27
So how could inequality rise so sharply since the 1990s, despite the stability of the wage-profit split? First, because the wage structure has shifted markedly in favor of very high wages. While the vast majority have seen most of their wage increases absorbed by inflation, very high salaries—especially those above €200,000 a year—have experienced considerable increases in purchasing power.
The second explanation is that the much-discussed stability of the wage-profit split doesn’t take into account increased levies on labor (especially payroll taxes for social insurance) or the fall in taxes on capital (particularly the profit tax). If we look at the incomes actually pocketed by households, we find that the capital income share (dividends, interest, rent) has risen continually while the after-tax wage share has dropped relentlessly, making the growth of inequality that much worse. Not to mention that companies doped up by the stock market bubble and its illusory (and undertaxed) capital gains have doubled their dividend payouts in the last twenty years, to the point where their ability to self-finance their operations has gone negative (retained profits, which are less than half of gross profits, are not even enough to replace worn-out capital). The answer, again, lies in the tax system and requires a rebalancing between labor and capital—for example, by subjecting business profits to family-benefit and national health contributions. [...]
relating to job polarisation
So how could inequality rise so sharply since the 1990s, despite the stability of the wage-profit split? First, because the wage structure has shifted markedly in favor of very high wages. While the vast majority have seen most of their wage increases absorbed by inflation, very high salaries—especially those above €200,000 a year—have experienced considerable increases in purchasing power.
The second explanation is that the much-discussed stability of the wage-profit split doesn’t take into account increased levies on labor (especially payroll taxes for social insurance) or the fall in taxes on capital (particularly the profit tax). If we look at the incomes actually pocketed by households, we find that the capital income share (dividends, interest, rent) has risen continually while the after-tax wage share has dropped relentlessly, making the growth of inequality that much worse. Not to mention that companies doped up by the stock market bubble and its illusory (and undertaxed) capital gains have doubled their dividend payouts in the last twenty years, to the point where their ability to self-finance their operations has gone negative (retained profits, which are less than half of gross profits, are not even enough to replace worn-out capital). The answer, again, lies in the tax system and requires a rebalancing between labor and capital—for example, by subjecting business profits to family-benefit and national health contributions. [...]
relating to job polarisation
42
Taking depreciation into account allows us to see, for instance, that French companies are currently in a situation of negative saving: they distribute more to their shareholders than they actually have to distribute, so that what they have left over is not even enough to replace used-up capital.
Taking depreciation into account allows us to see, for instance, that French companies are currently in a situation of negative saving: they distribute more to their shareholders than they actually have to distribute, so that what they have left over is not even enough to replace used-up capital.
45
It’s easy to denounce the idiocy of a tax. For a simple reason: all taxes are more or less idiotic, in the sense that they all tax people and activities that, in the abstract, it would be desirable not to tax. Things get complicated when, having proudly announced the elimination of an idiotic tax, political leaders go off in search of new revenues to finance the spending that we all, by and large, consider desirable: education, health, roads, pensions. The exercise can then prove perilous—all the more so since with taxes, it’s always possible to come up with something more idiotic. [...]
It’s easy to denounce the idiocy of a tax. For a simple reason: all taxes are more or less idiotic, in the sense that they all tax people and activities that, in the abstract, it would be desirable not to tax. Things get complicated when, having proudly announced the elimination of an idiotic tax, political leaders go off in search of new revenues to finance the spending that we all, by and large, consider desirable: education, health, roads, pensions. The exercise can then prove perilous—all the more so since with taxes, it’s always possible to come up with something more idiotic. [...]
46
Let’s also recall that no taxes are paid by businesses: ultimately, every euro of tax is always paid by households. In this fallen world, there is unfortunately nobody except physical, flesh-and-blood people who can pay taxes. The fact that businesses are technically required to remit some of them—in other words, to send a check to the tax authorities—says nothing about their final incidence. Inevitably, firms pass on everything they pay, to their workers (by reducing their wages), or to their shareholders (by reducing dividends or accumulating less capital in their name), or to consumers (by raising prices). The final distribution can’t always be seen with the naked eye, but one way or another all taxes end up being passed on either to the factors of production or to consumption. For example, businesses submit payroll-tax payments, calculated on the basis of their wage bill. It’s generally accepted that this tax is mainly paid by wages, which would be higher if the tax didn’t exist.
Let’s also recall that no taxes are paid by businesses: ultimately, every euro of tax is always paid by households. In this fallen world, there is unfortunately nobody except physical, flesh-and-blood people who can pay taxes. The fact that businesses are technically required to remit some of them—in other words, to send a check to the tax authorities—says nothing about their final incidence. Inevitably, firms pass on everything they pay, to their workers (by reducing their wages), or to their shareholders (by reducing dividends or accumulating less capital in their name), or to consumers (by raising prices). The final distribution can’t always be seen with the naked eye, but one way or another all taxes end up being passed on either to the factors of production or to consumption. For example, businesses submit payroll-tax payments, calculated on the basis of their wage bill. It’s generally accepted that this tax is mainly paid by wages, which would be higher if the tax didn’t exist.
52
[...] if Barack Obama found himself caving in to the lobbyists and watering down his reform of the health care system, it’s because his preelection promises were not sufficiently specific. He hadn’t really been elected on a program, hence his current weakness. Looking on from Europe, where we’re more sensitive to the international dimension of Obama’s election, we tend to be more forgiving of the American president. Obama certainly should have avoided using Republican arguments in the primaries to criticize Hillary Clinton’s health plan, which was more ambitious than his. [...]
[...] if Barack Obama found himself caving in to the lobbyists and watering down his reform of the health care system, it’s because his preelection promises were not sufficiently specific. He hadn’t really been elected on a program, hence his current weakness. Looking on from Europe, where we’re more sensitive to the international dimension of Obama’s election, we tend to be more forgiving of the American president. Obama certainly should have avoided using Republican arguments in the primaries to criticize Hillary Clinton’s health plan, which was more ambitious than his. [...]
55
That doesn’t mean the central banks did the wrong thing: the new liquidity undoubtedly helped us avoid a cascade of bankruptcies and prevented the recession from becoming a depression. That is, provided governments now manage to impose strict financial regulations that prevent such disasters from recurring, demand accountability (and taxes) from the banks, and, to boot, unload the debt that the governments borrowed from them.
If that doesn’t happen, citizens might logically conclude that this whole episode is an economic absurdity: bank profits and bonuses rebound, job openings and wages remain weak, and now we have to tighten our belts to pay back the public debt, which was itself created to clean up after the financial follies of the bankers who, by the way, have gone back to speculating, this time against governments, with interest rates of nearly 6 percent imposed on Irish and Greek taxpayers. Greek taxpayers who, for their part, unwittingly paid out €300 million in fees to Goldman Sachs to prettify their own public accounts.
That doesn’t mean the central banks did the wrong thing: the new liquidity undoubtedly helped us avoid a cascade of bankruptcies and prevented the recession from becoming a depression. That is, provided governments now manage to impose strict financial regulations that prevent such disasters from recurring, demand accountability (and taxes) from the banks, and, to boot, unload the debt that the governments borrowed from them.
If that doesn’t happen, citizens might logically conclude that this whole episode is an economic absurdity: bank profits and bonuses rebound, job openings and wages remain weak, and now we have to tighten our belts to pay back the public debt, which was itself created to clean up after the financial follies of the bankers who, by the way, have gone back to speculating, this time against governments, with interest rates of nearly 6 percent imposed on Irish and Greek taxpayers. Greek taxpayers who, for their part, unwittingly paid out €300 million in fees to Goldman Sachs to prettify their own public accounts.
60
Obviously, this kind of metaphor, based on the morality of the household and family (sloth versus work, the prodigal child versus the good father), is a classic trope of reactionary rhetoric. The rich have been stigmatizing the poor this way since time immemorial. There’s nothing new under the Greek sun. Except that today, faced with the complexities of twenty-first-century capitalism and its financial crises, such moralizing metaphors seem to be spreading beyond the usual circles. When you can’t seem to understand the way the world is going, it’s tempting to fall back on a few basic principles. Given the extreme rhetorical violence of the media’s attacks, it’s gotten to the point where the Greek prime minister declared on his visit to Berlin: “Greeks no more have laziness in their blood than Germans have Nazism in theirs.” [...]
The problem with these household metaphors is that at the level of a country—and for individuals as well—capitalism is not just about merit. Far from it. For two reasons that can be summarized simply: the arbitrary nature of the initial inheritance, and the arbitrary nature of certain prices, especially the return on capital.
When it comes to the initial inheritance, Greece is one of those countries that have always been possessions of other countries. For decades, what the rest of the world owns in Greece (firms, real estate, financial assets) has exceeded what the Greeks own in the rest of the world. The result is that the national income available to Greeks for consumption and saving has always been less than their domestic production (after deducting the interest and dividends they pay out to the rest of the world). And that makes it rather unlikely that they’ll consume more than they produce.
In the Greek case, the gap between domestic production and national income on the eve of the crisis was about 5 percent (twice the fiscal adjustment now being demanded of Greece). In countries that have gone all in on foreign investment (like Ireland), it can exceed 20 percent, and even more in certain countries of southern Europe. One might object that these interest and dividend flows are merely the result of past investments, so it’s good and right for Greek debtors and their children to pay out part of their production to foreign creditors. Sure. Just as it’s good and right for the children of tenants to pay rents indefinitely to the children of landlords.
Obviously, this kind of metaphor, based on the morality of the household and family (sloth versus work, the prodigal child versus the good father), is a classic trope of reactionary rhetoric. The rich have been stigmatizing the poor this way since time immemorial. There’s nothing new under the Greek sun. Except that today, faced with the complexities of twenty-first-century capitalism and its financial crises, such moralizing metaphors seem to be spreading beyond the usual circles. When you can’t seem to understand the way the world is going, it’s tempting to fall back on a few basic principles. Given the extreme rhetorical violence of the media’s attacks, it’s gotten to the point where the Greek prime minister declared on his visit to Berlin: “Greeks no more have laziness in their blood than Germans have Nazism in theirs.” [...]
The problem with these household metaphors is that at the level of a country—and for individuals as well—capitalism is not just about merit. Far from it. For two reasons that can be summarized simply: the arbitrary nature of the initial inheritance, and the arbitrary nature of certain prices, especially the return on capital.
When it comes to the initial inheritance, Greece is one of those countries that have always been possessions of other countries. For decades, what the rest of the world owns in Greece (firms, real estate, financial assets) has exceeded what the Greeks own in the rest of the world. The result is that the national income available to Greeks for consumption and saving has always been less than their domestic production (after deducting the interest and dividends they pay out to the rest of the world). And that makes it rather unlikely that they’ll consume more than they produce.
In the Greek case, the gap between domestic production and national income on the eve of the crisis was about 5 percent (twice the fiscal adjustment now being demanded of Greece). In countries that have gone all in on foreign investment (like Ireland), it can exceed 20 percent, and even more in certain countries of southern Europe. One might object that these interest and dividend flows are merely the result of past investments, so it’s good and right for Greek debtors and their children to pay out part of their production to foreign creditors. Sure. Just as it’s good and right for the children of tenants to pay rents indefinitely to the children of landlords.
64
And despite persistent beliefs to the contrary, “printing money” doesn’t translate into massive inflation: when you’re on the edge of a depression, the main problem is avoiding a deflationary spiral. Between September and December 2008, the ECB and the Fed created nearly €2 trillion in new money (10 percent of European or American GDP) and lent it at 0 percent interest to private banks. That helped avoid cascading bankruptcies, without any additional inflation. [...]
And despite persistent beliefs to the contrary, “printing money” doesn’t translate into massive inflation: when you’re on the edge of a depression, the main problem is avoiding a deflationary spiral. Between September and December 2008, the ECB and the Fed created nearly €2 trillion in new money (10 percent of European or American GDP) and lent it at 0 percent interest to private banks. That helped avoid cascading bankruptcies, without any additional inflation. [...]
65
Can central banks save us? No, not completely. But they hold part of the key to solving the current crisis. Let’s start from the beginning. There have always been two ways for governments to get money: impose taxes or create currency. Generally speaking, it’s infinitely preferable to impose taxes. The price for printing money is inflation, which creates distributive consequences that are hard to control (those with slower income growth pay dearly) and unsettles trade and production. Moreover, once it’s underway, the inflationary process is hard to stop and brings no further benefit.
[...]
[...] Clearly, after several decades of denigrating the state, it feels more natural to us to print money to save banks than to save governments. Yet the inflationary risk is just as low in both cases, and it can be managed. The ECB could take onto its own balance sheet a good part of the 20 percent of GDP worth of public debt created by the recession, at low interest rates, while announcing that it will raise interest rates if inflation exceeds 5 percent. That won’t excuse European governments from the need to get their finances under control and, above all, finally unite to issue a common European debt, to benefit from low interest rates together. But if they go all in on drastic austerity policies, there is a high risk that it will lead to disaster. Financial crises are part and parcel of capitalism. And when faced with major crises, central banks are irreplaceable. Of course, their infinite power to create money must be kept within bounds. But not to fully use this tool in today’s context would be a suicidal and irrational strategy.
Can central banks save us? No, not completely. But they hold part of the key to solving the current crisis. Let’s start from the beginning. There have always been two ways for governments to get money: impose taxes or create currency. Generally speaking, it’s infinitely preferable to impose taxes. The price for printing money is inflation, which creates distributive consequences that are hard to control (those with slower income growth pay dearly) and unsettles trade and production. Moreover, once it’s underway, the inflationary process is hard to stop and brings no further benefit.
[...]
[...] Clearly, after several decades of denigrating the state, it feels more natural to us to print money to save banks than to save governments. Yet the inflationary risk is just as low in both cases, and it can be managed. The ECB could take onto its own balance sheet a good part of the 20 percent of GDP worth of public debt created by the recession, at low interest rates, while announcing that it will raise interest rates if inflation exceeds 5 percent. That won’t excuse European governments from the need to get their finances under control and, above all, finally unite to issue a common European debt, to benefit from low interest rates together. But if they go all in on drastic austerity policies, there is a high risk that it will lead to disaster. Financial crises are part and parcel of capitalism. And when faced with major crises, central banks are irreplaceable. Of course, their infinite power to create money must be kept within bounds. But not to fully use this tool in today’s context would be a suicidal and irrational strategy.
76
It needs to be said clearly: letting countries that grew rich thanks to intra-European trade siphon off their neighbors’ tax base has absolutely nothing to do with free markets. It’s called theft. And lending money to people who’ve stolen from us without asking anything in return so as to ensure it doesn’t happen again—that’s called stupidity.
It needs to be said clearly: letting countries that grew rich thanks to intra-European trade siphon off their neighbors’ tax base has absolutely nothing to do with free markets. It’s called theft. And lending money to people who’ve stolen from us without asking anything in return so as to ensure it doesn’t happen again—that’s called stupidity.