Demise of the Rich American

If you have a yard full of orange trees, lemon trees, and lime trees, and the lemons and limes had all been picked, which fruit would be left?

Thanks to whatever group you care to name and blame, the “limes” and “lemons,” i.e., the middle classes and the poor, are fast losing ground in this century. Their demise began in the last century when capitalism began to take a global turn in earnest.

In this century we can expect to see continuing unemployment, cuts in programs for the poor, and wage decreases due to union-busting, the coming inflation, and pressure from the unemployed who increasingly will be cut off from unemployment compensation.

And there is an imminent threat to the rich too.

This week Columbia University economist Jeffrey Sachs wrote an article for the Financial Times titled, “Stop this race to the bottom on corporate tax“. Sachs points out that the dominance and mobility of global capitalism is pushing the US and other countries into a race for the bottom when it comes to corporate taxes and loopholes for taxes on the rich.

Says Sachs, “The problem [with this race to the bottom] is that both the US and UK are aiming to do the impossible: run a modern, high-technology, prosperous 21st-century knowledge economy without the requisite tax base…”

The race to the bottom

Have you noticed those tax cuts for the rich now being proposed? A maximum US federal tax of 25% for all? For years I’ve thought the reason behind tax cuts for the rich is that rich people are assumed to fund corporate production. This week I see my error. Rich people are needed for their consumption, not for their production!

It seems “conspicuous consumption” is a necessary byproduct of capitalism when government is used to transfer large amounts of wealth from the poor and middle class to the rich through taxation of wages, erosion of wages via inflation, stimulus funds for large corporations, and tax cuts and loopholes for corporations and the rich.

According to Kelly Evans in the Wall Street Journal article “Gains in Income Aren’t Lifting All Boats,” incomes of the working and middle classes are steadily being eroded. “Roughly 40% of consumer spending these days is generated by the the upper fifth of households.”

Evans adds, “UniCredit economist Harm Bandholz notes the share of U.S. consumption financed by labor income [i.e., “earned” income as opposed to “passive” income made form investments] has declined to abut 61% today from 85% in 1970.”

According to a Financial Times report  “Credit card Firms Target Rich Not Poor,” credit card corporations  are now wooing “wealthy customers” to offset the dangers from the card companies’ “exposure to increasingly indebted low-income borrowers.”

Says the FT, “The average wealthy borrower carries about $3,124 in credit card debt a month, $326 less than last month. By contrast, the average low-income borrower’s debt has risen by 100 over the same period to $2,464 a month…”

So when the income of working and middle classes is gone, who’s next? Who pays when it comes to raising taxes after the “lemons” and “limes” have all been picked clean? Obviously it will be the rich.

But how could taxes on the rich be raised?

No doubt you think the rich in this country have all the power?  Not so! We have a superrich class in this country too.

See the following income charts from Mother Jones for a pictorial description of the rich in America. Note that the title of the article, “How Rich Are The Superrich” is totally misleading. These charts describe the rich, not the superrich.

According to these charts, the top one percent of Americans in terms of income are merely millionaires, and the top ten percent of Americans families have an average income of only $164,647.

The real superrich are the billionaires, headed towards becoming trillionaires, who control the largest of the US corporations. Large corporations are a tiny minority of existing corporations. 95% of American corporations have five employees or fewer. Only 5 % of US corporations are what you’d call large.

The superrich are not limited to America either. The richest man in the world lives in Mexico, not the US. The man who is the fourth richest in the world lives in Indiia. The superrich are a global class. Their power and interests stretch around the world.

The superrich are the ones who own the corporations that are competing internationally for corporate tax cuts everywhere. It is not just states within the US who are cutting taxes for corporations; it is states all over the world.

The demise of rich Americans

Here’s what I see coming for the rich. When the superrich are done squeezing out every dollar they can from middle class and the poor, the superrich only have one place left to go. They can’t raise corporate taxes – that would hurt their own pocketbooks. They have go after the rich to pay for the public goods and services that the poor and middle classes now pay taxes for.

The rich, who currently find their interests allied with those of the superrich at the pleasure of whom they have high paying jobs will find that is no longer the case. When the superrich need more money, they will have to get it from the ten percent of American families who earn an average income of $164,647.

What we’ll be likely to see then is that a disgruntled upper middle class will be cleverly, through the media owned by the superrich, pitted against the rich in democracies, which by then will be prevalent around the world.

On this path, we are not headed toward the utopia Star Trek portrays with its 23rd century United Federation of Planets. The prime directive of this world is make profit, not seek out new life.

The failure of economic systems based on greed

And here we get down to the unsolved problem of global capitalism. Just as with the mercantilist (i.e., “colonial “) system that came before global capitalism in the 17th and 18th centuries with the rise of nation states, trade between countries, and navies, capitalism too will be unsustainable.

Eli Heckscher shows in his economic and psychological analysis in his multi-volume book, Mercantilism, colonialism failed because the mother countries in Europe relied on using cheap imports from their colonies to manufacture expensive finished goods to sell back to those colonies.

Mercantilism was the opposite of free trade. Colonials, by law, were banned from competing with the mother country in producing and/or selling finished goods themselves. Nor could a colony buy goods from a European power that competed with their own mother country. On top of that, colonials were taxed by their mother countries.

Colonies had to import manufactured goods, at a cost which, over time, increasingly became onerous. In the end, colonials just didn’t have the money to keep on buying expensive imports from their mother countries from Europe. The rest is history, our history in particular.

Capitalism that spews out globally-produced cheap goods made by corporations owned by the superrich will be similarly in trouble. Global capitalism is also based on a massive imbalance of one-way wealth.

With most of the rich taxed almost as heavily as the middle classes and the poor, who will be left to buy things that the superrich produce? After all, there is only so much this very tiny class at the top of the world can use for itself! And credit cards can only go so far to provide for the rest of us! This raises the question…

How far do we have to go before the insanity of this becomes clear to everyone?