Wealth Concentration Leads to Feudalism

The issue of capitalism and “private property,” vs. socialism and public ownership, is the most fraught conflict in modern politics.

But it’s based on false premises. Most of what you think of as “private property,” is actually personal property. Things such as your home, your car, and your other personal possessions. Even if you own a second home, or small apartment building that you rent out, or small business, that still falls broadly under the category of personal property.

When socialists and communists talk about placing controls on, or eliminating “private property,” they are talking about large sectors of the economy. Corporate landlords that own thousands or hundreds of thousands of units. They are talking about large systems like prisons, schools, and utilities. Fossil fuel companies. And large sectors of logistics like Amazon. And giant multibillion dollar conglomerates, whether in tech, food production, energy, or media.

The reason socialists and communists talk about “forced property seizure” is because large private business entities often become more powerful than governments, undermining democracy. Wealthy people and organizations have the ability to spend money to sway elections and shape public sentiment. Instead of the government regulating these large conglomerates, these behemoths end up capturing the power of government through lobbying and campaign contributions, and getting the government to pass laws and write rules that favor these huge entities at the expense of both their smaller business competitors, and the public.

Social democracy, or democratic socialism can be the solution. Through implementing voter checks and balances on large private property owners, and large accumulations of capital.

And it’s regarding the nature of social democracy, and who it serves, that the owner class waxes the most dishonest.

The Big Economic Lies

When scientists or public-interest groups define a target for regulatory action, whether in regard to safety, the environment, or the economy, that would apply to the largest corporations, and protect the public, the owner-class propaganda machine goes into overdrive.

Lie #1) “Job-killing regulations will destroy the economy.” See what they did there? They made you believe that the public interest is in opposition to the interests of the public. Neat trick.

Lie #2) “Taxing corporations will ultimately raise prices for consumers.” No, they won’t. Corporate taxes are only paid on profits. So raising them only reduces the amount paid to shareholders. Market competition keeps corporations from raising prices in response to tax increases.

Lie #3) “Keeping wages low, keeps prices low.” This pits bargain-hunters against workers. The bargain-hunters are only happy to snap up goods and services at prices that keep workers in poverty, often not even being able to afford the basics of living. Such poverty among minimum wage workers is nearly indistinguishable from slavery. Even slaves had jobs. The definition of worker freedom has always had everything to do with pay. A living wage in most American cities is around $20 per hour. And if minimum wage growth had kept up with worker productivity increases since 1980, it would now be $26 per hour. The current federal minimum wage of $7.25 per hour is a pure Dickensian hell.

Lie #4) “Billionaires will leave the country if their taxes are raised.” This scathing lie ignores the value proposition of America itself, and it also elides the fact that there are already trillions of dollars kept in offshore accounts. And that wealthy people have many, many incentives to keep their money in the US, in spite of taxes being raised. The test case would be to go back to the 1950s and 1960s when top US tax rates were 91%. The economy thrived, and there was no capital flight.

Lie #5) “Government-run schools and healthcare provide terrible service, and are inefficient and wasteful.” The opposite is true. Regulated public utilities have provided extremely reliable service for the better part of a century. The owner class also goes apoplectic at the prospect of any public health care program. Again, lying to raise fear among workers that they will lose some valuable aspect of their health care, or “choice” in the process. When in fact all they have to lose are high deductibles, denials of care, and insurance industry profits.

These bait and switch lies have been the mainstay of owner class propaganda for decades. They have deadly consequences. They’ve made the US a poorer, sicker, less equal nation. All because they succeeded in convincing way too many Americans that their interests are the same as the interests of the owner class. And poisoning the word “socialism,” which has as its literal root, “the people.”

So, how does social democracy, or democratic socialism fix all this?

Taxation Is Not Theft

Dishonest “small government” libertarians constantly repeat the vicious lie that “taxation is theft.” It’s a bootlicking mantra dripping in blood and suffering. Because steep tax increases on the wealthy and corporations are the first and essential step toward establishing a flourishing social democracy. The key is well-structured progressive taxation, indexing rates so that ideally the poor would get rebates, the middle class would pay a lower percentage, and the wealthy would pay the bulk of all taxes.

Contrary to popular opinion, the primary purpose of taxation is not to raise revenue. Taxation is primarily a check on wealth and corporate power, and its primary purpose in terms of monetary policy is to control inflation. To understand this, we’ll confront the myth of “taxpayerism” in the next section. But first, a short synopsis of Modern Monetary Theory.

Barely anyone understands the basics of Modern Monetary Theory. We covered this on The Radical Secular podcast in Episode 27, Money, Money, Money. Briefly, governments that control their own currency can never run out of money. They can never become insolvent, because they can always issue more currency to pay for any expenditures, or debts they’ve incurred. Right wingers will dutifully (and correctly) point out that issuing too much currency will eventually lead to hyperinflation. But the devil is in the details. There is absolutely a limit to how much currency a government can issue. And that is the upper bound of available labor and materials. In order to understand this, you have to unlearn the knee-jerk right-wing lie you’ve been fed about the private sector being the source of all value in the economy. It’s the towering central Big Lie from which all the rest of the lies flow.

The strongest economies are the ones in which the government always spends enough to ensure full employment. When governments follow this formula, they also need to collect sufficient taxes to keep inflation at a low, stable rate, usually about 2%. And it matters a great deal, who these taxes are collected from. Raising taxes across the board is the wrong way to do it. Since the goal is to leave more money in the hands of people who will spend it right away. Taxing the wealthy at much higher rates reduces the money supply, without putting a damper on consumer spending.

There’s a choice to be made, and the wealthy have already made it. They’d rather have a bigger piece of a smaller pie, and spoil the possibility for greater prosperity for the rest of us. So they direct all their efforts toward tax and budget cutting policies that stifle broader economic growth. Whenever you hear the words “small government,” grab your wallet because you are being conned!

Government budgeting should never be based on the amount of taxes collected, nor should the first goal be to keep the budget “balanced.” For best outcomes, government budgets should be based on maximizing employment, resource utilization, and by extension economic growth. Tax rates should be set first to curtail private wealth concentration, and second to balance out the inflationary pressure of government spending.

Taxpayerism

It’s conventional wisdom that it is taxpayers who should have the ultimate say as to how “their” money is spent. Folks, this isn’t how any of this works. In a democracy, it’s of course broadly up to the people to decide the direction of their nation. But that does not in any way include making line-item budget decisions. And since collecting taxes is the statutory authority of government, any tax money collected never belonged to the taxpayer in the first place. This reality is reflected by the withholding of taxes from paychecks. That money never belonged to the worker in the first place. And the same kinds of controls and tax withholding should also be placed on the wealthy when they make large transactions.

You have to look at taxes like any other bill a citizen has to pay. In what universe does a renter get to tell the landlord how to spend the rent money? In what wild unchained fantasy does a person paying their phone bill get to have any input as to how the phone company spends that money? The answer is, they don’t. And the same goes for taxes. You pay your taxes, and that money might go for things you don’t agree with, whether it’s the military, or social programs. And if you don’t like it, you can vote accordingly. But it was never, ever, your money.

Taxpayerism also destructively dominates the discourse around spending, even among way too many liberals. This is the onerous and deadly “pay for” conversation that seems to come up, especially when social programs are discussed. We don’t hear many questions at all about how tax cuts are going to be “paid for.” Tax cuts, are in fact, functionally identical to government spending. Because they mean two things. First, they mean the government has to either spend less or borrow more. Second, they mean that the risk of inflation increases. And when those cuts benefit the wealthy, they are in fact a form of socialism for those who need it least.

We never hear anyone ask how the US should “pay for” its grossly inflated military budget. But propose something like student loan forgiveness, or an expansion of health care, and suddenly everyone’s yelling about “budget busting” expenditures. This is an egregious double standard that keeps people in poverty and keeps the US facing a dearth of public goods. It’s obvious why the right makes these arguments: When the government spends money to help citizens directly, those services often compete with—or eliminate—the need for more expensive private, for-profit services.

The ethically sound question about economics should always be, “how do we achieve the best economic outcome for the greatest number of citizens?” And the answer is never “privatization,” “smaller government” or “tax cuts.” The answer should always be, “by maintaining full employment and resource utilization, and keeping inflation in check through appropriate taxation.”

The Rentier Class

In his classic, “Capital in the 21st Century,” Thomas Piketty stated the defining formula of unfettered capitalism:

R > G

This deceptively simple formula means, in plain English, “the rate of return on investments is always greater than the rate of growth of the economy.” And he demonstrates that this has been true historically in nearly every capitalist economy in history, with a few short-term exceptions.

And this has surprising implications. Let’s use an example to illustrate what he means. If investment capital grows at 5% per year, and the economy grows at 2%, what that means is that investors will capture a greater share of the economic growth than labor, year after year—essentially forever.

What this also means is that without an annual wealth tax, wealth will continue to concentrate, the rich will get richer, and workers will have to fight to maintain their share of a shrinking pie.

The phrase “rentier class” comes from the French word rentier, which means annuitant, or someone who lives off an annuity or property. It is interchangeable with the phrase “owner class” I used above. It describes those who have sufficient assets that they can live comfortably by spending only the gains on their assets, without spending the underlying principal. What this effectively means is that this group of people never has to participate in the labor market. While they may take risks, and run companies, and employ people, they are insulated from the economic pressures experienced by those they employ.

So capitalism has created a class of people who live off the labor of others. There are a number of ways to describe this:

Socialism for the wealthy, and capitalism for the poor.

Socializing the losses, privatizing the gains.

Or…

Feudalism.

It doesn’t take a great deal of imagination to understand that this can’t last. Squeeze the working class too hard, and there’s no one left to do the work. Keep making people poorer, and there’s a declining share of the population year on year, who can afford to be consumers. This is how capitalism eats itself.

And there are implications for the future of labor against rising automation. It’s possible to imagine a future of automated factories, producing products for no one.

Avoiding this absurd eventuality starts now.

Increasing The Share Of Public Property

I began this article discussing the distinction between private, public, and personal property. Only the most drastic forms of authoritarian communism seek to eliminate all personal property. And that’s why these systems have never been effectively implemented anywhere in the world, except perhaps in small tribes and communes. They tend to break down at the level of nations, because they go against human nature, and are wildly unpopular. Preventing all private trade requires a massive surveillance and police state. And produces terrible economic outcomes.

No one serious about economics or political philosophy would ever advocate such an abominable system. Yet capitalists constantly scream variations of “Everything I hate is communism!”

To create and preserve a more just society, what we’re fighting for is a fairer distribution of wealth and property, leading to better outcomes, not the elimination of all personal (or even private) property. But to do this, we need to de-privatize big parts of the economy. And those parts of the economy that remain in private hands, must be held accountable to some basic standards of the public interest. It’s a huge project, with a lot of moving parts. And at every step of such reforms, those who currently hold power and wealth will do everything they can to block reform. And there will be new opportunities for new forms of corruption, that must also be fought.

Let’s take as an example, the regulated public utility. Utilities can be either owned directly by government, or they can be run privately with a guaranteed rate of return on investment. Regulated public utilities have been a huge success story for electric power generation. And tax-exempt utility bonds are a favorite safe investment. Because expectations of returns are limited, these companies are often required by law to make expenditures that would be unprofitable for a private company, such as keeping power plants running when no one is buying their power—called “spinning reserve.” This increases the reliability of the electric grid. We’ve seen the results of the private approach in Texas, where the power grid was deregulated and disconnected from the national grid in 2002. There’s been a large increase in price volatility and decrease in reliability. When the state faced an unexpected cold snap in early 2021, its grid failed, leaving people cold and in the dark for days. This is an example of the high cost of deregulation.

Other industries that have been deregulated or privatized over the past 50 years include prisons and schools, with disastrous results.

Nearly every American industry could benefit from either increased public ownership, or being strictly regulated to run for public benefit. Health care is probably the biggest target. The US spends massively more on health care than most developed countries, and has worse outcomes. Under Obamacare, health insurance companies are allowed to make a 20% profit. By contrast, the overhead for publicly-run Medicare is only 3%.

Banking is ripe for disruption. Direct government-to-consumer banking could reduce costs for consumers across the board, and return banking profits to the public treasury, rather than to private investors. A government-issued digital currency could make this a seamless transition.

Telecommunications also represents an extensive private monopoly. In the early 2000s, many city governments planned to offer free public WiFi, only to see a rash of telco-sponsored legislation making it illegal to do so in at least 18 states. In 2021, Republicans introduced a bill in Congress yet again, to ban public WiFi networks nationwide.

The fossil fuel industry remains a legendary corporate villain, that still retains massive public subsidies totaling as much as $650 billion per year, while being the primary driver of climate change.

And then of course, there’s the tech companies. It would be difficult to overstate the problems caused by the lack of regulation of the tech industry, that’s become a growing threat to information democracy, and the electoral process itself. These companies have at best tolerated, and at worst amplified disinformation on Covid, climate, the economy, and more. At a minimum, the public has a right to see and understand the highly secretive algorithms that govern what they see online.

Finally, we need to address the issue of large corporate housing conglomerates, who are increasingly buying up real-estate, driving up home prices and rents nationwide. Housing is a public good, and homelessness is a social crisis that costs state and local governments dearly. Private owners should not be allowed to profit unfairly while so many Americans remain unhoused. At least some public ownership of housing, or heavily regulating the industry seems like a necessary step.

None of the reforms I’m proposing should impact personal property, or have any negative impact on mom-and-pop businesses or landlords. Small businesses and individual entrepreneurs should actually benefit from a model of greater public ownership. Particularly when it comes to things like access to capital, utility bills, and health insurance. Imagine being able to run a business, knowing that you’re not on the hook for expensive private health insurance for your employees. And that you can get a business loan on favorable terms, directly from the government.

In sum, private wealth is both the gatekeeper, and the primary beneficiary of, a deregulated market economy. And as corporate lobbying increases its stranglehold over the democratic process, those private benefits are increasingly becoming a threat to democracy itself. The best way to change that, is to dramatically reduce the share of wealth in private hands.

Doing so would unleash the power of government to serve the people directly, without corporate intermediaries. Which would benefit the vast majority of Americans in ways we can barely imagine.