Part Three on Supercapitalism

This post is about the Have Nots in the workplace in the Supercapitalist (Robert Reich’s term) economy.

Previously I posted about the conditions that frame the individual person’s economic condition. Those conditions can be improved substantially in Virginia by increasing capital. Lower taxes, personal and corporate, create Commonwealth Trust Accounts, reform health care (not addressed in detail), increase supply of energy, etc.

Now, what is a person, let’s call him or her – Miss Have Not, to do when there are very few opportunities to move up a notch on the economic ladder? And, the jump up several notches requires new skills, education or successful entrepreneurship. Furthermore, Miss Have Not’s employer is constantly squeezed to keep her labor costs down and to push her productivity up.

Let’s say the persons who feel trapped or left behind in this Have Not end of the normal curve – or economic ladder – are 40% of the citizens of Virginia. (I’m not including illegal aliens).

First, the personal savings posted earlier, created from existing taxes, build significant security for health care and retirement.

The next step is very hard to do. (It will likely undo many of the Republican Party credentials I’ve built over 16 years. What the hey, I was a Populist Christian the whole time – anyway. Still a Conservative)

You can find money for redistribution from corporate good works and in executive salaries. You can share profits in stock and stock options.

1. Corporate good works (the Breast Cancer ladies are going to hate this – and many others) come from the corporate bottom line. It is a zero sum game in the closed system of one business tally sheet, so corporate good works compete with wages.

Encourage corporations to stop doing good works, public service, community relations, etc. and put the money into wages. Or, tax good works heavily and put that tax money into individual Commonwealth Trust Funds for persons in the lower 40% of income.

Change the laws to tax non-profit organizations incomes as income or tax their distributions. It is capital that has avoided the ‘tax once’ rule. Recycle the tax money to the individual Commonwealth Trust Funds of the lower 40%. (I am okay with taxing my tithe to my church or taxing my church’s distributions – if it doesn’t cross the first Amendment line of establishing or prohibiting religion and I’d like to know the legal precedents back to the Roman Empire on what the ability to tax means – really)

2. Encourage corporations to share their profits in company stock, stock options, or direct profit-sharing for small business that comes directly off corporate taxes. Or if we actually have a zero corporate tax rate, then make those corporations that don’t share profits pay corporate tax – which increases their risk and reduces their competitiveness.

3. (Deep breath) I actually thought of this in the early 90s. Look at the maximum ratio of the highest paid person to the lowest paid person. Is it, or in your mind, should it be, 7:1, 10:1, 100:1 or 1000:1 or what? I call that ratio the “Greedcap”.

The rationale is this. The CEO or management, (and I am paid a management salary), reflects how much money, value-added, the persons add to profit. (I’ve made my companies far more money than they have paid me – like a professional athlete… just not as well!). Yet, at some point the increased profit of a corporation is the result of everyone’s better work. I don’t know that number empirically. But, I know it exists.

Enter labor unions or shareholders. Leverage must be brought to bear when the highest pay is over the Greedcap. Every dollar paid over the Greedcap should be split (say 50:50) with 50 cents going to a person and 50 cents going to the stock, stock options, profit sharing, health benefits or retirement fund, whatever, shared by all employees. Note, if the Government, Federal or Commonwealth, establish the Greedcap and try to regulate this it will be a screaming disaster. It falls to unions, non-union workers and shareholders and moral suasion to make this work. A key point here is that you aren’t taking capital from corporations but redistributing capital allocation within the corporation or small business. (And don’t forget anyone – medical professionals, lawyers, authors, movie stars, athletes, university presidents, non-profit management, union leaders, etc. They all make their money in a community of co-workers or employees)

Next installment…dealing with the restructured economy, or… what about Walmart?

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  1. Anonymous Avatar

    J.A. Bowden,

    I had no idea you were a closet radical!

    Peter Galuszka

  2. James Atticus Bowden Avatar
    James Atticus Bowden

    PG: I knew this wouldn’t go well. It may get worse, or not, in the next installment.

  3. Groveton Avatar

    Once I finished reading the article I had to go back and see if it was written by JAB or Peter Galuszka. I am still wondering if PG somehow got hold of JAB’s Blogger ID and password.

    All things considered, I think this is very much on the right track. The current economic problems in the United States are structural. They are not, in my opinion, the usual “ups and downs” of a market economy. Time will not fix the problems. Only hard decisions will do that.

    One point I’d add is tax code simplification. The more complex the tax laws the more likely those with money will pay less in tax. The situation with hedge funds is noteworthy.

    I can’t wait to read the next installment.

  4. James Atticus Bowden Avatar
    James Atticus Bowden

    Groveton and PG: The inspiration is Leviticus and the Sermon on the Mount. The legal and Constitutional precedents are plenty. And the Conservative heart is that no capital is destroyed in this re-distribution.

    So, when I run for office again as a Republican are you guys gonna help or not?

  5. Anonymous Avatar

    Republican? Some of my people have been Republicans. Sure, but only of the progressive variety of 100 or more years ago.

  6. Anonymous Avatar

    Along the lines of the ancient statute of Mortmain, it’s time to limit the life of tax-exempt foundations created by mega-wealthy. Create a limit, say $100 M or $500 M, or whatever, that can be disposed of by any individual or other entity without paying substantial death or gift taxes. The limit would apply to gifts to relatives, friends, charities or what have you.

    Then, require a tax exempt trust or foundation to have given away all of its assets within 25 years of its creation or face back taxes at corporate rates.


  7. Jim Bacon Avatar
    Jim Bacon

    I, like most other participants in this blog, apparently, share JAB’s concerns about what appears to be an increasing disparity in the distribution of income, especially in the outsized gains of the very wealthiest. (That may explain some of my schadenfreude at seeing so many of the Wall Street “masters of the universe” take a beating during the ongoing financial crisis.)

    As long as the “greedcap” (interesting coinage) is instituted by means of suasion through unions, shareholders, the media and other non-governmental entities, than I’m behind you. What I would hate to see is such a movement hijacked by headline-grabbing legislators, who would muck things up even more.

    Here’s the hard reality we’re dealing with: a global economy puts a greater premium on top talent, be it athletic, artistic or executive talent. I think I am correct in noting that the income disparity between the wealthiest and poorest is increasing in most nations, though most have a ways to go before they catch up with the U.S.

    One other factor to consider: Beware static analyses. In any given year, the top 1% of Americans do reap a disproportionate share of income. Here’s what we don’t know: Are those the same people each year, year in, year out? Are we talking about an unchanging caste of Warren Buffets and Bill Gateses? Or would dynamic analysis show that many of the 1%ers are different each year? I would hypothesize that many of these guys are cashing out businesses built up over a lifetime, or corporate executives cashing out stock options representing 5 to 10 years’ worth of work. They shoot into the top 1% one year, then drop out the next. My sense is that some (not all, but some) of what we perceive as increasing income inequality is really increasing dynamism in the economy. That’s not a bad thing, and we don’t want to punish it.

    What we need is a motion picture of income, not a snapshot, to really understand what’s happening.

  8. Groveton Avatar

    “So, when I run for office again as a Republican are you guys gonna help or not?”.

    I plan on setting up a large, non-profit, tax protected 501 (c) 3 to pursue your candidacy. I will establish myself as CEO and pay myself a salary of $10M per year. Oh yeah … Hmmmm….

    Seriously, I would help you. My only concern is that you respect the separation of church and state which is implicit in the founding philosophy of the United States. I am a Christian too. However, I can’t justify making my religious beliefs into universal religious beliefs through the political process. Just my opinion.

    “Sure, but only of the progressive variety of 100 or more years ago.”.

    Bully! The New Bull Moose Party!

    “Then, require a tax exempt trust or foundation to have given away all of its assets within 25 years of its creation or face back taxes at corporate rates.”.

    Test case: The Journey Through Hallowed Ground?

    “One other factor to consider: Beware static analyses. In any given year, the top 1% of Americans do reap a disproportionate share of income. Here’s what we don’t know: Are those the same people each year, year in, year out? Are we talking about an unchanging caste of Warren Buffets and Bill Gateses? Or would dynamic analysis show that many of the 1%ers are different each year?”.

    Not sure how much it matters. I have the top 1% earning a bit over $1M per year. Even if they don’t stay in the top 1% for many years they still acquire a lot of capital. In addition, “wages” is a very blunt instrument. If I have $1B in stock and I don’t sell any of it during a given year I have “wages” of $0 even though I am a billionaire. We don’t let people hold real estate without paying taxes, should we let people hold equity without paying taxes?

  9. James Atticus Bowden Avatar
    James Atticus Bowden

    TMT: Interesting ideas on non-profits. I’m going to talk about them in the next installment. Frankly, I struggle with what to do about their power. Money = power.

    G: I wouldn’t tax money sitting in equity – because capital should only be taxed once if you want it to grow.

    JB: Good point about a motion picture of analysis. And, I can’t shout loudly enough how much I do NOT want elected politicians to decide things – like the Greedcap. The issues should be discussed in elections, but not legislated into law. It would be a disaster.

  10. Groveton Avatar

    The only big issue I have with the Greedcap is that it institutionalizes the wealthy. People like Ted Kennedy are born with money. Presumably, that money has been taxed. So, he gets to keep all that money he didn’t earn. Meanwhile, some kid grows up in Detroit, works her way through the University of Michigan, gets a scholarship to Harvard for an MBA and starts at the bottom of some Wall St firm. She works day and night and becomes the President of her company. It is immoral for her to earn a lot of money but it’s OK for Ted Kennedy to be filthy rich with money he never made himself.

    I don’t know.

    I hear your point about not wanting to tax capital – although real estate taxes represent an ongoing tax on a form of capital.

    I’d want to understand the implications of capping wealth accumulation with a Greedcap. Would it just institutionialize American Royalty – like the Kennedys?

  11. D.J. McGuire Avatar
    D.J. McGuire

    “Yet, at some point the increased profit of a corporation is the result of everyone’s better work. I don’t know that number empirically. But, I know it exists.”

    JAB, you have succumbed to Planner’s Disease. That number most definitely does not exist.

  12. James Atticus Bowden Avatar
    James Atticus Bowden

    G: Good point on punishing people on the way up. But, let’s get some things clear, please.

    I am not talking about really capping salaries. It’s more like the double-dipping penalty for retired regular officers – where after a certain point you only get cents on the dollar increase – but you do get an increase.

    My point is that after a certain point – the greedcap – for every $1 in raise for that person a portion (50%?) goes into the common pot (that person may draw from too) of health, retirement, or other benefits. Or it could go into a common pot to spread across the business in wages.

    I don’t care if the rich stay rich. I acknowledge no one as American royalty. They are just rich folks.

    I care about the way money influences politics and government – which I will address in the

    DJ: Not guilty. I’ve spent 38 years in organizations.

    In 2003 I was one of about 30 on a team that won $250m in new business. A few months later there was something extra in paycheck. The bonus could have gone all to the boss in charge of the proposals. Or, by any other scale of distribution.

    CEO pay, perks and incentives are okay. At some point, though, it is better (in my opinion) to share the rewards with all the other folks who made the CEO successful.

    I’ve never seen any organization -government or business – where every boss isn’t carried by the people below. The boss may make things go from 100 to 101 or 110, but the 100 comes from everyone else doing their jobs. They should share in the gain. They certainly share in the risk, if all fails.

  13. Anonymous Avatar

    Raise taxes on speculation; lower them on production.

    I recently read an interview of a GM vice president who complained that economic activity needs to go back to the production of goods and services and away from trading pieces of paper.

    Raise the tax rate on short-term capital gains (say less than one year) to 80% and don’t permit the deduction of short-term capital losses. (My wife cannot deduct any farm losses for her partnership ownership of the family farm because she’s not in that business full time. So not all losses are deductible.)

    Cut the tax rate on long-term capital gains to 10% and permit deductions of losses, as is done today. Reward people who invest in businesses and penalize traders. You will get more investment and less trading.


  14. James Atticus Bowden Avatar
    James Atticus Bowden

    TMT: Good points. In my next installment I mention the production we do in Virginia and why it is important.

  15. Anonymous Avatar


    (I refer to Bacon as JB).

    I haven’t commented because frankly, I don’t know what to make of it. Take that as a compliment.

    I think your coalescence of historical fact with present fact is masterful, but I’m going to think about it awhile.

    I think I’m as liberal as you are conservative, and yet I can’t focus on any major complaints. As far as I can see you are correct that capital should be taxed only once. Yes, there are downsides to that, but overall…..

    I believe you are correct about the evils associated with too much division of wealth, but I don’t know what amounts to too much.

    I disagree with TMT on speculation. I think it is a result of demonization of risk taking, combined with a lack of understanding of the importance (and prevalence) of speculation. I think we frequently denigrate activities that we often participate in without recognition.

    Risk taking is essential to conducting business.

    Anyway, keep it up: it is very entertaining. However, I’ll echo Galuzska’s comment this way. Have you gone so far right, and me so far left that we meet behind the barn?


  16. James Atticus Bowden Avatar
    James Atticus Bowden

    RH: I’m sure that we can find something to fight about on social issues.

    Laws of economics are like laws of physics – they are empirical, scientific, natural and if you violate them bad things happen.

    Also, good governance is good governance. Filling pot holes isn’t Liberal or Conservative.

    I’ve always been a Populist – defined as I so choose. The laws of economics, and some issues, push me more to the Conservative and Republican labels.

    The real issue isn’t you and me on the political spectrum. It is about addressing the fundamental changes in the economy – what my long range study group said in the early 90s…”The political perception of economic change” and doing something about it.

    All the measures I’ve recommended aren’t Reich’s answers. They are quite different.

    I want to move the ball in Virginia on a way forward instead of sitting back and letting bad things get worse.

    Having a public discourse on the issues will improve the quality of the proposals.

    Thanks for your input. I hope to move beyond amusement to action.

  17. Anonymous Avatar

    Risk taking can be good and it can be bad. Mark Warner took significant risks when he began working in the wireless industry. But he was not merely trading pieces of paper. He was helping to assemble a real company that became Nextel. It delivered services to customers and provided good jobs to skilled workers.

    A farmer planting crops takes a risk, but one that can provide needed products for the market. There are countless examples of people taking risks in areas that can sometimes produce economic benefits to society. Few, but the extreme crazies on the left, would deny those risk-takers profits if and when they succeed.

    But we today see a situation where oil and gas prices are at least 10% higher than they would be based on supply and demand factors alone. These artificially higher prices are hurting business and consumers. Commodities speculators do not produce more of a commodity. They don’t contribute to society, but take away from it.

    It would be possible to develop tax rules that would permit oil companies, refiners and users to hedge against market price swings while still stopping “bid-em-up” speculators. People who actually take delivery of the underlying commodities, be they barrels of oil or pounds of pork bellies, can be left to operate pretty much as today. But people who simply bid up or bid down the price of futures contracts add nothing to society. They interfere with markets and should be taxed out of existence.

    Just as we don’t need teenagers taking the risk of drinking and driving, we don’t need commodities speculators.


  18. Anonymous Avatar

    J.A. Bowden
    Lots of food for thought here, seriously. A few points:

    (1) Your point about ending corporate largesse sounds a bit
    like Ayn Rand — self-interest is the best cure. I’m not Rand-fan, but I can see it for the reason that a lot of companies with questionable practices or products “buy” good will through massive donations to good works. Philip Morris comes to mind.

    (2) Your ideas about empowering shareholders are spot on. It is part of a huge debate now ongoing in the corporate world. Shareholder groups, notably big unions and institutional investors such as TIAA-CREF, have been trying to get more leverage to name their own candidates for conseration at annual meetings. The SEC in December, however, took a big step backwards by limiting shareholders’ rights to do so, esentially keeping the status quo that management gets to decide who gets nominated to boards and who gets put on the ballots. Voting for this were the Republicans on the commission. This controversry goes right to the heart of executive compensation and the hubris and arrogance of such CEOs of Nardelli, late of Home Depot and Mogilo of Countrywide. Closer to home, Media General faces a proxy fight over its disastrous perormance that has seen its stock price slip over the past several years from about $70 to less than $15. Yet Media General’s management holds the cards to prevent new directors it does not want. Until something is done to make corporations more accountable, then your ideas will get nowhere.

    (3) A last point and it really flips back to your earlier posts –it seems that concentrating on state political elections is of limited value in confronting these issues. The simple reason is that state government is just not the venue — national political government is. If you really want to go for it, look at the unchecked power of stateless, international agenices such as the International Monetary Fund, which has the power to influence (if not greatly screw up) policies of entire countries.

    Peter Galuszka

  19. E M Risse Avatar
    E M Risse

    James Atticus:

    Before you go on to part four, how about answering the questions from part two?

    Sound bites are not enough.

    In part one you found little to disagree with Reich about.

    Since then you have focused on your ideas.

    As several commentors have noted there need to be structural changes to make any of your ideas work.

    Reich’s idea re the corporate income tax might trigger some of those.

    We explore the growth of Institutions (now dominating the Third Estate) in THE ESTATES MARTIX.

    As to Jim Bacons request for a movie, not a snapshot:

    As I recall from the VA Bus most wealthy, the list does not change much. The one percenters stay the one percenters.

    Reich has a nice item re the Gates, Walton and Buffett families having the same wealth as the 120 million folks at the bottom of the food chain.


  20. Groveton Avatar


    I don’t know the facts on this. So, I’ll have to ask you to steer me straight. I have been told that Mark Warner’s initial wealth came from the ill-conceived Reagan era wireless lotteries. As I recall, no company was allowed to buy many of the initial wireless licenses (there were MSAs, etc). Instead, each license (which was a combination of spectrum and geography) was sold by lottery. The bidders had to have enough money for a substantial deposit. Consortia of doctors, lawyers, dentists and other wealthy people entered the lottery. Lawyers put the consortia together and the licenses were awarded by lotto. The winners, by and large, had no interest in establishing cellular phone companies and sold their licenses (at a considerable profit) to the telcos who did want to offer wireless service. It was a perfect storm of a bad idea – the rich got richer, the government didn’t get the money it should have gotten from the sale of a public asset and the telcos had to go through an inefficient process of buying up licenses.

    I have been told that Mark Warner’s initial fortune came from coordinating some of the bidding consortia (already wealthy doctors, dentists, etc). He then made yet more money brokering the sale of the spectrum licenses to companies which were in the business of cellular service. He then went on to be a founder of Sprint, etc.

    After the Reagan lotto fiasco, the federal government auctioned new licenses and spectrum to the highest bidder – which was always a communications concern. The doctors, dentists and their lawyers never got another chance to “cash in”. The governemnt got all the money.

    As I wrote when I began this comment – I may not have the facts right and I would be happy to be corrected. However, if this is correct then I’d have to consider Mark Warner (at least as he chased his initial fortune) as the ultimate paper pusher.

  21. Anonymous Avatar

    Mark Warner did legal work for little or no fees, as I’ve been told. Even in a lottery, there was no surety that his clients would win. To me, that’s risk taking. I suspect that Warner worked quite a few applications that did not provide any return.

    Moreover, as I recall, the FCC had fairly strong anti-trafficking rules that prevented quick flipping of most licenses. Also applicants were required to demonstrate financial suitability.

    Moreover, the cellular systems needed to be built.

    I’m no Mark Warner fan, but he was involved in the real creation of something. He also took considerable risk with his billing arrangements. I think he added to the economy.


  22. Anonymous Avatar


    The Federal Communications Commission wanted to distribute radio wave bandwith and chose to have auctions to do it. Problem was, the auctions were willy-nilly with no logical geographic oerientation. Plus, there were a number of auctions and bandwith for certain areas was doled out piecemeal.

    Cell phone pioneers needed enough bandwith in a particular region (or NUR if you are so inclined). So, what Mark Warner did was connect people with the odd sliver of bandwith in Santa Fe that maybe they could swap or sell to someone in Buffalo who was trying to put together a network.

    Was M. Warner an opportunist? Sure. But he was an entreprenur and a facilitator, too, and by so doing, helped make the cell phone industry happen.

    What I always found amazing was that Virginia Republicans claim to love independent, self-made business people. M. Warner is certainly that. But they tend to vote for rather unimaginative, plodding, anti-crime prosectuors like Gilmore. What made Mark Warner successfully, however, was that he won over enough Republicans to his side.

    Peter Galuszka

  23. Jim Bacon Avatar
    Jim Bacon

    Groveton and TMT,

    – Groveton’s description is pretty accurate: Mark Warner played a key role in consolidating the highly fragmented ownership of spectrum licenses. But I don’t know why you would call him a “paper pusher.” He was no technological genius but he created real economic value.

    – Later, Warner was involved in the start-up of Nextel, which later merged with the original Sprint, and he helped finance a number of other telcom companies in his capacity as head of Columbia Capital.

    We can argue about his political career all day, but I don’t see any reason to question Warner’s credentials as a successful venture capitalist who made a meaningful contribution to the telecommunications industry.

  24. Larry Gross Avatar
    Larry Gross

    so ya’ll have sorta looked over Warner’s business bona fides…

    How about giving Gilmore the same treatment?

    Do ya’ll think Gilmore is a self-made entrepreneurial type businessman?

    How about Kaine and McDonnell?

  25. James Atticus Bowden Avatar
    James Atticus Bowden

    EMR: I didn’t follow which questions you want answered better.
    TMT and PG: Thanks for your points.

    Truly, a state doesn’t have as much power as the Federal government. Likewise, as citizens we are fairly powerless to change things at the Federal level. Even if we elected all like-minded representatives.

    On the other hand we make a difference locally. On Labor Day of 2002 there were 4 people pledged to fight the Transportation Tax Scam. On election day we beat $2.2 M with $40K – over 2:1.

    I’v helped swap out my incumbent delegate and senator in party primaries where we were outspent over 3:1 and over 10:1.

    If we want to get government right – and promote good governance, then we should get it right here in Virginia. Let the rest of the Union follow.

  26. Anonymous Avatar

    Don’t get wrong; even holding my nose, I could not vote for Mark Warner. While I admire his business skills and some of the actions he took while Governor, Mark Warner is still a greasy politician.

    I might overlook his commercial barrage that talked about government living within its means and essentially pledging not to raise taxes. But I cannot overlook his commercials that stated he understood how NoVA received the short end of the stick from the Commonwealth and his pledge to protect our interests. Yet his tax increase resulted in Fairfax County residents paying more than $107 M in higher taxes the first year, but only receiving $7.4 M in new money for Fairfax County Public Schools. That result is a shameful breach of Warner’s pledge to Fairfax County residents.

    Mark Warner’s administration also signed the no-bid agreement for Dulles Rail with Bechtel, et al. That is sleazy government, especially when he received massive amounts of campaign contributions from Tysons Corner landowners and Bechtel executives.

    I also did not like Mark Warner’s 96 Senate campaign when he played the old liberal trick of arguing that reductions in the growth rate for spending constituted spending cuts. I don’t think that Mark Warner can be trusted to walk his talk. (Jim Webb is certainly an intellectual lightweight and provides terrible constituent service, but he at least is generally voting just the way he said he would when he ran for office. In sleazy D.C., that’s to be admired.)

    (Just to be fair, I don’t like how Gilmore screwed around with the fiscal predictions that permitted the last year of the car tax cut to proceed.)


  27. Groveton Avatar

    Thanks to all for the clarification.

    My questions were intended to “draw out” the difference between speculation and entrepreneurism. One frequently hears that being an entrepreneur is good and should be rewarded while being a speculator is less good and should be taxed more.

    I wanted to know whether those who arranged and traded spectrum licenses were speculators or entrepreneurs. And I suppose that’s the problem – one person’s speculator is another person’s entrepreneur.

    I am open to any definition of speculation vs. investment that could be practically used to set tax rates higher on the return from speculation vs. the retun from investing. As of today, I believe that tenure of ownership is the main criterion. If you hold an investment for over a year it is a capital gain, if you hold for less than a year the gain is taxed as ordinary income.

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