Date: Thu, 8 Feb 2001 16:38:56 -0500 From: Steve Thomas Subject: How John Wayne Gets Rich (was Bush tax plan) The U.S. thrives on the myth of the rugged individualist, and no one seems to respond more vigorously to this myth than the conservative. That it *is* a myth (= not really true) is not a criticism of its role in the psychic economy of the country. I chose the word "thrive" advisedly: I believe that the fact that we Americans so readily see ourselves as occupying the John Wayne role is part of the extraordinary set of conditions that has allowed the country to attain to an astonishing and historically unprecedented level of wealth. But it is untrue, and its untruth consists partly in the way in which we Americans are generally oblivious of what wealth in fact is. That is to say, we tend to ignore the fact that wealth itself is a creation of and by our government, in the sense that without our government wealth (as we know it) would be neither possible nor even conceivable. Take money, for starters: a government invention. This is on the one hand obvious, and on the other hand utterly transparent to us, and therefore forgotten. What money is, however, (the ontology of money) is not entirely clear. Ask yourself the question: where is money located? The tangible things that we think of as money: currency and coins, those aspects of money that we can physically put in our pockets, do not exhaust the total concept of money. The U.S. mint which prints currency and coins coins, could not possibly print or coin enough currency or coins to represent the total amount of U.S. dollars in "existence". The vast bulk of U.S. dollars are not and never have been represented by dollar bills or coins bearing the slogans that we know so well. Where do these dollars live? They live in banks. The money supply is generated and regulated by the Federal Reserve System, which governs the U.S. banking system. In addition to their more well known functions of regulating interest rates, the Fed actually determines how much money there is in the world. They do this through a rather complicated system which governs how much money U.S. banks can generate. (U.S. dollars in foreign banks are not directly subject to the Fed, but their control over foreign deposits is indirect.) And U.S. banks are subject to extremely thorough regulation. Twice a month my company pays me. It does this by transferring money electronically from its bank account to mine. What is the ontological status of that money? Simple. Every cent in my bank account represents nothing other than a promise by the bank to pay that amount to me or someone else I designate. Indeed, every cent in anyone's bank account is just a promise of the bank to pay that amount. My checking balance is a liability of the Chase Manhattan Bank. If the Chase Manhattan Bank were to run out of money to pay what it owes, it would not be able to pay me. I would lose every cent in my checking account, were that the case. (And the money that the Chase Manhattan Bank has is represented generally not by cash in the vault but by similar book entries in other banks, primarily the NY Fed.) In the depression, many people lost their life savings due to just such bank failures. In the movie *It's a Wonderful Life* the hero has to stave off a "run on the bank" because it does not have enough liquid assets to pay all of its debts. The Chase Manhattan Bank has vastly more assets than Jimmy Stewart's little thrift, but it does not have enough liquid assets to pay all of its liabilities were there to be a run on it. (What they do have, in common with other U.S. banks, is the ability to borrow money from the Fed when needed.) What I have said in the preceding paragraph ignores, however, one of the key provisions instituted during the New Deal: federal deposit insurance. My bank, like most U.S. banks, is a member of a federal program called FDIC. This is a promise by the U.S. government that it will pay up to $100,000 of any deposit in a bank. Thus, there is no need for anyone to feel nervous about his or her bank deposits (subject to the insurance limits) because the federal government guarantees that you will not lose money. In return for this insurance, the banks must operate under a regulatory regime that imposes strict limits on what they can do. You may remember the thrift crisis of the late 80s: this was the result of improvident deregulation of the thrift industry ("savings and loans" were historically distinct from banks, but essentially the same federal promise was made). Because the thrift industry was released from some of its previous regulation in a foolish way, enormous losses were generated which had to be met from the federal treasury. [By the way, the deregulation in question was accomplished largely under the Carter administration, and so cannot be laid at Republican doors. And I criticize not the fact of the deregulation but the manner in which it was done. Finally, the Charles Keatings of the world and their criminal trials were in effect sideshows which led folks to believe that the losses were largely due to criminal activity, whereas in fact the vast bulk of losses were caused by nothing so much as stupidity.] Thus, the fact that I can deposit my paycheck in the bank without thinking about the stability, safety or durability of money represents a triumph of governmental design. Money is transparent in our society because our government has made it so. This allows us to think of money, and to use it, as if it were a stable natural entity which just occurred in the world. We imagine that money is already and always present in the world and acquiring it is just a matter of moving it from one pile to another. And the pile to which we wish to move it is "our" pile. So now we're talking about *property*. When I was in law school, one of the professors who taught the first year property course was famous for having given a final with only one question: "What is property?" I was absolutely relieved that I never had to answer that question on a law school test because it is really quite a difficult one. "Property" is another of those concepts which our society finds pretty much unproblematic, largely because we have internalized the social construction that property *is*. Property is what is *mine*, what * belongs* to me. If someone were to begin construction of a house on my property in Woodstock, I would be outraged and would call the cops to have them stopped. I'd sue them for any damage they did to the property. They might say "but you weren't using that parcel at all, it was just sitting there, and we need a house." But this argument would mean nothing to me. "That's *my* property, god damn it, and I'll let it lie fallow if I want!" In fact, I think that I am in fact using that property: I use it to buffer me from my neighbors and to imagine that I live in the middle of nature. But how does one know that this is my property? Simple, our government tells us so. My name is listed in the county land records as the owner. (I actually own two parcels of land: a 3 acre parcel with a house on it and a contiguous 4 acre parcel that is classified as "unimproved." My mortgage covers only the improved lot, so I am the free and clear owner of the 4 acre parcel.) If someone were to get in my car and start to drive it away, I would be incensed as well, and would call the cops to arrest the perpetrator for auto theft. "But you only drive this on weekends, and I could use it during the week" the perp argues. "God damn it, it is *my* car and I'll decide who can drive it." But how do I know that it's my car? Our government tells me so. I am listed as the owner of the car on it's title, which is registered by the state. The only way I can sell the car to someone else is through an assignment of the title. You cannot own a car in this country except through registration with a governmental agency. (The same is true for boats of a certain size, by the way.) OK, but these are special cases. What about tangible personal property? What if someone were to come to my house and purloin some of my precious books. I would be outraged, and might very well call the cops and have the thief arrested. I would also sue them for the damage done to me. "But you can't possibly read all those books, and I needed this one" the perp might say. I wouldn't care, for these are *my* books and I think that I have the right to do what I want to with them, and if what I want to do with them is to gather dust on a shelf, well that's my right. But how do I know that these are my books? The government tells me so. It tells me so because I have available to me the court system and the cops and the rules are such that we have settled expectations about how our tangible personal property will be treated by government agents. If a private individual tries to part our tangible personal property from us, government agents will assist us in getting it back. They won't always succeed, of course, but we expect that they will do so. As Ms. Latham pointed out, our whole system rests on the fact that we have police and laws and courts and that we feel we can count on them. Where that feeling is gone or attenuated life is scary (think of parts of the South Bronx) indeed, and one cannot rest secure in the possession of wealth. One may have tangible things within one's dominion or control, but they are not property in the sense that my tangible things are, because one cannot count on agents of the state to assist in their preservation and protection. I rarely stop to consider the fact that the notion of * property* is socially constructed ? I generally just think of it as "my stuff". But without government we would not be able to rest so easily amidst our stuff. A few other comments about the conduct of business. One of the things that amazes me when I'm dealing with businesses in foreign countries, or talking to folks who deal with them, is that the transparency of American business is one of the greatest strengths of American business. And this transparency is largely due to government regulation ? specifically securities regulation, which assures a level of disclosure and accounting honesty which is unmatched in the world. It takes some time to figure this out, of course, and for a while it was considered that we had much to learn from Japanese business practices. Now it is apparent that Japan has been, since the end of WWII, one enormous Potemkin village, and that the American business is vastly more flexible and able to adjust than others. Much of this is due directly to the correct sort of regulation. Not all regulation is good, of course. Not all regulation is the same, either. But a country without regulation would be a vastly different place. So some regulation is good, even necessary for the proper function of business and wealth creation. Now what does this all have to do with John Wayne? The libertarian tends to think of himself as an independent individual who acquired his wealth by virtue of his own efforts entirely. He believes that he is entitled *naturally* to retain all that he has, and that anything that takes away from his property or his right to do what he wants with it is an *un*natural imposition on the order of things. (Note that this encompasses both taxation and regulation. In Woodstock, I cannot put a mobile home on my property, due to zoning regulations. This, to a libertarian, is an infringement on the *natural* right to do with his property as he wishes.) He tends to think that government is bad, and alien to him. From this comes the general disrespect for government, which is a corrosive part of the Republican ideology today. I have argued that these beliefs of the libertarian are false ones. It is useful to our society that we believe and act as if we were independent and that our property and wealth are self-subsistent naturally occurring entities, because this motivates folks generally to be more productive. But in doing so we forget that the very fabric of our society which allows us to treat our property with such nonchalance is created by our governmental and legal system, and requires constant adjustment. Further, the social contract on which our governmental system depends would be damaged by pervasive social inequities. [I don't mean to imply a full-fledged social contract theory of societal constitution, by the way.] Consequently, when I advocate certain governmental policies to address some of the social inequities in our society, I am doing so partly because I believe it in my own financial self-interest, which depends so entirely upon a properly functioning legal, governmental and regulatory regime. The libertarian, on the other hand, generally supports taxation only to support what he considers "direct services" such as the cops. Thus, for a libertarian, the government is just another sort of service provider, like the electric company. For me, the government is in an important sense *us *. Income redistribution for me is a permissible purpose of government, although like all permissible purposes it should be done with finesse. (And a full-fledged socialism would not be desirable, in my opinion, because that would reduce significantly the motivations for value creation. You see, I *am* a capitalist, even if a bleeding heart one.) Of course, the government wastes some of our money. Of course, the government adopts policies that don't work, or even can't work. Of course, the government screws up a lot of policies and programs that are in concept good ideas. It does so because it is a big organization and full of human beings making decisions. (The most inefficient place I've ever worked was an oil company, and the most efficient was a governmental agency, contrary to conventional wisdom, but I've never worked anywhere without serious inefficiencies. Inefficiency is just built in to organizations of any size whatsoever.) The United States is an enormously complex entity, and it certainly has its flaws. But it is the most successful creator of value in history, and that fact is in my opinion due in large part to the success of its government. Those who denigrate the government on principle, who perpetuate the myth that government is inherently evil, are in my view contributing to a ideology whose complete success would sow the seeds of its destruction. I accordingly think that it is wrong *per se*, because it could not sustain its own goals, which are the perpetuation of the ability to create and preserve value. [I should note that in this argument, such as it is, I have assumed that the basic goal of capitalism ? the creation and preservation of value ? is unassailably a goal to be sought by society. It is a different, and more philosophical, question as to whether the goal of capitalism is a goal that should be sought by humans. That is, one can easily argue that capitalism's success is in fact bad for the human soul. But that is a matter for a different day.] Steve Thomas SF'74