Billionaires and Plutocrats

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I clutched my Starbuck’s in one hand, and dumped out my bag with the other.  I went to the record player to throw on some vinyl.  I sat down in the big bucket chair in the living room.  I clutched pen and paper.  I stared at my two adversaries for the Sunday afternoon.

The Trouble With Billionaires, by Linda McQuaig and Neil Brooks; and Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, by Chrystia Freeland.

My mission for the day was to dig into two simple statements in the by-election debate in Toronto Centre.

McQuaig, the NDP’s warhorse, turned to Freeland to offer the one spark in an otherwise awkward panel interview, which constituted a ‘debate’ in name only.

“Frankly,” she began, as most good rhetorical bodyblows do begin. “In reading your stuff I don’t see any solutions to income inequality. I don’t even see a clear statement that there’s something wrong with income inequality.”

Freeland, the imported quantity ordered by Liberal leader Justin Trudeau to form the cornerstone of what is otherwise a crumbling economic team, fired back:

“I don’t think that talking about class warfare and trying to be divisive and blaming the top for the problems is the way to go,” giving a verbal wink to The 1%’s HQ in Toronto Centre.

In a debate otherwise polluted by the smacking of vague populism and empty rhetoric, it was the closest thing voters had to a distinction in policy.  So, in the interest of defining the two candidates, I picked up their books and read through them.

I started with the softcover version of McQuaig’s manifesto.

From the opening salvo, it’s clear what the Toronto leftist is driving at.  She laments the stagnation of middle class wages, lambasts the lazy money that has congealed at the top, and even takes an eerily well-anticipated potshot at her future rival.

It’s true, she notes, that the billionaires of the world are no longer the in-bred aristocratic old money — they are increasingly the self-made bourgeois.

“This has led some, including The Economist and wealth-chronicler Chrystia Freeland, to conclude that today’s rich deserve their money, having gotten it in a ‘meritocracy,’ but she unsurprisingly concludes: “we disagree.”

That sets the tone for 304 pages of, admittedly, class warfare.  McQuaig leaves the gate with the premise that extreme wealth is, at best, a mistake, and at its worst, a scourge on our very society.  Upward mobility is not just a myth, she writes, but a “boneyard of broken dreams for all but a lucky few.”

But for McQuaig’s two decades on the job of policing the uber-rich, she still lacks a compelling justification for her Robin Hood policies.  She holds up income disparity as the great evil of our time, without enticing readers to despise it for any reason better than peasantry pitchfork-raising.  It’s a matter of fairness, she concludes, offering only circumstantial afterthoughts as reasons to attack the issue — more equal nations are happier, less equal nations are less healthy, and so on.

Her main case focuses around an idea hit on by that political naif, Barack Obama, while on the campaign trail: you didn’t build that.  She argues that no billionaire could amass a fortune on a desert island — they went to schools that the rest of us paid for, were protected from roaming gangs by police that the rest of us paid for, stayed not-on-fire thanks to fire departments that the rest of us paid for, and so on.

Quoting a particularly funny parody video of Obama consumer protection czar Elizabeth Warren: “You built a factory out there, good for you, but you don’t have to be such a dick about it.  You should pay your fair share.”

The case that you want McQuaig to come around to, that she never does, is that poverty, not the rhetorical strawman of inequality, is the problem.  Wealth does not take food from an orphan’s mouth, it’s actually more likely to put it there.  For every dollar a lotto-winner put towards a diamond-incrusted teapot, that’s a dollar not put towards poverty-reduction programs or the greater good.  That is the case you want her to make.

But that logical conclusion sends us careening down a government-paved road to socialism.  While McQuaig’s Occupy Wall Street call-to-arms might be more politically palatable, an appeal to Marxist communalism would probably prove more intelligently coherent and genuinely more convincing.

I flipped through the last page and launched the book across the room. I poured a cup of tea and reached for the firm hardcover of Freeland’s Plutocrats.

From its opening prose, it’s clear that the one-time Reuters chief is a different beast.  Freeland’s 1% do not skulk in fenced-off communities.  Freeland’s 1% are the worldwide financial cowboys.

“Wealth-chronicler” suddenly seems fitting.

The author starts from the outside, then closes in.  History, she says, is the rise and fall of gilded ages.  Revolution and transition beget golden ages, as capitalism destroys so that it can birth itself anew.  From the industrial revolution, to the rise of investment capitalism, to the New Deal, right up to the dotcom bubble and the financial crash of 2008 — Freeland draws up a diversity of economic booms and presents them as the doing of a class of Ubermensches.

She says, right now, the world is seeing its first tandem gilded ages — the information boom, and the rise of Brazil, Russia, China and India (BRIC.)  She sketches a rather brilliant juxtaposition: the geek billionaires in Silicon Valley are revolutionizing economics and society with the hands of thousands of unskilled hands in Bangalore or Beijing, as the rising plutocrats from those burgeoning countries exploit their countries’ weak or malleable regimes to enter the fray of international finance.  Silicon Valley meets sweatshop.  Sweatshop meets Shanghai.  Shanghai meets Wall Street.  Wall Street meets Silicon Valley.  The circle feeds itself, and we lower mortals pluck coins from the couch cushions.

If it sounds like Freeland’s book reads like the doe-eyed optimism of New York Times pop economist Thomas Friedman’s brand of optimistic futurism, that’s because it does.  Not even the 10 ton Mack truck of the financial crisis could shake Freeland’s belief in the plutocrats as the drivers of our common destiny.

There are good plutocrats, she explains, and there are bad ones. But as she writes on, it becomes clear that the only bad plutocrat is one who bobs when they should have weaved.  Paul Martin, for her, is a good plutocrat (he’s also the closest thing to a socialist that she encounters during her romp through international nouveau riche) because he predicted the meltdown and guarded against it.  Hedge fund tycoon George Soros, too, is a good plutocrat because he foretold of the crash and bet against it, collecting stray coins as the bottom fell out.  The bad plutocrats are the fresh-faced children at AIG or Goldman Sachs who bet big and lost — they can easily redeem themselves through economic disruption, creative capitalism, innovative synergy, or something.

By the time you hit the acknowledgements, after 352 pages, it becomes striking just how misleading the title is.  In the world Freeland constructs, everyone else are just bit players in the plutocracy — village oafs and ill-bred serfs who are lucky to bask in the creative wealth-creation of their financial betters.  Freeland speaks with a shiftworker at a call centre, one who loves her corporate overlords.  She speaks with a few tenured academics, the kind who fly around the world to explain the world to plutocrats.  And she interviews a few politicians and bureaucrats — but only the high-bred kind, like erstwhile Bank of Canada head Mark Carney who made a measly half-million per year.  Everyone else profiled is sipping champagne and shovelling caviar into their mouths.

The biggest disparity in Freeland’s book is between the 1% and the 0.1%.

And while Freeland tries to pass amongst the world’s money with an aloof detachment, it feels like Patty Hearst trying to justify a bank robbery.

Justifying a bank robbery, coincidentally, is something Freeland does when she quotes one investment banker who blames the financial collapse on his financially illiterate caddy, the one who dared buy a home from his family, only to default on his sub-prime loan.  Freeland seems to quote the banker with a wink and a nod, but there’s a reason that Plutocrats is in the business section of the bookstore — this book is a goodnight fairytale for the super-rich, one that reassures them that everything is okay.

So while McQuaig writes of the affluent Toronto Centre suburb of Rosedale for the nearby, lower-class, Regent Park, Freeland writes Rosedale for Rosedale.

And neither actually actual solve the problem that they say they’ve figured out.

McQuaig lays out a handful of suggestions at the back of her book, including nominally good ideas like an inheritance tax and two new tax-brackets for the uber-rich.

Freeland offers no solutions — indeed, she doesn’t even identify a problem — but she does make one thing abundantly clear: capital is international.  Antiquated, depression-era notions of a powerful federal government with not just the moral authority, but the unfettered ability, to collect incredibly high marginal tax rates is gone.

McQuaig does take aim at her competitor’s subjects, arguing that Canada ought to recognize its own laws and close loopholes in federal taxation and offshore havens as a real way to trap and redistribute wealth.  She does it without acknowledging that the goal has been trumpeted by untold numbers of fallen politicians who realized not only the daunting and expensive nature of the regulation but the diminishing returns of hunting down tax-evaders, only to squeeze them for a few million here and there.

Freeland counteracts the Ayn Randian John Galt by propping up the insanely wealthy as barefoot “egalitarians” whose commitment to social justice and charity is the byproduct of their magnanimous recognition of that income divide, acknowledging the corruptive powers of the powerful financial elite but cutting it with the altruism of her handpicked goldenboys.

A mistake they can co-own, however, is a ludicrous belief from the collective wisdom of the income inequality brigade — the idea that the high-tax era of Roosevelt’s New Deal in the 1930s, up until the rise of Reaganomics in the 1980s, was a golden age of equality that we should return to.

A quick trip to Statistics Canada explains quite starkly why that’s a flawed theory.

Circa 1976, the earliest date for which there is data, 35 per cent of Canadians earned less than $10,000, in today’s dollars. 17 per cent had no income at all.  This, despite the supposedly perfect top personal income tax rate of 70 per cent, and 50 per cent for corporations.

Today, combined federal and provincial income taxes max out below 50 per cent, and corporate tax rates hover around a quarter. Now, though, only 18 per cent of our population lives on less than $10,000 and less than 3 per cent live without an income — and no doubt some of them are Freeland’s plutocrat friends.

And the oft-trotted-out trope that middle class wages are stagnant — virtually the first thing stated in McQuaig’s book — is flatly false.  For families in the second-highest quintile of earners, the most middle class, real wages have grown 14 per cent since 1976. That’s more than the third quintile, who are the lower-middle class, at nine per cent.

The decline in taxes correlates with an increase in middle class income, and a reduction of poverty.  There is not necessarily a causal relationship, but it is clear that a departure from our high-tax days of yore have not hurt anyone.  High taxes only boost the incomes of the working class when they are converted into government stimulus — a short-term solution, by definition.

Yes, income skyrocketed into the early 1940s, as governments dispersed money to rebuild the national economies.  But wages tanked shortly thereafter, shedding 10 percent of their value by 1946.

Converting those tax dollars to social programs can prove effective to alleviate other social ills, but those returns diminish as the curable problems dissipate and the opportunity cost of suppressing investment and innovation becomes apparent.

Both point to Scandinavia as a prime example of this.  Their high tax rates work tremendously well, both authors argue.

That ignores, of course, the simple reality that the top earners in Canada pay virtually the same tax rate as citizens in Denmark, Norway and Sweden — around 55 per cent.  Those smaller countries, with their ample natural resources, social cohesion and concentrated populations pay little bureaucratic overhead, and have clear, efficient social programs.

Their inequality is lesser because they have governed themselves better, not because their rich are better taxed.

The fact is this: income inequality is a political lance, not an economic problem.  Of all the justifications for increased government involvement in the economy, this is the flimsiest.

To even call it a symptom in the Canadian context would be misleading, as there appears to be no real disease.

In the end, it is quite clear that each author is fitting with their party.

McQuaig is a Thomas Mulcair social democrat.  She’s a well-versed reader from a very old bible of social justice and wealth redistribution, who has repackaged the ideas and sells them with the promise that this time, this time, things will be done right and it will work out.

Freeland, meanwhile, is Trudeau’s kind of Liberal.  She waxes elegantly on the nature of the so-called problem while consistently sidestepping the evident need to define, explain or otherwise address the problem itself, or what the alternatives could be.

If these scriptures foreshadow the ideological playbooks from which the opposition parties will be taking their queues in 2015, we can do much better.

As for next Monday’s ballotbox question, the choice is as murky as it can be:

Fight the billionaires, or celebrate the plutocrats?

 

Follow Justin Ling on Twitter: @Justin_Ling

 

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10 Responses to “Billionaires and Plutocrats”

  1. A sadly simplistic analysis that lurches from calling McQuaig a Marxist to a Mulcair social democrat.
    A serious analysis of inequality is found in a book by two British epidemiologists, Richard Wilkinson and Kate Pickett, entitled “The Spirit Level: Why Equality is Better for Everyone”, Penguin (2011). It provides evidence of the wisdom of the Nordic social democracies in providing a triple bottom line approach advocated by McQuaig. See: http://www.equalitytrust.org.uk for up-to-date analysis and studies.

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