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You are here: Home / Articles / Redistributing Wealth—Upwards

Redistributing Wealth—Upwards

June 24, 2012 By pladmin Leave a Comment

Whenever I feel like raising my blood pressure a few points, I read The Wall Street Journal editorial page. And the June 2-3, 2012 issue didn’t disappoint me. In an article called “Robin Hoods Don’t Smash Windows,” John Agresto, the former president of St. John’s College in Santa Fe, makes the familiar arguments against the redistribution of wealth downwards. He writes that anyone who wants it believes “that others must give when they demand, that others are means, not ends.” He says that implementing wealth redistribution usually requires force and violence, and that it is dangerous. And he’s right about all of this, just not in the way he means.

Mr. Agresto is locked in a small-picture nearsightedness here, and, unsurprisingly, it works to his benefit. He can’t see that corporate capitalism inherently causes redistribution of wealth upwards, from poor to rich. That is the definition, after all, of capital: accumulation of wealth and control of resources. Contrary to Agresto’s assumptions, concentration of wealth is not a law of nature or a reward for virtuous living. It is a deliberate result of policy. This wealth extraction has allowed a tiny group to seize control of the global commons, and they are selling it back at a price ruinous to everyone, including the planet.

Mr. Agresto, like many in power, fears a fairer distribution of wealth because it would disrupt a system that is working for them. He can’t see the many mechanisms explicitly designed to pull wealth from the pockets of the many and divert it toward the few. These methods are invisible background to him. If he sees them at all, they are the way things are meant to be. To change them, he says, would cause chaos and reward the undeserving. This is the ancient excuse of the elite: We are on top because we deserve to be, it is the natural order of things for us to be here, and if others want back what we have taken from them, they are morally weak, jealous, greedy, and lazy. The upper class ignores the many processes, laws, and customs that, at threat of violence and imprisonment, keep wealth flowing disproportionately toward them. It is not, as Agresto says, the left that sees other humans as merely means. It is the very rich, who use the entire populace as a means to more wealth.

Do you need examples of wealth extraction in action? One of the most widespread is the mortgage loan. Americans have been sold the notion that home ownership is a means to independence, when, rigged as the system is, it’s just the opposite: a road to dependence on your employer and eternal debt. Banks have arranged mortgage payments so that a borrower pays mostly interest in the first years—and in most of the years—of a loan, which minimizes borrower equity. Not until roughly year 20 of a 30-year mortgage does the amount of principal paid off equal that of interest. With the game rigged like that, a homebuyer doesn’t acquire much equity until the last third of a mortgage’s life. Until then they are paying mostly interest. That’s wealth extraction. It could be set up many different ways, but the banks have gamed the system to benefit themselves and screw the mortgagee.

Here are the numbers. In a $200,000, 30-year mortgage at 5%, the total ratio of interest to principal is roughly 0.9 to 1. But in the first 5 years of that loan you’ll pay interest at 3 to 1 over principal, $48,076 compared to $16,341. Finally, 25 years later, for the rare souls who stay in one house that long, those proportions reverse: 3 to 1 principal to interest. The bankers get theirs first, and only after decades do you acquire equity at the same rate they got their up-front interest. A fair mortgage would keep interest and principal at the same ratio—0.9 to 1— over the life of the loan. Here we have a game rigged by the powerful, and with 48 million mortgages in the US, it siphons about a trillion dollars each year—money that could be invested in equity for everyone—away from the many toward the few. Since the average house is sold after 7 years, resetting the payment schedule, most borrowers never get much equity at all. This is a conscious design to redistribute wealth upward, and it is maintained by force. Try making a more equitable interest payment, and see how long it is before the police come to throw you out of your house. Redistribution of wealth by force already exists, just not in the way the rich want us to think of it.

The home mortgage is only one of countless methods by which the rich use their power to move wealth toward them. Corporate and wealth-favoring tax breaks, high taxes on earnings versus low taxes on capital gains, pre-payment penalties, exorbitant credit card interest on no-annual-payment cards versus low rates on high-annual-payment cards for the rich, redistribution of taxes to corporate officers via government contracts and subsidies, expensive lobbyists who write the laws, executive salaries thousands of times greater than those of workers—these are all legal tricks to help the rich pull money out of the pockets of the rest of us. It is a system designed for the rich to direct resource flows toward them, not because they merit it, but simply because they control it.

So please, when you hear someone complain about the dangers of redistribution of wealth, remind them that we already have it. We redistribute wealth upwards. And here’s where I agree with Mr. Agresto: It is dangerous.

—June 16, 2012

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Toby Hemenway is the author of The Permaculture City and Gaia’s Garden: A Guide to Home-Scale Permaculture.
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