Empathizing with Capitalists

Once upon a time, in the 1970s, there probably was, as political conservatives and the business class claimed, a capital shortage.  Union power, rising wages, and a tax-and-spend “liberal consensus” had increased household incomes for three decades at the expense of profit rates, and this left businesses without sufficient capital to invest in all the profit-making opportunities provided by expansive consumer spending power.  This, so the story goes, was the root cause of the virulent 1970s inflation.  In the famous Keynesian formula for macroeconomic demand, there was too much spending power in the hands of consumers and government, and too little in the hands of investors.  Capitalists were short of cash, and the solution was clear: get them more, a lot more.

Short term this was accomplished through President Reagan’s tax cuts for the rich in the early 1980s.  But long term it required “breaking the back of the American standard of living,” as I remember Business Week bluntly arguing at the time.  This required limiting, eroding, and chipping away at a whole set of institutional structures built up since the 1940s around labor unions and government.

That mission has now been accomplished – and accomplished all too well.  We now have exactly the opposite problem: too little spending power in the hands of consumers and too much in the hands of investors.  Capitalists are said to be anxious as they sit on some $2 trillion in cash reserves, while real wages and household incomes decline.  There simply is not enough consumer demand to provide profit-making opportunities for capitalists, just the opposite of the 1970s.  The solution is again clear: get more money in the hands of consumers.  In the long run that means we need higher wages, much higher wages, but tax changes and stimulus programs can do a lot of good in the short term, and they are a good way to get started.

Just as in the 1970s the solution was to redistribute spending power from consumers to investors, we now need  redistribution in the other direction, from investors to consumers – not for the purpose of achieving a more equitable distribution of income (as desirable as that is) but, as in the ‘70s, to get the economy growing strongly again.  Raising taxes on top earners to fund job creation and raising wages for low earners is not just about “fair shares” (though it is very much about that, too).  It is necessary to reinvigorate our fat and weary form of capitalism.

The historical symmetry of these opposing problems and solutions is important because current Republican rhetoric about “job killers” and “job creators” assumes that there is always a capital shortage and, if that were true, throwing money at rich people might be part of the solution.  It’s important to realize that this idea once had a legitimate intellectual provenance, disputed to be sure but with a factual basis. That factual basis is gone and has been for quite a while.  With $2 trillion in corporate cash still sitting on the sidelines, it’s hard to argue that we need to overcome a capital shortage!

President Obama’s American Jobs Act implicitly recognized, at least on a temporary basis, that strong economic growth going forward depends on redistributing spending power from capital to labor, from investors to consumers.  For example, it included payroll tax cuts, extended unemployment compensation, and direct federal spending to reemploy teachers, cops, firefighters and construction workers – all paid for by taxing millionaires.  If it had passed, the Act would have increased economic growth by channeling spending power to workers and consumers who very much need it and would, therefore, spend most of it quickly, thereby stimulating other economic activity, leading to more jobs, more income, more consumer spending, and so on.

This is not an aberration.  Much of Obama’s program from the very beginning – the initial stimulus package, semi-universal health care, the Making Work Pay tax credit – has been redistributive in the right direction.   What is lacking is a clear Presidential explanation of the underlying problem – the long-term structural imbalance between investment capital and consumer spending.  Indeed, the President will not admit, even when badgered by Bill O’Reilly earlier this year, that he favors any redistribution of wealth.

Our President denies being a socialist, and I believe him.  For all I know, he may actually be philosophically opposed to the redistribution of income and wealth, seeing his own various redistributive programs as merely temporary expedients.  But someone in his administration understands that the U.S. economy needs more income in the hands of workers and consumers.  Even Business Week and the National Federation of Independent Businesses are beginning to understand it.  So do thousands of Americans occupying Wall Street and other public spaces around the country.  Explaining that – and pounding away at the need for increasing incomes in any way we can think of, as conservatives did with “the capital shortage” back in the day – might actually be more valuable than passing legislation.  Plus, such arguments increase the chances of passing the necessary legislation.

A stronger and more insistent focus on growing incomes in order to grow the economy, coming from the White House and Congressional Democrats, would draw attention to and bolster movements already underway to combat wage theft, pass living wage legislation, and help workers organize unions and other forms of workplace collective action.  All this not just to help poor unfortunate workers, but also to give our capitalists the boost they need.  Greatly increasing consumer demand is the only thing that can provide the myriad of investment opportunities that will save them from their current malaise.

Thus, far from “punishing” the rich and multinational corporations, reducing their cash hordes by increasing wages and average incomes is really for their own good.  I like this paternalistic empathy – especially in contrast to demonizing a whole class of people that I have almost no direct experience of – but I would not indulge that feel-good feeling if it weren’t also so clearly true and urgent.  The best way to give our capitalists a hand up and not a handout is to increase wages and average households’ incomes.

Jack Metzgar, Chicago Committee for Working-Class Studies

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8 Responses to Empathizing with Capitalists

  1. Pingback: USW Blog » Blog Archive » Work and Taxes

  2. Pingback: Work and Taxes | Working-Class Perspectives

  3. Jack Metzgar says:

    Thanks everybody for these comments. Roy, I don’t think I’m “preaching to the choir,” which I assume is for a very large redistribution of income and wealth from the top to the bottom (and middle) for reasons of fairness and justice. I want to point out — and to advocate the use of — a technical economic argument for such a redistribution as well. Nobel Prize winning economist Joseph Stiglitz has additional political and economic reasons that capitalists would benefit from such a redistribution in the latest issue of Vanity Fair, but he does not include the deadweight of the capital glut I tried to point to. It may be a passing phenomenon, Janet, but right now the Occupy movement is putting inequality of income firmly into the elite and mainstream discussion. And thanks, Jim, for noticing my sense of humor around paternalistic empathy. I grew up in a Steelworker family and neighborhood where criticizing the steel companies for their greed was seen as similar to criticizing a rattlesnake for being poisonous — it was the way their simple-greed made them stupid that endangered themselves and us!

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  4. I’ve considered myself a member of the working class for most of my life. I am now a small business owner who works alongside other members of the working class to help them compete against large national chains. I like this commentary, and I see your point, simultaneously wishing I could respond in a more intellectual manner. My question is, why is it so wrong to be in favor of a redistribution of wealth? Why are people ashamed of this position? This is especially pertinent on the day that the news media outlets report that the wealthiest group’s income has risen almost 300% since 1979, yet the rest of us have seen significantly less growth. I’m in support of a capitalistic economy, but what we have right now resembles something entirely different. Thank you.

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    • Kelly Ohler says:

      Janet’s comments get to t he root of the problem. There IS nothing wrong with redistributing wealth, or taking a position that advocates such a stance. We redistribute things all the time, do we not? From tipping to tithing, rewarding children with allowances, birthday and holiday monetary gifts, donations of time and money to poverty groups and beneficiaries, to taxes so all can benefit from roads, libraries and schools, etc. etc.

      Just like families, though (to keep with real-world, practical examples rather than intellectualized, theoretical ones), problems arise when someone does not want to share, or withholds sharing due to behavior or the need to control the behavior of another. If my child doesn’t perform well in school, or do his chores, his allowance is taken away.If he wrecks a car I pay for, then I am not squandering my money to buy him another; he will have to get a job to buy his own.

      Rationalization can set in, though. Since my child refuses to behave, I will take that money and do this or that with it. I needed that new whatever. It is my money after all–I worked for it, and he did nothing. He doesn’t deserve it if he can’t pull his own weight and help out.

      The wealthy rationalize on simply a larger scale. Their rationalizations include exempting people from access to wages or lifestyles, etc. based on looks, family, their possessions or lack of, etc.. “It’s mine, and I am entitled to what YOU have, too.” It’s my company, etc. etc.

      It is simply adolescence or an early childhood mentality of self-centeredness and greed that the wealthy operate under. I have made this point over and over in papers I have writen for various classes.

      The trick to all of it comes in the form of the position Jack Metzgar advocated, that of consumerism.

      As we grow, we are supposed to shed these self-centered behaviors and give unto others, whether it be in the form of money or information or time. Society will not tolerate the continued blatant self-centered behavior of a child, so somehow, they must trick the rest of the people into giving up what they accumulate. You can have, too. I will give you this if you give me that. I will give you shoes if you give me a portion of your wages for them. Bread for 10 cents today, $4.00 a loaf next week. People won’t eat bread at higher than $4 a loaf, so the wealthy mix grains with woodchips to provide less of a product for the same price.

      The trick comes in the form of ideology, too. Obama’s Mandate to force people to purchase a product or a service required the massive employment of propaganda to a public conditioned to Have and not to think. The massive campaign of “yes, this is a democratic plan in the right direction” was multi-faceted at every level, the media, the pundits, the academics. As long as you have the freedom to buy, it is good. As long as you have purchasing power, you can continue to feed into the system that requires you to continue to purchase the fake and poisoned products you have been told that you need.

      Our society is a system of tricks and conmen, with a system of favors that masquerades as government, in order to obtain whatever you possess, even your life, because you can and will be discarded by them.

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  5. Jim Phillips, University of Glasgow, Scotland says:

    I think that Jack is right, and I appreciate his sense of humour: it brings to mind the inversion of class power encapsulated in the great pre-World War One English working class novel, The Ragged Trousered Philanthropists, by Robert Tressell. Jack’s piece also helps us to understand the structural origins of the crisis: the decline in wages as a share of GDP in the USA, the UK, and many other industrial/mature economies since the 1970s. This was willed, by Reaganites and Thatcherites, and pursued through deindustrialisation and deunionisation. The new social settlement, replacing stable and unionised employment with insecure employment and enhanced access to credit, has been profoundly unsustainable.

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  6. Roy Wilson says:

    Jack,

    The contrast between capital and labor is useful but, some would say, limited. For example, Erik van Olin-Wright argues that in modern industrial/post-industrial societies the Weberian “middle class” becomes the site of Marxist class contradiction. The message of your email seems on target, but is so tuned to those who are already members of the choir that it may lose some of the persuasive force I’d guess you’d like it to have for those who are not. Am I mistaken?

    Roy

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  7. Kelly Ohler says:

    “Sympathizing” with Capitalists, and defending their wealth, is really NOT the position a Working Class Community or an analyst thereof should ever be taking. Capitalists dont’ need “a boost.” They don’t need “greatly increased consumer demand” to “provide a myriad of investment opportunities.” “Investment opportunities” from a “paternalistic empathy” has been given to them in increasingly unrestrained and unrestricted manners, and what did they see fit to do with their “hand up? from Reagan to Bush to Obama” They poison food, paint, and children’s toys; they slaughter millions of innocent people to gain control over resources; they murder by neglect all those denied medical care; they enslave children in factories and destroy ecological systems to meet the already extravagant Consumer Demand of the White Western world.

    Wow. To even think in terms of people/workers as consumers, and to frame the argument as one in which there needs to be a “redistribution of spending power,” (spending power—really?), and that “the underlying problem is longterm STRUCTURAL imbalance between capital and ‘consumer’ spending'” is actually rather amusing. The underlying problem IS structural, but it is the structure between the worker and the capitalist that needs to be “unstructured” and altered in such ways that the workers control the labor and the products. The workers would not be “poor and unfortunate” if there was worker control over products and services.

    “Obama denies being a socialist.” Would Mr. Metzgar consider Obama a socialist if he didn’t deny it? Anyone who can apply Obama’s corporate pandering policies to dictionary definitions of capitalist and socialist can answer that question. “Obama’s own redistributive programs” were further redistributive to the wealthy, not to “the consumer.”

    What capitalists do with “Consumer Demand” is cheapen and destroy humanity and life on our planet, so they can own everything. It is the notions of ownership and control that need to be restructured so that Comsumer Demand is such that everyone DEMANDS a beneficial life for EVERYONE.

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