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How might wealth be redistributed? Some thoughts.

by William McGaughey

 

First realize that, when a loaded gun is pointed at you, your disposable wealth is redistributed any way the gunman wants. And government is that entity with the loaded gun. Gold Party is trying to put itself in a position that it will decide how the gun is used.

In the waning days of the Bush administration, the Treasury Department, Federal Reserve, the FDIC, and others, in connivance with Wall Street interests, carried out a massive heist against future taxpayers. The financial bailouts, authorized by the U.S. Congress, are only the beginning of what was done. There were also the $2 trillion in loans to banks made by the Federal Reserve without telling Congress or anyone else who got the money or what collateral was required for the loans. The estimated cost of the bailout now exceeds $7 trillion. These deals, done in secret, represented wealth redistribution to the rich at the expense of people less well off.

So there is a precedent for “wealth redistribution” - and not a good one - however much John McCain complained of Joe the Plumber’s prospective tax bill. Government has the power to do this; and the gloves are off. Seeing how this transfer is done, Gold Party will now take its turn at the public trough.

Wealth redistribution has two aspects: There is the process of taking wealth from people and there is the process of giving it to people. The second part is already decided. The wealth will go to Gold Party members and it will be distributed in proportion to their Gold Party points. Questions remain about the other part. Whose wealth will be taken? Much will be existing wealth whose removal leaves the previous owners poorer than before. Some wealth may be created from new growth. Especially in the first case, the deprived owners will be unhappy.

If Gold Party takes off as a movement, we will have a certain time to determine the mechanisms for wealth redistribution. As we approach the point of government takeover, we will have access to much expert opinion. So it would not be wise to decide everything now. But it would be well to anticipate what the issues are. Gold Party members deserve a general understanding of the process by which their objective might be realized.

I say wealth redistribution must be guided by a sense of fairness as well as personal greed. After all, we are Americans first and want our country to prosper. For the most part, we are not used to stealing from others with government help; some may be squeamish about this. We need to retain a sense of idealism in our venture. Besides, as a practical matter, the process of taking wealth away from others angers large groups of people. We in Gold Party need as much help as we can get to build our organization to a size that it can win elections.

So let me give my views on fairness.

First, it is well for us to go after the wealth that was disgracefully taken away from taxpayers in the recent bailout of Wall Street and related moves. That wealth was a windfall to bankers; and they used it, not to loosen credit, but to pay bonuses and acquire other banks. I would not flinch at taking it back. But who got this illicit wealth? That question might be difficult to answer.

Generally I would distinguish between wealth that is gained by successful competition within the free-market system and that which is gained by politics. Most successful capitalists today claim their privileged positions derive from free-market virtues: they outcompeted the losers presumably. But I would hold to a tighter definition of free-market competition in which multitudes of buyers and sellers make independent decisions about transactions on which they mutually agree.

How often does that happen in corporate promotions? How often does a company announce an open competition for the CEO job and, among several equally qualified applicants, pick the one willing to work for less? Seldom if ever. Instead, politics guides the decision. Committees making such decisions put a premium on personal relationships and reputations. The “who you know” element is important.

Labor unions are also a political decision maker. In a free market, employers and workers would freely bid for the other’s service. The price of labor would be set through supply and demand. But unions set prices through collective bargaining. The entire group of workers is ready to go out on strike unless certain demands are met. This is politics, not economic forces, setting the price of labor.

So also would be, in my estimation, occupational gradations based on educational attainment. Unless one can show that the knowledge gained in schools was essential or even helpful in performing a certain job function, free-market competition has little to do with pay differences based on educational credentials. Rather there is a buddy system leading from the school to the place of employment. There are cabals of educated professionals insisting that people must be licensed to enter certain fields of work; and to be licensed, one needs to have completed a certain amount of coursework. Again, it is politics masquerading as meritocracy that decides the economic reward. Free-market incentives are largely irrelevant.

The general rule, in my book, would be that persons who have gained wealth through successful free-market competition deserve to keep more of it than persons who gained wealth through politics. So who would be the favored ones?

First, there would be small business people - say, owners of convenience stores, or gas stations, or apartment buildings, or bars and night clubs - who buy the business and manage it with their own money. If they work hard and manage well, their business can attract paying customers and make money. If not, they fail. I would let such business people keep all or most of what they have earned.

The same is true of persons who make money through invention or through other kinds of creative talents, even those high-paid athletes and movie stars who do not personally deserve the millions that they make. Unless the public will accept a substitute for their service, the free market does actually bid up its price to exorbitant levels. They, too, are relatively safe.

It is when government gets into the picture that I have problems with high incomes. Government is heavily involved with the medical industry, the insurance industry, pharmaceutical companies, education, the legal profession, etc., either through subsidies, tax breaks, favorable regulation, restraints on competition, or direct relationship. The wealth thus achieved has a political flavoring that might attract Gold Party attention.

Maybe as a practical matter, the Gold Party repo crew might draw a line around small accumulations of wealth and declare this to be a safe zone with respect to wealth redistribution. Let people keep their own homes and their personally owned businesses including farms, up to a certain dollar amount.

Instead, go after the big concentrations of wealth. Go after wealth in the form of corporate stock, whether in publicly held companies or private equity funds. Go after the hedge funds, the mutual funds, the money-market funds, insurance-like funds, and other complex concentrations of wealth.

Yes, we are talking revolution, but with justice in mind. Find out where the billions of dollars went that were “lost” in Iraq. Trace this money to hidden bank accounts and seize the assets. Take from the private contractors, their owners and managers, and give to the poorly paid Army Reserve and National Guard “volunteers” who were forced to reenlist any number of times even when their families at home were going into foreclosure.

Shake down the defense contractors, the homeland-security moguls, and others to give to the peons who worked on the front lines. Let the 103 Secret Service agents hired to protect ex-president Bush go. His personal safety on the ranch in Crawford, Texas, should mean as little to us as our troops’ safety in Iraq once meant to him.

Why did the Wall Street banking firms fail? After all, most of the banks that originated the bad mortgage loans quickly passed them along to “sophisticated” investors around the world. Instead, many of these banks got in trouble by trading in derivatives or the notorious “credit default swaps.” Essentially these were insurance contracts without any reserves. They were bets that mortgages would not go into default. But the mortgages did go into default and the highly leveraged bets had to be paid.

What I want to know is who got paid on those bets? Where is the money now that came from the accounts of Lehmann Brothers, AIG, Bear Stearns, Merrill Lynch, and other firms that lost so much wealth on this kind of bet? Why not slap a windfall profits tax on the big winners? Better still, why not confiscate their ill-gotten gains. Aren’t gambling debts supposed to be unenforceable?

And how about the financial sales representatives who arranged this kind of contract and made tens of millions of dollars in commission? How about the executives who made even more in bonuses? This is the kind of wealth that needs urgently to be redistributed. Seek bundles of cash among Wall Street’s casino staff and ye shall find.

Government, with its loaded gun, can do much as it pleases. It could, for instance, simply declare that the U.S. dollar is no longer legal tender and all debts or assets denominated in this currency have no value. With a stroke the pen, the national debt goes away. The dollar debt owed to China, Japan, and the Arab sheikdoms no longer exists. The dollars they have stored in their bank vaults cannot be exchanged for anything of value. And if these foreigners complain of our lack of national honor, we could, in turn, scold them for doing business with scoundrels like Paulson and Bush. Why should one generation pay for reckless, criminal behavior committed by another even if a continuity of law binds them together?

Government also has the power, I think, to reissue shares of corporate stock, to void certain debts, and transfer land titles, and otherwise alter the ownership interest in almost every kind of wealth. The Bolsheviks shot the rich peasants, which was a big mistake. Our proposed wealth transfer would be comparatively mild. If existing law did not condone this type of transfer, a Constitutional amendment would make it legal.

This discussion has probed the outer limits of what might be done if Gold Party came to power. In practice, the ruling group would have to show restraint in deciding how much wealth to take for itself. Any move to confiscate wealth might, of course, jeopardize the U.S. government’s standing in international financial markets. We should try to be fair - punish only the guilty. We should distribute only as much wealth as is needed to get the job done.

Necessarily, a certain amount of wealth would be redistributed to people as a reward for helping the revolution succeed. The revolutionaries would be “paid” for their political services, to to speak. (Presumably their fee would be less generous than what is considered normal on the CEO pay scale.) If that is the only way that our country can be taken back from the plutocracy now in power, I think it would come to be seen as legitimate, especially if confidence in our nation’s economy and society was restored.

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