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During the pandemic, celebrities such as Tom Brady received funds from the US’s Paycheck Protection Program © REUTERS
Early
into Covid, I had a Zoom cocktail with the wealthiest person I know.
He’s worth somewhere close to a billion dollars. He mentioned in passing
that his family office (which manages the family’s wealth) was applying
for a Paycheck Protection Program loan from the US Small Business
Administration. My ears pricked up.
I
had naively assumed that the loans, which were essentially grants, had
been carefully designed to keep people in jobs — America’s equivalent of
Europe’s employment subsidy programmes. I was being naive. As this National Bureau of Economic Research paper
found, most of the $800bn in PPP money distributed by Washington went
to owners and creditors. Barely a third went to keep people in jobs.
Many of you will recall the public outcry over the Kanye Wests, Tom Bradys
and other celebrities who availed of DC’s largesse. What we may not
have fully digested is how easy it was for the wealthy in general to
game the system. Indeed, it seemed almost designed to be that way. Those
with pre-existing bank credit lines tended to qualify. Those without
did not. That’s one way of sorting the deserving from the undeserving —
though of course the outcome was mostly the wrong way round.
A
few days after our virtual drink, I asked my friend whether I could
report on the mechanisms by which his family office would qualify for so
much free money — but without mentioning names. He said he had
reconsidered and decided the process was more trouble than it was worth.
I
mention this because my friend, who is a wonderful human being, but who
has somewhat different political views than me, saw no problem with
wealthy people getting free money but has strong objections to higher
taxes. Though I have not asked him, I suspect he is alarmed by signs of
rising US wage inflation. The pandemic has been a bonanza for people in
his income bracket. According to numerous different yardsticks, the year
2021 was the best on record for the super wealthy — their net worth rose more than in any single year recorded. The previous year was almost as good.
As
a result, US income inequality is now close to its highest ever. Much
of what has driven this is the lockdown-spurred boom in tech company
valuations, which has supercharged the fortunes of people like Jeff
Bezos and Mark Zuckerberg, in spite of the recent nosedive in Meta’s share price.
The Federal Reserve has also fuelled the asset-owning classes with its
extraordinary programme of quantitative easing (that will be withdrawn
in the coming months). “Credit” should also go to Congress, which has so
far proved unable to enact even the modest tax increases Joe Biden
requested. I note with genuine concern that the 15 per cent global
corporate minimum tax is also in danger. This would be one of Biden’s
biggest achievements and would go some way towards making globalisation
less easy to rig for the world’s most powerful companies.
Compared
to these drivers, the misdirected PPP payouts were almost trivial — at
least in total dollars. In ethical terms, though, PPP captured what is
rotten in American capitalism. The gulf between the self-image of many
wealthy Americans and the reality of how so many became rich is shocking
to me. Few fit the Steve Jobs rags-to-riches profile of starting with
nothing and making a fortune through their own ingenuity.
Though
today’s rich are hard-working compared to the dissolute aristocracies
of yore, many inherited the financial and social assets that have made
them even richer. Yet even the liberal ones I know believe they are
morally entitled to what they have — and that any legal ruse (of which
Washington offers approximately infinity) is justified to avoid paying
taxes. They thus implicitly endorse the other side of the coin, which is
that those without means are in some way deserving of their fate. If I
had my druthers, I would mandate that every wealthy American read Robert Frank’s gem: Success and Luck: Good Fortune and the Myth of Meritocracy.
It is impossible to read this wise, limpid and impeccably researched
book and think that capitalism today is either fair or efficient. We
live in a world of socialism for the rich and capitalism for the poor.
Rana,
I know you strongly agree with this diagnosis. And I know that both of
us know people who would be happy to pay higher taxes if they felt they
were fairly and transparently implemented. Everyone wants to minimise
their tax bill — it’s only human. But some would be happy to pay more if
they knew that even richer people would not somehow find a way out of
it, as they always seem to do. So my question to you is how we persuade
the super wealthy that it is in their interests to be less
evasive . . . and indeed, to understand from history that extreme
inequality will eventually jeopardise what they have. They can’t all
flee to bunkers in New Zealand. |