Howard Marks, co-chairman of the asset management group Oaktree Capital and a well-known dispenser of investment advice, has weighed in on the incipient Democratic presidential race in his latest memo to Oaktree clients. CNBC has excerpts from the memo, and has also interviewed Marks, which together provide an intriguing snapshot of a Wall Street-centered perspective on the Democrats’ inchoate movement toward broad-reaching economic reforms, revealing underlying assumptions and attitudes that will need to be confronted if we are to achieve progressive reforms in the American economy.
The first thing that jumps out at me is Marks’ general assessment of this moment. “There is a rising tide of anti-capitalism and we should be concerned about that. [. . .] We have a machine in this country that makes it successful — based on democracy, our freedoms and also I think the economy and the way it operates in a free-market mode." This is such a great summation of the basic terms of the debate! There is something good that is working to make America succeed; there is also this rising tide that for some reason doesn’t want us to have this successful system. It is a tale familiar from many of our childhoods: the goose that laid the golden egg, and the fools who seek to cook it.
As examples of this “anti-capitalist sentiment,” Marks calls out the proposal by New York Representative Alexandria Ocasio-Cortez to tax income above $10 million at a 70% rate, as well as Massachusetts Senator Elizabeth Warren’s plan for a 2% annual wealth tax on fortunes greater than $50 million. "Americans generally accept the concept of progressive tax rates. But they must not be punitive and demotivating," Marks writes in his memo. To say these measures are anti-capitalist, though, is to ignore their stated intention: to make sure those who are more able to pay taxes, pay those taxes, so that the great majority of non-rich people can benefit from the fruits of our economy and society via social spending that benefits all; and to reduce the record levels of economic inequality in this country that are shifting ever more political clout to the richest among us.
But to Marks, such taxes are indeed an attack on capitalism, presumably because they would take money from the wealthy and not allow them to invest it in the economy as they see fit, thus depriving the economic system of the fuel needed to keep it chugging along. What is curious about this line of argument, though, is that it assumes that only rich people can invest in capitalism. The problem is, redistribution of wealth via taxes doesn’t mean that capitalism and investment come to a standstill; on the contrary, it means that that more people are able to invest. For example, if you tax the rich and use it to pay for better health care, then the great majority of Americans should end up with more discretionary income, not less! Sure, maybe they’re not individually able to buy millions of dollars of stock in exciting new startups and the like — but collectively, they would be. Marks and other defenders of the current order generally argue that the market is an accurate assessor of value (at least over the long-term; Marks actually has some quite interesting things to say about market cycles and the market actually not often being right at any particular moment but accurate as to assessing value over many years); it seems to me that the possibility of more people participating would improve its success rate.
The argument that capitalism will be seriously weakened if taxes are increased on the rich also assumes a deliberately obtuse understanding of how government and taxes actually work. At its most extreme, it relies on an idea that taxation is equivalent to expropriating a rich person’s deserved millions, piling it in literal bales of cash, and setting it on fire for the sheer glee of watching it burn. At a lesser extreme, the argument holds that the government will never spend money either correctly or efficiently, and that all investing decisions are best left to the market. But this argument, too, is basically poppycock, as there are many areas — infrastructure, education, health care — where the government needs to make the investments because the private sector does not see the possibility of an adequate return, or any return at all; and where, moreover, the decisions as to how to invest are best left to democratic processes and accountability, not to mention human needs (as is the case with health care and education, among others), and not to profit-seeking interests.
Marks’ characterization of the wrong type of progressive taxes is suggestive. He warns against “punitive and demotivating” rates on the rich. Yet what two words could better describe the current tax and economic arrangements for the majority of Americans? We work harder and longer than ever, yet face stagnant wages and wealth, the solution to which, we are told, is to keep doing more of the same, and never, ever think about tampering with the golden goose that keeps laying ever-shrinking eggs for us, even while we can see the wealthiest becoming still more unimaginably wealthy. What could be more punitive and demotivating than that?
Under our current circumstances of gross and undeniable inequality, it must seem to the ultra-wealthy that the great majority of the country must surely want to rip them down, storm their virtual (or actual) gated community, and feast on their wealth in an orgy of socialistic revenge and righteousness. Locked into an attitude of selfishness and self-aggrandizement, they literally can’t conceive of people choosing to act in any other way.
This helps get to the contradictory heart of Marks’ comments. He is clearly a great believer in investing in the economy and letting the capitalist process create wealth for companies and for investors; yet this system is closed in any meaningful way to most Americans, due to the fact that they lack the discretionary income to actually participate in the stock and bond markets. To most Americans, the rising stock market seems like a joke, helping you do better as long as you’re already doing well. Pointing to the general creation of wealth by our present economic arrangements, when most people are either falling further behind or constantly plagued by fear of doing so, is to define success down into its opposite, at least in most people’s lived experience.
It is not just Marks, but a broader mindset, that implicitly argues that capitalism as it currently exists is in fact a platonic ideal of capitalism: it is perfect, and we know it to be perfect, and to tamper with it is to tamper with the natural order of things. But the truth is that what we have now is what men have put in place, not what the universe has ordained. A basic understanding of human psychology suggests that the wealthy defend present arrangements so vigorously because they benefit so greatly. To be generous: from their perspective, a situation in which a radically enriched upper crust benefits is indeed ideal. For the rich, money makes capitalism transcendent. It transforms them into gods, into prophets, into leaders, into forces of righteousness. This, in turn, allows them to act as if they are the caretakers and experts on capitalism, when they are simply its greatest beneficiaries, and in this way blinded to its downsides.
I do not mean to single out Marks, but to suggest that his assumptions are widely-held by many of wealth and power in this country. They are a combination of tautological and self-serving: the best economy is always the one at the current moment, and it is the best because the rich are rich. Intriguingly, they embrace our current moment, of grotesque insecurity and inequality, topped off by an environment destabilized by unbridled greed, as the best we can ever do. Well, maybe it’s just the best that they can do.