Tom Perkins, who was one of the founders of venture capital firm Kleiner Perkins, sees himself as belonging to America’s “creative one percent” — the one percent who are “the job creators.” He takes pride in the fact that Kleiner Perkins has “created pretty close to a million jobs.” He says the rich “get richer by creating opportunity for others.”
The idea that capitalists create jobs is central to the American view of the way economies work. It’s so axiomatic, hardly anyone seems to pause to consider whether it makes any sense.
Certainly, capitalists provide investments that make the creation of jobs possible, but this isn’t fundamentally different from walking into Best Buy and buying an iPhone.
In a store, the transaction is simple: make a payment and in return receive a product. There’s nothing creative in the action of the buyer. Money is used in order to be able to make use of the creativity of others. The buyers of iPhones do not create iPhones.
Likewise, investors are buying the fruit of the labor of others. Investors have the luxury of being able to afford to wait for a return on their capital and the willingness to risk seeing no return, but the only creative element in what they do is focused on their calculations about where to place their bets. Even then, it’s creative focus, irrespective of the innovative vehicle, is on the creation of wealth.
Capitalists don’t create workers and the jobs they claim they are creating are useless if no one with the required skills is available to fill them. It is workers themselves and educators and the society that supports them, that are the real engine of job creation. All the investor does is control the flow of money and cream off a hefty portion of the profit.
As for Perkins claim that if the rich are allowed to do what the rich do, which is get richer, then everyone else will get richer too, he’s just rehashing discredited free-market economics.
Thomas Piketty’s new book, Capital in the Twenty-First Century, lays out the reasons that growing inequality is not just a problem — it’s built into the structure of capitalism.
There are a number of key arguments in Piketty’s book. One is that the six-decade period of growing equality in western nations – starting roughly with the onset of World War I and extending into the early 1970s – was unique and highly unlikely to be repeated. That period, Piketty suggests, represented an exception to the more deeply rooted pattern of growing inequality.
According to Piketty, those halcyon six decades were the result of two world wars and the Great Depression. The owners of capital – those at the top of the pyramid of wealth and income – absorbed a series of devastating blows. These included the loss of credibility and authority as markets crashed; physical destruction of capital throughout Europe in both World War I and World War II; the raising of tax rates, especially on high incomes, to finance the wars; high rates of inflation that eroded the assets of creditors; the nationalization of major industries in both England and France; and the appropriation of industries and property in post-colonial countries.
At the same time, the Great Depression produced the New Deal coalition in the United States, which empowered an insurgent labor movement. The postwar period saw huge gains in growth and productivity, the benefits of which were shared with workers who had strong backing from the trade union movement and from the dominant Democratic Party. Widespread support for liberal social and economic policy was so strong that even a Republican president who won easily twice, Dwight D. Eisenhower, recognized that an assault on the New Deal would be futile. In Eisenhower’s words, “Should any political party attempt to abolish Social Security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear from that party again in our political history.”
The six decades between 1914 and 1973 stand out from the past and future, according to Piketty, because the rate of economic growth exceeded the after-tax rate of return on capital. Since then, the rate of growth of the economy has declined, while the return on capital is rising to its pre-World War I levels.
“If the rate of return on capital remains permanently above the rate of growth of the economy – this is Piketty’s key inequality relationship,” [Branko] Milanovic [an economist in the World Bank’s research department] writes in his review, it “generates a changing functional distribution of income in favor of capital and, if capital incomes are more concentrated than incomes from labor (a rather uncontroversial fact), personal income distribution will also get more unequal — which indeed is what we have witnessed in the past 30 years.” [Continue reading…]