In a great article about the anti-capitalist nature of big banks, James Kwak sums up the different rules medium sized business and giant financial institutions are subjected to:

In general, the mechanism that breaks up inefficient conglomerates is the market for corporate control: takeovers. But the megabanks are virtually immune to takeover (except by each other, which would only make the problem worse). For one thing, the banking regulators wouldn’t let a private equity firm take over a systemically important megabank. For another, the banks are already leveraged to the hilt, so you couldn’t issue any new debt to fund a takeover. So to buy JPMorgan, you’d basically have to come up with $150 billion in cash, which isn’t going to happen…..

In other words, CEOs and directors of midsize retail companies have to worry about being taken over by Bain Capital. But Jamie Dimon, Brian Moynihan, and Vikram Pandit have no one to fear. The basic rules of capitalism don’t apply to them.

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Eric Cantor: Tax the poor, no the rich (Photo credit: Wikipedia)

By Ben Cohen: I’ve always subscribed to theory that Republicans believe in slashing taxes for the wealthy because the party is funded by corporations and rich people who would massively benefit from it. The idea that tax cuts for the 1% gives some tangible benefit to the economy is now so clearly ridiculous that it couldn’t be anything else. Or so I thought, until I read an extremely interesting piece by one of my favorite economic writers, James Kwak of the TheBaselineScenario and The Atlantic.

Kwak’s piece is aimed at exposing the fact that lots of Republicans want to raise taxes on the poor, while cutting them for the rich. The argument used by Republicans like Eric Cantor and Mitt Romney is that 47% of the American population pay no income tax because they don’t make enough, so they should start contributing to help the government pay off its debts. Kwak disproves this nonsense pretty easily – the number is actually around 18%, and those who don’t pay income tax consist largely of the elderly who are either on Social Security where benefits aren’t taxable, or are no longer working.

But Kwak goes further than this and looks into some more disturbing reasons as to why certain Republicans are obsessed with extracting as much money from the working poor as possible. Kwak proposes two explanation; the first echoing my sentiments that the Republican Party is simply doing its paymaster’s bidding, and the second relies on a terrifying look into the psychology of the wealthy elite enamored with their own importance. Writes Kwak:

The other, even-more-disturbing explanation, is that Republicans see the rich as worthy members of society (the “producers”) and the poor as a drain on society (the “takers”). In this warped moral universe, it isn’t enough that someone with a gross income of $10 million takes home $8.1 million while someone with a gross income of $20,000 takes home $19,000.* That’s called “punishing success,” so we should really increase taxes on the poor person so we can “reward success” by letting the rich person take home even more. This is why today’s conservatives have gone beyond the typical libertarian and supply-side arguments for lower taxes on the rich, and the campaign to transfer wealth from the poor to the rich has taken on such self-righteous tones

I think Kwak hits the nail on the head here, and I don’t think the two explanations are mutually exclusive either. The Republican Party has basically created a self serving ideology that conveniently pays off wealthy benefactors and justifies it by a belief in their own God-like importance to society.

I’ve actually seen and heard this type of logic with a lot of wealthy and powerful people I know, and have never really thought about it as the underpinning for a political ideology. But I guess it’s actually quite obvious.

There is definitely a culture of self importance amongst the top earners in American society – after all, if the US is a meritocracy, it stands to reason that those with money have it because of merit. If that logic is followed, those who don’t have money don’t have merit, and are therefore a drain on society as their needs are supported by the wealthy.

It takes about two seconds to debunk this nonsense given the overwhelming evidence for structural poverty and stationary social mobility in America. Economic success is not determined by merit, but by the money you were born into in the US – a fact that Republicans can never acknowledge.

I’ve heard of rich students having ’1% Parties’, flaunting their unearned wealth and privilege while working Americans struggle to pay their mortgages and put food on the table. It is deeply troubling when a political philosophy codifies distinct moral classes based on a supposed ability to ‘produce’ for society. Modern day Republican political philosophy is now more than just social Darwinism, as the poor aren’t simply left to defend for themselves, they now have to pay what little they do make to cover the tax breaks given to the rich. Mitt Romney’s tax plan for America would do just that, an indication of how the Republican Presidential nominee views society and the poor. For Romney, working Americans exist to service the needs of the all-wise wealthy producers in society. Their labor is no longer enough to satisfy the egos of their masters, they now need to be reminded of their lowly status and made to pay up.

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James Kwak of the BaselineScenario does an interesting analysis of his quest to purchase long term care insurance on the private market, and concludes the only way to prevent its exorbitant costs and inability to comprehensively cover the elderly is to have the federal government get involved:

In short, the private market doesn’t provide good long-term care insurance—because it can’t. The insurance you can buy is really just a way of reducing the amount you’ll have to pay for long-term care; it’s a financial planning tool that tightens the distribution of your expected long-term net worth. My spreadsheet says it’s worth it on that basis, so I’m planning to buy it (although I’m not accounting for counterparty risk or the risk of future premium increases). But it isn’t insurance against extreme outcomes.

If we want real long-term care insurance, there’s only one place where we could get it: the federal government. The government can offer unlimited coverage and real inflation protection (benefits based on actual costs at the time you incur them) because it has the ability to absorb long-term financial risks. It can mandate universal coverage, eliminating adverse selection. Because it can raise premiums (or other taxes), it will not go out of business. (Those potential premium increases, however, do mean that it can’t offer a lifetime premium guarantee.)

Of course the Republicans would block anything resembling more interference in the health care market meaning Americans should look forward to higher costs, more risks and less coverage.

The Democrat's consistent backing down to Republican demands means the 'free market solves everything' doctrine remains the modus operandi in Washington. I'm not sure that debating these issues does much good any more – it's time for serious grassroots action to ensure everyone's wellbeing later on in life. If we continue to allow the private insurance industry to price us out of health care, life is not going to be much fun for most people in their old age. If that doesn't inspire serious action, I don't know what will.

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