Capital Strike Out
by digby
Andrew Mitchell invited a bucket of lukewarm spit to her show to talk about whether or not the Bush tax cuts should be extended.
Mitchell: Given the deficit and the wealth of the upper class and the fact that they sit on their money and put it into savings, why give them this tax break?
Evan Bayh: Well a couple of things Andrea. First, as you noted, the economy is very weak right now. And raising taxes will lower consumer demand at a time when we want people putting more money into the economy. Secondly, the people you’re referring to in those upper brackets are the ones who make the decision about hiring and about making investments. We want them to do more of that. And so raising burdens on them at a time like this is just not the right thing to do…
He went on to disingenuously say that this is all about growth and that we could move on to deficit reduction once the economy is moving again (at which time he knows very well that it won’t be “wise” to raise taxes on the wealthy lest we rain on the parade.)
But this gets to the nub of the whole silly argument. Bayh pretty much admits that you have to coddle the rich people because if you don’t they’ll refuse to expand the economy simply out of pique:
Bayh: There’s evidence that’s come out recently that middle class taxpayers are using the extra money to pay down debt credit card bills, mortgages things like that. That’s a good thing to do, but it doesn’t stimulate the economy. It’s the people in the upper bracket who continue to spend at a higher rate, propping up consumer demand. And then there’s the thing that I mentioned. If you want people to hire more individuals, if you want them to make investments, raising burdens on them probably doesn’t improve their optimism or confidence and discourages rather than encourages them to do those kinds of things.
I think I heard somewhere that the rich were different from you and I, but this is getting ridiculous.
Of course what Bayh’s really parroting with his vague talk of “optimism and confidence” is the notion sweeping the elite salons that the Obama administration has hurt the poor rich people’s feelings by being so mean to Wall Street and BP that the poor babies have gone on a capital strike and are holding their breath until they turn blue:
There’s also a pervasive feeling that Obama’s tone—as evidenced by tough rhetoric against Wall Street and BP—is dampening the spirits of business leaders, making them unwilling to take risks. The implicit idea here is that when businesspeople feel poorly treated they’ll just take their ball and go home, even if that means giving up chances for profit. This isn’t a completely crazy idea: as Keynes argued, “animal spirits” play an important role in driving business decisions, and there are historical examples of so-called “capital strikes”—where investors pulled capital out of an economy in reaction to anti-business policies.
But there’s no evidence that anything like this is happening in the U.S. right now. Corporate profits are healthy. Investment may be low, but, given how slowly the economy is growing, it’s about where you’d expect. If businesses truly were holding back on hiring new workers or building new plants in the face of real opportunities, we’d see them working their current employees and factories to the limit. But they aren’t: weekly hours worked have scarcely budged in two years, and factory usage is at just seventy per cent of capacity, which is historically quite low.
According to Bayh, this is all because these sensitive business leaders are afraid their taxes will go up — and if they do they’ll have a temper tantrum and make it even worse. The only way to stop it is to promise not to take away their toys.
I haven’t got a lot of respect anymore for American business leadership but even I don’t think they are this emotionally stunted. If they are so delicate that insults from the president or going back to the tax rate they paid during the 1990s is enough to send them to the fainting couch then maybe they are in the wrong line of work.
As far as whether or not they will still be able to spend us out of the recession singlehandedly if these taxes are raised, check out this chart:
I guess we’re supposed to believe that people who are making 300k a year in wages are going to stop shopping if their taxes are raised by four thousand dollars. (My health care premiums were raised that much this year.) And the multimillionaires will obviously stop employing dead artists and Angolan conflict diamond miners and then where would we be?
This entire line of reasoning is insulting to everyone concerned. The wealthy don’t want to pay higher taxes because they want to keep their money for themselves. Fine. Let’s be honest about it. What isn’t honest is the idea that they are inbred aristocrats whose feelings are so delicate they have to be coddled into saving the economy by buying luxury goods and employing servants. They will always do that. They are not going to “sacrifice” their comforts to make a political point.
And true capitalists are not going to forgo profits because the president says mean things, especially when the government has worked very hard to preserve their prerogatives for them. These guys may not be moral, but they aren’t stupid. They know that a consumer society cannot be supported by the upper one percent.
I think the real question is whether or not they think this is a consumer society any longer.
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