The Divine Right of Billionaires

When I was a young geek growing up in the back woods of Tennessee, Northern California seemed like the promised land.  It had everything: Beaches.  Redwoods.  Venture capitalists.  What made Silicon Valley more attractive than, say, Wall Street or Hollywood, was that the people who inhabited the place seemed more genuine.  New York is full of Gordon Gekko's trying to one-up each other in finding ways to game the system.  Los Angeles is full of actors who, by definition, try to make a living by pretending to be anyone other than themselves.  But Silicon Valley was just full of cool people who built cool shit and got fabulously wealthy as a result.

So I was dismayed to learn that one of the icons of Silicon Valley, Tom Perkins, co-founder of the legendary VC firm Kleiner-Perkins Caulfield and Byers, was -- how shall I put this? -- saying some things that did not fit with my vision of the Silicon Valley ethos.  His most recent rise to prominence began when he wrote a letter to the Wall Street Journal in which he compared the currently fashionable vilification of the "one percent" to the Nazi atrocities against the Jews:

...I would call attention to the parallels of fascist Nazi Germany to its war on its "one percent," namely its Jews, to the progressive war on the American one percent, namely the "rich."

From the Occupy movement to the demonization of the rich embedded in virtually every word of our local newspaper, the San Francisco Chronicle, I perceive a rising tide of hatred of the successful one percent. There is outraged public reaction to the Google buses carrying technology workers from the city to the peninsula high-tech companies which employ them. We have outrage over the rising real-estate prices which these "techno geeks" can pay. We have, for example, libelous and cruel attacks in the Chronicle on our number-one celebrity, the author Danielle Steel, alleging that she is a "snob" despite the millions she has spent on our city's homeless and mentally ill over the past decades.

This is a very dangerous drift in our American thinking. Kristallnacht was unthinkable in 1930; is its descendant "progressive" radicalism unthinkable now?

This was met with understandable condemnation from all corners, and he eventually expressed some regret for using Kristallnacht as a metaphor.  But then he doubled down on the underlying theme in an hour-long interview  [transcript] at the San Francisco Commonwealth Club:

[Quoting Harvard Professor Ruth Wisse]: "[T]here is something to be said for his comparison of the politics at work in the two situations... Are you unemployed? The Jews have your jobs. Is your family mired in poverty? The Rothchilds have your money." ... I think the parallel holds. The typical German had never met a Jew, but some of the Jews were extremely wealthy. They owned the large department stores, and so forth and so forth. They were very prominent. I think it's a very good parallel and it holds.

The interview culminated with Perkins suggesting, with no hint of irony that I could discern, that we should abandon the democratic principle of one-person-one-vote in favor of one dollar one vote.

Now, you might be tempted (as I was) to say that this proposal doesn't even deserve the dignity of a response, that it is so outrageous that even taking it seriously enough to debunk it gives Perkins more credit than he deserves.  I think this is dangerous complacency.  His idea has garnered a lot of attention, not all of it negative, and the sad fact of the matter is that in the world we live in, all manner of crazy ideas require debunking.  So let us suspend disbelief for a moment and take Perkins at face value and assess the merits of his proposal on his own terms.

The core of Perkins's argument (as best I can make it out) is that the rich contribute more to society, and are therefore either more entitled or more able (or both) to decide how society is to be run.

I don't think anybody has any idea what the one percent is actually contributing to America. ... I'd like to take the Koch brothers. There are three of them. I know one of them, Bill, who has nothing to do with the other two that are highly political. They're all big contributors to charities and so forth. David Koch was on the board of New York Presbyterian Hospital. The hospital was going bankrupt, so David gave $100 million to the hospital.

So rich people give a lot of money to charity (but not as much as Tom Perkins would like to think).  And then:

The top one percent of taxpayers pays a greater share of the income tax burden than the bottom 90 percent combined, which totals more than 120 million taxpayers. In 2010, the top one percent of taxpayers, which totals roughly 1.4 million taxpayers, paid about 37 percent of all income taxes. This is a big jump from 1985, when the top one percent paid a quarter of all income taxes. Indeed, the income tax burden on the bottom 90 percent has dropped. The bottom 50 percent pays only 2.4 percent of the total taxes. The top 10 percent of taxpayers, the top 10 percent, pays 70.6 percent.

And that's it.  That is the sum total of his argument: The 1% give to charity, and pay a lot in taxes.  The tax burden on the 1% seems particularly to bother him.  He brings it up again and again:

I think that taxation, I wouldn't say it's a form of persecution, but the extreme progressivity of the tax rate is a form of persecution. 

[G]overnment is a giant beast that has to be fed and the only way to feed it is with taxes. Taxes will just go up, and up, and up.

Inevitably, the taxes will just rise, and rise, and rise, which I don't think does anybody any good, 99 percent, or 1 percent or whatever. 

I voted for Jerry Brown, which then he raised my taxes 30 percent. 

The fear is wealth tax, higher taxes, higher death taxes, just more taxes, until there is no more one percent.

There's more, but you get the idea.  So what, specifically, is the problem?

Let's just start with simple arithmetic. Let's say you're a successful author. Your income is taxed at a little over 50 percent if you live in California. On your death will be another roughly 50 percent tax. Out of the dollar you originally made, you kept 25 percent, 25 cents. You gave 75 percent of your lifetime's work in the form of taxes, not including property and other taxes.

My goodness, those poor rich people. It's amazing they have two nickels to rub together after all those taxes. But Perkins leaves out two very important facts:

1. Most rich people don't make their money from ordinary income.  Most of them (and Tom Perkins in particular) make their money from investments, and investments (at least long-term capital gains) are not taxed at 50%, they are taxed at 15%.  [UPDATE: Thanks to Wesley Darlington for pointing out that with the expiration of the Bush tax cuts in 2013 the top capital gains rate is now 20% rather than 15.  And if you live in California you pay 11% income tax on top of that.  But that still adds up to a lot less than 50%.  And anyone who finds the 11% California state income tax too burdensome is free to move to, say, Alaska, where the rate is only 7%.]

2.  The estate tax, obviously, doesn't kick in until after you die.  So it is not you who gives "75 percent of your lifetime's work in the form of taxes", you only give (at most) 50% (and if you're Tom Perkins its almost certainly less than 30%).  Your heirs give the rest.  (And the estate tax is not 50% either, but let's not quibble over details.)

Why does this matter?  Because Perkins believes that:

Silicon Valley is a meritocracy. It is simply a meritocracy.

And for the most part, he's right, which is one of the things that makes Silicon Valley such a great place to be.  But if Perkins has his way, Silicon Valley, along with the rest of the country, would cease to be a meritocracy and become instead a nation of dynastic wealth passed on from one generation to the next.

This is still a defensible position.  Passing wealth to your children is an old and venerable tradition in human civilization.  But this begins to undermine Perkins's position that the rich deserve a greater say in how society is run because they contribute more.  In a world of inherited wealth, the rich are not contributors, they are, more and more as time goes by, the descendants of contributors.

Aside from high taxes, Perkins has another theory about what is wrong with the U.S.:

Fifty years ago, Lyndon Johnson did two major things. He did the Civil Rights Act, which is marvelous, magnificent, and I think without criticism. He also did the war on poverty, which had wonderful aspirations, but which has been an absolute and total failure. It has caused all kinds of problems.

What kinds of problems?

First of all, there's more poverty more now than there ever has been.

Well, no, that's not true.  The poverty rate today is about 15%, which is considerably lower than it was in 1959 (21%).  At worst, the war on poverty has been a no-op.  The poverty rate today is a little lower than it was back when the Economic Opportunity Act was initiated, but not by much.

But Perkins, who cannot be bothered to look up even the most basic facts, is absolutely convinced that the EOA is the root of all evil.  Like taxes, he brings it up repeatedly:

There's 77 million Americans on food stamps. I think the biggest problem that Johnson unknowingly created was the destruction of the lower end of families in America. 

I'm drawing a straight line between the failed war on poverty and the increase of poverty, yes.

I think Johnson had absolutely no idea that what he was doing was wrong. It looked good and everybody approved it, but it had the result of destroying families. It just did. Then that destroyed the education of the children in those families and so forth, so it had a cascading effect. 

The rate of poverty is higher now than it ever has been in history. There are 77 million Americans on food stamps.

Finally, someone in the audience asked Perkins the obvious question:

Audience member: You cited Johnson's war on poverty as a disaster that led to more poverty and increased the number of children born out of wedlock. What should have been done back then that would have had a different outcome? 

Perkins: I think the answer to that is very, very long, and I'm not sure I have all those answers. We certainly did the wrong thing. What the right thing would have been, I'm not so sure.

Again, it's perfectly defensible not to want to second-guess Lyndon Johnson, but it is just a wee bit hypocritical to abdicate the responsibility to say what you would do differently in the same interview where you argue that you should be given a greater say in future policy decisions.

Towards the end of the interview Perkins runs completely off the rails. Having already argued that 1) taxes are too high, 2) the deficit is one of our most serious problems and that therefore 3) entitlements must be cut, he then goes on to say, "I think Medicare is great. Great. ... It's just underfunded."

Medicare is, of course, the single biggest entitlement program in the U.S. budget.  And according to Perkins it is underfunded.

So it is in the context of this completely incoherent set of positions that Perkins advocates handing even more control of our nation's affairs to people like him.

There was once a widespread political theory known as the divine right of kings which held that a monarch's right to rule came directly from God.  Today Tom Perkins, and others on the political right, seem to be advancing the divine right of billionaires.  On the merits, both theories deserve equal respect.

Nonetheless, there is an important lesson to be learned here:

When I was working on my Ph.D. one of my advisors told me that it's often instructive to examine incorrect arguments, especially when those arguments are advanced by smart people.  And make no mistake, Tom Perkins is no idiot.  He is a self-made man.  You don't get to where he got by being stupid.

So what's really behind this self-immolation?  Well, here are some clues.  Recall this example from Perkins's original letter to the Wall Street Journal:

We have, for example, libelous and cruel attacks in the Chronicle on our number-one celebrity, the author Danielle Steel, alleging that she is a "snob" despite the millions she has spent on our city's homeless and mentally ill over the past decades.

Seems a bit odd, doesn't it?  Amongst demonstrations in the streets and people blockading Google busses that he should complain about the San Francisco Chronicle calling a novelist a snob?

Perkins explains in the interview:

[My] frustrations had been building up for a long time about what I see as the demonization of the rich. It was a particularly nasty attack [emphasis added] on my ex-wife, which triggered my response.

 And what was the nature of this "nasty attack", beyond calling her a snob?

Among one of the attacks is she's number-one bestseller usually on every book. "New York Times," number one. Obviously, her books are being read in San Francisco, but they're never reported in the "Chronicle," ever. Anyway, that is what started it all.

So, by his own admission, Perkins is acting on a vendetta against the San Francisco Chronicle because they don't review his ex-wife's books.

But the lesson here is not that Tom Perkins is a jerk.  The lesson here is that Tom Perkins is a human being.  He may have been a very good venture capitalist.  That doesn't necessarily make him a good politician.

The reason democracy works is that it provides the best system of checks and balances to prevent any one person's foibles from being amplified too much.  This is important because we all have our foibles, even rich people.

Tom Perkins is right about one thing, and that is that there is a legitimate lesson to be drawn from the experience of the 1930s that is applicable to today's world: a mechanism that prevents any one person -- or small group of people -- from amassing too much power should not be abandoned lightly.

Kansas legalizes discrimination against interracial couples

The state of Kansas is about to pass a law that will legalize discrimination against interracial couples:

[T]he new law will allow any individual, group, or private business to refuse to serve interracial couples if “it would be contrary to their sincerely held religious beliefs.” Private employers can continue to fire black employees with white spouses on account of their skin color. Stores may deny interracial couples goods and services because they are married to someone with different skin color. Hotels can eject interracial couples or deny them entry in the first place. Businesses that provide public accommodations—movie theaters, restaurants—can turn away interracial couples at the door. And if an interracial couple sues for discrimination, they won’t just lose; they’ll be forced to pay their opponent’s attorney’s fees.

Oh, sorry, my mistake: it's not interracial couples that the law allows people to discriminate against, it's gay couples.  I guess that makes it OK.

[UPDATE] The bill has been killed, but not before it passed in the Kansas House of Representatives.

[UPDATE2] Now Arizona seem to have picked up the ball that Kansas dropped.

And as long as I'm writing an update, here's an interesting theory: the whole thing (at least the Kansas version) may have been a cynical political maneuver by Kansas's governor to gain an edge in the coming election.