Why are some billionaires in favour of a more socialist state?

Welcome to Finance and Fury, the Furious Friday edition.

This episode – be looking at the weird combination between socialism and billionaires that is emerging – especially focusing on why billionaires are increasingly becoming in favour of socialism? Or additional government controls over economic function

1. Interesting development – Wouldn’t think that these two worlds would collide – the only time I could think of socialism being used in the same sentence is to take away the billionaires money – which is has been – but why would some billionaires be in favour of this? technically – if a country was truly socialist – they wouldn’t have any wealth – or would they?

In this episode – try to puzzle this out further to make sense of it and to see why they might be in favour of it –

To start with – look at the concept of Socialism for the rich and capitalism for the poor 

1. This is a classical political-economic argument which states that in advanced capitalist societies – the more advanced the country the more there is wealth – the more governments can exist – and with larger governments comes the ability of additional policies –
   1. Hence – these state policies can assure that more resources flow to certain sectors of the economy – in the form of transfer payments
2. One of the most commonly raised forms of criticism are build around the fact that the more political the economy becomes – the more it allows for the flow of resources to go towards certain large corporations
   1. This allows for the process of privatize profits and socialize losses – The argument has been raised and cited on many occasions.
   2. May have heard this from mostly individuals on the left – those
   3. But they take their anger out on the ‘rich’ – which is such a generic term – what is rich? We are all rich compared to someone living in the 3rd world – that is where movements like the occupy wall street movement was misdirected in their energy and efforts – they were pointed in the wrong direction – as their solutions would have caused more of the same – giving the government additional power over the economy – wanting redistribution to take from the top to give to the bottom
3. The concept of socialism goes on large spectrums –
   1. All the way – Government controls all means of production – which has never worked well
   2. Part of the way – what most people might think of – is social policies – like social security
   3. In either case – governments need more authority – either to control all of the means of production – or to have the ability to tax or raise funds through deficits to fund their policies
4. There are lots of criticisms of free market principles – but with Governments acting the way they do now – there is no free market – so calling a county capitalist when it has a socialist style monetary policy – where a semi-state or even private company in the case of the Fed control all of the money – isn’t truly a free market –
   1. I have plenty of criticisms of the current economic system – but I don’t blame the free market – I see that the free market got hijacked by the one entity that have greater control over it than the sum of individual choices in optimisation – that is Government – they create the rules in which the market has to operate – and the more rules – the less free
   2. But that is where people can use free-market rhetoric to go one of two ways – what is happening in a lot of politics is that it is being used to justify imposing greater economic risk upon the non-billionaire class – SME – through additional regulations – however – billionaires and large companies considered TBTF are being insulated from the rigours of the market by the political and economic advantages that such wealth affords
      1. These two things are not the same – and neither is technically free market
   3. This form of free market is socialism for the rich – where they have levels of state protection – that is part of why I believe that some of the billionaire class and politically powerful want to have a nanny state –
      1. But for the end result of when one is in trouble the taxpayer will bail them out – this is where the too big to fail scenarios of the past decade plus are a good example – seeing more of that now with the Fed buying back corporate debt off the market to further bail out the largest companies on earth – and over this time period whilst most individuals wealth and incomes have declines – select billionaires who have been the recipients of this have seen their wealth skyrocket

A lot of this comes back to the concept of Corporate welfare

1. The term corporate welfare is widely used to describe the bestowal of favourable treatment to big business by the government
   1. The definition of corporate welfare is sometimes restricted to direct government subsidies of major corporations – this doesn’t include tax loopholes and other forms of regulatory trade decisions – which in practice could be worth much more than any direct subsidies – but are indirect due to policy decisions
   2. Subsidies considered excessive, unwarranted, wasteful, unfair, inefficient, or bought by lobbying are often called corporate welfare. The label of corporate welfare is often used to decry projects advertised as benefiting the general welfare that spend a disproportionate amount of funds on large corporations, and often in uncompetitive, or anti-competitive ways.
   3. For instance agricultural subsidies are usually portrayed as helping independent farmers stay afloat – However, the majority of income gained from commodity support programs actually goes to large agribusiness corporations – as they own a considerably larger percentage of production – the same thing happens in the EU with quotas of production for things like the fishing industry where one large company can get 90% of the quota where the remaining independents having to fight over the scraps
2. In the US – estimates are that state and local governments provide $40–50 billion annually in economic development incentives to large companies which could be categorised as corporate welfare
3. the Cato Institute estimated that the US Federal government allocated approximately US$92 billion in the 2006 federal budget toward programs that the authors considered to be corporate welfare – estimated that number to be US$100 billion in the 2012 federal budget – who knows that it is now
   1. Comparison – that $770 billion on social security – which is still a large amount of money – but I’m guess a lot of people didn’t realise that well over $150bn was provided as a form of social security to multi-billion-dollar companies

Brings up important question – how did a lot of the largest companies get there? They provide good product yes – but along their climbs they have received a lot of government assistance – Examples – there are plenty – and too many to go through

1. Tesla – Tesla Motors Inc., SolarCity Corp. and SpaceX together have benefited from an estimated $4.9 billion in government support – data compiled by The Times as at 2015
   1. underscores a common theme running through these emerging empires: a public-private financing model underpinning long-shot start-ups – that investors and the market used to finance
   2. From subsidies at the national and state level, to federal tax credits for consumers buying electric cars and solar panels, to fuel efficiency standards that help bring millions in revenue for Tesla – selling carbon credits given to Tesla has helped them turn a small profit last quarter
2. Amazon – growing rapidly in part to its aggressive strategy for getting subsidies and tax breaks – been getting about 20 subsidy packages a year since 2012 for its warehouses and data centres – $2.8 billion and countingas of December 2019
   1. Amazon created an entire team just to seek out these subsidies, in a continuation of its strategy to work the tax code to its advantage—first by not collecting sales tax and offering an effective discount on every product, and more recently to lower the cost of building new shipping facilities
   2. I understand the benefit of trying to get economic development through additional employment by attracting Amazon to move to your city – If a city or state shells out millions of dollars to attract Amazon, the least it can do is ensure that the resulting jobs lift people out of poverty – average salary for the warehouse workers is about $30,000 per worker, barely above the $26,208 poverty line – 10% of employees are on food stamps
   3. This is another result from this form of socialism – if amazon is the only employer and not much competition – they don’t need to pay much in salaries
   4. But they also take up state resources with other tax payers need to covers – Bloomberg reported last year that emergency responders visit the Amazon warehouse in one County at least once a day for the month to attend to an injured worker
   5. The largesse bestowed on Amazon in Ohio is incredible. A deal for three Amazon data centres netted Amazon a 15-year exemption on property and sales taxes worth $77 million, a $4 million offset to payroll costs, and $1.4 million in cash
3. I’m for not regulating over regulating companies – but I am also not for then making the playing field unfair through providing hand outs to the companies that you choose –
   1. But Billionaires who have benefited from this – as their companies at the top are the recipients of these hand outs – so the individuals who own these companies wealth also grows– they don’t directly get the money in the form of welfare – but they indirectly get wealthier from it
   2. An extreme example of billionaires benefiting from Governments assisting them in creating monopolies is Carlos Slim– billionaire in Mexico – failed business ventures in US – didn’t have the right politicians to help his ventures along unlike what he had in Mexico

Important to point out that here I am not talking about rich – which could be the middle and upper middle class – not even against billionaires – but those that are wanting governments to have more power to help protect their monopolies and provide them corporate welfare – a lot of back scratching going on through lobbying – which is all part of a socialist state – people are still wealthy in socialism – those with political connections – as well as politicians themselves – it is you and I that get the poor end of the deal

1. We don’t have the same political connections to game the system – and when the system is set up to a point large companies need big governments to grow to the point they have – they want to continue that – So they push for bigger governments – like socialism does
2. Plus – even if the government plans to tax all of their wealth away – good luck – billionaires have access to many things that you and I don’t – such as mobility of ourselves and our money – look at the flight from NYC – if you are a billionaire – move your money elsewhere or live elsewhere – and have the best international accounting teams to help avoid paying any taxes – so billionaires can support all the tax payments in the world – cause they know they wont have to pay them – but the upper middle class will –
   1. Same with company taxes – large corporates get tax credits and can use complex accounting practices – through IP laws and R&D costs to conduct a tax shifting scheme through conduit and sink countries
   2. But again – the smaller or medium sized companies can’t operate in this way – even some larger companies can’t – but the new age of billionaires have different companies – especially in technology – which is borderless
3. But there is more to this I think –
4. Where I think this is all heading – with billionaires pushing for socialism and have the political power to direct changes – on top of informational influence – through platforms like Amazon, FB, Google – they are also in favour of concepts like UBI – so we will look at how if a more socialist state or things like MMT come to be – this will also benefit these large companies
5. But in summary for this episode – I think that most of the billionaire class are in favour of calling for socialism due to it giving governments more control over the economy – and hence
   1. Not true socialism – but a socialism lite version to help create additional barriers to entry and help monopolies the markets further
   2. More political power – greater ability for lobbyist to influence policy at the state and federal levels – hence additional benefits for the company

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