Friday, November 19, 2010

A Few Ways Our Society Advantages the Wealthy

Now that I've covered the big issue areas of the day, in regards to which I have relatively few unique suggestions, my focus over the next few weeks will be on areas where I think more significant changes are desirable and which are currently not at the top of the agenda.  Many of these suggestions involve trying to even the playing field between the wealthy and non-wealthy so that those without assets can more successfully compete in the economy against those better off.  The idea will be not to push transfer payments but rather to focus on making various forms of investment pay off better for those with few assets.

I often here a complaint leveled against progressive taxation and other policies that have disparate effects on rich and poor that it is unfair to tax the rich simply for being rich.  Those who argue this often go on to claim that the tax is even more unfair because public investments tend to be consumed by the poor and not the wealthy.

While I think most non-wealthy see these arguments as absurd, I think it's worth pointing out a few ways that the institutions of our society disproportionately advantage the wealthy.  There's a perfectly good reason why expecting the rich to bear a greater burden is a necessary part of the social contract, we live in a society where the institutions overwhelmingly favor those that already possess wealth.  While this is no excuse to simply expropriate the wealthy acknowledging these advantages upfront is necessary to think rationally about policy and the necessity of providing a set of advantages for those left well off to compete on a more even field.  Also, it should be noted I don't believe in trying to change society to eliminate these advantages.  Many of them are the results of institutions that are necessary for our society to compete globally and that have done much to grow the pie bigger for everyone.  I simply believe that there is a natural social contract that comes with these institutions to provide countervailing forces to help those without assets compete with those with preexisting wealth to become wealthy themselves.  This is by no means meant to be a comprehensive list, simply a number of the more obvious advantages that occur to me.

1. Cheaper borrowing and better access to credit (probably the single biggest advantage).  Even things as simple as much lower credit card interest rates show this disparity.

2. Better access to banking, things as simple as better checking account benefits or more favorable foreign exchange rates for larger money exchanges provide built in benefits to the rich.

3. The advantages of being able to employ others to leverage existing assets, if I had someone managing my money no doubt the growth rate of my portfolio would be more comparable to that of someone who's already a millionaire.

4. Greater mobility.

5. Access to specialized financial activities, such as IPOs and hedge funds.

6. Networking opportunities.  It's really easier to get rich and get projects financed if you are simply lucky enough that your daily interactions involve people with money rather than people with debt.

7. The ability to save money in excess of living expenses.  For someone lower on the income scale trading off consumption for investment comes at a much higher cost, sometimes to health and dignity.  This isn't the trade off being made at the other end of the income scale.

8. The basic dignity that comes with being at the higher end of the income scale.  This is mostly for the poorest.  Someone like myself can get away with shopping at Wal-Mart, wearing store brands, and living off rice and beans simply because I like it since I'm from a good family and have educational credentials.  At worst I'll get written off as eccentric.  Someone that doesn't have my background may get real advantages from spending their low income on goods that would simply be wasteful spending to me.  For them this can pay off by masking their background or signaling that they're rising above their former station.  It may hold them back from investing but it may also pay off by getting people that wouldn't pay attention to them to do so.  Of course, this is still an advantage to those better off since they don't have to deal with this nonsense in the first place.

9. Better access to knowledge.  While there's a lot free out there on the internet there is still a great deal of valuable proprietary information out there.  It's hard to rise up if you don't have access to knowledge about opportunities.

10. There's plenty of other well known advantages the wealthy have.  Access to better lawyers, ability to buy out potential competitors before they're a threat, control over patents, etc.

All of this isn't to argue that we should do something to end these advantages.  It's to point out that when someone like me says the rich benefit disproportionately from our society I have specific advantages in mind, not just that they got rich.  Many of these advantages exist solely because we have a powerful state with deeply trusted institutions.  They would evaporate with political and social uncertainty.  This is the justification behind progressive taxation and to using the wealth created by our society to help those with less privileges better compete in a society whose basic institutions penalize them and favor the wealthy (I could make a list of 10 ways our current set of institutions disfavor the poor simply for being poor too).

Much of the opposition to doing something to even the playing field is dressed up in arguments against the strong state.  While this is often sincerely meant, I believe that in many cases it is truly meant to allow the wealthy to further entrench the advantages they enjoy and further restrict competition for resources.  To prove me wrong and that the motivation is an honest opposition to the state I propose a test.  How about the small government people band together to form non-state public institutions instead.  There is ample room for this.  I propose starting with banking.  Capitalize a bank sufficiently that it can compete with existing American big banks.  Make it non-profit.  Give it a mission of funding itself solely through loans.  Reinvest all profits in more loans.  Focus on providing basic banking and lending, such as college loans, traditional mortgages, and small business loans.  Undercut the competition by being able to borrow at the same low rates while not having to provide a return to investors.  Further increase the advantages by paying bankers mostly by salary, though retaining some degree of performance pay and other methods that have been successful in private banks.  Compete for staff by offering a stable 40 hour work week, more vacation, and more flexible scheduling than anyone could get through a traditional bank while still getting a competitive salary, though not the outsize bonuses.  I would be willing to bet you would still get quality employees that are sick of the rat race and you would also get the kind least likely to take outsize risks.  The motto could be making banking boring again.

Do this and I'll believe that the wealthy small government business owners are really against a strong state and not mostly out to increase their own power.

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