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High Pay Equals Low Growth By Iain MacWhirter

The High Pay Commission has told us what we already knew: that the very rich have turned the economy into a personal wealth-generating machine.  Earnings for CEOs have risen thousandfold over the least thirty years as average earnings have only tripled.

There is no conceivable economic justification for their extravagant wealth, which has arisen largely through regulatory indolence and public ignorance.  Remuneration committees composed of highly paid executives naturally acquire an exaggerated sense of their own worth.  The idea that those dull boardroom suits, with their bad breath and stale management speak, are ‘masters of the universe’ is laughable.

The capitulation of successive governments to  neoliberal fantasies about how the productive economy actually works has allowed a climate of kleptocracy to command Britain’s boardrooms. If even Labour politicians are “relaxed about people getting filthy rich so long as they pay their taxes” (Peter Mandelson, 01) then it is hardly surprising that the wealthy have filled their boots.

The trouble is that moral condemnation of this kind of elite behaviour doesn’t work.  They don’t have any morality beyond brute self-enrichment.  What is needed is a critique of the economic implications of allowing he top 1% to acquire 40% of the wealth.  In a British context it is about looking at the way this concentration of wealth undermines the productive economy.

The kleptocrats don’t spend their money in productive ways, they use it for speculation in property, commodities and other assets.  This leads to stock market instability,  spikes in the prices of property, oil and food,  and to the creation of sophisticated financial products designed to increase yield, like hedge funds, special purpose vehicles, private equity.   Poor people spend their money on food, clothes and other consumer goods all of which generate economic activity and employment.

Grotesque inequality of wealth is not just an abomination, it is an economic depressant in the truest sense.  It creates stagnant pools of wealth, sucking the vibrancy out of the economy and depressing growth.  Roosevelt had the right idea when he slapped initially a 70% tax and then, ultimately, a 90% tax on incomes above $200,000.  If you look at the history of taxation rates in the UK and US over the last eighty years, it is no accident that the most productive years of the capitalist economy were in the 1950s and 1960s when tax rates were double what they are today.

That’s the trouble with capitalism today.  They don’t know what side their bread is buttered.



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