@Freeborn Man
Of course not
But they still have to accept a culture change is needed
If they don’t they’re part of the problem, not the solution
@Justin
Earnings over £100k
And I would tax income from wealth much more heavily
It is ludicrous we have undertaxed capital gains
And ludicrous investment income is taxed lower than earnings from work
In addition we need effective wealth taxes
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Richard
In his ‘Thesis on Freuerbach’ Marx wrote'” Philosophers have only interpreted the world; the point is to change it”, this is also the inscription on his gravestone. It seems that your views are in tune with Marx, why is this thought an insult in today’s society?
We know that the current economic system is defunct and needs to be changed. This is braodly in line with Marx’s (and Engels) prediction. Their solution was communisim, what the actual solution turns out be
remains to be seen but it seems likely tat form of socialism will take over. Universal friendship must replace the constant conflict model of human interaction.
Does not the labourer who provides the wealth not work hard all their lives? Where’s their reward. This idea that some should be able to enjoy the bias afforded by personal fortune, such as paying for accountants to plan maximum shirking of social responsibility, is pathetic.
There is no doubt that true wealth creators should be acknowledged, but to be treated as demi-gods such as the libertarians would have it; to be in thrall to the Markets God (“THEY WILL BE ANGRY, HELL SHALL DESCEND!”) and conveniently forget about Social Sciences 101 Module 1 Task 1 type education, that wealth disparity causes long-term, pan-generational disenfranchisement, is nothing more than adolescent selfishness. Nothing more.
It may well be that radical change to stamp on the greedy is needed in the medium turn. Realign the true worth of living, to remember human responsibility, which needs a riddance to competitive empire building in favour of a cooperative solution.
Surely striving for the maximum number of people to be as content as possible will increase productivity, consumer desire and social and environmental respect?
Good business ideas, good management and hard work are extreme positives, defending a system that deliberately subjugates the less advantaged using defunct ideology and abusive legislations (dressed up in weasel words) are extreme negatives.
When arguing the case, the two are irreconcilable and to open to criticisms.
[…] wrote yesterday about the need or redistribution in […]
Some land taxers also disagree with the notion of LVT being a single tax.
There is a very sophisticated merged Income Tax and Land tax set up as PAYE where the deductions from salary are on reciprocating sliding scale
where the total deduction stays the same but is sometimes made up of Income tax;at other times from a re-vamped Land Tax and all points in between.An interesting re-vamping of LVT called the Sentinel Tax goes back to the original 1848 system envisaged by JS Mill,but the tax is introduced when the price of land bottoms out and only upward movements from this point are taxed.
If people get the idea that land values will be taxed henceforward they will most likely not bid up land prices leaving the tax-take low.This is no problem as the reciprocator kicks in with more income tax(which since the economy is not burdened with dead weight property costs on both worker and entrepreneur tends to increase ).
In fact the object of this form of LVT is to get land prices down and keep them down.And for productive enterprise to thrive as people keep more of their wages sans crippling mortgages.
This will end the dysfunctional misuse of Keynesian stimuli not to encourage the production of goods and services but ,as now, to inflate property prices.This is considered a deliberate act of policy by politicians and is called Homeownerism by the advocates of the Sentinel Tax (called sentinel because it waits for unhelpful activity in the property market then comes to life ) and of the reciprocal Income/land (sentinel) tax.
Not all forms of LVT follow the pattern embodied in the Henry George proposals or the UK Land value tax system introduced in 1931 and abruptly scuppered by Labour’s coalition “partners”.
Richard, first time visitor and refreshing to read acknowledgement of some fundamental flaws. Redistribution is a must, it’s the only way to avoid a much greater catastrophe. Taxation needs to be simplified, closing loopholes and classing as much as possible as income split by national and local. No NI, CG, council tax, BBC licence, inheritance, corporate, etc. The whole shebang gets treated as income and banding still to apply. Then set a full, liveable, basic income for all. Property would be the bugbear with regional variation. Consideration would need to be given to the ownership status of large resource, capital, land. Some form of lease/franchise system to avoid dynastic/corporate ambitions.
There are many potential routes for redistribution but I don’t see them as being successful unless simplification and transparency are at the core.
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