As we approach the almost inevitable theft of several trillion dollars from the American people by Congressional Republicans, in order to pay back their sociopathic backers for financing the smear campaigns that keep them in office, we know damned well that no argument against this monstrous crime will sway these corrupt monsters in any way. Nevertheless, it is important to make our arguments against this this outrage. Most of these positions rely on some notion of fairness. I want to discuss here a rationalization not just for preventing tax cuts for the rich, but for imposing massive new taxes on them; an argument that does not rely on any notion of fairness, but on pure survival. I virtually never hear this argument made, and yet it provides, in my opinion, the most irrefutable grounds for raising taxes on the rich.
Since at least the 1600's the Western world has fallen prey to an endless, seemingly inevitable cycle of boom and bust; whether we are talking about tulip mania, the South Seas bubble, the panic of 1873, the Great Depression, the near depression of 2008, and a host of other recessons and depressions. I want to talk briefly about what causes the bubbles which inevitably lead to economic collapse.
The abstract, theoretical notion of supply and demand proposes, of course, that the price of commodities is determined by the relation of these two things; when supply is greater than demand, prices fall; when demand is greater than supply, prices rise. Everyone is familiar with that notion.
The problem with this simple characterization is that it views the goods to be purchased as commodities, without acknowledging that money itself is a commodity too. And as a commodity, it is as ruled by the law of supply and demand as any other good. So the price of goods is determined not only by their availability related to demand, but to their availability related to the amount of money available to buy them.
For the present discussion, what I am talking about is not the necessities of everyday life, but commodities which are invested in: stocks, real estate, precious metals, artwork,1959 Les Pauls, tulip bulbs, etc. I need hardly make the obvious point that the investor class is made up almost exclusively of the richest percent or two of the people in the world, who are sitting on huge amounts of cash which they have to invest somewhere. If these people have more money than they can profitably place in productive investments, by the very law of supply and demand, the money becomes worth less, or conversely, the investments become more expensive. This is how bubbles are created.
The classic example of this, I would think, is what happened in the runup to the Great Depression. Under three successive Republican administrations, the Secretary of the Treasury was Andrew Mellon, one of the richest and greediest men in the world. Tremendous growth in productivity took place during this period; Mellon consciously steered every bit of it into the hands of the rich, resulting in them having, by the end of the decade, a greater share of the nation's wealth than ever before in our country's history. The consequence was a desperate scramble to find ways to invest that money. This led, first of all, to a massive land boom, which collapsed utterly in 1927. Left without this avenue to invest their money, the rich placed it in ever increasing amounts in the stock market, which began its inevitable climb to the edge of the cliff; the worst depression the world had ever known. In similar fashion, the 2008 collapse was preceded by the most unequal division of wealth in the country since the 1929 collapse, brought about by Republican economic policies. The result was exactly the same, except for one thing: When the economy collapsed in 1929, the country had to wait over three years while a Republican administration continued its suicidal economic practices, before a Democrat could take over and start repairing the damage; in 2008, we only had to wait three months.
In any event, this is the most fundamental reason that the rich must be stripped of the great bulk of their wealth: it represents a greater danger to our economic wellbeing than any other single factor, and in fact causes an inevitable repeat of the boom and bust cycle that has plagued Western economies for centuries.
The only answer in the short run is a massive increase in top tax rates, a multiplying of the taxes on the very largest estates, and a total elimination of lower tax rates for corporations. Otherwise, we are headed inevitably for another gigantic collapse sooner or later; and please keep in mind that, without the 1929 collapse in the United States, and the calling in of American loans to Germany, it is extremely unlikely that Hitler would have been able to bring about World War II. This is a matter of our very survival, which is why it is carefully avoided in any mainstream economic discussion; but we had better think about it, because as things are going now (Pikkety points out that, by 2030, the disparity in wealth of the rich and the poor in the United States will reach a level never seen in the entire known history of the world) the result will be an unimaginable disaster.