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The root cause of the problem with income inequality, jobs and the economy

The root cause of the problem with income inequality, jobs and the economy is “aristocratic capitalism” (AC) and the solution is ‘democratic capitalism” (DC).

Republicans as a group are controlled by the 1% who are plutocrats and oligarchs as a group and both groups promote and practice AC which is wealth hoarding than kills the American Dream with unfair wages and offshoring jobs rather than DC which enables the American Dream.  AC is the cause of the poor economy because it falsely thinks capital is just money. DC recognizes that knowledge in the middle class creates most of the intangible capital (IC) that drives growth in the economy in the Knowledge and Innovation Age and creates 80% of the value of companies on the stock market.

Read the new novel , American Royalty, by Janet G. Miller.

http://www.amazon.com/American-Royalty-ebook/dp/B007F32B8O

The book describes a story of how the rich 1% think and operate, why they think they are “royalty”, how they promote and practice AC to protect their wealth in oligopolies such as big box retailers that offshored millions of jobs to China, and how the rich 1% who are the “royalists” that FDR warned us about in his 1936 speech that accepted the nomination for president http://www.presidency.ucsb.edu/ws/print.php?pid=15314

The book describes how American "royalists" kill the American Dream and jobs by disparaging the need for knowledge and excellence in the middle class and exploit workers by planning to fire them after sucking out their knowledge on the job.

AC thinks capital as money comes from the rich 1% and should go back to the 1%.  That’s the false argument AC has used to justify the low tax rate on capital gains. As a result of AC ideology that thinks capital is just money, current financial accounting doesn’t measure innovation or intangible capital (IC) driven by knowledge.  Therefore, unfair wages for the middle class are the result because wages are not linked to IC as knowledge or innovation even though IC creates 80% of business wealth.  AC has caused income inequality in America since 1970.  AC is supported by many CEO’s, politicians and neoclassical economists who don’t understand either innovation or how innovation is driven by knowledge in people (human capital). Worse, the entire structure and economic operation of the federal government is based on the assumption that capital is just money. The Treasury Department and the Federal Reserve manage just capital as money and ignore intangible capital (IC), knowledge and innovation. And the economists also ignore IC, knowledge and innovation. Can you imagine how stupid it would be if the Agriculture Department ignored farming and just managed land because economists say the factors of production are capital, labor and land.

Now let's talk about the current favorite propaganda promoted by AC - the debt crisis. We have a debt crisis that ignores intangible capital, knowledge and innovation so income inequality can be protected.  

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“Aristocratic capitalism” brings to mind David Hackett’s Albion’s Seed (1989, Oxford U Press).  According to Hackett, the AC adherents are descendants (politically) of the British aristocrats who, along with their servants, settled originally in Virginia.  Hackett posits that their culture, along with that of three other migrations from England, formed the political culture that, despite many other subsequent immigrations, we still have today in the US.   It all fits.

Paula -

Thank you for the reference.

David Hackett Fischer’s book, Albion Seed, describes the roots of culture (and politics)  in America as being based on four different types of liberty each practiced by one of four different groups of immigrants in Colonial American.  The following paragraphs are an integration of Fischer’s thinking with mine and include excerpts from reviews of his book.

In New England around Boston, the first wave of immigrants as Puritans seemed to have practiced the core seeds of “democratic capitalism” with what Fischer calls "ordered liberty" (freedom to determine the course of your society) exemplified in the culture of town meetings as real democracies and the culture of small businesses as merchant based commerce rather than large farms that were the aristocratic estates found in Virginia.

In Virginia around Williamsburg, the second wave of immigrants who were cavaliers of English aristocracy practiced the seeds of “aristocratic capitalism” with "hegemonic liberty" as freedom to rule other citizens who were not white men of property. Women, white men without property, and slaves had almost no rights. 

In the Middle Atlantic States in the Delaware Valley around Philadelphia, the third wave of immigrants as Quakers also practiced additional seeds of “democratic capitalism” with "reciprocal liberty" as freedom for me and for you, exemplified in what the Constitution says as the right to pursue happiness.

At the frontier, largely Scot-Irish pioneers practiced additional seeds of “democratic capitalism” with "natural liberty" as freedom without restraints of law or custom, exemplified in respect for the sovereignty of the individual.

The Cavalier wave of immigration in the peak years between 1641 and 1675 described in Fischer’s book, actually brought two kinds of people to Virginia: aristocrats and their servants. Today the 1%,  who practice "aristocratic capitalism" and think capital is just money, seem to think the 99% are their servants. The indentured servants of the aristocratic Cavaliers comprised almost three quarter of the colonial Virginia population.  The remaining quarter were aristocrats as either "distressed nobility," or (later) the younger sons of England's best families, looking to re-create their older brothers' grand English farming estates in their Virginia plantations.

While the Puritans held up the Calvinist belief that power, freedom, rights, and authority all legitimately rested with the community, early Virginians brought with them the reigning view of the British upper classes: that is, that the legitimate exercise of power, freedom, rights, and authority properly belonged in the hands of free white male landowners. They believed that the country would be best served if these autocrats were given their liberty to create wealth, exercise power, and lead the lesser folk forward toward a future of their choosing.

In Virginia, we find the American roots of the idea that only a free white man of property can be a legal person in his own right. The identities of everyone else in his household -- wives, lower-ranked siblings, children, servants, and slaves, who often numbered into the hundreds on Virginia's estates -- were merged into him as extensions of his identity, and legally existed only in relationship to him. The patriarch was invested with a serious moral obligation to provide for and protect his many charges; but in return, he held absolute decision-making power over every detail of their lives -- including the explicit right and duty to exploit them all for his own pleasure and profit. Book learning was disparaged.

Denn,

The relation between tax rates for the wealthy and jobs or economic growth was described in a report by the Congressional  Research Service  in September 2012 but the Republicans attempted to block the release.  

Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945

http://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf

The report concluded that lower taxes on the wealthy don't generate jobs or economic growth but they do create income inequality. Here's a quote form the report.

“There is not conclusive evidence, however, to substantiate a clear relationship between the 65-year steady reduction in the top tax rates and economic growth. Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution.”

Bill
 
Denn Walls said:

‘There’s still the belief that the country would be best served if ‘autocrats’, were given their ‘liberty’ to create wealth, exercise power and  lead the lesser folk forward toward a future of their choosing…’

 

GOP's Small Business Tax Talking Point

Of all the arguments Republicans offer to maintain Bush tax cuts for the wealthy, one stands out: The tax increase would be a blow to small business owners. This is misleading–but you can't count on media to get this right.

The CBS Evening News had a segment last night (11/29/12) taking a look at the issue. On its face, there's not much support for the Republican position: About 2.5 percent of small business owners–a somewhat loosely defined group–would see a tax hike on income above $250,000 (Tax Policy Center, 8/5/10). This is straightforward; so how do you make it less so? CBS did it by leading off with a business owner who claims he's about to get socked. Wyatt Andrews reported:

Kevin Green owns two flower and gift shops in Alexandria, Virginia. He said raising taxes on the wealthy won't just hurt him–it will hurt his workers and the economy…. Small business owners typically report business income on their personal taxes. In a good year, Green's income will exceed $250,000, making him one of those taxpayers the president says should pay more–in his case, an estimated $8,000 more.

Remember, if this is all true, that means Green is in the tiny minority of business owners affected by the potential tax increase. Remember, these tax increases would apply to only the income above that $250,000 threshold. Green's claim of an $8,000 increase means that he likely makes substantially more than $250,000. (According to this chart, he would seem to be in the above $500,000 income range.)

So how do you make 2.5 percent sound like a lot? You ditch that number in favor of a total number of affected business (precisely what ABC's Jonathan Karl did back in 2010). So viewers saw this:                        

Andrews notes that the White House argues that this "small business" category includes people like hedge fund owners–a far cry from the mom-and-pop shopkeeper that Republicans like to talk about. But then he pivots to the Republican counter-argument:

But when Republicans argue higher taxes mean slow down growth, they are thinking about businesses like Kevin Green's.

Well, of course they are. Or at least they say that they are. But journalism should scrutinize these arguments, rather than just repeating them.

This is another attempt to muddy the water in a debate that should be fairly straightforward. This kind of story is a chance for media to do some factchecking. Or, alternatively, to help Republicans flesh out their talking points.

© 2012 Fairness & Accuracy In Reporting (FAIR)

 

Denn,

Yes, I agree the media is not doing its job to dig deep and report more than what they're fed. Agnotology is an intentional strategy by AC. Thanks for the book reference. Other books I've read on income inequality are Plutocrats by Freeland and Who Stole the American Dream by Smith. But these don't understand AC or DC. The book, American Royalty by Janet G. Miller reveals how the rich 1% as plutocrats and oligarchs actually operate, what they believe and why AC is mutually destructive - which is counterintuitive. DC helps large and small businesses much more than AC. That's not obvious and that's the problem with the media, economists and other "thought leaders" who probably unconsciously support AC. Understanding  capitalism requires a fair understanding of innovation and intangible capital and other externalities such as education, healthcare and the legal system for intellectual property. The media just ignore the need to drill into things like innovation and intangible capital but that's the information and analysis that democracy needs in the Knowledge and Innovation Age. AC ideology thinks that capital is just money and unfortunately so does the media, the government, most businesses and universities including leading business schools. The good news is that it wouldn't take much explanation for the public to get it. Understanding AC and DC is easier than understanding even Economics 101. 

Bill 

Denn,

I agree that education is lacking on economics but is especially lacking on innovation including entrepreneurship which should be taught starting in the 6th grade. Innovation can be taught as a set of practices and processes based on intangible capital (project management skills,  knowledge about markets, technology, partnerships, distribution, suppliers ...) that competitively translates into business models and revenue. We have a government and universities that think innovation is just a linear model that begins with technology pushed out of research and then commercialization is automatic. But business executives are worse. Only 9% of businesses do any product or service innovation because they don't know how to effectively innovate. And only another 9% do any process innovation. Education, healthcare, construction and energy essentially don't radically innovate at all but need radical innovation to reduce costs and improve quality. Education cost can and should be reduced by a factor of 10 or more. Construction productivity has been flat for decades and that has kept housing costs high. Energy efficiency in buildings is poor. The electric grid hasn't improved  in decades. Infrastructure should be less costly to maintain. Innovation is not even taught at colleges. Innovation should also be taught in 3 or 4 year professional schools like law and medical schools.  Members of Congress and all Judges should be required to pass a basic competency test in innovation and economics. The legal system should be changed to level the playing field for new, small businesses by reducing the cost and time for patents and patent litigation. Financial accounting (FASB) should require measurement of intangible capital. This is total incompetency in innovation and knowledge management that AC exploits to hoard wealth in a zero sum game by believing capital is just money rather than growing the economy larger with innovation that DC enables and AC blocks.

Dean Baker is right on target but the debate on the economy should be focused on new policy to support innovation that creates jobs. Most politicians and economists don’t adequately understand either capitalism or innovation which are now being driven much more by intangible capital (IC) based on talent and knowledge than they are by capital as just money. As confirmed at the recent WEF in Davos, capital as money is readily available, but there is a shortage of intangible capital (IC) based on the exceptional knowledge in talented people.

American competitiveness in innovation is weak compared to other countries because America’s methodology to innovate is outdated. Competitiveness in innovation is now based on the fourth generation (4G) of innovation that significantly minimizes time, cost and improves quality while upgrading disciplines such as financial accounting to measure IC.

America still invests in the linear model of innovation (LMI) that was the basis of 1G, 2G and 3G innovation methodology. LMI invests in R&D and then expects innovation to magically happen (with technology transfer …). The concept of an innovation “factory” mainly based on science discovered in R&D that drives the LMI never was effective or realistic. For example, the science of thermodynamics followed the steam engine rather than enabling its development. 4G is based on an innovation ecosystem rather than a ‘factory” and 4G uses a nonlinear model of innovation with an iterative process that is being taught as new best practice in entrepreneurial classes at Stanford and in the NSF iCorps.

There are essentially three ways to create new consumer market demand in America so businesses create jobs in America (not offshore).

(1) The best sustainable way is with a new more competitive fourth generation (4G) of innovation methodology for business in partnership with the government and academia to create new demand with new-to-the-world products and services and new advanced manufacturing that is not offshored. 4G innovation has to be taught with an investment in workforce training that creates new intangible capital based on competitive knowledge (on how to innovate with 4G) in executives and middle class workers.

(2) The next best way to create new market demand is with government spending but that is not sustainable.

(3) The worst way is with cuts in government spending, increasing taxes on the middle class, and by not adopting 4G innovation. Both parties in Washington have adopted the worst way.

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