Thursday, July 17, 2014
Friday, June 6, 2014
Thomas Piketty criticism
Star economist
Thomas Piketty and parasitic capital transfer
In
ancient times open slavery served to exploit the labor and efforts of others so
that a privileged person might live without his or her own labor and effort. Hidden
slavery likewise relies on other people’s achievements but it does so in a much
more subtle way: As a rule, modern slaves do not even know their masters. This modernized
type of slavery is based on what I call ‘parasitic transfer’ or all those returns
on capital that people ‘earn’ in an effortless way and, so to speak, while they
sleep. The parallel with ancient times may be pursued even further: Just as open
slavery was then accepted as a matter of course, our contemporary pundits
either conceal its modern embodiment or treat it as a taboo.
In this matter French star economist Thomas Piketty may certainly serve
as an outstanding representative though it must be added that he recently
changed his mind turning rather unexpectedly from Saul to Paul. Piketty deserves
to be called ‘outstanding’ because he never made a secret of his criticism concerning
the neoliberal ideology, as advocated and established nearly worldwide by the
United States. However, in his first work, L'
Économie des inégalités (2008, engl. The
Economics of Inequality) Piketty is still very far from grasping the true
causes of unequal distribution. Even after his spectacular ‘conversion’ embodied
in his seminal work Le Capital au XXI
siècle (2013, engl. Capital in the Twenty
- First Century) his critics may argue that the French economist is far
from seeing the basic mechanism of inequality.
I propose to deal with his second book at the end of this article discussing
first what Piketty has to say in the first one. This procedure is of particular
significance as it reveals the enormous efforts demanded even of star economists
when wrestling with taboos. In L'
Économie des inégalités we look in vain for any definite statement on a
most obvious fact, namely that our modern economic system is only in part based
on performance, merit and ability. The fact that a widening stream of income is
produced without any effort and merit at all – this basic fact so disturbing to
the minds of mainstream economists - is deliberately glossed over.
Mind you, Piketty does inform
us that our knowledge with regard to great capital assets and the income
flowing therefrom is indeed rather limited.1 Obviously, its
beneficiaries tend to have no particular interest in revealing their privileges
to tax authorities and the public – in this respect there case is quite different
from that of ordinary workers and employees whose incomes and assets are perfectly
known to the State and its fiscal representatives. Be this as it may, in his
first book on inequality Piketty sees no need at all to deal with capital and
its returns. Instead he explores the field of inequality as arising from
different returns on labor. Presenting quantitative studies on the relative productivity
of labor and capital in Big Companies during the past 100 years, he shows that these
roughly have a share of two to one third respectively.2 However, with
the revenue generated by capital, that is one third of its entire revenue, the
company has to ensure the replacement and renewal of its machinery and pay its
tax bill so that there is not much left for dividends and interest that it must
forward to its creditors.3 And Piketty further belittles the role of
capital return when dealing with its respective contribution within average
household incomes. In all western countries, he insists, this contribution is
roughly equal to 10%.4 Piketty therefore concludes that inequality in
its present form is overwhelmingly due to the unequal distribution of the
remaining ninety percent of earned income.
That is why the French economist sees but one solution to the problem.
Government must take corrective action by means of fiscal redistribution.
Reading those recommendations I felt strangely reminded of ancient
times. To be sure, there have been thinkers who argued for a more humane
treatment of slaves, but the institution of slavery itself was never seriously
questioned. The same attitude is adopted by Piketty. He proposes reforms that
do not mention, much less resolve, the fundamental injustice of parasitic
transfer that is income without work and merit. In this respect the French
economist is quite in line with most of his colleagues. It seems as if serious
scientific research necessarily leads to but one and the same result, namely to
the denial or belittlement of parasitic transfer. Let us for a moment turn to
fiscal redistribution as proposed by the French economist. What are we to
expect from his reform, which is, in fact, nothing else than the usual
procedure of modern welfare states?
No long term results. To be sure, in
the short run major incomes and assets certainly are the result of labor and
thus of merit and not of dividends and interests (leaving aside financial
speculation which works in both directions: it may create as well as annihilate
great fortunes in a rather short time). In this perspective marked inequality
is a natural result of the contrast between five-Euro-Jobs and the fantastic
incomes pocketed by top jobs in banking and industries. But, in contrast to
what Piketty wants to make us believe, this type of inequality does not really represent
a serious problem. In a society truly rewarding personal work and achievement
only, this kind of unequal distribution would do no lasting harm, because it
naturally disappears together with the work and achievement in question. In
other words, it never sticks to certain
families or social groups and not even to individuals beyond their working life.
Such income arises and disappears with the work and service from which it
originates. It certainly creates temporary distinctions but no continuing
inequality that solidifies into the privileges of specific families or social
groups. Such transitory inequality based on achievement need not, therefore, be
fought by means of fiscal redistribution as advanced by Piketty.
But such inoffensiveness is by no means the characteristic trait of our
present-day neoliberal system. Meanwhile, it is a proven fact that differences
in income and wealth do indeed crystallize within definite families and social
classes, and they do so in all western states: Statistically speaking, parts of
the population remain on a permanently precarious level, while other parts permanently
stay on top. The idea of equal opportunities, the true foundation stone of modern
democratic society, suffers from gradual erosion and is likely to turn into an
illusion. This, however, is a topic not dealt with by Piketty in his first book
on inequality. There the author dodges the subject by presenting a merely synchronous inventory of internal returns
on capital versus labor within leading industries on the one hand and the their
share within disposable income of households on the other hand. What escapes
him is the diachronic perspective,
which causes a steady accumulation of capital gains in time. While different
remunerations for work that is personal merit and achievements, do indeed
produce the greatest inequality from a synchronous point of view, it is parasitic capital transfer that transforms
these temporary differences into lasting ones, namely the privileges of
definite families and distinct social classes.
Examples are so well known as to require a definite willingness to overlook
them if a specialist on economics fails to refer to them in a book on inequality.
Any person with a large fortune, whether acquired by her or his own efforts or by
mere inheritance - let's say a fortune of at least one million euros – may
safely lean back and observe how this
initial capital increases without further efforts on the part of its owner –
the capital works, so to speak, all of its own. But this is, of course, a
blatant misstatement since its increase is due and only due to the efforts of
working slaves: These are required to pay for dividends or interests.
At this point, the reader may ask whether such increase is not equally enjoyed
by small stockholders and savers? Wrong. Both, the owners of small and of large
capital, must consume and may save. While consuming all kinds of products they
not only pay for the work contained in them but also for the dividends and the
interest companies owe their creditors. This part too is contained in the
prices of products consumed. So small and large capital owners alike contribute
to parasitic capital transfer.
Both resemble each other in still another way as each may assume the
role of investor (stockholder or saver). With their savings (which via the
stock market or via banks are channeled into companies in exchange for shares or
bank statements) they then achieve the opposite effect: Regardless of whether
they are small lenders or big investors, both of them now become recipients of unearned
income. So, at first glance, it might seem as if all become beneficiaries of
parasitic capital transfer.
But this argument is absurd: In fact, small lenders and large investors find
themselves placed in a diametrically
opposed position. In order to live – or sometimes just to survive – small
lenders are forced to consume the bulk of their income. Their savings are
minimal or even nil when compared to those of big investors. The latter, namely
people earning much more than what they consume, are in a quite different
situation: They save the bulk of it. What they give to others by way of dividends or interest contained in the prices
of products consumed is insignificant in relation to what they take from others through their own savings. In other words,
the balance of profit and loss is quite negative in the first and quite positive
in the second case, and it is even the more positive the richer and the more
negative the poorer those people are (even if, in the latter case, they are
exempt from taxes).5 We may say that the working majority is de
facto doomed to procure parasitic income for a minority (no matter whether the
latter is or is not engaged in work from which it derives an additional share
of earned income). Parasitic capital transfer
or all income based on the work of other people is nothing else but a disguised
form of slavery since people must consume in order to live. But it is so well disguised
that most people – including a French star economist - don’t even know about
its existence nor do they conceive its extent. If they did, they would be
shocked to learn that in Germany the parasitic flow from the bottom 90 to the
top 10% surpassed the total amount of the
most potent of all taxes, namely the income tax.6
In Rome, the reigning elite did nothing against open slavery - on the contrary
it lived from it. The result was predictable: Since the majority of people usually
model their lives on the most successful people within their ranks, slavery was
regarded as a matter of course so it finally poisoned the whole society. First,
free peasants disappeared and afterwards free crafts (even if some of them were
left to the care of freed slaves). In the current neoliberal economic system,
the same poisonous trend is already well advanced. Most people follow the unspoken
ideal of acquiring enough money in order to live from the work of others, that
is from parasitic transfer (all this accompanied by the brazen lie that even
small lenders – the true victims of the system – would benefit from its proceeds).7
This exploitation of a majority occurs among the silence of those who
should know better – which means that nothing has changed since the times of
Greece and Rome. Its consequences would, however, be far more noticeable, had
not inflation and war periodically destroyed big fortunes and had not welfare
government counteracted the tendency after World War II. Largely by fiscal
redistribution the welfare state tried to lessen the burden of the most disfavored
thus acting expressly against the prevailing neoliberal dogma. However, welfare
redistribution has become less and less effective in the new century as it no
longer prevails against the swelling flow of parasitic transfer from bottom to
top. We should keep in mind that the exploitation of the many by the privileged
few exclusively occurs by means of
such transfer (pure speculation - financial and otherwise - though being at
times quite important is not really needed for the constant increase of
unearned fortune).
For this reason Piketty’s proposals turn out to be nothing more than
wastepaper. Instead of limiting or abolishing unearned income and its steady
accumulation in the hands of the few, the French economist rather opts for distribution
among wage earners themselves: Those who through merit or talent earn big incomes
are made to pay for those with small ones. But this is nothing else than an
unfailing recipe for destroying the middle class or the very foundation of
modern democratic societies. Instead of the real culprits, the beneficiaries of
parasitic transfer, the working majority itself is made to bear the brunt of welfare
state’s most heavy burden.8
Piketty does somewhat better in his latest book Capital in the Twenty - First Century. In a remarkable though rather
belated about-face with bags full of statistics at his hands, he proves that
the privileged few are the ones who really profit from neoliberal economics. To
most of us this does not come as a surprise though the statistical material may
be of use for still unconvinced contemporaries. As far as theory is concerned there
is much less to be gained: Piketty does not really offer any basically new insights.
Rather he reclaims as his own intellectual property what has long been recognized
by others, for instance the fact that with growth rates (g) lower than the rate
of return on capital (r) the rich must necessarily live off the wealth of the
majority.9 Or stated in simpler terms, when the national pie does no
longer grow while capital maintains its previous claims, the working majority becomes
a victim of progressive exploitation: It is forced to tighten its belt.10
This finding is rather commonplace and anything but original. And we are,
certainly, not really surprised to learn that the savings rate of the rich tends
to be much higher than that of ordinary people.
But the most cogent criticism of Pikettys work does not derive from its
lack of originality but from the fact that it signifies a theoretical retreat.
In his ‘rate of return on capital’ Piketty mixes two kinds of revenues, which
should and must be carefully kept apart, namely revenue as parasitic income based
on hidden slavery and revenue based on merit and accomplishment. The French
star economist does not really break with neoliberal ideology: He fails to
reveal the true scourge of modern capitalistic economies and indeed its central
mechanism, namely parasitic capital
transfer.11 With greater lucidity than any other among renowned
economists Piketty teaches us that there is something wrong with our present
day economies but he fails to name the true causes because he does not
distinguish between a capitalistic market
economy based on personal merit on the one and its degenerate variant on
the other hand: parasitic capitalism
producing riches by mere exploitation.
So, after all, the theoretical contribution of the French star economist
remains rather modest; some will nevertheless appreciate his extraordinary zeal
for comparative data on a large international basis. The thing most difficult
to explain is the far-reaching tremor produced among economists all over the
world – even in the US, the very heart of neoliberal capitalism. Obviously, it
comes as a shock if a member of the economic clergy instead of closing his eyes
in front of reality openly confronts a taboo and utters unsavory truths. This
is something not easily to be expected as noted by Meinhard Miegel, a German
social scientist belonging rather to the political right: ".. what is
offered … in a discipline like economics – which has in fact assumed the role played
by theology at medieval universities - are rather beliefs instead of scientific
evidence. According to the taste of the time these tend to be shrouded within a
mathematical cloak."12
1 Économie, p 7.
2 supra, p 40.
3 supra, p 41.
4 supra, p 8.
5 In his book The Money Syndrome
German economic analyst Helmut Creutz had first described this mechanism of
redistribution in 1993, but only with regard to savings and interest.
6 Five years ago, I had embarked on an approximate calculation of
parasitic transfer from the bottom 90 to the top 10% of the population. See the
text following below.
7 This lie is quite effective so you will again and again be confronted
with the following question: Do you really resent the modest gains of small
savers and small shareowners? No, of course not, but the biggest profit they could
possibly make presupposes the abolition of all parasitic transfer. In this case
their consumption bill would be cheaper by as much as one third – a gain that
dwarfs all their profits arising from modest savings.
8 Unfortunately, globalization has severely curtailed the freedom of
action for individual states. For this reason they are incapable of limiting,
let alone abolishing, parasitic transfer on their own. Such attempts may even
turn out to be counterproductive as capital chooses other places where to
invest. Europe could and should be the solution for this problem, but certainly
not the neo-liberal Europe that primarily furthers the interests of big money.
9 See Capital, page 36. In my
book The End of Capitalism - Triumph or
Collapse of an Economic System? (S. Fischer, 1999) I literally said on page
142: " ... when the growth rate of the economy subsides without interest
rates declining to the same extent, the result will be a redistribution in
favor of parasitic capital." I continued to argue on this line in Das Pyramidenspiel (Signum, 2008). Nor
was this a new insight with the Vienna Föhrenbergkreis, which I frequented for
a certain time.
10 Peter Bofinger, member of the German council of economic advisors,
confirms this trend : "All over the world, workers and employees get an
ever smaller piece of the pie. The share of labor income in national income has
been declining for decades, while the share of interest income and capital
gains rises" (Der Spiegel, 06/02/2014 ). Bofinger criticizes Piketty for
misunderstanding his own data when comparing the rate of return on capital (r)
and the growth rate (g). Since 1913 until today (g) was high when compared to
(r) so that the share of capital could not possibly weigh too heavily on labor.
I cannot share this criticism because the numbers given by Piketty represent global averages that conceal drastic
differences between countries. Wealthy people from countries where the average
growth rate is below the average rate of return on capital have no difficulty
in finding more successful companies within their own country or abroad, for
instance in Asia, where they are offered the returns they demand - otherwise
they may still hoard their money and profit even more in times of deflation.
11 This objection applies to the neoliberal economic school as a whole.
The so called Gini-coefficient, the most commonly used instrument for measuring
the distribution of incomes and assets, does not distinguish between money and
fortune acquired either by personal merit or in a parasitical way. In other
words, its findings are useless. See Jenner http://www.gerojenner.com/portal/gerojenner.com/Gini.html.
12 Hybris, p 49.
Tentatively calculating parasitic transfer in Germany
for the years 2001 and 2007
(These
calculations were made in late 2008. They then represented a first attempt to
capture the magnitude of parasitic transfer. If the method of calculation here
adopted stands up to criticism, it may, of course, be applied to any year. Since
I only dealt with interest-bearing deposits, the result can only denote a lower
limit. The designation as ‘parasitic transfer' was added recently. In the following
text dating back to 2008 and otherwise left for the most part unchanged I substituted
this term for the less fortunate expression ‘private taxation’. Since 2007
interest rates have been reduced to a minimum; it should, however, be kept in mind
that deflation acts exactly like positive
interest rates since the value of money increases while that of real goods
decays)
Let us divide the German population into two groups according to income
and financial assets, a lower group comprising ninety and a top group
containing ten percent. As a result of the interest mechanism, the lower group was
burdened with at least € 233 billion in 2007, out of which it had to transfer 141 billion to the top 10 percent
while a margin of 92 billion went to the banks. The total interest input of all
German banks amounted to € 419 billion while their total interest output was
equal to 327 billion. In comparison the
largest mass tax, i.e. the wage tax, added up to 132 billion euros.
In other words, via the system of interest, dividends etc. the bottom 90%
had to pay an amount no less than 233 billion euros that is almost double the
value of the wage tax. It is, however, the amount spilled directly into the
coffers of the top ten percent, which is central to our argument, namely 141
billion. This sum surpasses the wage tax.
Reducing the tax burden on labor is, certainly, very important, but such
demands seem strangely hypocritical in view of the burden arising from
‘parasitic transfer’.
In the following I want to explain how I arrive at the crucial figure of
141 billion. Let me start with an example of intuitive evidence. If a person has
a monthly net income of 2900 euros spending per year 30 000 euros for consumption,
he makes interest payments of approximately EUR 10 000 - assuming that on
average one third of product prices is destined to pay for interest and dividends.
His own savings together with the modest amount of interest he receives is
quite insignificant in comparison. At an interest rate even of 4 percent, he needs
a quarter of a million on his savings account merely to offset his loss of EUR
10 000. Only those who possess interest- and dividend-bearing assets beyond a
quarter of a million, count among the winners of this Monopoly (see Jenner 2008,
Das Pyramidenspiel, p. 45). Only this
very small number of winners gets more out of parasitic transfer than what it
pays into the system. Statistics tell us that less than ten percent of all
Germans belong to these happy few.
Exactly calculating the interest flows between the two groups is
slightly more difficult. At this place, I want to partly revise and correct the
corresponding formulas on pages 264-268 of Das
Pyramidenspiel. Let me add that I am indebted to Mr. Friedrich Müller-Reißmann
and Prof. Jürgen Kremer (Business Mathematics, Rhein Ahr Campus, Remagen) for
important suggestions. It should be mentioned beforehand that the figures arrived
at owe their apparent precision to the formulas and parameters used. Four
parameters are of crucial importance: first, the distribution of wealth; second,
consumer behavior and, third and fourth, the factors ‘g’ and ‘f’ (see below).
The first two vary only within narrow limits; the last two are set
deliberately low so as not to exaggerate the results. For this reason I think
that the margin of error should not exceed a maximum of ten percent. But I have
to start with a caveat: Though mountains of data exist on all possible
subjects, data on income and wealth distribution are few and rather unreliable
especially with regard to the upper ten percent. Older research goes back to Engels,
Mierheim and Wicke as well as to Meinhard Miegel; recent studies were made by
BBE-Business Consulting and by Helmut Creutz, who was the first to compare the
relative interest gains and interest losses of German households split into ten
different classes according to income and assets (1997:286, 2001: 386 ). In addition
to the data collected by Merrill Lynch and those of the Statistical Office (Statistisches
Bundesamt) for the distribution of financial assets, I have used the
information provided by Hauser and Becker (Richard Hauser and Irene Becker Income distribution in cross section from
1973 to 1998, a study commissioned by the Federal Ministry of Labor and
Social Affairs, Bonn: 2001). Data on the distribution of pure consumption for
the two groups (i.e. data not comprising the respective savings) would, of
course, provide the best possible starting point, but they don’t seem to exist.
Investigations by Merrill Lynch/ Cap Gemini Ernst & Young: German Wealth Report 2000, volume
Homburg/ Munich (www.de.cgey.com ) revealed that 55% of German monetary assets then
belonged to the upper 10%, accordingly, 45 % were in the hands of 90 % of
Germans. This distribution is also evidenced by the income and expenditure
survey 1998 initiated by the Statistical Office (Statistisches Bundesamt,
Wiesbaden). It identified a share of 48% for the top 10%. The distribution
arrived at by Merrill Lynch for the year 2000 certainly understates the true
amount of wealth for the upper 10 percent in 2001 so we are on the safe side
when basing our calculation on the lower figures for 2000.
The total interest input of all German banks together amounted in 2001
to 382 billion euros leaving a margin of 20 percent to the banks. The part available
for interest income was, therefore, equal to € 306 billion. Now, the proportion
of interest income received by the lower 90% corresponds to their relative
share of financial assets that is it may not exceed the above-mentioned 45
percent. For the year 2001 this means it is equal to 306 times 0.45 or 138
billion €. However, as the bottom 90% must contend itself with a much lower
interest rate on long-term investments, their actual interest gains must be
substantially lower.
This brings us to the second step of calculation. From the interest gains accruing to the bottom 90% we must
deduct their interest losses, suffered
by way of consumption. To this end, we have to determine the relative share of
both groups with regard to total household expenditure, which in 2001 amounted
to 1218 billion Euro. In the above-mentioned study commissioned by the Federal
Ministry of Labor and Social Affairs it was shown for the year 1998 that ninety
percent of households received 78% of income, the upper 10 percent the remaining
of 22%. Income distribution is, of course, not identical with consumption as part
of it is used for savings. These results do, furthermore, only apply to West Germany.
However, as no other statistical documents are available and since correcting
possible errors would be unfavorable to the bottom 90%, this lack of
statistical bases is of little consequence. So let us assume that total
interest losses through consumption (adding up to the above-mentioned sum € 382
billion for both groups taken together) correspond to their respective
consumption shares. Thus, interest losses for the 90 per cent majority amount
to 298 billion € (382 times 0.78 ). Subtracting this amount from the previously
determined interest gains of 138 billion we obtain a negative total of minus €
160 billion.
Let me resume the basic procedure. The population is divided into two
groups A and B according to monetary wealth and income, the bottom 90 % representing
A and the top 10% representing B. The respective shares of financial assets are
held to be 45% for the lower and 55% for the upper group, while their respective
shares in consumption amount to 78% for the lower and 22% for the upper group.
Interest gains are derived for both groups from the total of interest output of
all German banks, that is from € 382 billion, while interest losses must be
calculated from total interest input of German banks (382 billion Euro) minus
the bank margin of 20% (76 billion), that is from € 306 billion (382*4/5 = 306).
The balance of gain and loss for both groups are then given by the following
formula (where E = total interest input of banks, Va = share of financial
wealth, group A, Ka =
consumption share, group A):
In general terms: with actual values for 2001:
A: interest gains –
interest losses interest gains –
interest losses
4/5*E*Va – E*Ka
= 4/5*382*0.45 - 382*0.78= -160
= 138 minus 298
B: 4/5*E*Vb
– E*Kb =
4/5*382*0.55 - 382*0.22= 84 (+76 = 160)
= 168 minus 84
Of
course, balances for groups A and B are opposed – the first group loses what the
second wins (once we add the bank margin of 76 to 84). If financial wealth and
consumption shares within a group are identical (which means that they are necessarily
identical in the other group as well), then the balance of gains and losses is
zero and no transfer takes place. Generally speaking, the balance is the more unfavorable
the smaller the share of monetary wealth or the greater the part of interest
bearing consumption.
However, the above results still require a twofold correction. The first
concerns the distribution of consumption expenditure assumed to amount to 78%
for group A and 22% for group B. Now, it is a well-known fact that people with
low incomes tend to put only small parts of it into their savings account;
while the rate of saving increases with incomes. An estimate of a savings rate
of 20% for the top 10% is rather conservative since the upper 5 or 1% will definite
save much more. But, here again, let us cling to a conservative estimation thus
reducing consumption for the top 10% by no more than 20%. We do this by
multiplying the consumption factor Kb for group B with 0.8 (or factor
‘g’). It is, furthermore, possible to estimate the saving rate of group A, once
we know the total average saving rate for A and B together. According to the
available statistics for all household disposable income this total saving rate
amounted to roughly 10% in 2001. Total household consumption was therefore
reduced by 10 percent, i.e. by a factor of 0.9 (factor ‘x’).
x*Ka*E + g*Kb*E = 0.9*E
x/0.9*Ka*E + 0.8/0.9*Kb*E = E
From
this, we may derive the actual value for factor ‘x’ which determines to what
extent the consumption of group A must be reduced: x = (0,9 - g*Kb)
/ Ka = (0.9-0.8*0.22)/0.78 = 0.93. In other words, the bottom
90% only save 1-0.93 or 7 % of disposable household income. Taking into account
both g and x we then arrive at the following corrected consumption factors for groups A and B:
Ka = x/0.9*Ka = (0.93/0.9)*0.78
= 0.8 and Kb = g/0.9*Kb =
0.8/0.9*0.22 = 0.2
The new
consumption factors describe the different saving behaviors of groups A and B and
lead to a slight shift in interest balances favoring the top 10%.
interest gains – interest losses Interest gains – interest losses
A: 4/5*E*Va – E*Ka = 4/5*382*0.45 - 382*0.8 = -168
= 138 minus 306
B:
4/5*E*Vb – E*Kb = 4/5*382*0.55 - 382*0.2 = 92 (+76 = 168)
= 168 minus 76
Finally,
the above calculation still needs correction by a factor ,f' taking into account
the higher interest rates paid to big investors. Factor ‘f‘ is equal to 1 as
long as both groups A and B obtain the same interest rates, but this never
occurs in actual practice. We certainly underestimate ‘f’ when assuming that
big investors receive at least 25 % more interest, in other words, that factor ‘f’
equals 1.25 for group B. This works out in exactly the same way as if we would
decrease the assets of group A by a quarter while inversely increasing those of
group B by the same amount. Values are now strongly shifted in favor of the top
10%:
Interest gains – interest
losses Interest gains –
interest losses
A: 4/5*E*(1 - f*Vb) - E*Ka
= 4/5*382* (1 - (1.25*0.55)) - 382*0.8 = -210
= 96
minus 306
B: 4/5*E* f*Vb - E*Kb
= 4/5*382*1.25*0.55 - 382*0.2 = 134 (+76=210)
= 210 minus 76
The
interest incomes of A and B, 96 and 210 billion euros respectively, add up to a
total of 306 billion (the total interest output of all German banks), while the
balances of A and B, -210 or +134 respectively, become zero once we add the
bank margin of 76 billion to the latter. The bottom 90 % are thus forced to produce
by their work € 210 billion, of which 76 billion are retained by the banks,
while the remaining 134 billion Euro are sucked up by the top ten percent.
It seems, however, probable that this sum still underestimates the
actual transfer from bottom to top. To be sure, the actual sum could be reduced
up to 30% because interbank lending and borrowing may occasionally reach this
maximum level. This would not change the ratio of bank gains and losses for
both groups but it would reduce absolute values by a maximum of one third. But
the above calculations ignore all money transactions occurring outside of banks
and they ignore parasitic transfers from debt free real capital. Even if
interbank lending would occasionally attain a maximum level of 30%, the ensuing
reduction of absolute values may still be offset by transfers ignored in the
above calculation. Let me add, that I have chosen a very low and therefore
rather unrealistic value for factor ‘f’ (1.25).
The situation has further worsened in 2007. Total bank interest input
now amounts to € 419 billion and the interest output to 327 billion - the bank margin
has thus slightly increased. Understating the actual situation, by assuming
that the distribution of wealth and consumption patterns remain the same as in
2001 and assuming furthermore an unchanged savings rate of 10% (the rate really
amounted to 11.2% in 2007), we then arrive at the following balance in gains
and losses.
interest gains – interest losses interest
gains – interest losses
A: 327*E*(1 - f*Vb) - 419*Ka
= 327*(1 - (1.25*0.55)) - 419*0.8 = -233
= 102 minus
335
B: 327*E* f*Vb - 419*Kb
= 327*1.25*0.55
- 419*0.2 = 141 (+92=233)
= 225 minus
84
In 2007
the wage tax amounted to only € 132 billion. The largest mass tax levied by the
German fiscus, was thus neatly exceeded by parasitic transfer, which amounted
to € 141 billion.
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