Four Barrelstrengthians gathered for lunch today, and our one Obama supporter held forth in a way that was interesting enough to pass on. Oban’s argument went like this.
- We are living in an age of deflation. Money is becoming relatively more valuable than things. Your dollar goes farther. It buys more and better for the same dollar than it did ten or thirty years ago. Think of anything from coffee cups to cars and computers; they are better than they were.
- In an inflationary world you borrow to the max and buy real assets and pay off in less valuable dollars. In a deflationary world you struggle to keep out of debt. The psychology of the 1970s and 80s is reversed.
- Deflation means that those who own money are pulling ahead of those who only offer services, because their money is worth relatively more than salaries or wages, because they have more of an increasingly valuable asset.
- The consequence is the proletarianization (Oban’s word) of many members of the middle and working classes. Free trade and the Internet means we compete with lawyers and accountants in Bombay and Singapore, chip and computer makers in Indonesia, and with new, more intelligent, machines everywhere. The value of wages does not keep up with the value of capital. By this I infer that Oban means: while your wages may buy you more than they did in the past, your salary returns relatively less than it did compared to the returns to the owners of capital. Capital procures more wealth than it did before, while labour both skilled and unskilled procures less. Less in relation to what? Wages and salaries buy less, not with respect to what they bought before, but less in proportion to the revenues accruing to the owners of capital. The slices in the social revenue pie change. Returns to capital accrue relatively more than to wages and salaries. The result is that the relative wealth of the already rich is growing. Their capital is buying the increased productivity of machines and the instructions which drive them.
- You, the working types, are better off if you can keep a job, but keeping your job is the challenge. An economy running on capital and intelligent machines needs fewer of you and me.
- The solution: unknown. The immediate remedy: tax those earning $250K and 500K much more, rather than much less. Income transfers to them are not generating greater wealth.
- And that realization, however dimly perceived by many Americans, is why Romney did not win. His plans to tax the rich even less would have had no effect in creating new jobs. ( We all recognize they pay most of the freight already) .
I have heard the demographic arguments (the browning of America) and they play a role in the trouble of the GOP. The changing economic underpinnings of capitalist society provide another strong argument for rethinking tax cuts for the rich.
That is Oban’s well-reasoned view. If you can do better, let us hear from you. Discuss.