The ‘wealth creators’ myth


by Sunny
26th November, 2008 at 12:56 pm    

So, taxes are raised slightly for high income earners and suddenly some people are up in arms. Here is Boris Johnson’s policy advisor Anthony Browne stupidly stating the obvious:

Short of introducing a London banker tax, this is as close a direct hit that the Chancellor could get on those who brought the country to its knees. It is overall an Old Labour redistributive budget, yanking up taxes on the rich to help the poor.

Yes, progressive taxes usually are redistributive and most people including economist Adam Smith were in favour. Boris Johnson himself turned up on TV later saying higher taxes would hit the ‘wealth creators’ who were the life-blood of the economy.

Let’s shoot this fallacy down right here. The bankers from London’s Sqare Mile, earning over £150,000 a year have actually been net wealth destroyers over the past decade. All the wealth created by the big banks here and in the US has been destroyed and much more – taking other industries down with them. These former Masters of the Universe were so rubbish at gauging risk and so good at flogging off bad debt that when the wobble came – confidence crashed everywhere.

Destruction so swift comes only when people know they are living in a house of cards. They knew the boom would not last because the models were dubious, and would not withstand a crisis of confidence.

Furthermore, these so-called Wealth Creators have been Wealth Re-distributors too: enriching themselves during the boom while playing around with other people’s money. But now that the economy has crashed and pension funds have lost money – do these Wealth Creators give any of their money back? Nope. They made their money while the going was good, now tax-payers have to pick up the pieces.


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Filed in: Economics,London Politics






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  1. Random Guy — on 26th November, 2008 at 1:04 pm  

    I wonder if there could ever be a system by which bankers could be held directly liable and prosecutable for crashing the economy?

  2. kardinal birkutski — on 26th November, 2008 at 1:09 pm  

    Random Guy. And you don’t hold the one-eyed one, undeniably one of the chief architects of our problems worldwide and even more so at home- in any way responsible? No, thought not. Well argued, though!

  3. Hermes — on 26th November, 2008 at 2:54 pm  

    Kardinal…eh???

  4. Leon — on 26th November, 2008 at 3:01 pm  

    Excellent piece Sunny, highlighting the disparity between market myth and reality is exactly what we should be doing more of.

    I wonder if there could ever be a system by which bankers could be held directly liable and prosecutable for crashing the economy?

    Interesting idea, although to work you’d need to able to give convincing evidence of a direct link I’d thought…

  5. Kismet Hardy — on 26th November, 2008 at 3:12 pm  

    Whiff-whaff, as Boris says

  6. Random Guy — on 26th November, 2008 at 3:58 pm  

    #2: Kardinal, you might want to lay off the mood enhancers and re-phrase your comment. Wtf are you talking about?

    (although I must confess slight dread at the prospect of your next response)

    #4: Leon, surely direct damning evidence would not be that hard to dig up? Economic history after all, is nothing more than a matter of statistical record.

  7. shariq — on 26th November, 2008 at 4:23 pm  

    I will continue to say this untill I get a proper rebuttal to it. Job-creation depends largely on company tax rates and levels of regulation. As long as personal income tax is below 50% it doesn’t make that much difference to the economy.

    Having said that, I’m not sure that a recession is the right time to be raising taxes. I’m guessing the argument is that for a stimulus to work, you need to give tax cuts to people who will go and spend the money and poor and middle income people do that more than the rich.

  8. Refresh — on 26th November, 2008 at 5:36 pm  

    Its simple, we need to recoup £300bn one way or another. Bankers paid themselves £67bn last year. I describe it as the biggest fraud ever pulled off – we need the serious fraud squad in there investigating every bonus paid.

    The result will at a minimum be a frightened and cowering bunch of non-entities.

    Wealth in an economy is created at the bottom, whilst those at the top just happen to know how to cream it off and get away with it. And on a global scale, it is actually being created by the manufacturing nations in the developing world.

  9. Imran Khan — on 26th November, 2008 at 6:18 pm  

    One way to look at it is we are paying these people £150,000+ from our taxes for basically messing up the economy of the world. Out of that 150k we are taking from them a little bit extra.

    Their choice is simple either pay a teeny bit extra tax or get made unemployed. If they don’t know which is better for them then they shouldn’t be in those type of roles to start with.

    Obviously all these ideeiots complaining about the extra tax should remember that many of these people paying the tx have cost pension fund holders who are about to retire a lot of money.

    Wealth creators only create wealth for themselves in the main and screw the rest. I didn’t see the wealth creators are Lehman Brothers offering to pay their money back to help the bank but they were quite prepared to ask US Tax payers to pay for their mistakes.

    Indeed many of these so called wealth creators haven’t put their money where their mouths are to reduce the level of debt that us tax payers have to put in to get the out of their almighty screw up.

    When a wealth creator helps me keep more of my wealth by not having to bail them out I might be sympathetic.

    The government didn’t have money to help the elderly, sick and poor but when these nutters broke themselves then they poured money in and still these pathetic people whine about paying a few extra % in tax.

    I am sure a few of us would be quite happy to take £150,000 per year for losing billions of pounds! Where do I sign up?!

  10. s — on 26th November, 2008 at 7:34 pm  

    I have just read an artical on Capitilism and crisis in the leftwing Journal ‘Proletarian’ Oct/Nov 07 issue No. 20 Link http://www.cpgb-ml.org on the current economical crisis. It correctly predicts in 2007 the comming Tsunami. Its a must read even if you disagree with their ideology.

  11. MaidMarian — on 26th November, 2008 at 7:59 pm  

    Two words appear to be missing from the article – ‘house prices.’ It is an aspect that for all the acres of comment on this subject there seems very little willingness to discuss.

    House price inflation is not wealth in any meaningful sense of the word. Certainly it provides nothing for the benefit of UK plc. Many revelled in house price ‘wealth’ that is entirely faux. It should also be noted here that there is a pretty clear generational gap.

    What I am getting at is that we can blame the banks all we like. The stark reality is that no one put a gun to anyone’s head and forced them to sell houses to one another at ever wilder prices. I struggle to see why the public who asked no questions and accrued reckless debt as the paper wealth rolled in should not be getting it in the neck.

    And in all fairness to the government here I rather struggle to see what it could have done to regulate house prices. Has substantial regulation been introduced in 2001 the talkboard reaction would have made the reaction to conflict in Iraq look a model of restraint.

    This is where I slightly disagree with Shariq (7). What the last few years has shown is that tax rates may well not make a big difference where there is run away house price appreciation. However when that appreciation slows or reverses policy options have been closed off as any debt on the back of that appreciation does not vanish.

    There is, to my mind an entirely legitimate argument that regulation of the housing market should be far more assertive. That is not a comforting thought for people like me who believe that the government has no place telling me what I can and can not borrow.

  12. bananabrain — on 27th November, 2008 at 9:54 am  

    The bankers from London’s Sqare Mile, earning over £150,000 a year have actually been net wealth destroyers over the past decade. All the wealth created by the big banks here and in the US has been destroyed and much more – taking other industries down with them.

    er… but all these people do actually spend money on stuff, which creates jobs.

    what a reversion to type. it is exactly this sort of “hurrah, back to old labour” thinking which will condemn us all to a ten-year depression. innovation and investment is the key. i’d like to see any of that happen without a functioning banking system.

    i don’t think bankers should be paid as much as they are, though. but tax ain’t the answer, at least not personal tax.

    b’shalom

    bananabrain

  13. justathought — on 27th November, 2008 at 2:52 pm  

    So true.

    I had a bit of a debate the other day with my tax-accountant brother who suggested the government would be ill-advised and wouldn’t actually end up dumping the bill for the emergency budget on the highest earners because there’s too much fear that they’ll leave the country and take their wealth with them – they’re the wealth creators afterall and what would we do without them? …I might have idealistically argued that if I earned £150K I wouldn’t be driven out of the country because I had a problem with 50% tax, but that’s just my stance and it was never going to get me anywhere in this debate! We were never going to agree if one of us was arguing realities and the other ideals. And I can’t argue that his point makes realitic sense – the long-term vision from the emergency budget would be no solution if it drives the highest earners out of the country. I know a few who are considering it already. And the budget vision isn’t as simple as giving to the poor with a view to robbing from the rich. Overall, they are wealth creators – a lot of it is creating wealth for themselves but some of it gets to us. But you’re right, in recent times the City bankers have been wealth destroyers rather than wealth creators. And because we don’t have a law making them directly liable for crashing the economy (RandomGuy, wouldn’t it be great?), it would be fair for them to at least foot a proportion of the bill that reflects their contribution. But we’ll see.

    “What I am getting at is that we can blame the banks all we like. The stark reality is that no one put a gun to anyone’s head and forced them to sell houses to one another at ever wilder prices. I struggle to see why the public who asked no questions and accrued reckless debt as the paper wealth rolled in should not be getting it in the neck.”

    Maid Marion, I agree that it was not just bankers pursuing the big high without much thought for the big low – everyone had their taste of the artificial high to some degree or another. Bankers were there behind the property hyper-inflation but so were we with our 100% mortgages. Then there’s our platinum credit cards and our buy-now-pay-nothing-until-2050! I was trying to convince someone the other day that old-fashioned proverbs/cliches are not losing relevance for our generation – time for some now I think: if something seems too good to be true it probably is, there’s no such thing as a free lunch, what goes up must come down, easy come easy go, live by the sword and die by the sword… Any more for any more? (Now, if I was on QTE tonight…lol!) It’s just human nature. And that’s why history will repeat itself to a large degree. So, it hit the fan. But Maid Marion, I find it hard to place much blame on the public at large. Some people are leaders and some people are followers. In this mess, some people caused more, creamed more and cushioned themselves more. And while it wasn’t every member of the public who played the credit game, we’ll all pay for it. Risk/reward is a basic principle, but it certainly doesn’t seem fair that the big price of big risk-taking isn’t just to the risk-taker. Life just isn’t fair is it?!

  14. justforfun — on 27th November, 2008 at 3:01 pm  

    justathought – we’re not related are we?

    I’m not a tax accountant. My mother has enough to be ashamed about already.

    Tell your brother to get a proper job and stop sponging off the rich – has he no pride?

    justforfun

  15. Refresh — on 27th November, 2008 at 3:29 pm  

    Bananabrain, trickle down economics does not work. And the rich are not wealth creators, that was a term designed to give political cover to redistribution from the poor to the rich. Just as ‘politics of envy’ is used to keep the not so well off in their place.

    Justathought, I would be amazed those on £150k would leave the country. I mean who would have them all? I presume they would have us believe that we are lucky we’ve got them rather than some fictitious place which is their natural habitat.

    The other point of course is the media spin that is employed to bolster their position. When the City pips started being exposed for their excesses, they soon put out the line that we could lose them to Shanghai, Dubai and Mumbai. My thought was let them go, let the -ai’s have them but then I wouldn’t want to wish them on my worst enemy.

  16. justathought — on 27th November, 2008 at 9:15 pm  

    Justforfun, quite possibly – my mother is justbecause… ring any bells? And justforfun is my middle name!

    I’ll tell my brother. If he gets made redundant due to lack of sponging material he might give it a thought.

    Refresh, that was my thought too, for lots of reasons – conservatism, other ties etc. And that was where the debate ended, because although I have to admit the point makes some sense, he couldn’t (yet…) provide me with sufficient evidence. And of course I didn’t disclose the fact that I have many high earning friends who are increasingly mentioning the -ais… Not just media spin I don’t think. Maybe it’s just a flippant bluff in a lot of cases. But not for some. And maybe the tax accountant is right that the government wouldn’t be willing to call their bluff. But it’s not just the City bankers. There are a lot of other high earners who might have the same thought, given that unfortunately the tax system won’t discriminate based on fault.

  17. Refresh — on 27th November, 2008 at 11:55 pm  

    Justathought, lets let them go. You’ll get more holiday destinations and when they’ve gone we’ll get Whiff-Whaff to re-site the City to the London Eye.

    Watch them flock back.

    But seriously, 5% above £150K is a problem for these guys? Where is their commitment?

  18. justathought — on 28th November, 2008 at 9:58 pm  

    Some people do lack a commitment to picking up the pieces. They’re not all ruthless City types who you wouldn’t wish on your worst enemy, and I’ll happily visit them in their Dubai mansions! but sadly not everyone’s a socialist. I’ll try not to hold it against them even though, without over-simplifying too much, it seems a pretty clear option in a time of economic crisis where some people are facing poverty after losing their jobs and homes whilst our society has become so wealthy that others think times are getting tough if they have to consider cancelling their Sky subscription and gym membership and not taking that fortnight holiday in the Caribbean.

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