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Forum Post: The Suicide of the 1 Percent

Posted 2 years ago on Oct. 20, 2012, 9:09 p.m. EST by PeterKropotkin (1050) from Oakland, CA
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By Chrystia Freeland

IN the early 14th century, Venice was one of the richest cities in Europe. At the heart of its economy was the colleganza, a basic form of joint-stock company created to finance a single trade expedition. The brilliance of the colleganza was that it opened the economy to new entrants, allowing risk-taking entrepreneurs to share in the financial upside with the established businessmen who financed their merchant voyages.

Venice’s elites were the chief beneficiaries. Like all open economies, theirs was turbulent. Today, we think of social mobility as a good thing. But if you are on top, mobility also means competition. In 1315, when the Venetian city-state was at the height of its economic powers, the upper class acted to lock in its privileges, putting a formal stop to social mobility with the publication of the Libro d’Oro, or Book of Gold, an official register of the nobility. If you weren’t on it, you couldn’t join the ruling oligarchy.

The political shift, which had begun nearly two decades earlier, was so striking a change that the Venetians gave it a name: La Serrata, or the closure. It wasn’t long before the political Serrata became an economic one, too. Under the control of the oligarchs, Venice gradually cut off commercial opportunities for new entrants. Eventually, the colleganza was banned. The reigning elites were acting in their immediate self-interest, but in the longer term, La Serrata was the beginning of the end for them, and for Venetian prosperity more generally. By 1500, Venice’s population was smaller than it had been in 1330. In the 17th and 18th centuries, as the rest of Europe grew, the city continued to shrink.

The story of Venice’s rise and fall is told by the scholars Daron Acemoglu and James A. Robinson, in their book “Why Nations Fail: The Origins of Power, Prosperity, and Poverty,” as an illustration of their thesis that what separates successful states from failed ones is whether their governing institutions are inclusive or extractive. Extractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society. Inclusive states give everyone access to economic opportunity; often, greater inclusiveness creates more prosperity, which creates an incentive for ever greater inclusiveness.

The history of the United States can be read as one such virtuous circle. But as the story of Venice shows, virtuous circles can be broken. Elites that have prospered from inclusive systems can be tempted to pull up the ladder they climbed to the top. Eventually, their societies become extractive and their economies languish.

That was the future predicted by Karl Marx, who wrote that capitalism contained the seeds of its own destruction. And it is the danger America faces today, as the 1 percent pulls away from everyone else and pursues an economic, political and social agenda that will increase that gap even further — ultimately destroying the open system that made America rich and allowed its 1 percent to thrive in the first place.

You can see America’s creeping Serrata in the growing social and, especially, educational chasm between those at the top and everyone else. At the bottom and in the middle, American society is fraying, and the children of these struggling families are lagging the rest of the world at school.

Economists point out that the woes of the middle class are in large part a consequence of globalization and technological change. Culture may also play a role. In his recent book on the white working class, the libertarian writer Charles Murray blames the hollowed-out middle for straying from the traditional family values and old-fashioned work ethic that he says prevail among the rich (whom he castigates, but only for allowing cultural relativism to prevail).

There is some truth in both arguments. But the 1 percent cannot evade its share of responsibility for the growing gulf in American society. Economic forces may be behind the rising inequality, but as Peter R. Orszag, President Obama’s former budget chief, told me, public policy has exacerbated rather than mitigated these trends.

Even as the winner-take-all economy has enriched those at the very top, their tax burden has lightened. Tolerance for high executive compensation has increased, even as the legal powers of unions have been weakened and an intellectual case against them has been relentlessly advanced by plutocrat-financed think tanks. In the 1950s, the marginal income tax rate for those at the top of the distribution soared above 90 percent, a figure that today makes even Democrats flinch. Meanwhile, of the 400 richest taxpayers in 2009, 6 paid no federal income tax at all, and 27 paid 10 percent or less. None paid more than 35 percent.

Historically, the United States has enjoyed higher social mobility than Europe, and both left and right have identified this economic openness as an essential source of the nation’s economic vigor. But several recent studies have shown that in America today it is harder to escape the social class of your birth than it is in Europe. The Canadian economist Miles Corak has found that as income inequality increases, social mobility falls — a phenomenon Alan B. Krueger, the chairman of the White House Council of Economic Advisers, has called the Great Gatsby Curve.

Educational attainment, which created the American middle class, is no longer rising. The super-elite lavishes unlimited resources on its children, while public schools are starved of funding. This is the new Serrata. An elite education is increasingly available only to those already at the top. Bill Clinton and Barack Obama enrolled their daughters in an exclusive private school; I’ve done the same with mine.

At the World Economic Forum in Davos, Switzerland, earlier this year, I interviewed Ruth Simmons, then the president of Brown. She was the first African-American to lead an Ivy League university and has served on the board of Goldman Sachs. Dr. Simmons, a Harvard-trained literature scholar, worked hard to make Brown more accessible to poor students, but when I asked whether it was time to abolish legacy admissions, the Ivy League’s own Book of Gold, she shrugged me off with a laugh: “No, I have a granddaughter. It’s not time yet.”

America’s Serrata also takes a more explicit form: the tilting of the economic rules in favor of those at the top. The crony capitalism of today’s oligarchs is far subtler than Venice’s. It works in two main ways.

The first is to channel the state’s scarce resources in their own direction. This is the absurdity of Mitt Romney’s comment about the “47 percent” who are “dependent upon government.” The reality is that it is those at the top, particularly the tippy-top, of the economic pyramid who have been most effective at capturing government support — and at getting others to pay for it.

Exhibit A is the bipartisan, $700 billion rescue of Wall Street in 2008. Exhibit B is the crony recovery. The economists Emmanuel Saez and Thomas Piketty found that 93 percent of the income gains from the 2009-10 recovery went to the top 1 percent of taxpayers. The top 0.01 percent captured 37 percent of these additional earnings, gaining an average of $4.2 million per household.

The second manifestation of crony capitalism is more direct: the tax perks, trade protections and government subsidies that companies and sectors secure for themselves. Corporate pork is a truly bipartisan dish: green energy companies and the health insurers have been winners in this administration, as oil and steel companies were under George W. Bush’s.

The impulse of the powerful to make themselves even more so should come as no surprise. Competition and a level playing field are good for us collectively, but they are a hardship for individual businesses. Warren E. Buffett knows this. “A truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital,” he explained in his 2007 annual letter to investors. “Though capitalism’s ‘creative destruction’ is highly beneficial for society, it precludes investment certainty.” Microsoft attempted to dig its own moat by simply shutting out its competitors, until it was stopped by the courts. Even Apple, a huge beneficiary of the open-platform economy, couldn’t resist trying to impose its own inferior map app on buyers of the iPhone 5.

Businessmen like to style themselves as the defenders of the free market economy, but as Luigi Zingales, an economist at the University of Chicago Booth School of Business, argued, “Most lobbying is pro-business, in the sense that it promotes the interests of existing businesses, not pro-market in the sense of fostering truly free and open competition.”

21 Comments

21 Comments


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[-] 4 points by beautifulworld (21611) 2 years ago

This is a good article and she makes many valid and important points but for some reason Chrystia Freeland always holds back, always places more blame than I think is ever necessary on the people such as she does is in paragraph 8. Just a little pet peeve I have with her.

[-] 2 points by PeterKropotkin (1050) from Oakland, CA 2 years ago

She's pro capitalist that's why I'm not a huge fan but I thought it was an interesting article so I posted it. I think Murray's argument is horse shit

[-] 3 points by beautifulworld (21611) 2 years ago

Exactly. Glad we agree. I don't dislike her, but she is always a bit specious, if you ask me. She'll be saying a bunch of things I agree with until the zinger comes out, and it always does. LOL.

[-] 1 points by SparkyJP (1646) from Westminster, MD 2 years ago

Thank You!! I thought it was just me, because many times, her digs are subtle.

Chrystia Freeland and Matt Taibbi interviewed by Bill Moyers this past weekend:

Plutocracy Rising -

http://www.truthdig.com/avbooth/item/plutocracy_rising_20121023/

[-] 2 points by beautifulworld (21611) 2 years ago

Yes. I'm psyched about this, that I'm not alone! Very subtle, makes me really not like her now that I think about it more. LOL!

Thanks for the link.

[-] 2 points by SparkyJP (1646) from Westminster, MD 2 years ago

Yeah - I had the same reaction when I read YOUR comment! Cheers!

[-] 3 points by DKAtoday (24943) from Coon Rapids, MN 2 years ago

It may well be suicide of the 1% - but they seem hell bent on making it a murder suicide - as they are in the process of killing the world while they get up the nerve to finish the job on them-selves.

[-] 3 points by PeterKropotkin (1050) from Oakland, CA 2 years ago

IN the early 19th century, the United States was one of the most egalitarian societies on the planet. “We have no paupers,” Thomas Jefferson boasted in an 1814 letter. “The great mass of our population is of laborers; our rich, who can live without labor, either manual or professional, being few, and of moderate wealth. Most of the laboring class possess property, cultivate their own lands, have families, and from the demand for their labor are enabled to exact from the rich and the competent such prices as enable them to be fed abundantly, clothed above mere decency, to labor moderately and raise their families.”

For Jefferson, this equality was at the heart of American exceptionalism: “Can any condition of society be more desirable than this?”

That all changed with industrialization. As Franklin D. Roosevelt argued in a 1932 address to the Commonwealth Club, the industrial revolution was accomplished thanks to “a group of financial titans, whose methods were not scrutinized with too much care, and who were honored in proportion as they produced the results, irrespective of the means they used.” America may have needed its robber barons; Roosevelt said the United States was right to accept “the bitter with the sweet.”

But as these titans amassed wealth and power, and as America ran out of free land on its frontier, the country faced the threat of a Serrata. As Roosevelt put it, “equality of opportunity as we have known it no longer exists.” Instead, “we are steering a steady course toward economic oligarchy, if we are not there already.”

It is no accident that in America today the gap between the very rich and everyone else is wider than at any time since the Gilded Age. Now, as then, the titans are seeking an even greater political voice to match their economic power. Now, as then, the inevitable danger is that they will confuse their own self-interest with the common good. The irony of the political rise of the plutocrats is that, like Venice’s oligarchs, they threaten the system that created them.

http://www.nytimes.com/2012/10/14/opinion/sunday/the-self-destruction-of-the-1-percent.html?pagewanted=3&_r=2

[-] 4 points by Builder (4202) 2 years ago

Excellent article.

One look at the second presidential debate demonstrates just how far from reality the "leaders" have drifted.

[-] 2 points by bullfrogma (448) 2 years ago

Nice. It's too bad the whole world is involved.

This video is 70 minutes and everyone should watch it.

http://larouchepac.com/node/23995

It's not just an alternative to hyperinflation, or about thermonuclear war. It's also about everything else, and it's pretty damn good.

[-] 2 points by Underdog (2971) from Clermont, FL 2 years ago

Excellent post. Thanks for providing. I have read what seems like hundreds of similar things by now. How many times and in how many different ways can people keep saying the same thing, and yet We The People are still asleep (or else don't know how to effectively act together, or else are afraid of trying to fight the corrupt system and the Sc(r)ooge party)?

[-] 2 points by gsw (2697) 2 years ago

Chrystia Freeland will be on Bill Moyers in 25 minutes discussing "the rise of the Plutocracy", Pacific time zone.

Should be one to catch.

[-] 2 points by gsw (2697) 2 years ago

Below are some notes from the program.

Taxpayers subsidizing 97 million dollar Donald Trump lux. Golf course in the Bronx.

2 candidates not talking about income inequality, it is a taboo topic in USA, think tank donors don't like to finance studies on this, plutocrats immediately cry class war, and claim they are like battered wives, being scapegoated by Obama.

Economically, under Clinton, and now, neither party speaks for the poor.

Poor have been demoralized: bill collectors, police profile, frisking, poor have been told by media they're poor for own lack of effort.

People at top have captured America political system, entire intelectual establishment, has bought bankers views, that plutocracy is inevitable, subsidies go to rich and business, oil, tech,

And not middle, which stifles USA ecomic growth.

[-] 2 points by gsw (2697) 2 years ago

Freeland believes in capitalism and globalization, and left needs to beware this is not a conspiracy, but a global phenomena, income inequality, in france, Canada, economic drivers of income inequality. In 1950s 90 percent marginal tax in conservative times in USA.

People on wall street concerned about corruption, that mistakes are rewarded and bailed out, Taibeii of Roling Stone more critical of corruption, than Freeland, Wall Street banks have advantage over local banks, because they have backing of USA govnt, and get breaks, and get away with corruption.

Freeland: millionaires battling billionaires. 97 percent of recovery went to 0.07 percent.

Rich, They divide themselves between good plutocrats and bad plutocrats, and they are the good.

Taibeii rich wall streeters say always someone else who was cheating, and hey are rich and deserve everything they have gotten, while poor are lazy, deserve what they have.

Freeland, we should understand what is good for 1 business may not be good for society as a whole.

Moyers: the busisneesses may threaten the society.

Taibeii: rich are disconnected, feel empowered, because they are treated so well.

Freeland: when you live with wealth and power, you get spoiled, and face challenges, facing everyday challenges.

Taibeii : they tilt powers into own favor, through laws, deregulate rules.

But they feel it is for greater good, and governments role as a regulator and balancer is devalued, and villa field.

Canada didn't need bailouts. They had good regulations. Government does have a role, can stand up to bank and bankers, even capping their income at 5 million rather tha 50 million.

Government, according to rich, was to bail out the rich, who re central to civilization, in their opinion.

Freeland, bailout was necessary, but now arguments against regulations now, how dare they argue against regulations.

[-] 2 points by gsw (2697) 2 years ago

CEOs are threatening employees to vote for Romney.

Matt Tabeii: Corporations are authoritarian structures. Tax system manipulated by rich, financial service capital gains income taxed only at 15 percent, and feel tax reform is a threat.

If you work in a private equity firm earn " carried interest" should be done away with.

They have specific focused lobby, while rest are disperse.

Because of election finance, congress has to look toward their financiers of campaign.

Freeland, Obama could be a plutocrat, he is not awed by them

Taibeii, Obama surround self with plutocrats, and doesn't believe he is fighting a class war against rich.

Freeland, Obama is challenging the idea of business is a complete positive force, hurting feelings of business class, ordinary people don't comprehend why they are so thin skinned. Rising tide not raising all boats, middle class rise is needed as plutocrats dependent on strong middle class.

Matt Taibeii: possible worsening of the situation.

Freeland: progressives need to offer possible reforms and ideas, we need to take next step, manufacturing jobs won't be coming back, and right doesn't want to face that, and left doesn't have new solutions.

Freeland wants to see the new ideas for the new economy, old systems need new ideas.

Moyers: miners at Romney rally compelled to attend Romney rally without pay.

Koch brothers send out letters to employees to 50,000 employees on dangers of Obama.

[-] 2 points by nomdeguerre (1775) from Brooklyn, NY 2 years ago

If only they weren't taking us with them.

[Removed]

[-] 3 points by gsw (2697) 2 years ago

Sure is a good article.

http://occupywallst.org/forum/the-self-destruction-of-the-1-percent/

We need more like it.

[-] 1 points by gsw (2697) 2 years ago

Who's idea was it to bail out the banks? The bankers, Paulsen et al. The 1 percent.

Iceland holds some key lessons for nations trying to survive bailouts after the island’s approach to its rescue led to a “surprisingly” strong recovery, the International Monetary Fund’s mission chief to the country said.

Iceland’s commitment to its program, a decision to push losses on to bondholders instead of taxpayers and the safeguarding of a welfare system that shielded the unemployed from penury helped propel the nation from collapse toward recovery, according to the Washington-based fund.

We should have seized their assets as treasonous traitors.

And taken the power from those who hadn't done their jobs: regulating.

http://www.businessweek.com/news/2012-08-12/imf-says-bailouts-iceland-style-hold-lessons-for-crisis-nations

Icelanders weren't wimps, and they have recovered from 1 percent thefts.

Those laughing 1 percenters. They're doing well, and we're supporting them.

[-] 1 points by LeoYo (5909) 2 years ago

So the country was most prosperous under slavery and land theft and the people to have benefited from it are now suffering from it under the new corporate 'persons' of Citizens United.

"A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the Nation, therefore, and all our activities are in the hands of a few men... We have come to be one of the worst ruled, one of the most completely controlled and dominated, governments in the civilized world—no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and the duress of small groups of dominant men."

http://occupywallst.org/forum/free-democracy-amendment/#comment-751508

[+] -4 points by Grimreaper2 (-318) 2 years ago

Are you truly serious with this? LOL!