One of the long term themes of my writing is that the rich have engineered a system in the West which insures they will continue to get richer, generally in a way which simultaneously impoverishes everyone else.
Buy, borrow, die is another example. The idea is simple enough: rich people
- Buy or otherwise obtain assets. Ideally these are assets which produce income or capital gains, but if you have a millions of dollars of stocks that works. This is one main reason for stock and option grants: they don’t register as income per se, and thus aren’t taxed as income but as capital, which means they aren’t taxed until you sell them, no matter how much they appreciate.
- Borrow is the next step: use your assets as collateral. Loan rates for the rich are usually 1.5 to 2% higher than short term treasury rates (which means that from 2008 to 2020 they were rarely more than 3%, they’re higher now, especially due to Trump’s insane war with Iran and its consequences for treasury rates. This rate of interest is far lower than you would pay for capital gains taxes, let alone income
- Die. When you die the price of your assets for estate tax purposes are reset to how much you bought them for. So your heirs pay taxes as if there had been no appreciation in asset prices.
This has been going on for a long time, but only become the default for “high net worth individuals” after 2008. It’s viable somewhere between ten and 30 million dollars of wealth.
In order for this to work, of course, you need to know that asset prices and returns on income producing assets will be higher than borrowing costs. Fortunately ever since Greenspan and his infamous Greenspan’s Put, the Federal Reserve has always insured that the stock market and asset prices in general, always rise fast. This has broken down a bit with real estate assets since 2020, but the stock market is reaching unseen highs regularly, and unlike in the pre-Reagan era, there are no sustained bear markets.
This is, again, a policy choice. It doesn’t have to be this way. Doing this in China would not work even if the law allowed it, because the stock market isn’t juiced and doesn’t provide essentially automatic increases. It does work in most, perhaps all Western nations, though in general other countries aren’t quite so permissive. The “die” part also required some significant changes to estate taxes for it to be viable for the merely rich (tens of millions) as opposed to the really rich with hundreds of millions or more.
As a result of this the rich often pay far less in taxes, as a percentage, than the upper middle class, especially highly paid professionals who still mostly get their money from wages.
I’m going to return to this later, but for now the important thing is simply to understand that the economy, which includes the tax system, is set up structurally to favor the rich. Yes, they still wind up paying a lot of taxes in absolute terms, but in proportional terms they often pay less than ordinary citizens. Warren Buffet famously noted that he paid a lower percentage of his income than his secretary did.
This is also organized to keep wealth together over generations, creating an oligarchic aristocracy, which is something America’s founders were very much opposed to. Along with permission for oligopoly, monopoly, price fixing and the structure of monetary production (many rich people are connected to banks and other financial firms which are allowed to create money out of thin air), plus law changes like Citizen’s United (money is speech so restrictions on election spending are illegal) this is a structural preference for oligarchy.
The only way to end this requires significant legislative changes, along with changes to the Supreme Court makeup, since as it stands right now the Supremes would strike down any laws intended to challenge oligarchy.
Since oligarchs own the politicians and the supreme court, this won’t happen unless the rich lose their power in a Great Crash that even the Fed and Treasury can’t bail them out from, and since they can print as much money as they want, that means it isn’t going to happen short of some sort of revolution. The money as speech decision makes it unlikely this will be an electoral revolution (though not entirely impossible), so it will likely require a full revolution.
If that doesn’t happen America’s decline will continue until it is just a larger version of Brazil or India: lots of poor people, a small but prosperous upper middle class who are direct retainers of the rich and a mass of poor people.
It’s quite clever really, the only downside is that this sort of financialization and rentierism weakens America as a whole since returns on manufacturing can’t match financial returns under this sort of economic engineering, and industrial power is effectively military power in the post-industrial revolution world.
America’s oligarchs have thus chosen American decline in exchange for what they hope is permanent oligarch status.
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This blog tends to cover grim events related to the fall of empire and the rise of a new hegemon: war, genocide, politics (sigh), climate change, poverty, starvation and so on.