In the 1940s, following decades of booms, busts, unemployment, disorder, wars and destruction, rigid free market policies were abandoned. Governments began to deliberately act to maintain employment and market demand. This shift was identified with J.M. Keynes, a prominent British economist and government adviser who had made the case that classical economics was wrong. Depressions, he wrote, were not caused by a decline in the supply of capital but by a fall in demand caused by declining wages and rising unemployment.
During Keynesian times, until the late 1970s, economies and employment grew steadily. Democracy came to mean that governments had a responsibility to protect and advance the interests of common people. Keynesian policies, including increased access to higher education, public health care and income support were funded by taxes on those with the means to pay. The marginal tax rate on the highest income was 80 per cent. Taxes on corporate income were 50 per cent and higher.
Humankind now faces global crises. Widening disparities in income, opportunities and control are provoking disorders, militarism and wars. Emissions of carbon dioxide from fossil fuels threaten the climates on which human well-being depends. Private capital, focused on short-term profits, systemically aggravates these problems. Prevailing ideology is now aggressively hostile to government action. Tax cuts for corporations and the super rich have reduced the public funds required.
Since 1980 taxes paid by corporations and the rich have been methodically reduced. During Keynesian times, the richest one per cent got ten per cent of total income. The richest one percent now gets twice as much, twenty percent. Ten per cent of total income has been transferred from public revenues to private capital.
Neoconservatives like Margaret Thatcher and Ronald Reagan claimed that giving capitalists more money and freeing corporations to maximize profits would be generally beneficial, trickling down to the masses. Instead disparities widened. Tax cuts not only provided private capital with more funds to invest; it gave the super rich more money to manipulate political agendas. Regulations on corporate finance and industry were weakened. Union rights were curtailed. Corporations were freed to move capital to countries with lower taxes, and jobs to places with lower wages. Real wages fell. Unemployment rose.
With consumer markets stagnant, investors awash in funds turned to speculation in stocks, bonds, futures and real estate, to derivatives, index funds, credit default swaps and collateralized debt obligations. Capital markets became casinos, adding little to real production. Gains for a few came out of the losses of many others.
Meanwhile as taxes on capital were reduced, public deficits and debt increased. Concerned that capital would lose value, the rich demanded austerity. Although governments were more than willing to spend more on prisons, intrusive surveillance, militarism and war, social programs and infrastructure spending were frozen and cut. Public assets were privatized. Here in Canada, while courts were confirming rights of indigenous people, governments used deficits as an excuse to disregard Treaty obligations.
Meanwhile, carbon emissions from the burning of fossil fuels continued to rise. In 1995 countries meeting at the Kyoto Conference agreed to voluntarily reduce carbon emissions. Science had concluded that carbon dioxide levels had to be kept below 350 parts per million. But corporate capitalism preoccupied with profits from existing industry did not act. Declining public revenues and corporate opposition prevented government action.
Capital can externalize environmental costs: humankind cannot
By 2014 carbon dioxide levels exceeded 400 parts per million. If green energy had replaced two percent of fossil fuel energy each year since 1995, as the Kyoto Accord proposed, carbon emissions would already have been reduced by half. Instead, corporate capitalism responded by spending hundreds of millions to deny that carbon dioxide emissions were a problem. Hundreds of billions were spent to develop, produce and transport more fossil fuels.
Everyone not blinded by capitalist dogma or the prospects of immense profits now knows that fossil fuel emissions are melting polar ice caps and glaciers, raising sea levels, flooding coastal communities, acidifying oceans, and generating more frequent and more destructive weather events.
Now that denying climate change is no longer credible, capital simply disregards the threat, claiming that there is no technologically realistic alternative to energy from fossil fuels. Yes, the technology to efficiently store and distribute alternate energy on the scale required has yet to be developed. But the needed technologies would already be available if solar, wind, wave and geothermal power had received the investments, tax breaks and subsidies provided for offshore drilling, fracking, tar sands and oil pipelines.
Technology is not the problem. With relatively small expenditures Denmark in 2014 got 40 percent of its electricity from wind power. Renewable energy, mostly solar, is providing Germany with 25 percent of its electricity. Solar power is providing China, India, Brazil, and African countries with expanding shares of electricity.
Capitalism is the problem. So long as major shareholders and top corporate executives are entitled to make major economic decisions in their private interests, capitalist profits will continue to trump employment, labor income and public services. Environmental costs will continue to be externalized—passed off to communities and future generations. Replacing capitalist title with human entitlement begins with deliberately transferring income from private capital to the public.
In his Capital in the Twenty-First Century, Thomas Piketty makes the case that corporation taxes should return to 1950s levels. Marginal tax rates on personal incomes over $500,000 should be raised to 80 percent. He proposes an annual tax of 0.1 percent of private wealth over half a million dollars rising in steps perhaps to 2 percent on wealth over three or five million dollars. Homes are already taxed annually. Why should stocks, bonds, and other wealth be excluded? Piketty adds a progressive estate tax on inheritances over one million dollars and a tax of 0.1 percent on financial transactions. He argues that more transparency in income records and better statistics gathering would make it practical for countries to cooperate in preventing income and wealth from being hidden in offshore accounts.
Of course, the super rich will aggressively object. But nearly everyone else would gain. Taxing capital could provide local governments with funds to reduce disparities and expand social services. Public spending on green infrastructure would provide more employment and increase market demand. Public spending to reconfigure cities could make it practical for people to live their daily lives without cars. Public spending on solar, wind, wave and geothermal power and public transit would reduce carbon emissions and generate more jobs.