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John Passant

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July 2010



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The ultra-rich: hypocrisy in action

There seems to be a political consensus on one thing: we need unity through adversity.

Whether it is the conservative British PM David Cameron urging that “everyone pulls together, comes together, works together”; the liberal President Obama outlining how “the success of all of us is built on the success of each of us”; or the Greek Socialist Party PM George Papandreou insisting, “It’s time to roll up our sleeves and all work together,” politicians of all stripes, on both sides of the Atlantic, are emphatic that we are all in this mess together.

Yet every week new examples of double standards come to light as the rich continue to push the burden of their errors onto the most vulnerable. Every week the “responsible economic management” we are having shoved down our throats is more clearly shown to be a giant fraud, the “unity” an illusion. Last week was no exception.

Hypocrisy #1: the US property elite

It wasn’t long ago that establishment figures were pointing the blame for the financial crisis at its very victims. Larry Kudlow, former chief economist and senior managing director of Bear Stearns, made the case in 2008 for holding the working poor culpable:

“Members of Congress…[through] their liberal guilt consciences, forced banks and lenders to make lousy substandard loans… Not everyone can afford a home…some people have to rent, that’s just the way it is.”

Suffice to say that Kudlow is not a renter. The real problem back then, as everyone now knows, was that the ultra-wealthy were speculating – gambling hundreds of billions of dollars and financing their bets through piling up debts of their own.

Last week the New York Times ran an article showing that little has changed. The wealthy are, it pointed out, defaulting on mortgages at higher rates than anyone else: “[H]omeowners with less lavish housing are much more likely to keep writing cheques to their lender…”

How could this be? Aren’t the wealthy more educated? Don’t they, by definition, have more money than everyone else? The article explains:

“…data suggest[s] that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment. ‘The rich are different: they are more ruthless,’ said Sam Khater, CoreLogic’s senior economist…

“[T]he rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes… The delinquency rate on investment homes where the original mortgage was more than $US1 million is now 23 per cent.”

In other words, “shared sacrifice” is a chimera in the US housing market. With the orgy of property speculation seemingly at an end, the wealthy are junking their deteriorating investments – investments that could provide shelter for every homeless person in the US but that will instead stand empty because the rich can’t turn a buck on them.

Yet find one editorialising former investment banker who now comes out to lay blame on the rich for placing downward pressure on house prices and increasing the prospect of a double dip recession. There are none. The rich are, according to the orthodoxy, being rational investors. Their empty homes will trickle down into the empty plots of the working class…

Meanwhile, workers in the real world continue to be thrown from their homes as they lose their jobs or fall into negative equity. They endure not only the humiliation of being told by the financial establishment that their lives and the lives of their families are worth less than a prefab, but also the indignity of the economic innuendo that home foreclosures are caused by illiteracy. It’s the same old Kudlow garbage dressed up as respectable opinion.

It is breathtaking and infuriating.

Hypocrisy #2: the European Central Bank

The European Central Bank (ECB) is a fierce proponent of austerity for European member states. The message from ECB President Jean-Claude Trichet is that governments have to slash and burn spending, cut the fat from the public service, pull socks up and tuck shirts in. Governments have been responsive:

In Spain, Prime Minister Zapatero has announced spending cuts totalling  €15 billion in 2010 and 2011. Public service wages will be slashed by 5 per cent this year and frozen in 2011; more than €6 billion will be cut from public investment;

France’s minimum retirement age will be lifted gradually to 62 from 60 and all government spending will be frozen between 2011 and 2013;

Portugal will impose a five per cent pay cut for senior public sector staff;

In Germany, Chancellor Angela Merkel will cut welfare spending by €30 billion and cut public sector payrolls by up to 15,000;

Italy is delaying retirement dates, instituting a government pay freeze and pressing for cuts to health and education spending at a local level;

Greece is instituting a public sector pay freeze until 2014, cutting bonuses and allowances, freezing pensions, lifting the retirement age for women, and increasing taxes on petrol and cigarettes among other things;

Ireland has already seen three austerity budgets which have gutted social welfare payments and public sector pay;

Britain has released a horror budget the likes of which has not been seen in generations.

However, sometimes a government will go a bridge too far. Such is the case with Romania. They have applied a 25 per cent pay cut to the public sector (so far so good for Jean-Claude), but in the process forgot themselves; they applied the cut to Central Bank staff as well.

Jean-Claude, who “earns” a cool €300,000 per year, was not impressed with this cut. A swift rebuke from the ECB followed for the Romanian government:

“Member States may not impair an NCB’s ability to employ and retain the qualified staff necessary for the NCB to perform independently the tasks conferred on it…”

Of course bank staff, like everyone else, deserve to have their pay packets protected; but just when did such an “impairment” clause apply to the ECB and other financial institutions? What about the “tasks conferred on” governments by the people who elect them? They don’t get a mention.

Only nine months ago, George Papandreou, leader of the Panhellenic Socialist Movement, was the emphatic victor in the Greek general elections. He promised to keep pay rises above inflation and make the rich pay for the crisis. That was his mandate.

That mandate has turned into a democratic deficit as Jean-Claude and his ilk tighten the screws. The elected government’s ability to “employ and retain qualified staff” has been acutely impaired by unelected bankers. More, the government has been given specific directives – and threatened with a capital blockade if they don’t comply.

This is rank (bank) hypocrisy.

Hypocrisy #3: European corporate taxes

As part of the previous stimulus programs, value-added tax (VAT) rates were temporarily cut across Europe in order to stimulate spending. A VAT taxes basic consumption expenditure. As such it disproportionately targets the poor, who spend a far greater portion of their income on basic consumption than the rich.

Now that a phase of fiscal consolidation has begun, Greece, Portugal, Spain Romania and Britain have announced VAT rate increases, which will apply on top of the restored rate. Others will likely follow.

At the same time, however, new data from the statistical office of the European Commission shows that corporate tax rates have “continue[d] their rapid decline throughout the EU”, dropping 1.3-1.5 per cent on average over the last three years – on top of a 10-11 per cent drop over the previous decade.

So the poor are being forced to tighten their belts past the last notch while some of the biggest corporations in the world are having their profits – and with them, executive bonuses – boosted.

This is the hypocrisy of governments crying for unity while privileging the privileged; it signifies a mass transfer of wealth from the working class to the ruling class across Europe.

More examples of the hypocrisy of the rich will be forthcoming. They can’t help it – they are not motivated by considerations of consistency. On the one hand they are parasites. On the other, their social position is only assured through cultivating the impression that they are productive members of the community.

Hypocrisy is the logical outcome of such a contradiction.

This article, by Ben Hillier, first appeared in Socialist Alternative.



Comment from Marco
Time July 23, 2010 at 8:31 pm


Good article. Keep an eye here, because I am writing some comments focusing on the subprime crisis.

Hopefully, I’ll have it finished by Sunday.

Or, alternatively, I may post them in my blog.

Comment from Marco
Time July 24, 2010 at 1:16 am

But there is a comment I can make right now about the “need to bring budget back to balance”.

The current deficit has been the product of two things: (1) a fall in economic activity (less people working, less sales, less profits, means less taxes), and (2) stimulus spending, through fiscal deficit.

But let’s remember that a good slice of the stimulus spending was directed to (1) bail out failed financial institutions (and their shareholders and managers!); (2) guarantee deposits of people who had lots of money in the banks; (3) in the US and Oz, we also had the first home buyers boost which was given to everyone and their dog (no means tested!) who already had money to buy overpriced units; (4) provide business with something to do (like the solar panels and school halls here), and (5) now, in Europe, to bail out bond holders who lent money to countries they knew could not pay their debts (as Greece, that had to appeal to Goldman Sachs’ “financial engineering” to disguise these loans).

So, the wealth transfer started earlier. What we are seeing now is the second instalment. First the wealth transfer came as a general bail out, and now as payment for the bail outs.

If one can criticize Marx is because he had too much faith in capitalism: he thought the main source of profits was unpaid labour.

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