Home > Uncategorized > It wasn’t the market that made elites incredibly rich, it was elites rigging the market to make themselves incredibly rich

It wasn’t the market that made elites incredibly rich, it was elites rigging the market to make themselves incredibly rich

from Dean Baker

It is amazing how frequently we hear people asserting that the massive inequality we are now seeing in the United States is the result of an unfettered market. I realize that this is a convenient view for those who are on the upside of things, but it also happens to be nonsense.

Today’s highlighted nonsense pusher is Amy Chua, who warns in a NYT column about the destructive path the United States is now on where an disaffected white population takes out its wrath on economic elites and racial minorities. The key part missing from the story is that disaffected masses really do have a legitimate gripe.

We didn’t have to make patent and copyright monopolies ever longer and stronger, allowing folks like Bill Gates to get incredibly rich. We could have made Amazon pay the same sales tax as their mom and pop competitors, which would mean Jeff Bezos would not be incredibly rich. We could subject Wall Street financial transactions to the same sort of sales taxes as people pay on shoes and clothes, hugely downsizing the high incomes earned in this sector. And, we could have rules of corporate governance that make it easier for shareholders to rein in CEO pay. 

None of the rules we have in place that redistribute upward were given to us by the market. They were the result of deliberate economic policy. (Yes, this is topic of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.) It is understandable that the losers from this upward redistribution would be resentful and they likely are even more resentful when the beneficiaries of the rigging just pretend that it was just a natural outcome of the market.

  1. patrick newman
    February 27, 2018 at 12:19 pm

    But even in more modest businesses, the rewards are very good. SME owners and top management are soon propelled into the multi-millionaire class. The billionaires who did innovate to produce useful products and services when they started have long since ceased to be entrepreneurs or contribute much to the advancement of the economy and society. However, they are all expert and innovative at avoiding tax and ensuring the political class adopts the ‘appropriate’ position when it comes to taxing high incomes.

  2. February 27, 2018 at 1:34 pm

    Even if the market had accidentally propelled a small elite to great privilege, that would be a legitimate topic for policy change. For example if we only ever conceived corporate and property rights one way, and that turned out unintentionally to bring very unequal outcomes, it would be right to consider hanging the structure. Conspiracy is not required.

    The benign form of this debate is how much of this inequality is useful. Some is. Back in the day Bill Gates actually argued that “if you want companies like Microsoft to exist you have to respect copyright”. The alternative of Open Source is only partly convincing, and even those projects have hierarchy. There’s usually a leader or founder who accepts some contributions and rejects others.

    The public feel, I think reasonably, that having a small group in charge of firms for the benefit of customers is vaguely beneficial. It’s better to have Google and Microsoft than to have only chaotic personal contributions and SMEs. Debatable, but I think it’s the current belief and hard to show otherwise.

    The problem is with the rewards. If you make Google with two people and one server, you served the public well. You get the right to scale it to a hundred thousand people and a million servers so you can serve the whole world and that. The greater means to serve should be the only reward for success, not a bonus or a superyacht or the ability to influence politics.

    I would make an admonition: Change the legal system to separate personal wealth (the right to have a yacht) from the leader’s agency (the power to set the company’s direction). Force people like Gates and Zuckerberg to cleanly split their wealth in two legal entities. Tax personal wealth steeply to bring consumption down to modest levels, and impose social and ethical controls on the activities of the business.

    Over time we need to get back to the notion, which existed in the 60s, that the purpose of a firm is to make things the world desires and the only reward for success, besides modest pay, is you get to steer and grow the firm. The reward for service is to serve more greatly. Which is not that different from the reward for being a brilliant scientist or artist or aircraft designer in the Soviet Union, if you think about it.

  3. Jan Milch
    February 27, 2018 at 3:12 pm

    “Laissez-faire too is a form of State regulation, introduced and maintained
    by legislative and coercive means. It is a deliberate policy,
    conscious of its own ends and not the spontaneous, automatic
    expression of economic facts”
    Antonio Gramsci

  4. February 27, 2018 at 3:34 pm

    Why we could not produce a Bill Gates? In fact, we could have produced at least 10 Bill Gates if we had used half our intelligence. I really feel bad that I could not become that one. We failed. And Bill Gates became 10 times richer. People buy his products. People are with him. As long as people are with him, he will continue to be rich. Who are our people? For whom do we fight for?

  5. Rob Reno
    February 27, 2018 at 3:38 pm

    None of the rules we have in place that redistribute upward were given to us by the market. They were the result of deliberate economic policy. ~ Dean Baker

    Completely agree Dean. Will most certainly read your book. It is time to bust the myth of “free markets,” “invisible hands,” and other such balderdash. Markets are always rigged, for good or ill, by various actors, so the only question is how do we want to rig them and who will benefit and at what cost. Akerlof’s Phishing for Phools makes it clear. Are foolish phools or wise participants calling BS on useless euphemisms hide more then they reveal?

    • Rob Reno
      February 27, 2018 at 4:00 pm

      Are we foolish phools or wise participants calling BS on useless euphemisms hide more then they reveal?

  6. Benjamin Morgentau
    February 27, 2018 at 6:29 pm

    …s i see it markets begin their liberalisation at the very bottom of society and end somewhere higher up of a society… gruesome all right and obscene at the end of a cycle getting closer to dystopia day by day…

  7. February 27, 2018 at 8:56 pm

    The obvious question is why don’t the masses use the power of their votes to claw back some of these gains? My answer is that the Minsky financial instability mechanism can enrich large geographic blocks who vote their own regional interests. For example the real estate bubble enriched the coastal urban centers for quite some time to the detriment of fly over country. If you want a Trump, this is how you get a Trump. It’s not just elites who “gamed” the system.

    • Rob Reno
      February 27, 2018 at 9:10 pm

      Good question. I ask myself they same.

    • February 28, 2018 at 10:23 am

      Voters see the existence of strong companies as somewhat useful. Try to convince people that Apple and Google should not exist. They’ll probably think twice about it. Voters want the social value that large hierarchical firms produce, without the inequality.

  8. Edward Ross
    March 6, 2018 at 4:54 am

    here my concern is that for a slow old fellow these discussions move foreword so fast that in answering Peter Blogda I may not attract any readers. In spite of that, as on of the mass i want to answer his question

    “why don’ the masses use the power of their vote to claw back some of these gains.”

    I answer with a number of economist including Tony Lawson have stated that beginning in the 1960s the education system was changed from teaching people how to think to an education system that indoctrinated people with the neoliberal ideology and denied them the opportunity of how to think. This was also supported by the elite wealthy and their ambitious political cohorts through the media. This is why for more than 20 years I have argued economists have ignored the possibility that with a little basic education the masse’s, the very people most affected by the neoliberal economic rationalist policies that are driven by rich elite. In some ways I see the masses as an untrained army, however give them a motive, which in this case is the rapid increase in the cost of living and job losses, Thus with organisation and training they could become a powerful force for change. TED

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