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[...] In the United States in recent years, one frequently has heard this type of justification for the stratospheric pay of supermanagers (50– 100 times average income, if not more). Proponents of such high pay argued that without it, only the heirs of large fortunes would be able to achieve true wealth, which would be unfair. In the end, therefore, the millions or tens of millions of dollars a year paid to supermanagers contribute to greater social justice. This kind of argument could well lay the groundwork for greater and more violent inequality in the future. The world to come may well combine the worst of two past worlds: both very large inequality of inherited wealth and very high wage inequalities justified in terms of merit and productivity (claims with very little factual basis, as noted).
Meritocratic extremism can thus lead to a race between supermanagers and
rentiers, to the detriment of those who are neither.
The problem posed by this use of the word “rent” is very simple: the fact
that capital yields income, which in accordance with the original meaning of
the word we refer to in this book as “annual rent produced by capital,” has
absolutely nothing to do with the problem of imperfect competition or monopoly. If capital plays a useful role in the process of production, it is natural
that it should be paid. When growth is slow, it is almost inevitable that this
return on capital is significantly higher than the growth rate, which automatically bestows outsized importance on inequalities of wealth accumulated
in the past. This logical contradiction cannot be resolved by a dose of additional competition. Rent is not an imperfection in the market: it is rather the
consequence of a “pure and perfect” market for capital, as economists understand it: a capital market in which each owner of capital, including the least
capable of heirs, can obtain the highest possible yield on the most diversified
portfolio that can be assembled in the national or global economy. To be sure,
there is something astonishing about the notion that capital yields rent, or
income that the owner of capital obtains without working. Th ere is some-
thing in this notion that is an affront to common sense and that has in fact
perturbed any number of civilizations, which have responded in various ways, not always benign, ranging from the prohibition of usury to Sovie-style com-
munism. Nevertheless, rent is a reality in any market economy where capital is
privately owned. The fact that landed capital became industrial and financial
capital and real estate left this deeper reality unchanged. Some people think
that the logic of economic development has been to undermine the distinction
between labor and capital. In fact, it is just the opposite: the growing sophisti-
cation of capital markets and financial intermediation tends to separate owners
from managers more and more and thus to sharpen the distinction between pure
capital income and labor income. Economic and technological rationality at
times has nothing to do with democratic rationality. The former stems from
the Enlightenment, and people have all too commonly assumed that the latter
would somehow naturally derive from it, as if by magic. But real democracy
and social justice require specific institutions of their own, not just those of
the market, and not just parliaments and other formal democratic institutions.
If we are to make progress on these issues in the future, it would be good to begin by working toward greater transparency than exists today. In the United States, France, and most other countries, talk about the virtues of the national meritocratic model is seldom based on close examination of the facts. Often the purpose is to justify existing inequalities while ignoring the sometimes patent failures of the current system. In 1872, Emile Boutmy created Sciences Po with a clear mission in mind: “obliged to submit to the rule of the majority, the classes that call themselves the upper classes can preserve their political hegemony only by invoking the rights of the most capable. As traditional upper-class prerogatives crumble, the wave of democracy will encounter a second rampart, built on eminently useful talents, superiority that commands prestige, and abilities of which society cannot sanely deprive itself.” If we take this incredible statement seriously, what it clearly means is that the upper classes instinctively abandoned idleness and invented meritocracy lest universal suffrage deprive them of everything they owned. One can of course chalk this up to the political context: the Paris Commune had just been put down, and universal male suffrage had just been reestablished. Yet Boutmy’s statement has the virtue of reminding us of an essential truth: defining the meaning of inequality and justifying the position of the winners is a matter of vital importance, and one can expect to see all sorts of misrepresentations of the facts in service of the cause.
great quote that ties in nicely with http://bookmarker.dellsystem.me/note/2102
[...] If the tax system is not made more progressive, it should come as no surprise that those who derive the least benefit from free trade may well turn against it. The progressive tax is indispensable for making sure that everyone benefits from globalization, and the increasingly glaring absence of progressive taxation may ultimately undermine support for a globalized economy.
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
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.
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. [...]
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.
[...] 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. [...]
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.