Gyroscopic Investing

But doesn't S. Korea still have very centralized educational and healthcare programs... as well as a lot of mass transit?  Is South Korea less regulated than the U.S.?  I highly doubt it.

I don't think fnord was implying that North Korea has mastered the mix between economic freedom and regulation... simply that many countries with very heavy government control of certain sectors of the economy are doing phenominally well. 

The issue of what formula is best is a tough one to resolve.  Let's take taxation as a percentage of GDP.  If you look that up, you'll find that many prosperous countries have relatively high levels (>40%) of taxation (Denmark, Sweden, Belgium, France, Finland, Norway, Austria, Germany, etc.). However, near the top of that list, you'll also find such stellar performers as Zimbabwe, Cuba and Lesotho.  The USA is at 28%, which is higher than Japan, South Korea, Hong Kong, Taiwan, China, or India. So, lower taxes do not seem to preclude economic progress.  In fact, one might say that it's easier for already-prosperous countries to afford big government, but that if you want to become prosperous, it's best not to get carried away.

I think there are many other factors that influence how well a country does.  Demographics is a biggie for several reasons.  It affects consumption patterns, the makeup of the labor force, and the ability of citizens to pay for the welfare state.  It would seem to doom many Western European countries to an increasingly marginal role in the world economy, so emulating them may be problematic.

Government access to mineral wealth can also skew economic performance vs. taxation measurements. Wealthy oil states have very low taxes, but their economic progress has more to do with geography and luck than anything else.

The state can have both positive and negative effects.  In Japan and South Korea, the government picked winners and channeled resources (and considerable political influence) to a few companies in order to build economies of scale to compete in world markets.  It worked, so to speak, but also created an undercurrent of domestic political resentment which persists to this day.

Countries can have national health systems and national educational systems, but that does not guarantee effectiveness, efficiency, or easy access.  Being national in scope does not preclude charging educational fees, paying bribes to doctors, or offering services so poor that many seek out private alternatives.  Whether private or governmental, I think the sweet spot is achieved via cost containment, the proximity of provider to payer, and the need for the recipient to actually pay some of his/her own money to get the service.  That's what I've seen in China, Korea and Taiwan and it seems to work OK.

http://www.ask.com/wiki/List_of_countri ... age_of_GDP
http://www.heritage.org/index/Ranking

moda0306 wrote: But doesn't S. Korea still have ..... a lot of mass transit?

Yes, it does.  In fact, I think South Korean mass transit is the best in the world.  Everything is integrated (buses, trains, subways, airports), fairly cheap, and clean.  Intercity buses have leather seats, movies, and they stop at large highway rest stops which feature loads of restaurants,shops, and green space.  Inner city buses are very frequent and arrival times are often shown on LED displays at street-side stops (the data is transmitted wirelessly using GPS.)

HOWEVER, one train information provider told me that the bullet train (KTX) right-of-way was rammed through during the Park Chun Hee regime.  Park is responsible for many of the prestige projects which have placed Korea near the top of the world economic heap.  Doubtless, building such an undertaking nowadays in a more democratic Korea would be a lot harder.  Another thing, Korea is the size of Indiana with a population of nearly 50 million, which is further concentrated into compact cities due to the presence of many mountainous areas.  Ideal for trains, especially in a country where most people still don't have cars.  Ditto for portions of Western Europe.  The US is another story. In today's WSJ, even proponents of high speed rail admit that the BOS-NY-DC corridor may be the only viable route.  To be fair, though, let's also recognize that airlines exist only because they don't have to pay for airports or their right of way.  If railroads got a similar free ride, they'd be in better shape.  Having a KTX or Eurostar type train sure would be nice, but bear in mind that any American project of this kind would mostly benefit the Korean, Canadian, Chinese, French, or German companies that dominate the railroad infrastructure business.

Anecdote: While waiting for an inter-city bus in a South Korean bus depot (not Seoul), my departure time was 30 minutes away.  In that time, several buses came and went from the gate I was assigned (one of several gates, all equally busy.)  Finally, with ten minutes to go, a bus arrived and I got on, only to find that it was STILL not my bus!  Mine showed up in the 28th minute and left promptly two minutes later driven by a professional driver wearing a white shirt and tie.  That's what makes people want to take buses.  Frequency, safety, economy and professionalism are all very important.  Except for rush hour, many American mass transit options are infrequent and in many places unsafe.  Unless that aspect is addressed, personal transportation will still be preferred over mass transit systems no matter what amount of government money is plowed into them.

Thanks to Medium Tex for flagging up this great thread. I think the subject is at the root of pretty much everything else. Russia is the example that was given at the start. I think Russia is a fascinating case because they have one of the best educated populations in the world and yet that does not prevent them from having massive wealth inequalities. Russia is full of underemployed, poor, extremely well educated people. Russia is also fascinating because the system there was set up afresh in 1990 following advice from the economists who advise our leaders. I see Russia as a model for where we are being led. Actually Harvard paid the US government in an out of court settlement because the US government said that Harvard had let down the interests of the US people in letting Harvard economists personally benefit from the Russian privatizations.
http://www.thecrimson.com/article/2005/ ... illion-in/#

I think the recipe for a nations prosperity is to have broad ownership across the population in your own country and yet  each person being unhindered in becoming richer than everyone else so encouraging enterprise. Also to have access to commodities from countries where wealth is extremely concentrated so that the money you pay goes to foreigners who invest all of the money back in your country. You need export markets where wealth is distributed so enough people can afford to buy your goods.
There are inherent contradictions in all of that. What works best in the short run is what is worst in the long run. Favoring the growth of capital for the richest creates an asset price boom that draws in foreign money making imports cheap. Having a profit sharing across the population creates a strong domestic consumer base that also draws in foreign investment.
TBV says that if half the wealth of the richest was all redistributed to the poorest, then in 50 years time it will all have got concentrated again. I think that that is true but that only goes to show that in order to maintain a steady state, redistribution needs to be a constant process. It is not a case of curing a disease but more like pruning the trees in an orchard. If some people are left to end up owning everything, then they will have no customers able to afford what they are trying to sell. I think it is crucial that the redistribution is very flat, basic and transparent. That is why I think it needs to be a flat asset tax applied equally to all asset classes of all citizens. The increases in wealth of the richest 0.1% come from unrealized capital gains. Buffett said he was taxed at 17.7 percent on his taxable income of more than $46 million (ie $8M in tax). Buffet owns $40B so any asset tax rate of more than 0.02% would mean him paying more than the current tax set up. If all the tax burden was moved to an asset tax and the rate was 5%, then Warren Buffet would pay $2B per year ie 250x what he currently pays.

http://www.bloomberg.com/news/2010-11-2 ... taxes.html

stone wrote: I think it is crucial that the redistribution is very flat, basic and transparent. That is why I think it needs to be a flat asset tax applied equally to all asset classes of all citizens.
...
If all the tax burden was moved to an asset tax and the rate was 5%, then Warren Buffet would pay $2B per year ie 250x what he currently pays.

There are a number of reasons I'm not a fan of an asset tax but one very thorny one is how you enforce it and assess it without greatly increasing the reach and intrusiveness of government.  (There are some that would consider this more of a "feature" than a "bug", but I'm not among them.)  What are your thoughts on that?

Also, how would you best deal with issues of capital flight and the negative consequences this would bring?  A very modest asset tax (such as a fraction of a percent) might not be enough to cause this but your number above (5%) is almost certain to cause enormous flight of capital.  Under a 5% asset tax, your 30-year government bonds would be losing money, before you even take inflation into account!

It would make sense to spend a great deal of time avoiding a 5% charge, as this defrays the value of your savings by 40% in 10 years.  In 30 years, you'd have lost 80% of your savings.  This would be a most unpleasant phenomenon, particularly for a retiree.  If I retire at 65 and live to be 105, what am I supposed to do if the asset tax will wipe out nearly 90% of my savings, not even taking into account my drawdown?  It would permanently remove any possibility of retirees independently funding their retirements.  If anything, I might have to be more speculative to try to stay ahead of this asset tax.

Do you have thoughts on these problems?  Wouldn't you take steps to avoid such a regime evaporating your savings?  I certainly would.  I'd feel that I had no choice.

Lone Wolf, the points you raise are really crucial. Do you know what the total asset value held by US citizens? I'm pretty clueless about that. My guess is that stocks would be about $15T, bonds about $20T, real estate about $30T. Everything together about $70T ? Am I even in the right ball park with that? Is total US government spending about $5T per year? That would mean an asset tax would have to be about 7% if there were no other taxes and a balanced budget. The thing is, such a system would vastly alter the prices and yields of various types of assets. People would not be paying income tax or payroll tax and companies would not be paying corporation tax. What would that do for company profits and dividend yields? My guess is that far from causing wild speculation such a system would cause people to own high yielding unleveraged assets. I'm not even convinced that the typical retail saver would get a lower return on their savings than has been the case over the past decade. What bamboozles the retail investor is asset price volatility. As I see it the ideal system is for the cost of a Big Mac saved now to be also able to buy a Big Mac in 50years time. Our current system allows elite traders to get 30% per year, us PP lot to get 8% (whilst the PP works- fingers crossed) and the buy high, sell low panic stricken herd to get fleeced.
About capital flight- the tax would apply to all assets of every citizen where-ever they were held in the world. About how to enforce it- to legally own anything your tax would need to be up to date on it. It wouldn't be yours in the eye of the law if the tax was in arrears. I don't immediately see how such a tax collection system would lead to more government intrusion than at present. Am I missing something?

Yeah, good question.  I've heard $50 or $60 trillion tossed out there before.  Your estimate sounds well-informed.

I think that it'd be hard to predict the distortions caused by a 7% annual asset tax.  I submit that they would be massive.  The fact that half of your wealth disappears automatically in 9-10 years is terribly alarming.  I'm still not sure I see how you expect a retiree to handle this sort of confiscation without massive government assistance?

As for intrusiveness, you now have a system whereby the government must be aware of every single thing you own.  The intrusiveness necessary for a system like this to function would be unparalleled outside of a police state.  How do you propose to tax valuables or cash that people secret away?  Unless you intrude even more, you've now given such assets an implicit 7% bonus interest rate.

I don't imagine that I'd supinely accept an arrangement like that (and I doubt most other Americans would either.)  Would you?  You wouldn't seek some form of shelter from this punishment?

You can be sure that the wealthy and well-connected would work very hard to conceal their assets offshore or in other ways, such as owning as many foreign assets as possible.  And likewise, how would you be taxing foreigners that own American assets?  At 0%?  At 7%?  How do you not cause huge distortions when deciding these questions?  Lawyers and financial planners would certainly be big winners under this system.

Lone Wolf, when people die and estate taxes are due, isn't it true that everything they own is assessed for tax? For cash- in the UK we have tax on interest deducted by the bank. I guess the asset tax could be deducted in just the same way. For things like stocks and bonds- some brokers charge a % management fee for the value of the holdings. The asset tax would be charged in the same way. To my mind the fact that you would not own something unless you had paid the tax would be a massive spur to ensure people did not conceal assets. It is worth remembering that the state would not be confiscating any more than they are at the moment. People in the UK pay 20% sales tax and 30-50% income tax. If they own stocks, those holdings are paying 30%? corporation tax and also payroll taxes. People would overall have the same amount of money to spend. I'm trying to trace through where the money would go if -as you fea-r retirees were left with less money. Given that the government would not be getting any more, who would be? My guess is that people of working age would have more surplus that they could save and that increased saving rate would mean that by the time they retired, they would be as affluent in retirement as they would be with the current tax system. It is also worth stressing that the current system seems to be breaking down. Stocks have just zigged zagged around for the last decade. Perhaps if we carry on as we are, our current system will not allow people to retire from their savings because asset price volatility will hand over all of the value of their assets to traders. Our current system seems based on the idea that getting more and more money flowing into assets will create a pyramid scheme that will pay for everyone's retirement. I have my doubts about how sustainable that is.

Is it really OK to surrender one's wealth to benefit society at large?  If so, then is the same process OK to benefit members of other societies?  If so, then what if the wealth and needs of societies are unequal (which we already know is true.) Wouldn't the process be a zero-sum game? Now consider what happens when the members of other societies take up residence in own's own country, and in greater and greater numbers, attracted in part by this generous transfer of wealth.  Is that not also a zero-sum game?

Questions:
1) By what metric do the needs of others, by definition, count for more than your own?
2) Why should you participate?
3) Is it mere coincidence that the social welfare arrangements so often touted by their admirers arose in the most homogeneous of societies?
4) If the sense of common interest and identity so crucial for "share the wealth" schemes is not present, or is undermined by a lack of boundaries necessary to create the "community" in the first place, how can such a system survive?
5) Is the desire to reinforce such boundaries more progressive than the alternative, seeing that its goal is to reinforce social solidarity?

Just asking.

Simonjester wrote: sorry if this has been asked or answered before, but isn't a lot of extreme wealth concentration due largely to crony capitalism?  it seems to me that i heard somewhere that most family wealth/fortunes are used up in a few generations unless there is a political/power connection to maintain the wealth, and wealth to help maintain the political/power connections...

if so, it seems to me it is not "free market" wealth concentration that is a negative but the corruption that allows extreme wealth concentration over many generations that is the problem (oligarchy, aristocracy, kleptocracy, kakistocracy etc)   

That's a great point.

Russia today is a great example of what you are describing.

TBV wrote:

fnord123 wrote: I'd be curious how the "pure competition is good/America is over-regulated/government is too big unless we go back to pre-New Deal society/no confiscation/crab mentality" folks would explain that by almost every measure (GNI/GDP per capita, health statistics, education, corruption, inequality) that the USA has been falling over the least couple decades, with the countries passing us almost all having greater degrees of government economic involvement/regulation/taxation.

These days, economic progress is greatly influenced by foreign investment.  In that regard, some countries offer better investing environments than others.  North Korea is a fine example of the results one can achieve by having a high degree of government regulation.  Unfortunately, the results are not what anyone would want. Just across the border, where there is far less regulation/taxation, South Korea is an economic powerhouse.

Let's compare the US to other rich OECD countries, or perhaps also include powerhouse big emerging countries like China.

I would guess fnord maybe had the likes of Canada or Germany in mind, not the hyperbolic listing of North Korea.

If we keep down that path, an interesting conversation could turn useless.

If North Korea is the example of government intervention, than Somalia would be the corresponding "libertarian free market paradise, that Ayn Rand would be moving to if she were alive today".

cabronjames wrote: I would guess fnord maybe had the likes of Canada or Germany in mind, not the hyperbolic listing of North Korea.

If we keep down that path, an interesting conversation could turn useless.

If North Korea is the example of government intervention, than Somalia would be the corresponding "libertarian free market paradise, that Ayn Rand would be moving to if she were alive today".

I don't know if Somalia provides sufficient protection of property rights to be appealing to someone like Ms. Rand.

MediumTex wrote:

cabronjames wrote: I would guess fnord maybe had the likes of Canada or Germany in mind, not the hyperbolic listing of North Korea.

If we keep down that path, an interesting conversation could turn useless.

If North Korea is the example of government intervention, than Somalia would be the corresponding "libertarian free market paradise, that Ayn Rand would be moving to if she were alive today".

I don't know if Somalia provides sufficient protection of property rights to be appealing to someone like Ms. Rand.

Agreed.  That was my point.  Somalia is an absurd comparison to a rich OECD Libertarian-ish country, just equally as North Korea is an absurd comparison to a rich OECD Progressive/New Deal-ish country like Canada or Denmark.

What counts as croney capitalism? Protecting property rights requires the state to serve property owners at the expense of those who own less and must surrender rent to those who own more. I guess that is part and parcel of not being Somalia. Saying that a genuine free market would only let dynastic wealth last for a couple of generations is a fascinating idea. Please please give a concrete historical example that gives a glimmer of suport for that. In the UK our richest citizen (the Duke of Westminster net worth £13B) has money that wikipeadia traces back to his ancestor being the richest UK person(other than the monarch)  in 1600 or so. The thing is when wikipedia got bored with tracing back that old money they said it came from inherited land. The UK old money families go back to the Norman 1066 conquest and even then it was the richest Normans who were granted English land not Norman foot soldiers. America is currently letting a handful of families grab ownership of big slices of the USA much as the Normans sliced up England into a few huge estates. What makes you think that in 1000 years you won't still be paying rent to the Waltons and Kochs or whatever and having them write the  laws? In the UK the power of old money has seen the Industrial Revolution create a few transitory upstarts without old money barely missing a beat. Much of the bizare distortions in our economy are there in order to protect old money. The agricultural subsidy system is a classic example.

TBV poses some great questions in the post at the top of this page.

I think it gets back to that most important question of "who decides"?

The answr to most of the questions, I think, is that the people who would redistribute society's wealth to help create the world they would like to see will do so until other forces in society push back hard enough to stop the redistribution at some point.  The end result is like most negotiated compromises--they don't necessarily have any theoretical or ideological coherence; it's just the outcome that the power and interest distribution in society dictated.

Medium Tex, if someone says that the ideal is to "not redistribute society's wealth"; then how is that ideal supposed to be acheived? Leaving things to run as they are allows the current redistribution to the wealthy to continue. Basically to maintain a steady state the government probably needs to redistribute away from the wealthy so as to  moderate the redistribution to the wealthy that comes from economic rent. I guess the ideal role of government is to enact a compromise version of what the various citizens want. I guess TBV is right to point out that governments need to represent small enough countries that such a compromise is possible.

Simonjester wrote:

stone wrote: What counts as crony capitalism? Protecting property rights requires the state to serve property owners at the expense of those who own less and must surrender rent to those who own more. I guess that is part and parcel of not being Somalia. Saying that a genuine free market would only let dynastic wealth last for a couple of generations is a fascinating idea. Please please give a concrete historical example that gives a glimmer of support for that. In the UK our richest citizen (the Duke of Westminster net worth £13B) has money that wikipeadia traces back to his ancestor being the richest UK person(other than the monarch) in 1600 or so. The thing is when wikipedia got bored with tracing back that old money they said it came from inherited land. The UK old money families go back to the Norman 1066 conquest and even then it was the richest Normans who were granted English land not Norman foot soldiers. America is currently letting a handful of families grab ownership of big slices of the USA much as the Normans sliced up England into a few huge estates. What makes you think that in 1000 years you won't still be paying rent to the Waltons and Kochs or whatever and having them write the laws? In the UK the power of old money has seen the Industrial Revolution create a few transitory upstarts without old money barely missing a beat. Much of the bizarre distortions in our economy are there in order to protect old money. The agricultural subsidy system is a classic example.

if you look in the UK, especially if you follow the old money a long way back the crony capitalism is the aristocracy, and is usually connected with royalty, and the privilege of royalty.
i wish i could provide examples of the few generation theory, but i am not a business historian and it is difficult for me to provide examples of the negative (family fortunes that no longer exist), but the idea that fortunes wouldn't last past a few generations does seem to have a logical basis, starting with the number of descendants, with each generation the wealth tends to split among the heirs, the children need to be as brilliant, innovative, intelligent, frugal, and driven as the family member that created the wealth in the first place, If the basis for the wealth being maintained is sound investing, innovation or providing goods services that the market demands the odds of one or all of those taking place in successive generations/successive heirs at a level that would maintain or grow a fortune seems less likely, also it helps a lot to have a product behind the fortune that is itself multi-generational, the buggy-whip family fortune will die with the automobile, the coca cola family fortune will be around far longer.

on the other hand if regulations that stifle competition, make start ups for new ideas and businesses that compete difficult, allow the family fortune/business to be relatively untaxed while increasing the taxes on small and mid sized businesses that might compete, give property rights to one group while denying them to another, insider trading etc (examples of crony capitalism), are giving through political/power connections it seems like it would be far easier to have long lasting dynastic fortunes.

Simon, I think the reason why the UK old money outlasted the industrial revolution fortunes is exactly because the 19th century new money was tied to particular industries etc. The old money is not dedicated to making a certain product or whatever- it is dedicated with lasting for another thousand years. They make sure one person from the family inherits the entire estate. I've seen them interviewed about it on TV. In europe a very few families have joined the established super rich and stuck it out for the last few centuries. The Rothschilds and Goldsmiths invented modern finance and I think the Rothschilds also have some careful inheritance pattern so as to maintain the dynasty. They have shown that it is possible to join the ranks I guess. I think many of the first generation billionaires being created now are similarly finance savy. They are not pure industrialist like the 19th century new money fortunes were. I think there is every reason to believe that they could be successful in creating dynasties that carve up and own the global economy for centuries to come. They want the governments to sell off state assets so that they can charge road tolls etc etc. They will own diversified assets- farmland, utilities, mines, banks etc etc.

stone wrote: Medium Tex, if someone says that the ideal is to "not redistribute society's wealth"; then how is that ideal supposed to be acheived? Leaving things to run as they are allows the current redistribution to the wealthy to continue. Basically to maintain a steady state the government probably needs to redistribute away from the wealthy so as to  moderate the redistribution to the wealthy that comes from economic rent. I guess the ideal role of government is to enact a compromise version of what the various citizens want. I guess TBV is right to point out that governments need to represent small enough countries that such a compromise is possible.

First, it is necessary for the government (i.e., the redistributing agent) not to be captured by the moneyed interests in society.  That by itself helps A LOT.  When the moneyed interests capture the government, then the redistributing function begins to work in reverse--i.e., the moneyed interests begin to accumulate even more disproportionate amounts of society's wealth, with the government assisting in the redistributive effort.

More broadly, I have no problem with redistribution of wealth occurring through taxation.  The premise behind virtually all modern tax regimes is that different people will pay in different amounts based upon the amount of wealth they control, and this tribute will then be paid back out to the entire society in the form of public goods, roads, schools, police, fire, etc.

The world we actually live in, however, seems to involve the moneyed interests manipulating the wealth redistribution process so that not only do they pay in as little as possible, they get back WAY more than their fair share on the other end of the process.  That's what happens when you have a political system that begins to only provide for the needs of a narrow band of economic interests within society.

Normally, the libertarian cries about the government taking too much of the capitalists' wealth and giving it to the poor serfs with soot covered faces.  What I am talking about is desiring a smaller governmental apparatus in general, not because it will protect the capitalists, but because it will protect us ALL from the damaging effects from ANY group within society capturing the governmental apparatus.  Right now the wealthy control the government in most countries, but down the road the people might rise up and overthrow this arrangement in favor of a more proletariat friendly ruling class.  This is basically what happened in Cuba, as an example.  What the people found, however, is that they got rid of the tyranny of the moneyed interests and instead got the tyranny of the Castro cult of personality.

The Founding Fathers foresaw all of this.  If you put in sturdy limits on the accumulation of power within the public sphere, NONE of these entities can harness the coercive power of the state for their own benefit and society finds itself with a durable and reasonably equitable system as a result.

The problem with such a system of limited government arises when an aspiring world changer/tyrant comes along and says to himself: "Think of all the things I could do if some of these restrictions on my power were removed.  Think of how I could remake the world into the kind of place I've always wanted to live."  IMHO, it's when the people can be convinced to go along with this sort of thing that a great nation begins to deteriorate.

Simonjester wrote:

stone wrote: Simon, I think the reason why the UK old money outlasted the industrial revolution fortunes is exactly because the 19th century new money was tied to particular industries etc. The old money is not dedicated to making a certain product or whatever- it is dedicated with lasting for another thousand years. They make sure one person from the family inherits the entire estate. I've seen them interviewed about it on TV. In europe a very few families have joined the established super rich and stuck it out for the last few centuries. The Rothschilds and Goldsmiths invented modern finance and I think the Rothschilds also have some careful inheritance pattern so as to maintain the dynasty. They have shown that it is possible to join the ranks I guess. I think many of the first generation billionaires being created now are similarly finance savy. They are not pure industrialist like the 19th century new money fortunes were. I think there is every reason to believe that they could be successful in creating dynasties that carve up and own the global economy for centuries to come. They want the governments to sell off state assets so that they can charge road tolls etc etc. They will own diversified assets- farmland, utilities, mines, banks etc etc.

a careful inheritance plans is definitely one way to give a fortune longevity without crony capitalism, so is diversified investing (if it doesn't involve insider trading) and i wouldn't begrudge them there fortune if it is maintained or grown through those methods, more power to them if they are that savvy. but i tend to suspect of a lot of the super concentration of wealth isn't following that method, and i also suspect the banking and fiance dynasty's are not following that plan alone... where modern finance ends and the corruption of it begins is a topic that is a bit over my head. some of it seems fundamentally corrupt and set up to cause malinvestment, taking real wealth out of the peoples hands with each boom and bust

Aside from harnessing the state to leverage wealth preservation, let me nominate the charitable foundation as an even more durable technique for the wealthiest among us to maximize power across generations.  Ordinary folks must support their civic activities using after-tax income.  Foundation wealth is tax-free.  Ordinary citizens must convince others to pursue common goals for free, or work hard to raise funds from other people's after-tax income.  Foundations, on the other hand, can easily recruit a permanent class of academics and policy advocates to do their bidding. An atomized populace must navigate through shifting coalitions to cobble together a policy consensus.  Foundations are less dependent on such temporary arrangements, since they're able to salt academia and government with a bevy of single-minded careerists.  Both alone, and in tandem, foundations can also provide cover and a provenance for the less gifted offspring of wealthy families.  A Joe six-pack might be unemployed, drug-addled or simply dull, but his famous-family counterpart can emerge overnight as an environmental advocate for South American rivers, or whatever else seems cool at the time.

TBV, just before reading your comment about foundations, I'd also commented (on a different thread on here) about how foundations use wealth to direct who does what. The odd thing is that people seem to think that us being ruled over by foundations is somehow a free lunch.

MediumTex wrote: The Founding Fathers foresaw all of this.  If you put in sturdy limits on the accumulation of power within the public sphere, NONE of these entities can harness the coercive power of the state for their own benefit and society finds itself with a durable and reasonably equitable system as a result.

Interesting post MT.  This capturing of the Federal government is certaintly happening today, or in the Reaganite era 1981-now (incl DLC-types aka Reaganitos B Clinton & Obama), with the cartel interests controlling both parties, Investment Bank$ters 2008 bailout, financial services, military industrial complex, health care cartels, etc.

OTOH, imho the Federal Government is the only force that can do the following
1 regulate or break up cartels, ala Republican Pres Theodore Roosevelt breaking up the oil & other cartels

2 regulating against externalities such as pollution, aka socialized cost for the taxpayer & privatized profits for the corporation doing the externality.  Another example - the manipulation on financial asset prices with HFT (High Frequency Trading) with fake buy & sell orders manipulating the market to the benefit of the Bank$ters & Hedge Funds, at the expense of everyone else.

Without such regulation, capitalism becomes cartel capitalism/fascism, is kind of like an NFL game with no Referees - deaths & massive casualties would occur from the likes of Jared Allen going ballistic on the QB.

Without Federal Gov capability to address these issues, the cartels &/or corporation externalities usually will persist or worsen.  There will be examples of an innovative company disrupting an existing cartel industry, but this will not usually happen effectively.

Medium Tex when you talk about the system set up by the founding fathers of the USA, I wonder whether a large part of what made that work was that most of the economy was agricultural and most citizens owned the land they farmed. I wonder whether if the USA had had the land distribution that there was in South America with vast estates, then no matter what the limits were to the size of the state, things would not have worked out equitably.

stone wrote: Medium Tex when you talk about the system set up by the founding fathers of the USA, I wonder whether a large part of what made that work was that most of the economy was agricultural and most citizens owned the land they farmed. I wonder whether if the USA had had the land distribution that there was in South America with vast estates, then no matter what the limits were to the size of the state, things would not have worked out equitably.

Agricultural land tenure was extensive in early America but the holdings of the planter elite vastly exceeded what ordinary citizens might have, not to mention slaves and sharecroppers.  Nevertheless, redistribution of existing private holdings was not pursued, except against pro-British Loyalists.  The American solution was to provide alternatives (i.e. land in the west, or non-farm occupations.)  Ultimately, land holding lost its primary significance as a source of wealth and sustenance due to the development of commerce and industry. The ideal of making more pies in a growing economy rather than endlessly dividing the same pie in a stagnant one is an apt analogy.  The former requires greater respect for private property.  The latter suffers from a lack of it.

TBV, do you think that initial starting point of widely distributed wealth was irrelevant? When the US economy evolved into using commerce and industry, presumably finance was required for that? I just struggle to see how an economy can work if a few people own everything and take whatever profit the market allows.

Stone:

In all fairness, the initial starting point was not one of widely distributed wealth.  The social arrangements of the early American period were highly unequal.  You might say the game was rigged.  That's why migration to the west was so popular.  To go where the long arm of the state and established privilege held less sway.

American history is not characterized by a few people who own everything taking whatever profit the markets allow.  The profit takers were usually people to whom the existing elite would not have given the time of day.  Immigrants like Andrew Carnegie.  Obscure people from obscure towns, like John D. Rockefeller and Thomas Edison.  The creation of new industries and new technologies accounted for more wealth than the original elites could have ever imagined.  That's why the power elites of New England, Pennsylvania and Virginia faded in significance as the years went by.