Blog/America's Economic History
Posted Apr 23, 2015 by Martin Armstrong
1904 View of Standard Oil
During the Progressive Era around 1910, the Marxist view of the world was all about the massive wealth of the very rich like Rockefeller. Standard Oil would always rule the world. How could that possibly change? They argued this was undermining economic opportunity for others. The government championed the progressive income tax and attacked inheritance taxes to solve what everyone assumed was not fair – the inequality of wealth. We are talking about total net worth, not income.
Where Do YOU Rank in Wealth?
(If you have a household net worth of X, you rank in the Y percentile):
Household Net Worth Percentile
|$1 million||8th percentile|
|$1.4 million||5th percentile|
|$6 million||1st percentile|
Inequality in wealth is approaching record levels again, as everyone now harps on not the 1%, by the top 10%. The top 10% of families own 75.3% of the nation’s wealth. So if you have $827,000 in total net worth (real estate, stocks, savings, everything) – that’s you. The bottom half of families own 1.1% of it. The families squished in between those two groups own 24.6% of the national wealth.
The fascinating solution is always to tax the rich bastards more to drag them down to even the scale. This is like seeing someone with a nice watch and taking it because it is not fair that they have something you do not. Hillary, who is clearly in the top 1%, claims she stands for toppling the top 1%. I suppose her goal is to make everyone equally poor except her and her backers. When she was championing healthcare, her response to a question that it would put small mom and pop stores out of business was crude. If they could not afford it, then they should not be in business.
Nobody ever looks at what is keeping the bottom 90% of families from reaching the top 10%. Two primary factors come into play. Government does not care about what they preach and neither do the hosts on MSNBC who champion hating the rich, yet they themselves all earn enough to be in that top 10%. On top of that, four of MSNBC hosts have serious tax liens against them and owe the government millions. Al Sharpton allegedly has owes $4.5 million, so he is in the top 1%.
I worked hard during the 90’s to try to save social security. I fought to privatize the fund when there was still money there and the Dow was 3500. The Democrats would not stand for it. They wanted the spoils and if the politics changed, they wanted to appoint their buddies to manage the fund. Others hated the dreaded word “privatize” for the free markets were risky and government would be the better caretaker of everyone’s money. It would always go to a good cause – their reelection.
All we hear is that we have to tax the rich. Others claim, without a shred of historical research, that great disparities in wealth lead to war or revolution. They typically point to the French Revolution where heads rolled. They ignore the American Revolution and the oppression of the King with taxes. They also ignore all the other tax revolts from the 14th century. They remember Shakespeare’s words, “The First Thing We Do Is Kill All The Lawyers”, but omitted that the king was the only person who had a lawyer in those days so the proper term is “prosecutors” and not “lawyers”.
The advocates of robbing anyone with $827,000 in total net worth saved over the course of their life, also omitted the fact that the French Revolution followed a bailout. Remember the Mississippi Bubble? Well, the French government was involved and people from all over Europe had invested in the scheme. The French government had to guarantee all losses from the 1720 Mississippi Bubble. They strip-mined their economy just as Greece is doing right now. Louis XV (1715-1774) rules during this time, followed by Louis XVI (1774-1793) who ruled for 19 years. The bailout from the aftermath of the Mississippi Bubble in 1720 was devastating to the economy. So it was not just a rich v poor issue, it was the oppression of the people by government to meet its debts.
From the beginning of the Depression until well after the end of the Second World War, the middle class’ share of total wealth rose steadily, thanks to the recovering in the economy and the shift from agriculture to skilled labor. Of course, the top income bracket was raised to $5 million because they introduced the payroll tax.
The socialists want to claim that it was taxing the rich that somehow lifted the lower class. It also sent capital fleeing offshore then just as the rich have left France and Greece leaving behind rising unemployment. Their argument that taxing the rich raises the lower class is total bullshit. This has just never happened not even once in history. When Spain was rich from all the gold they brought back from the Americas, they borrowed against the next ship coming in and they imported even French labor to man the docks. They squandered their wealth like someone who just won the lottery and ended up dead broke in the end.
Roosevelt created the 30-year mortgage so wealth among the lower classes increased raising the middle class, if we measure it by homeownership and inflation ignoring the debt and taxes. They then try to blame Reagan arguing that the early 1980s saw this trend reverse. Of course, they also ignore that Volcker raised interest rates to 14% at the Fed and set in motion a major recession and the explosion in the debt.
AMONG the most controversial of Thomas Piketty’s arguments in his bestselling analysis of inequality, “Capital in the Twenty-First Century”, is that wealth is increasingly concentrated in the hands of the very rich. Rising wealth inequality could presage the return of an 18th century inheritance society, in which marrying an heir is a surer route to riches than starting a company. Piketty totally misrepresents that era completely. This was pre-Industrial Revolution and more than 70% of the population were farmers. The inheritance was the land. However, this was largely a Villa Economy where there was no income tax and people worked as a group. These farms were mostly self-sufficient and did not participate in a market economy selling excess.
Piketty’s data is a gross misrepresentation of the entire period. Money was often still commodity based. Tobacco was used as money. This was the barter system and cannot be related to the post-Industrial Revolution period where wages became the dominant form of money rather than commodities.
This entire socialist argument ONLY looks at punishing the “rich” rather than raising the lower classes. When I debated Steve Forbes and NJ Governor Jim Florio at Princeton University, what was really interesting was I seemed to convert Jim Florio, which had the reputation of tax ’em till they die. I mentioned how the income tax was applied in the form of payroll taxes since 1935, and the net result was that the government was borrowing from the lower classes and handing them a refund check at the end of the year, but was cheating them out of any interest. Then Social Security only buys government bonds and PREVENTS the lower classes from rising in wealth since they are denied the right to participate in the creation of wealth.
You will never make it better for the lower classes by raising the taxes on the top 10%. All that does is lower economic growth, and the money stays in the pockets of government. It never trickles down to the people lowering their tax burdens or raising their living standards. It is about time we stop the bullshit and look at restoring the middle class.
The people are burdened with student loans that nobody can go bankrupt on so they will confiscate your home and deny you the ability to raise your net worth. The children cannot find employment in the field they spent a fortune on in education, making it a total waste of money anyway. That now amounts to 65% of graduates.
State and local taxes keep rising for there too it has been fiscal mismanagement of local government. Healthcare has skyrocketed and is now a tax. Car insurance you pay based on the value of the car when you bought it, but if something happens, they argue it is not worth what you paid and the claim is settled for a lower amount, while they charge you the full value every year. Book a travel ticket and you will see that about half the ticket is tax. The same is true for phone lines.
Taxing the rich will not solve any of these problems. The only way to reform is to elect non-lawyers who will actually reform all of these industries that the legal profession sees as a gravy train to riches for them. Nobody serves in Congress without leaving a multimillionaire. Now that’s public service.