Whose fault is it? That is the question you may be wanting to discuss from your deckchair this summer. Populism, intergenerational warfare, wealth inequality, huge public debt, stagnant real wages. Someone has to be responsible. Who is it?
My summer reading list this year is an attempt to answer that question. The first answer comes from Washington Post correspondent TR Reid, author of A Fine Mess: A Global Quest for a Simpler, Fairer and More Efficient Tax System. He reckons it is the thousands who have contributed to the creation of the US tax system. It is riddled with exemption and exclusions (making collecting taxes like “scooping water with a sieve”); it defies the principle that everyone agrees makes a good tax system (BBLR — broad base; low rates) and it wastes everyone’s time with unproductive form filling.
The average US household spends 30 hours filling in their tax return and there are so many different tax breaks that a billion-dollar industry exists “just to help Americans figure out how to put money in a savings account”. But worst of all, it exacerbates what President Obama called the “defining challenge of our time”, namely wealth and income inequality.
Multi millionaires pay lower overall tax rates than the merely well off and companies use no end of “convoluted and pernicious strategies” to avoid paying anything near their fair share (Caterpillar, Google and Apple come out of the chapter on this particularly badly).
Reid is having a go at the US in his book, but I have long argued that the UK has too many exemptions (charitable giving being an obvious one) and an irritating tendency to tax earned income more than unearned income – both things that drive wealth inequality. So there you have it. Inequality and the populism it partially drives? Blame the insane complexities of the tax code and the lobbyists responsible for refining and exploiting it.
But just who are these lobbyists? I think we can safely bet that some of them are among the 76,000 or so living graduates of Harvard Business School (HBS), in which case, says Duff McDonald, in his book, The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite, everything is actually their fault.
The HBS graduates sitting at the top of most of the world’s biggest firms have strayed far from the goal its founders set, namely “the multiplication of men who will handle their current business problems in socially constructive ways”. Their professors have taught them to champion financial engineering, constant M&A and equity incentive deals for executives with no regard for the consequences. They care for short-term shareholders; they care nothing for stakeholders.
It isn’t pretty – and you can make, as McDonald does, a good argument that an awful lot of the problems of the West would not exist if the current ethos of HBS hadn’t existed first. Still, it seems a bit much to pin everything on 76,000 overly entitled graduates, so I turn next to A Generation of Sociopaths, by Bruce Cannon Gibney.
As far as he is concerned, the problem is actually the “most powerful generation in American history”, the Baby Boomers — those born between 1940 and 1964. The Boomers, says Cannon Gibney, are a uniquely “short-sighted and self-interested” group, a “plague of generational locusts” who, ruined by overly permissive parenting (stand up Dr Spock), have stifled the US economy, driven climate change and completely “screwed” future generations along the way. Ouch!
Their elders left them the equivalent of a “productive family farm with a modest mortgage”. They have squandered the lot on politically untouchable entitlement payments, tax breaks (Cannon Gibney and Reid have common ground here) and imprisoning people — about seven million Americans are under some kind of “correctional supervision”. In 20 years, their children will inherit a “crumbling estate mortgaged to the hilt”.
It is convincing stuff. Look around you in the UK and you will see hints of the same thing: our own boomers aren’t rushing to give up any of their goodies for the young. Anyone in any doubt need only ask a dinner party of them how they feel about capital gains tax on primary residences or worse, asking pensioners to help finance their own medical care by paying National Insurance.
Tax lawyers, HBS grads, the over-55s: the list of who to blame is lengthening. Anyone else? Economist Tyler Cowen thinks so. In his latest book, The Complacent Class: The Self Defeating Quest for the American Dream, he explains just how the US has lost its mojo. It has slowed down, dug in socially, economically and geographically and, in an attempt to reject all forms of chaos, entered an odd period of stasis.
People don’t drive as much as they used to; they don’t move out of their hometowns as often as they did; they medicate the unruly (some stats suggest that 10% of American teenagers are taking pills to control ADHD). They don’t marry, play or work outside their comfort zone and they avoid risk wherever possible (the share of Americans under 30 who own a business has fallen by 65% since 1980).
So what is going on here? Part of this is about the Boomers moat-building around their comfortable lives and entitlements (Cowen and Cannon Gibney have common ground too). Part of it might also be about the way technology allows us to easily “match” ourselves with those similar to us – something that naturally reduces dynamism and mobility in the economy (less experimentation). And part of it is about the way the government is paralysed: the majority of state spending is the result of the commitments made by previous generations of legislators rather than contemporary decisions.
All of this makes change tough – particularly when the electorate has made it clear is isn’t that into change (he argues that President Trump represents a “recipe for de facto stasis”). And no change means no renewal.
This is all miserable stuff for deckchair reading. But there is good news – all the authors end with hope. Cowen reckons there will be a great reset. McDonald thinks the tide has turned against the old HBS ethos. Cannon Gibney thinks the next generation can turn America around (assuming, I suppose, that Cowen is right on the reset bit) and Reid sees a full revamp of the tax system coming.
However, to make sure that none of you end up feeling remotely complacent on the beach this year, there is one book I insist that you read — one that suggests the media is as much to blame as everyone else. It is Ryan Holiday’s Trust Me I’m Lying: Confessions of a Media Manipulator. Holiday was once the very successful marketing director for American Apparel (I dare you to search online for “Ten most shocking American Apparel ads” but be warned, it is NSFW – not safe for work). His book (published in 2012, but still very valid) tells us how he did it – and along the way shows us how PRs are in cahoots with the blogosphere to create a constant flow of fake news.
It is, for those who want to use it as such, a playbook for how to manipulate the media. But it shouldn’t just be read by marketers and writers. The fund manager at Marathon Asset Management who pushed it into my hands this year reckons all investors should read it too. After all, if you want to be able to ignore the fake news – the noise – you have to know how to identify it.
• This article was first published in the Financial Times