July 23, 2016

Ministry of Plenty

Live Long and Prosper

On few matters over the centuries has
the human conscience been more amenable and
the human brain more resourceful
than in finding reasons why the rich and the fortunate
should live in comfortable coexistence with the poor.

(John Galbraith, The Affluent Society, 4th Ed, Penguin, 1984, p xxiv)

(Michael Kirk, President Trump, PBS Frontline, WGBH, 2017)

John Galbraith (1908–2006):
There are some economic lessons that are never learned.
One is the need for the most profound suspicion of innovation in matters concerning money and more generally the field of finance.
The thought persists that there must surely be some as yet undiscovered way of solving great social problems without pain, but the simple fact is that there is not.
Ingenious monetary and financial designs, without known exception, turn out to be, if not innocuous, then frauds on the public or, frequently, on their perpetrators themselves.
(p 99)

[The] pretension of economics that it is a science is firmly rooted in the need for an escape from blame for the inadequacies and injustices of the system with which the great classical tradition was concerned.
(p 125)

The most common qualification of the economic forecaster is not in knowing, but in not knowing that he does not know.
His greatest advantage is that all predictions, right or wrong, are soon forgotten. …
The modern economic system [survives] not because of the excellence of the work of those who forecast its future, but because of their supremely reliable commitment to error.
(p 4)

Thomas Robert Malthus [1766 – 1834], a British clergyman of aristocratic instinct … provided a powerful case against public or private charity and a greatly serviceable support to those who found it publicly convenient or personally economical to forgo help to the unfortunate. …
[Among] the many who sought to put the poverty of the poor on the shoulders of the poor — or remove it from those of the more affluent — none did so more completely than Malthus.
(A History of Economics, Penguin, 1987, pp 77 & 79)

When people are least sure they are often most dogmatic.
(The Great Crash 1929, Penguin, 1975, p 189)

John Locke (1632 – 1704):
The great and chief end of men uniting into commonwealths, and putting themselves under government, is the preservation of their property …
[Men] have agreed to a disproportionate and unequal possession of the earth …
[By] voluntary consent [they have] found out a way how a man may fairly possess more land than he can fairly use the product of, by receiving … the overplus of gold and silver, which may be hoarded up without injury to anyone.
(Second Treatise on Civil Government, 1689)

Heinrich Heine (1797 – 1856):
Money is the God of our time, and Rothschild is his prophet.
(March 1841)

Gary Becker (1930 – 2014):
All human behavior can be viewed as involving participants who:

  1. maximize their utility,
  2. form a stable set of preferences, and
  3. accumulate an optimal amount of information and other inputs in a variety of markets.

(Economic Approaches to Human Behavior, University of Chicago Press, 1976, p 14)

Alexander Hamilton (1756 – 1804):
Why has government been instituted at all?
Because the passions of men will not conform to the dictates of reason and justice without constraint.
(Federalist No 15 Papers, 17 September 1787)

Chuang Tzu:
What would become of business without a market of fools?
(4th century BCE)

P W Singer (1974):
For all the claims that “big government” can never match the private sector, [the Defence Advanced Research Projects Agency] is the ultimate rebuttal.
The Internet … e-mail, cell phones, computer graphics, weather satellites, fuel cells, lasers, night vision, and the Saturn V rockets [that first took man to the moon] all originated at DARPA. …
DARPA works by investing money in research ideas years before any other agency, university, or venture capitalists on Wall Street think they are fruitful enough to fund.
DARPA doesn’t focus on running its own secret labs, but instead spends 90% of its (official) budget of $3.1 billion on university and industry researchers …
(Wired for War, Penguin, 2009, p 140)

Niall Ferguson (1964):
The first era of financial globalization took at least a generation to achieve.
But it was blown apart in a matter of days.
And it would take more than two generations to repair the damage done by the guns of August 1914.
(The Ascent of Money, Penguin, 2008, p 304)

Andrew Carnegie (1835 – 1919):
  • Individualism,
  • Private Property,
  • the Law of Accumulation of Wealth, and
  • the Law of Competition
[are] the highest results of human experience [—] the best and most valuable of all that humanity has yet accomplished.

Peter Singer:
L Ron Hubbard [(1911 – 1986),] the founder of the Church of Scientology, once wrote that the quickest way to make a million in America is to start a new religion.
(How Are We to Live?, 1993, p 94)

Simone Campbell [Catholic Nun]:
[We were] doing business roundtables [with] some entrepreneur, CEO types. …
A report had just come out that that the average CEO … got $10 million in salary a year, and [that] they were going for $11 million.
I got to ask them:
Is it that you're not getting by on $10 million that you need $11 million?
I don't get it.
And this one guy said: …
Oh, no Sister Simone. …
It's not about the money. …
It's that we want to win.
And money just happens to be the current measure of winning.
(Krista Tippett, Becoming Wise, Corsair, 2016, p 129)

PBS Frontline:
There was a phrase — "ripping someone's face off" — that was used on the trading floor to describe when you sold something to a client who didn't understand it and you were able to extract a massive fee because they didn't understand it.
[This was seen as] a good thing because [you were] making more money for the bank.
[That] sort of spirit, of [acting against the best interests of] your client … took on significant life on Wall Street.
(Money, Power and Wall Street, 2012)

Kid Power Conference, Disney World:
Kids love advertising: it's a gift — it's something they want.
There's something to said … about getting there first, and about branding children and owning them in that way. …
In boy's advertising, it is an aggressive pattern [—] antisocial behavior in pursuit of a product is a good thing.

Alexis de Tocqueville (1805–1859):
The people may always be mentally divided into three distinct classes.
  • The first of these classes consists of the wealthy;
  • the second, of those who are in easy circumstances; and
  • the third is composed of those who have little or no property, and who subsist more especially by the work which they perform for the two superior orders.
(Democracy in America, 1835, Bantam, 2011, p 246)

William Sumner (1840 – 1910):
[Millionaires] are a product of natural selection … the naturally selected agents of society for certain work.
They get high wages and live in luxury, but the bargain is a good one for society.
(The Challenge of Facts and Other Essays, Albert Keller, Editor, Yale University Press, 1914, p 90)

John Quiggin [Professor of Economics, Queensland University]:
[In the 1970s, those economists] who wanted to restore the pre-Keynesian purity of classical macroeconomics … became known as the New Classical school.
Their key idea was what they called "rational expectations," which, in its strongest form, required all participants in an economy to have, in their minds, a complete and accurate model of that economy.
John Muth (1930 – 2005):
[Rational expectations are] those that agree with the predictions of the relevant economic model.
(p 94)

[New Classical economics] reproduces the classical conclusion:
  • that government intervention cannot improve macroeconomic performance and
  • that, in the absence of such intervention, the economy will rapidly adjust to economic shocks, returning quickly to its natural equilibrium position.
(p 96)

The top four hundred income earners [in the US] paid average tax rates below 20% in 2007, a fact symbolized by Warren Buffett's observation that he paid a lower rate of tax than his secretary.
(Zombie Economics, Princeton University Press, 2012, p 142)

Breakdown of the Top 1% by Income (2012)
Percentile% of Total Income% of Total Income Tax

The Anatomy of the One Percent

Adrian Dungan

For 2012, the [US Adjusted Gross Income (AGI)] threshold for:
  • [The] top 0.001% of tax returns [was] $62,068,187 or more [≈ $170,000 per day or 1700 times median income.]
    These taxpayers accounted for 2.4% of total AGI, and paid 3.3% of total income tax.
  • The top 0.01% of tax returns [was] $12,104,014 or more [≈ $33,000 per day or 330 times the median income.]
    These taxpayers accounted for 5.5% of total AGI, and paid 8.3% of total income tax.
  • [The top 0.1% of tax returns [was] $2,161,175 or more [≈ $6,000 per day or 60 times the median income.]
    These taxpayers accounted for 11% of total AGI, and paid 18.6% of total income tax.]
  • The top 1% of tax returns [was] $434,682 or more [≈ $1200 per day or 12 times median the income.]
    These taxpayers accounted for 21.9% of total AGI and paid 38.1% of total income tax.
  • [The] top 50% of all tax returns was $36,055 for the year [≈ $100 per day = median income.]
    These taxpayers accounted for 88.9% of total AGI and paid 97.2% of total income tax.

(Individual Income Tax Shares, 2012, IRS Statistics of Income Bulletin, Spring 2015)


  • This is equivalent to the wealthiest individual in a group of 100 being paid twice as much as the poorest 50 combined.
  • The richest 1/100,000 part of the population captures a 1/40 share of aggregate income.
  • Each of the richest 1 in 100,000 accrues the lifetime median income (~50 years) every 10 days.
  • Conversely, a person (and their descendents) on the median income would need to work for 17 centuries (or 34 working lifetimes) to earn as much as the richest 1 in 100,000 get in a single year.
  • By definition, half the population earn less than the median income.
  • In 2005, 40% the global population (2.6 billion people) were living on less than $2 per day.

Bertrand Russell (1872-1970)

[Private economic] power within a State … can influence
  • [the] law by corruption and
  • public opinion by propaganda.
It can put politicians under obligations which interfere with their freedom.
It can threaten to cause a financial crisis.
But there are very definite limits to what it can achieve. …

[Where] the issue is simple and public opinion is definite, the plutocracy is powerless …
[Where] public opinion is undecided, or baffled by the complexity of the issue, the plutocracy can secure a desired political result. …

[The plutocracy has hitherto] been unable to
  • introduce Asiatic labour in California or Australia, except in [the] early days in small numbers. …
  • destroy trade unionism …
  • avoid heavy taxation of the rich [or]
  • prevent socialist propaganda. …

[The trade unions, for their part,] have failed … to keep in power governments which they liked but which a majority of the nation distrusted.

[The] power of economic organisations to influence political decisions in a democracy is limited by public opinion, which, on many important issues, refuses to be swayed even by very intensive propaganda.
Democracy, where it exists, has more reality than many opponents of capitalism are willing to admit.

(Power: A New Social Analysis, 1938, pp 85-6, emphasis added)

Herbert Spencer (1820 – 1903)

I am simply carrying out the views of Mr Darwin in their applications to the human race …
Only those who do advance under [the pressure imposed by the system| eventually survive …
[These] must be the select of their generation.
(The Study of Sociology, 1882)

Partly by weeding out those of lowest development, and partly by subjecting those who remain to the never-ceasing discipline of experience, nature secures the growth of a race who shall both understand the conditions of existence, and be able to act up to them.
It is impossible in any degree to suspend this discipline.
(Social Statics, 1878)

The function of Liberalism in the past was that of putting a limit to the powers of kings.
The function of true Liberalism in the future will be that of putting a limit to the powers of Parliaments.
(The Man Versus the State, 1884)

John Galbraith (1908 – 2006)

[The] influence and power [of the modern business firm extends] to politicians, Presidents and the Pentagon. …
[This power] is much enjoyed, and its economic and political exercise can also be pleasingly remunerative.
Nothing serves it better than [an economic] theology that disguises its exercise. …
[Nonetheless,] the service that economists render to the disguise of power in their writing and teaching is more often the result of catatonic expression than of any deliberate or wilful motivation.
(p xv)

Inflation is an endemic tendency of the modern economy, which monetary policy attempts to control by high interest rates.
Given the persistent character of inflation, a reliance on monetary policy means that interest rates will be persistently high. …
And, since those who lend are likely to have more money than those who borrow or have nothing to lend, also a strikingly evident matter, the policy clearly favors those of established affluence.
From this comes the popularity of monetary policy in the financial world — its popularity with those who are or who speak for the affluent. …
[Unsurprisingly] those who urge an aggressive monetary policy are conveniently exempt from the unemployment and other misfortunes that it produces.
(p xxi)

[There] has been the shift in political power to the affluent.
This has led those so favored to try to contract out from the cost of those public services of primary importance to the poor — from the cost of public schools, police, public libraries, parks, public recreational facilities, public transportation.
Instead, through private purchase, the affluent provide these services for themselves in the form of private education, personal security guards, private recreational facilities and private transportation.
Deep moral indignation over the invasion of liberty by taxes coupled with grave complaints about the inefficiency of government have extensively supported this change.
(p xxiii)

A self-serving branch of moral philosophy has been devised to defend the right of the affluent to freedom of choice [while neglecting to mention] the way bad public services (like the absence of income itself) abridge the freedom of the poor.
(p xxiv)

The line which divides our area of wealth from our area of poverty is roughly that which divides privately produced and marketed goods and services from publicly rendered services.
[Our] wealth in privately produced goods is, to a marked degree, the cause of crisis in the supply of public services.
For we have failed to see the [the urgent need to] maintaining a balance between the two.
(p 190)

[For] Herbert Spencer and his American disciples in the last century, the Social Darwinists, poverty is the socially therapeutic tendency that eliminates the unfit.
[This secular] instinct for Social Darwinism still lurks in our time [accompanied by a] fundamentalist theology that holds that property is God's natural reward for the worthy.
The poor, meanwhile, have the comfort of knowing they … will pass [more] easily into the next world to enjoy, along with the meek, full compensation for the miseries of this existence.
The relevant and supporting texts and sermons are amply available from the religious broadcasters and the Moral Majority.
(p xxvi)

(The Affluent Society, 4th Ed, Penguin, 1984)

By showing that the rich were the naturally selected products of the Darwinian process, Herbert Spencer … relieved those so endowed of all sense of guilt and made them understand that they were, instead, the incarnation of their own biological excellence.
And he had also removed all feelings of obligation and concern as regards the poor.
However cruel their euthanasia, it served the higher purpose of human improvement as a whole.
(p 164)

In Europe the division between privilege and impoverishment was by classes; in the United States it was by individuals — the rich and self-reliant and below them the ragged fringe.
There could be a Darwinian selection of individuals, a Darwinian euthanasia of the fringe, but not so obviously of an entire class.
(p 165)

Spencer and his prophets were the supreme achievement in the defense of the great American rich in the years after the Civil War.
(p 166)

(A History of Economics, Penguin, 1987)

Ha Joon Chang (1963)

Reader in Political Economy and Development, Cambridge University

[Nineteenth century 'classical' liberals rejected] the conservative view that tradition and social hierarchy should have priority over individual rights.
[On the other hand, they] believed that not everyone was worthy of such rights.
They thought women lacked full mental faculties and thus did not deserve the right to vote.
They also insisted that poor people should not be given the right to vote, since they [feared that] the poor would vote in politicians who would [redistribute wealth. …]

[Twentieth century neo-liberals, by contrast,] do not oppose democracy [in principle.]
[In practice, however, many would be prepared where necessary to] sacrifice democracy [in the defense of] private property and the free market.

(Economics: The User's Guide: A Pelican Introduction, 2014, emphasis added)

Freedom Without Justice

Richard Tawney (1880 – 1962):
Freedom for the pike is death for the minnows.
(Equality, 3rd Ed, 1938)

It is not till it is discovered that high individual incomes will not purchase the mass of mankind immunity from cholera, typhus, and ignorance, still less secure them the positive advantages of educational opportunity and economic security, that slowly and reluctantly, amid prophecies of moral degeneration and economic disaster, society begins to make collective provision for needs no ordinary individual, even if he works overtime all his life, can provide himself.
(Equality, 4th Ed, Allen & Unwin, 1952, pp 134–5)

Isaiah Berlin (1909 – 1997):
[Total] liberty for wolves is death to [lambs.]
[Total] liberty of the powerful [and] the gifted, is not compatible with the rights to a decent existence of the weak and less gifted. …
Equality may demand the restraint of the liberty of those who wish to dominate … in order
  • to make room for social welfare,
  • to feed the hungry,
  • to clothe the naked,
  • to shelter the homeless,
  • to leave room for the liberty of others, [and]
  • to allow justice or fairness to exercised.
(The Pursuit of the Ideal, The Crooked Timber of Humanity: Chapters in the History of Ideas, 1990)

Thomas Jefferson (1743-1826):
Under pretence of governing, they have divided their nations into two classes:
  • wolves and
  • sheep.
Experience declares that Man is the only animal that devours its own kind.
For I can apply no milder term to the governments of Europe.
And to the general prey of the rich [upon] the poor.
(Letter to Colonel Edward Carrington, 16 January 1787)

Karl Popper (1902 – 1994):
[The] paradox of freedom, first discovered by Plato, … can be expressed by saying that unlimited freedom leads to its opposite, since without its protection and restriction by law, freedom must lead to a tyranny of the strong over the weak.
This paradox … was solved by Kant, who demanded that the freedom of each man should be restricted, but not beyond what is necessary to safeguard an equal degree of freedom for all.
(The Open Society and Its Enemies, 5th Ed, 1966, Routledge, pp 257-8)

Tony Benn (1925-2014):
[Real choice] depends on the freedom to choose, and if you're shackled with debt, you don't have the freedom to choose. …
[If] the poor in Britain or the United States turned out and voted for people who represented their interests, it would be a real democratic revolution. …
[There] are two ways in which people are controlled:
  • first of all, frighten people; and
  • secondly, demoralize them.
An educated, healthy and confident nation is harder to govern. …
The top 1% of the world's population own 80% of the world's wealth.
It's incredible that people put up with it.
But they're poor, they're demoralized, they're frightened.
And therefore they think: perhaps the safest thing to do is [just] to take orders and hope for the best.
(Michael Moore, Sicko, 2007)

Milton Friedman (1912–2006):
[The] Great Depression was not a failure of capitalism.
It was not a failure of the private market system …
It was a failure of government.
(Who Protects the Worker?, Free to Choose, Episode 8, PBS, 1980)

Unfortunately that failure did not end with the Great Depression.
Ever since, government has been attempting to fine-tune the economy.
In practice, just as during the Depression, far from promoting stability, the government itself has been the major single source of instability.
(Anatomy of a Crisis, Free to Choose, Episode 3, PBS, 1980)

George W Bush (1946):
We're faced with a prospect of a global meltdown. …
It's true this crisis includes failures
  • by lenders and borrowers, and
  • by financial firms and independent regulators,
but the crisis was not a failure of the free market system.
(The G20, Rear Vision, ABC Radio National, 2 November 2014)

Mark Blyth (1967)

[Milton Friedman] assumed that unemployment was voluntary and was not due to a deficiency [in the demand for labor.]
People [voluntarily trade off leisure against labor according to] the prevailing wage.
There is no [such thing as Keynesian] demand-deficient unemployment in Milton's world.
In other words, the 25% of Spaniards who are presently without work [have simply made a rational decision not to] work at the prevailing wage [— freely choosing, instead, to go] on vacation.
(p 153)

[By this logic, the Great Depression was] a giant, unexpected, and astonishingly long unpaid vacation for millions of people …
(p 159)

[Likewise, Joseph Schumpeter] argued that the Great Depression was neither great nor depressing.
Rather, it was just a particularly marked transitional period of technological and organizational change …
(p 129)

(Austerity, 2013)

Milton Friedman (1912 – 2006)

Swedish National Bank's Prize in Economic Sciences in Memory of Alfred Nobel (1976)

If you promote freedom … you will end up … with both
  • more freedom,
  • more prosperity, and
  • more equality. …
[But] if I were wrong, if freedom led to wider inequality, I would [still] prefer that to a world in which I got artificial equality at the expense of [natural] freedom.
[My] God … is freedom. …

For much of this century the British have tried, [and failed,] to use the law to impose equality …
The drive for equality [failed because it] goes against the most basic instinct of all human beings.
In the words of Adam Smith:
The uniform, constant, and uninterrupted effort of every man to better his condition; to improve his own lot and to make a better world for his children and his children's children. …
The growth of crude criminality in Britain … owes much to the drive for equality …
Who can doubt [that] the effect that the drive for equality has had on efficiency and productivity … is one of the main reasons why Britain has fallen so far behind … other countries in the improvement of the economic lot of the ordinary man over the past 30 years. …
If you ask, where in the world to people have the greatest opportunity for them and their children? … it's in places like the United States

The society that puts equality before freedom will end up with neither. …
[You] get greater equality of actual results by a system under which people are free to achieve unequal results. …
[In] this world, the greatest source of inequality has been special privileges granted by government. …
Everywhere, and at all times, economic progress has meant far more to the poor than to the rich.
Wherever progress has been achieved, it has relieved the poor from back-breaking toil …

The inheritance of talent is no different, from an ethical point of view, from the inheritance of other forms of property: of bonds, of stocks, of houses, or of factories — yet many people resent the one but not the other. …
(Created Equal, Episode 5)

[The] capitalist system … in the 19th century did a far better job of expressing … compassion than the governmental welfare programs are today.
The 19th century … was the period of the the greatest outpouring of … charitable activity the world has ever known.
And one of the things I hold against the welfare system most seriously, is that it has destroyed private charitable arrangements that are far more effective [in helping people] in disadvantaged situations.
(From Cradle to Grave, Episode 4)

The strongest argument for free enterprise is that it prevents anybody from having too much power …

I'm not in favor of no government intervention, I never have been. …
The question is, what kind of intervention?

I agree … that the more homogeneous a country, the less harm a government will do by intervening.
I don't believe it does positive good; I just simply believe it does less harm.

… I am in favor of the [antitrust] laws that make agreements and restraint of trade illegal.
[However, most] of the antitrust apparatus has promoted monopoly instead of hindered monopoly.
If you look are where there are monopolistic elements in the world … in almost every case [it] derives from a special grant by government.
And, therefore, the problem is not: how does government enforce competition, [but] how do you keep government from setting up monopolies? …
The responsibility [of government] is to set a system of laws … under which competition will flourish …

I don't know of any case, in history, in which monopolies have been able to maintain themselves for very long, without having government assistance directly come in on their side.
The trade union monopolies … would never have the kind of power they do now if it weren't for the special privileges which government has granted to them …
[Antitrust action by the government is really] pro-monopoly action — in the main.
(The Tyranny of Control, Episode 2)

[Some stimulus] measures may have been useful, and indeed needed during the depression years …
(Anatomy of a Crisis, Episode 3)

The people who get on welfare lose their … feeling of dignity. …

Suppose you were cruel, and simply took away [a recipient's] welfare overnight — cut it off — what would happen?
He would find a job.
What kind of job?
I don't know.
It might not be a very nice job. …
But at some wage, at some level of pay, there will always be job which he could get for himself.
It might be also that he would be driven to rely on some private charity; he might have to get soup kitchen help or the equivalent.
[I'm] not saying that that's desirable … but as a matter of actual fact as to what would happen, there is little doubt that he would find some way to earn a living. …

Nobody spends someone else's money as carefully as his own.
Nobody has the same dedication to achieving someone else's objectives that he displays when he pursues his own.
[Active labor market programs] have a insidious effect on the moral fibre of both the people who administer the programs and the people who are supposedly benefiting from it.
  • For the people who administer it, it instils in them a feeling of almost God-like power.
  • For the people who are supposedly benefiting, it instils a feeling of child-like dependence.
    Their capacity for personal decision making atrophies.
[These programs] tend to rot away the very fabric that holds a decent society together. …

[Government] money always corrupts …

The … least bad solution that I have ever been able to devise is … the negative income tax. …
[It's] a system [that] would have the effect of eliminating the separation of the society into
  • those who receive and
  • those who pay,
a separation that tends to destroy the whole social fabric. …

We have surrendered power to government.
Nobody has taken it from us.
Its our doing.
The results:
  • monumental government spending, much of it wasted;
  • little of it going to the people we would like to see helped;
  • burdensome taxes;
  • high inflation;
  • a welfare system under which neither those who receive help nor those who pay for it are satisfied.
Trying to do good with other people's money simply has not worked.
(From Cradle to Grave, Episode 4)

There is no place for government to prohibit consumers from buying products the effect of which will be to harm themselves.
There is [only] a place for government to protect third parties. …
There is a role for government in pollution. …
That is a case in which you are protecting third parties. …
There is a case for requiring brakes because that's to protect the person you might hit.
[But,] there's no case for requiring an airbag …
(Who Protects the Consumer?, Episode 7)

The people most discriminated against by a high minimum wage rate are people with low skills, which includes a disproportionate number of negros.
Indeed, I have long believed that the minimum wage rate is the most anti-negro piece of legislation on our statute books …

Unions have never accounted for one out of four or one out of five of American workers.
The American worker benefited not out of unions, he benefited in spite of unions. …
[In] so far as unions have played a role, they [have] protected some workers at the expense of others and [have] retarded the prosperity of this country. …
The plain fact is, that there is no evidence whatsoever, that either unions or minimum wages have made positive contributions to the prosperity of this country [as a whole.]
(Who Protects the Worker?, Episode 8)

(Free to Choose, PBS, 1980)

Consider a group of individuals who initially have equal endowments and who all agree voluntarily to enter a lottery with very unequal prizes.
The resultant inequality of income is surely required to permit the individuals in question to make the most of their initial equality.
Redistribution of the income after the event is equivalent to denying them the opportunity to enter the lottery. …
[By analogy, individuals] choose occupations, investments, and the like partly in accordance with their taste for uncertainty. …

[The] economic progress achieved in the capitalist societies has been accompanied by a drastic diminution in inequality. …

The methods that governments have used most widely to alter the distribution of income have been graduated income and inheritance taxation. …
My impression is that [the current high and highly graduated nominal tax rates (20-91%)] have had a relatively minor, though not negligible, effect in the direction of narrowing the [income] differences between the average position of groups of families …
[Though, if] present tax rates were made fully effective, the effect on incentives and the like might well be so serious as to cause a radical loss in the productivity of the society.
Tax avoidance may therefore have been essential for economic well-being. …

I find it hard, as a liberal, to see any justification for graduated taxation solely to redistribute income.
This seems a clear case of using coercion to take from some in order to give to others and thus to conflict head-on with individual freedom.

All things considered, the … tax structure that seems to me best is a flat-rate tax [eg 23.5% on total personal income (labor and capital); combined] with the abolition of the corporate income tax [coupled with a] requirement that corporations … attribute their income to stockholders …

[Such a flat rate] would yield a higher revenue because a larger amount of taxable income would be reported for three reasons:
  • there would be less incentive than now to adopt legal but costly schemes that reduce the amount of taxable income reported (so-called tax avoidance);
  • there would be less incentive to fail to report income that legally should be reported (tax evasion);
  • the removal of the disincentive effects of the present structure of rates would produce a more efficient use of present resources and a higher income. …

Much of the actual inequality derives from imperfections of the market.
Many of these have themselves been
  • created by government action or
  • could be removed by government action.
There is every reason to adjust the rules of the game so as to eliminate these sources of inequality.
For example, special monopoly privileges granted by government, tariffs, and other legal enactments benefiting particular groups, are a source of inequality.

(Capitalism and Freedom, 1962)


PBS American Experience: Human Capital

Simon Marginson: The New Gilded Age

Robert Putnam: Freedom And Justice For All

William Goetzmann: Debt and Deficit in the 18th Century

George Megalogenis: Tax Cuts of the Rich, Spending Cuts for the Poor

Adrian Dugan: The Anatomy of the Top 1%

Paul Krugman: The Great Divergence

David Stuckler: Life, Death and Austerity

Mark Blyth: No Bailouts

Michael Lewis: High Frequency Theft

Koctopus: One Dollar, One Vote

Al Gore: The Robber Barons Ride Again

Robert Manne: After The (Neoliberal) Revolution

Paul Piff: Noblesse Oblige

Anne Manne: Producers vs Parasites

John Hewson: Budget of the Century

Alex Gibney: All I ask for is an unfair advantage

Choosing Inequality

Richard Wilkinson: Inequality and Progress

Robert Johnson: Heads I win — Tails you lose.

Satyajit Das: (LIBOR^2 x 1/LIBOR) – (LIBOR^4 x LIBOR^-3) = ?

A Culture of Greed

Paul Krugman: Gambling with Civilization

Mike Pottenger: Rich Man, Poor Man

The Economist: A True Progressivism

Michael Robinson: The Restoration of the Plutocracy

Charles Ferguson: Inside Job

Joseph Stiglitz: Financial Alchemy


  • Money Changes Everything: How Finance Made Civilization Possible, PUP, 2016.
    William Goetzmann: Edwin J Beinecke Professor of Finance and Management, Yale School of Management.


    In 1710, Robert Harley became chancellor of the Exchequer; [and effectively,] the prime minister of Great Britain.
    Among his biggest challenges was a [national debt of 9 million pounds —] the legacy of an extended war with France: the War of the Spanish Succession.
    (p 332)

    [The plan was to restructure the debt by creating a major financial firm, the South Sea Company,] under the control of Harley's Tory Party, which hitherto had been cut out of the directorships of the other major British financial giants of the day, the Bank of England and the East India Company. …
    The firm was approved by Parliament in May 1711 with Harley as the governor and a board largely composed of Tory directors.
    (p 333)

    In 1713, the Treaty of Utrecht concluded the costly War of the Spanish Succession, which pitted the Netherlands, Britain, and the Holy Roman Empire against efforts to unify France and Spain under a single monarch.
    As part of the settlement, the British, for the first time, received an asiento from Spain — permission to supply African slaves to Spanish America.
    This included:
    • limited rights of mercantile trade,
    • the requirement to supply 4,800 African slaves per year for thirty years to Spanish America (with the King of Spain receiving 10% of the profits on the slave trade), and
    • the right to establish [trading centers] in South America …

    The natural recipient for the asiento would have been the Royal African Company, which [had had a] monopoly on English trade with West Africa [for over 50 years.]
    The firm evidently branded its slaves with the initials of the firm (or those of the Duke of York, its governor), maintained a series of forts along the West African coast where it obtained prisoners, and traded actively in gold—hence the name for the English gold coin, the guinea. …

    [Nevertheless,] the asiento passed to the [newly formed] South Sea Company for a price of 7.5 million pounds.
    The Spanish King Philip V received an allocation of 28% of new South Sea shares, the purchase of which the company financed by means of a million pesos' loan.
    Queen Anne's cut was 21.5%.
    (p 334)

    The award of the asiento must have been particularly painful to Britain's Dutch allies in the war. …
    A significant part of the [Dutch West India] company's commerce was the slave trade.
    Now the British had a new company patterned on the Dutch model, and the right to take over the transatlantic trade in humanity. …

    What made the South Sea Company powerful was not its relative advantage in shipping and trade, but the degree to which it was an extension of the British government.
    It epitomized the opposite of the laissez-faire capitalist system that freed investors and entrepreneurs to buy and sell capital on a level playing field.
    [The] corporation became an instrument of political favoritism and international negotiation.
    It is perhaps telling that the politicians settled on exploiting the most odious of all trades.
    (p 335)

    [Thus 1711 saw] the beginning of the famous triangle trade that developed between Europe, Africa, and the Americas. …
    • Goods made in the factory towns of the industrial northwest of England were shipped to Africa in exchange for slaves;
    • Africans were brought over on the infamous middle passage to Caribbean islands for systematic subjugation and sale to the [American mainland; and]
    • [sugar,] molasses, and other commodities, bought with the profits of the slave trade, were shipped back to Europe. …

    [However,] Harley's political fortunes waned to the point that he was impeached as lord treasurer in 1714, and the following year he was locked up in the Tower of London for acts of treason.
    (p 336)

    Although absolved and released after a two-year confinement, he had to step down as governor of the South Sea Company.
    His place was taken by King George I. …
    By one calculation the South Sea Company shipped 64,000 slaves to Spanish America over its lifetime.
    (p 337)

  • The Secret Recordings of Carmen Segarra, Ep 536, This American Life, WBEZ, Chicago, September 26 2014.
  • NY Fed Fired Examiner Who Took on Goldman, ProPublica, 10 October 2013.
    Jake Bernstein.

    In the spring of 2012, [Carmen Segarra,] a senior examiner [and risk specialist] with the Federal Reserve Bank of New York determined that Goldman Sachs had a problem.

    Under a Fed mandate, [Goldman] was expected to have a company-wide policy to address conflicts of interest in how its phalanxes of dealmakers handled clients.
    Although Goldman had a patchwork of policies, [Segarra] concluded that they fell short of the Fed’s requirements.

    That finding [had potentially] serious implications for Goldman, which was already under fire for … allegedly putting the bank’s own interests above those of its customers. …

    Before she could formalize her findings, Segarra said, the senior New York Fed official who oversees Goldman pressured her to change them.
    When she refused, Segarra said she was called to a meeting where her bosses told her they no longer trusted her judgment. …
    Carmen Segarra:
    They wanted me to falsify my findings … and when I wouldn’t, they fired me.
    Today, Segarra filed a wrongful termination lawsuit against the New York Fed in federal court in Manhattan seeking reinstatement and damages. …

    Goldman is known for having close ties with the New York Fed, its primary regulator.
    The current president of the New York Fed, William Dudley, is a former Goldman partner.
    One of his New York Fed predecessors, E Gerald Corrigan, is currently a top executive at Goldman.
    At the time of Segarra’s firing, Stephen Friedman, a former chairman of the New York Fed, was head of the risk committee for Goldman’s board of directors.


    Liz Day

    A sampling of deals that have posed conflicts of interest for Goldman Sachs:

    Kinder Morgan-El Paso

    The Deal:
    In 2011, gas pipeline operator Kinder Morgan agreed to buy pipeline operator El Paso Corp for $21.1 billion.
    Goldman advised El Paso on the deal.

    The Issue:
    Goldman owned 19% of Kinder Morgan and controlled two board seats.
    Goldman’s lead banker for El Paso failed to disclose owning $340,000 in Kinder Morgan stock.

    A Delaware judge declined to stop the deal but criticized Goldman and El Paso’s management for conflicts of interest.
    {At the New York Fed, Goldman told the regulators that its conflict-of-interest procedures had worked well on the deal.}


    The Deal:
    Abacus 2007-AC1 was a mortgage-backed security created by Goldman.
    Investors in the deal lost over $1 billion, contributing to the financial crisis.

    The Issue:
    Goldman failed to disclose that hedge fund manager John Paulson had helped pick assets for the security that he wanted to bet against.

    In 2010, Goldman settled with the SEC for $550 million; Goldman VP Fabrice Tourre was found liable of securities fraud earlier this year.

    Stephen Friedman

    The Deal:
    In the midst of the 2008 financial crisis, Goldman won approval from the Federal Reserve to convert to a bank holding company and later received federal bailout money.

    The Issue:
    Stephen Friedman, then chairman of the New York Federal Reserve, sat on Goldman’s board and bought 37,300 shares of Goldman while helping plan the Wall Street bailout.

    Friedman resigned from the Fed shortly after news of his stock purchases broke in 2009; last spring, he retired from the Goldman board.


    The Deal:
    Goldman was hired in 2008 by Solyndra, a California-based solar panel manufacturer, and secured Solyndra a $535 million loan guarantee from the US Department of Energy.

    The Issue:
    Goldman netted fees as an adviser but reportedly decided against investing its own money into Solyndra.

    In 2011, Solyndra filed for bankruptcy and laid off 1,100 workers, spurring a government investigation into whether Solyndra misled officials about its finances.


    The Deal:
    In 2005, the New York Stock Exchange bought Archipelago Holdings, which ran a rival electronic trading network.

    The Issue:
    Goldman advised Archipelago and saw its stake in the company surge — as did value of Goldman’s seats on the NYSE, then headed by former Goldman President John Thain.

    The NYSE settled a member suit that claimed Goldman gave conflicted advice.

    Would you like to know more?

  • The Political Origins of Banking Crises, RSA, 27 February 2014.
    Charles Calomiris: Henry Kaufman Professor of Financial Institutions,Columbia Business School.
  • Swiss executive pay referendum nears, RN Drive, ABC Radio National, 22 November 2013.
    Florian Vock: International Secretary, Young Socialist Party, Switzerland.
  • Gambling with Civilization, New York Review of Books, 6 June 2013.
    Paul Krugman: Professor Economics and International Affairs, Princeton University.
    Nobel Prize in Economics (2008).

    [In The Climate Casino, William D Nordhaus (Sterling Professor of Economics, Yale University) emphasizes that:] when it comes to climate change uncertainty strengthens not weakens, the case for action now. …
    [His] best estimate of what we should be doing involves placing a substantial immediate tax on carbon, one that would sharply increase the current price of coal, and gradually raising that tax, more than doubling it by 2030. …

    Nordhaus draws a contrast between what he calls
    • “managed systems” — things like agriculture and public health, which are basically human activities affected by climate — and
    • “unmanageable systems,” like sea level, ocean acidification, and species loss.

    [He] is relatively sanguine about the [short-term] impact of rising temperatures on the managed systems. …
    The bigger costs, [he] argues, come from the unmanageable systems:
    • rising seas,
    • more powerful hurricanes,
    • loss of species diversity,
    • increasingly acidic oceans. …

    [He] concludes that there will be mounting costs as the temperature rise goes beyond 2°C [— a rise which already seems] almost impossible to avoid.

    [Compared to other 'negative externalities'] there are some unusual aspects to greenhouse gases:
    • the harm they do is global, not local,
    • the costs extend very far into the future rather than occurring contemporaneously with the emissions, and
    • there is at least some risk that emissions will lead not just to costs but to civilizational catastrophe. …

    [So why] is putting a price on carbon better than direct regulation of emissions?
    [The answer is:] efforts to reduce emissions can take place along many “margins,” and we should give people an incentive to exploit all of those margins.
    [For example:]
    • Should consumers try to use less energy themselves?
    • Should they shift their consumption toward products that use relatively less energy to produce?
    • Should we try to produce energy from low-emission sources (eg, natural gas) or non-emission sources (eg, wind)?
    • Should we try to remove CO2 after the carbon is burned, eg, by capture and sequestration at power plants?
    The answer is, all of the above.
    And putting a price on carbon [gives] people an incentive to do all of the above. …

    Nonetheless … direct action to regulate emissions from [coal-fired] electricity generation would be a surprisingly good substitute for carbon pricing [due to its disproportionate contribution to GHG emissions.]
    [In other words, the solution to] most of the emissions problem [might] be quite simple: stop burning coal to generate electricity. …

    [However, there is] real power behind the opposition to any kind of climate action — power that warps the debate both by denying climate science and by exaggerating the costs of pollution abatement.
    [And it] isn’t the kind of power that can be moved by calm, rational argument.

    [So why] are some powerful individuals and organizations so opposed to action on such a clear and present danger?
    Part of the answer is naked self-interest.
    Facing up to global warming would involve
    • virtually eliminating our use of coal except to the extent that CO2 can be recaptured after consumption; …
    • somewhat reducing our use of other fossil fuels; and …
    • substantially higher electricity prices.
    That would mean billions of dollars in losses for some businesses, and for the owners of these businesses subsidizing climate denial has so far been a highly profitable investment.

    Beyond that lies ideology.
    William D Nordhaus:
    Markets alone will not solve this problem …
    There is no genuine ‘free-market solution’ to global warming.
    (The Climate Casino: Risk, Uncertainty, and Economics for a Warming World, YUP, 2013)
    This isn’t a radical statement, it’s just [basic economics.]
    Nonetheless, it’s anathema to free-market enthusiasts.
    If you like to imagine yourself as a character in an Ayn Rand novel, and someone tells you that the world isn’t like that, that it requires government intervention — no matter how market-friendly — your response may well be to reject the news and cling to your fantasies.
    And sad to say, a fair number of influential figures in American public life … believe they’re acting out Atlas Shrugged.

    Finally, there’s a strong streak in modern American conservatism that rejects not just climate science, but the scientific method in general.
    Polling suggests, for example, that a large majority of Republicans reject the theory of evolution.
    For people with this mind-set, laying out the extent of scientific consensus on an issue isn’t persuasive — if anything, it just gets their backs up, and feeds fantasies about vast egghead conspiracies. …

    Given the current state of American politics [this] combination of self-interest, ideology, and hostility to science constitutes a huge roadblock to action, and rational argumentation isn’t likely to help.
    Meanwhile, time is running out, as carbon concentrations keep rising. …
    William D Nordhaus:
    [The] last 7,000 years have been the most stable climatic period in more than 100,000 years.
    [This] era of stability coincides pretty much exactly with the rise of civilization, and that probably isn’t an accident.
    Now that period of stability is ending [— courtesy of the] mass burning of coal and other fossil fuels. …

    The Scientific Revolution that accompanied [Industrial Revolution has] given us far more knowledge about the world, including an understanding of what we ourselves are doing to the environment.
    But it seems that we have [unknowingly] made an immensely dangerous bet: namely, that we’ll be able to use the power and knowledge we’ve gained in the past couple of centuries to cope with the climate risks we’ve unleashed over the same period.
    Will we win that bet?
    [Only time] will tell.
    Unfortunately, if the bet goes bad, we won’t get another chance to play.

  • How the Case for Austerity Has Crumbled, New York Review of Books, 6 June 2013.
    Paul Krugman.

    [The] turn away from fiscal and monetary stimulus [since 2010] can be interpreted … as giving creditors priority over workers.
    Inflation and low interest rates are bad for creditors even if they promote job creation; slashing government deficits in the face of mass unemployment may deepen a depression, but it increases the certainty of bondholders that they’ll be repaid in full. …

    [The] failure to anticipate the crisis was a relatively minor sin.
    Economies are complicated, ever-changing entities; it was understandable that few economists realized the extent to which short-term lending and securitization of assets such as subprime mortgages had recreated the old risks that deposit insurance and bank regulation were created to control.

    [But] what happened next — the way policymakers turned their back on practically everything economists had learned about how to deal with depressions, the way elite opinion seized on anything that could be used to justify austerity — was a much greater sin.
    The financial crisis of 2008 was a surprise, and happened very fast; but we’ve been stuck in a regime of slow growth and desperately high unemployment for [three] years now.
    And during all that time policymakers have been ignoring the lessons of theory and history. …

    [Immense suffering] has resulted from these policy errors.
    [Furthermore, recent economic history challenges the belief] that knowledge can make a positive difference in the world.
    To the extent that policymakers and elite opinion in general have made use of economic analysis at all, they have, as the saying goes, done so the way a drunkard uses a lamppost: for support, not illumination.
    Papers and economists who told the elite what it wanted to hear were celebrated, despite plenty of evidence that they were wrong; critics were ignored, no matter how often they got it right.
    [The] broader message of the past few years remains just how little good comes from understanding.

    Would you like to know more?

  • Park Avenue: Money, Power and the American Dream, Steps International, 2012.
    Alex Gibney: Writer and Director.
  • Client 9: The Rise and Fall of Eliot Spitzer, A&E IndieFilms, 2010.
    Alex Gibney: Writer and Director.

    Eddie Sterns hedge fund, Canary Capital, was producing spectacular results at a time when the stock market was tanking.
    The big profits … came from manipulating mutual funds.
    Noreen Harrington [Former Executive, Stern Asset Management]:
    They were doing … late trading. …
    In one case they went to a bank.
    And the bank put a computer back-office terminal into … Eddie Stern's fund.
    Eddie might enter 40 trades prior to [the 4 pm market close].
    Now let's say it's [10 pm.]
    They cancel the 30 that lost money and keep the 10 that made money.
    And so this was a bank, completely working with one client, to destroy the profits owed to all the people in those funds.
    The name of the bank, was Bank of America.
    Noreen Harrington:
    One of the questions I get asked a lot [is:]
    Did you believe you would never work again?
    And I think about that question a lot because, what you're saying, by asking that question, is by doing public service and helping 95 million people, stopping a crime, this industry wouldn't want you? …

    John Houldsworth [Former CEO, Gen Re — a company owned by Warren Buffet]:
    [American International Group (AIG) CEO] Hank Greenberg phoned up Ron Ferguson, and said
    Ron, I need your help.
    We want to borrow $500 million of reserves off you for a couple of years.
    To boost his stock price, Hank Greenberg wanted to make it look like AIG had $500 million more than it did. …
    A hand-written deal memo laid out the terms [with Gen Re:]

    1. Gen-Re would pretend to pay AIG $500 million (in two instalments) for a phoney insurance policy.

    2. There was no risk of paying a claim.

    3. For doing the phoney deal AIG would pay Gen Re a $5 million fee. …
      Maurice 'Hank' Greenberg:
      AIG was a big company.
      I didn't stay focussed on the Gen Re transaction.
      Hank Greenberg's initials 'MRG' were all over the document. …

    What was an 'unfair advantage' was seen as 'cooking the books' to AIG's accountants, Price Waterhouse Coopers.
    The firm refused to accept AIG's financial statements as long as Greenberg was the CEO. …
    [Threatened with indictment by New York State Attorney General, Eliot Spitzer] Greenberg's lawyers advised him to 'plead the 5th', despite AIG's policy to fire employees who didn't cooperate with regulators. …
    [For these two reasons, Greenberg's own board was forced to remove him in 2005.]
    Hank Greenberg:
    When politicians involve themselves in who is running a company, and who is not — we're on dangerous ground in this country. …
    I didn't do anything improper …

    [During Greenberg's tenure AIG sold] billions of dollars of insurance to the world's biggest banks to hide their risky gambles on home mortgages.
    When housing prices collapsed [in 2008] AIG couldn't pay the claims.
    US taxpayers paid $183 billion in an effort to save the global economy from collapse. …

    Spitzer wanted to prosecute Greenberg for financial manipulation, but was called off the case by [George W Bush appointee and US Attorney for the Southern District of New York, Michael J Garcia on the understanding that federal authorities would deal with Greenberg]. …
    Michael Garcia never pursued charges against Greenberg.
    Instead, he would lead the prosecution that [led, indirectly,] to Spitzer's downfall.

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