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Interview :: Social Welfare
Wealth is not a Private Affair
07 May 2015
The US faces a revenue- and a war-spending crisis. The top tax rate was over 70% from 1938 to 1982; corporations stash trillions in tax havens. Alternative economics emphasizes profit maximizing is different than profit-making. Profits explode, not investments.

Interview with Ulrich Thielemann - Wealth and Justice Debate

[This interview “Es gift zu viel Geld auf der Welt” published on 9/19/2014 is translated from the German on the Internet, Ulrich Thielemann is an economic ethicist and director of the economic ethics think tank MeM in Berlin. He grapples with the questions in what values is economic ethics oriented and what values should be primary. For Thielemann, fairness is a central goal for which the market economy should strive. The think tank focuses on the question when can distribution of income be described as fair. Ulrich Thielemann was co-director of the Institute for Economic Ethics at the University of St. Gallen, Switzerland. Themes like good business leadership and the competition principle are illumined in his books.]

Nearly everyone dreams of bathing in gold, free of all cares! But when is someone rich? Why is being rich a problem? Because one cannot spend all one’s money, the economic ethicist Ulrich Thielemann says in conversation with the Berliner Zeitung journal.

Many people would like to be rich. In 2013, 710 million lotto cards were filled. Can every person become rich? What is wealth? Why does the wealth of the super-rich grow several billion dollars a month? The economic ethicist Ulrich Thielemann greets us in his study in the Berlin district of Steglitz. The shelves are piled high with economic books. Guitars that have not earned him money although his time as a member of a rock band was some time ago are at the top.

Mr. Thielemann: Wealth is measured in numbers: 10,000 euro, 100,000, a million, a billion. What sum can you imagine?

I can imagine a hundred euro banknote. That is easy. I can also translate amounts in consumer goods. An expensive bicycle costs 2000 Euros and a very costly E-guitar 10,000 Euros. But visualizing a billion is hard.

Once there was a television spot where a person boasted of his possessions: “my house, my car, my boat.” Is that wealth?

Owning a house is a normal option of a middle-class society that I would describe as affluence.

The house becomes all-important.

Luxury goods can be status symbols. My mansion is larger than yours. But they are an insignificant part of wealth. Billionaires have more money than they can ever spend. The US billionaire Warren Buffet once said a half billion dollars would be enough for his consumption for the rest of his life. His wealth amounts to more than $60 billion and grows a half billion dollars a month according to Bloomberg news service.

Dagobert Duck from the duck house swims in his money; he doesn’t spend it. Now and then he bathes in his treasure of gold. Wealth is concrete here. Does that happen in the real world?

The rich of this world do not stash away their money; at most a few bars of gold are in vaults. They own something dynamic that increases in value, not a static treasure.

What is that dynamic wealth?

The economic wealth today consists essentially of financial assets – funds, stocks and bonds. This wealth is invested and not a heap of metal. It represents a claim to future value-creation and future output. Bond owners have a claim to interests. Shareholders have a claim to a part of business profits. This wealth represents power.

What do the rich do with their wealth?

They can determine the prosperity and poverty of the economy – and ultimately of society. They have the right to decide the direction of business policy. As a rule, they use this right so their investment yields the highest possible profit. Major shareholders can say: this is my business, the profit is not high enough, outsourcing and reducing personnel are necessary. They can even say: Oh, there is a higher profit in this country because the taxes are lower. They automatically put states under pressure.

Is that reprehensible?

Striving for profit maximization is regarded as ethically correct in dominant economics.

You must explain that.

In business administration, shareholders are considered the principals of the business. In other words, they are those with the right of final decision. Shareholders do not know profits that are too high. Profit maximization is regarded as rational conduct of the Homo oeconomicus – and thus as right conduct.

Why do the rich strive for a high profit when they have more than enough money?

The only plausible explanation, it seems, is that status competition carries the day. The rich want to be rich and become richer to stand over others. Ultimately money opens all doors. Others are brought to heel. Power is exercised over others. The rich, marked by the protestant ethic, live relatively modestly, reinvest more – and become ever more powerful.

On the other hand, Microsoft founder Bill Gates started the initiative “The Giving Pledge” in which billionaires promise to donate money for charitable goals. He gave $24 billion in his foundation. Isn’t that generous?

A higher status can also be expressed in such a gift campaign. Gates has the means to donate billions to his foundation and is celebrated as a benefactor. He has the power to decide where the foundation spends its money. His wealth increased $16 billion last year and amounts to over $80 billion today – despite the many billions Gates has given his foundation. He is now the richest man in the world.

Did he earn that?

That everyone is the creator of his or her happiness is a myth. No one produces an income alone. Others cooperate. Others buy the manufactured product. Still others made available capital and did not work. Others were pushed back in the competition and are now unemployed.

Would you say Gates cannot do anymore?

He will work. HIs capital income will fall to him effortlessly. This is generally true. Last year the Quandt family received more than 700 million Euros dividends from BMW. Did the family so anything for that? NO, the family only had to wait. Others worked for that, employees at BMW and suppliers. The capital owner himself never makes more money out of money.

Private property is protected in our society. One can argue: Because the Quandts own shares, their claim to dividends is legitimate.

Market libertarians argue that way. Every market-conforming income realized without force or fraud is accordingly legitimate. Taxes are theft from this perspective. Whoever thinks this way has not understood that incomes are not really a private affair. An income is always realized with others and against others. All this flows into the question: Are the realized incomes just to performance and fair?

Are they fair?

The income- and wealth differences are absurd. In the US, the richest one percent of households draws almost a quarter of all income. This is hardly consistent with the idea of performance justice. Some make ends meet and must constantly worry about their job while a small group at the top skims off the profits to an inconceivable extent. This is a question of fairness and not only a question of solidarity “with the poor.” A connection exists between the two. Those at the bottom slave away for those at the top. They are played off against each other in global competition and receive a very low wage for the fruits of their labor. The rich skim off too much affluence. The International Monetary Fund also sees it this way.

In the popular understanding, inheritance is effortless. Many have only contempt for the millionaire heiress Paris Hilton.

Bequeathing or handing down has a legitimacy. The bonds between family members are stronger than between any Tom, Dick and Harry. Dynasties arise some time or other when the inheritances become larger and larger: families that are super-rich and super-powerful thanks to their inheritance. This is politically very dangerous because the money nobility can buy influence and are hardly justified with regard to performance justice. Therefore inheritance from a certain amount should be vigorously taxed.

Opponents say medium-size businesses will be driven to ruin.

The government could not cite a single case where a business went bankrupt on account of the inheritance tax, the advisory council for the German federal financial ministry reported two years ago. Economists are not surprised. When a business is profitable, the heirs can sell shares to pay the inheritance tax. When the heirs sell the enterprise completely, the business is not put in question. Do only the owners change?

Many people would like to be rich. Can everyone be rich?

Well-to-do yes but not rich. Firstly, wealth is a relative term. I have more than you. Therefore I am rich and you are poor. Secondly, financial wealth today is a demand to others. My bonds, my life insurance, my investment fund, my bank account – these are all funds that I can lend or leave to others so they can make something of it. If I want interests on my bank account, I need someone to take a credit and pay interests. That can be the state, a private person or a firm.

In a word, whoever is rich is usually a creditor. And every creditor needs a debtor who makes profits possible. Everyone cannot be a creditor; everyone cannot be rich.

The rich have become richer in the last decades. Why is that?

With globalization, constitutional states have lost their sovereignty. They must do what Ifo head Hans-Werner Sinn once formulated: Germany must “court” capital like every other country. Otherwise jobs are lost. The courting consists in hardly taxing the rich for example. In 1950 the top tax rate in Germany was 95 percent and then for a long time 56 percent. In the US, the rate still amounted to 70 percent in 1980. Today the capital incomes of the super-rich are taxed much less.

Poverty is normally regarded as a problem. Why do you also regard wealth as a problem?

What are the rich doing with their growing wealth? Do they consume more? That costs a few hundred million of assets. Russian oligarchs can only consume a fragment of their incomes. A problem results when growing shares of economic value-creation drift to the few rich. Customers are lost to the businesses. The economic circulation comes to a standstill when the rich withdraw their purchasing power. Normal citizens then try to compensate their losses in purchasing power through consumer credits. This led directly to the financial crisis.

Still the rich should invest and not squander their money!

They invest it. Investing tightens the competition between businesses that become increasingly productive and ultimately between employees. Seen globally, they stand under great pressure. This appears in high unemployment and is reflected in corporations sitting on gigantic cash reserves without even a need for investment any more. Capital falls into an investment emergency. As a way out, it chooses speculation. Bubbles are generated. We know the result: financial crises and the constraint to bail out.

Do you think there is too much money in the world?

There can hardly be any doubt about that. The worldwide economic output has grown around 100% since 1980 and the worldwide financial assets 350%. We have a huge assets bubble that theoretically must burst sometime or other. The capital owners will then be expropriated by the market and not by the employees. However this will not happen, at least not on a large scale. The governments will prevent this as long as they can play off capital circulating globally and always ready to jump. The assets in the bank accounts were bailed out in the so-called bank rescue.

What would you do if you received a billion Euros completely effortlessly and could keep it?

If a billion fell from the sky, I would put it in the think tank for economic ethics that I founded.

No yachts, no little castle?

I would not spend more money for myself. I do not need more than I have. I would have financial security for my further life.

What would your think tank produce?

A global debate could be triggered about what economy we want and how extensively market logic should determine our life. The think tank would be a counter-balance to established economics within which the market logic must be defended and never relativized.


Ulrich Thielemann, Economic Fall from Grace, 2013

Ulrich Thielemann, Homo Oeconomicus and Dethronement of the Profit Principle, 2007

Ulrich Thielemann, Profit Making is Different than Profit Maximizing, 2015

Ulrich Thielemann, Studying Economics Today is Like Brainwashing, 2013
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