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The Class Warfare We Need

Saturday, December 10, 2011

The class deserving voters’ wrath is composed of society’s predators and parasites, who span all rungs of the income ladder.

Class warfare is emerging as a major theme for the 2012 presidential election campaign. “Millionaires and billionaires”—a reliable phrase that apparently continues to test well with the Democrats’ focus groups—are the easy target, because even though they receive a large portion of national income, they represent only a small fraction of the electorate. But are the millionaires and billionaires the right enemy? Not according to the Republicans, who warn that the major victims of a class war against millionaires would be small businesses.

In short, the class war as it stands today finds "Democrats accusing Republicans of siding with the rich, and Republicans countering that Democrats were taxing small business owners who create jobs." Voters are faced with an apparent dilemma, a contest between the two powerful emotions of envy and fear: should we let our envy of the supposedly too-wealthy, too-powerful “rich” outweigh our fear of damaging the economy’s ability to create private sector jobs? Which side should we take in the unfolding class war: the Democrats’ message exploiting envy, or the Republicans’ message exploiting fear?

The true heroes in our economy are the producers and earners; they can be found all the way up and down the income ladder, and class warfare should defend and reward them instead of targeting them.

It’s a difficult dilemma—but, fortunately, it’s also a false dilemma. Why? Because, as it stands today, the class war has misidentified the enemy. Not all of the rich are the “bad guys” who deserve targets on their backs. By the same token, not all of the remainder are the “good guys” who deserve to be defended—and that includes the middle class, the poor, small businesses, and any other group we don’t usually think of as rich. It’s just not as simple as “the rich versus the rest.”

The graphic below illustrates the underlying error: the class of people who deserve our enmity is not precisely “the rich” at the very top of the income ladder; instead, the class deserving voters’ wrath is composed of society’s predators and parasites, who span all rungs of the income ladder.

Conover Villains

The point is this: If we’re going to have a war, let’s do it right. The battle lines should be drawn orthogonally to the oversimplified “rich versus the rest.” A virtuous war would be one that rewards society’s honest earners and productive contributors, while punishing society’s predators, pirates, and parasites—all without regard to anyone’s income level. It is a target-rich environment that includes anyone (of any income level) who is cheating to win, any business or union (of any size) with its snout in the public trough, any politician filling that trough and feeding those snouts for reciprocal gain, and any group using the political system (at any level) to maintain its monopoly, or its winning “edge” against less-well-connected competitors.

Among “the rich” are many entertainment superstars, artists, CEOs, inventors, and entrepreneurs. Are all of them villains because of their huge incomes? Of course not. Most of them get where they are because they produce things that entertain us, make us more productive, save us money, or save us time. Most are “rich” because they earned it—and because they earned it, they do not deserve to be targets in the class war.

It’s just not as simple as ‘the rich versus the rest.’

It’s also true that not everyone at the top earned their way to that position. For example, a few are the well-positioned rentiers leveraging their strategic position at a bottleneck in the financial system. As economist Tyler Cowen points out, "The high incomes in finance should give us all pause." Why? Because much of it was not earned; it was instead obtained by gaming the system, by staying a step ahead of the statutes, by keeping profits privatized and risks socialized, and by monetizing moral hazards. This group includes Wall Street firms employing high-speed data feeds into computers programmed to beat less-sophisticated market participants by using a trading technique known as “quote-stuffing,” a method designed to submit-and-retract thousands of dummy bids per second in the profitable quest for fleeting arbitrage events worth pennies each. This group stays one step ahead of the letter of current laws and regulations, lobbies to prevent unfavorable changes in those regulations, nudges the free market a step closer to a fake market, and extracts the resultant economic profits from a comparatively inexpert investing public.

As economic historian Joel Mokyr said of some past economic successes, “Prosperity and success led to the emergence of predators and parasites in various forms and guises who eventually slaughtered the geese that laid the golden eggs.” Might today’s Wall Street situation be a contemporary example of history repeating itself? Cowen’s article implies as much. In any case, any Republicans (or Democrats) who think the profitmaking methods described above are worth defending will have an increasingly difficult time doing that, and deservedly so. As the above diagram depicts, some of “the rich” fall into the class known as “predators and parasites” whose profits are large but not earned.

Some businesses—large and small, national and local—are sufficiently well-connected politically to maintain their comfort and longevity by extracting government subsidies for their special interest.

However, predators and parasites inhabit more than just the ranks of “the rich.” Examples abound. Some tech-savvy individuals and small businesses prey on the elderly, on government programs, or on vulnerable computer systems in governments and other businesses. Some public-sector union bosses are powerful enough to swing elections toward the candidates who will sit on the other side of the negotiating table, thereby bending the public trust to their special advantage. Some businesses—large and small, national and local—are sufficiently well-connected politically to maintain their comfort and longevity by extracting government subsidies for their special interest, or by getting their political friends to pass favorable legislation against competitive threats. The politicians on one side of crony capitalism, as well as the business managers on the other, are part of the problem a virtuous class war should be designed to fix.

A proper class war would require Democrats and Republicans to admit that the distinguishing characteristic of the enemy is not the level of income or wealth; rather, it is whether that income or wealth was earned. The true heroes in our economy are the producers and earners; they can be found all the way up and down the income ladder, and class warfare should defend and reward them instead of targeting them. Conversely, the proper targets are the class that includes cheaters, predators, pirates, and parasites—who can also be found at all income levels.

If class warfare is inevitable, let’s at least go after the right enemy. Fingering “millionaires and billionaires” as the culprits is the easy way out; it might pass muster in focus groups and might fit well into campaign speeches, but it doesn’t even come close to a proper description of the true enemies of economic growth and broadly shared prosperity. If we can target the right enemy, we’ll be fighting a good war; in that case, by all means, let the 2012 class war begin in earnest.

Steve Conover retired recently from a 35-year career in corporate America. He has a BS in engineering, an MBA in finance, and a PhD in political economy. His website is www.optimist123.com.

FURTHER READING: Conover also writes “The Fatal Flaws of a Balanced Budget Amendment,” “How Democrats—and the Tea Party—Get Reagan Wrong,” and “The Myth of Middle-Class Stagnation.” Michael Barone contributes “Obama Pursues Poor, Not White Working Vote.” Alan D. Viard asks “Do Taxes Narrow the Wealth Gap?” Jonah Goldberg discusses “Corporate Jets and Tax Breaks.”

Image by Rob Green / Bergman Group

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