Do Massachusetts Voters Know What Sen. Warren Wants to Do To Their Savings?

On August 15, Elizabeth Warren, the senior Senator from Massachusetts, introduced a bill she calls “The Accountable Capitalism Act.”  Since her bill has zero chance of being passed by the 115th Congress, the only reason for Warren to introduce this bill at this time is to improve her chances of defeating her Republican opponent, Geoff Diehl, in November.

Elizabeth Warren is a progressive, and her Accountable Capitalism Act reflects the essence of progressivism.  Warren’s bill would give an unelected bureaucrat, the “Director” of a newly-created “Office of United States Corporations” within the Commerce Department the power of life and death over all large private U.S. companies. 

What could go wrong?

Well, what could (and would) go wrong is what always goes wrong when property rights are infringed by governments in the name of “progressive” goals: the costs and risks of economic activity would go up.  Higher costs and risks inevitably equate to lower economic growth, less job creation, lower real wages, and slower accumulation of wealth.

Of course, progressives have always been big on the notion that centralizing power in the hands of “experts” in Washington can deliver big benefits at no cost.  Here is how progressive apologist Matthew Yglesias put it in his August 15, 2018 piece in Vox:

“Elizabeth Warren has a big idea that challenges how the Democratic Party thinks about solving the problem of inequality. 

Instead of advocating for expensive new social programs like free college or health care, she’s introducing a bill Wednesday, the Accountable Capitalism Act, that would redistribute trillions of dollars from rich executives and shareholders to the middle class — without costing a dime.”

Right.  Senator Warren’s plan wouldn’t cost a dime.  It would cost $13.5 trillion.  It would also bankrupt every insurance company and pension plan in the U.S.  And, while Warren’s “reform” would not completely wipe out your 401k, it would reduce the value of the common stocks in your account by 45%.  If you are over 50, this could easily dash your hopes for a comfortable retirement.

I estimate that the Warren plan would reduce the value of large U.S. companies by $13.5 trillion (45% of their current market cap of about $30 trillion).  Ironically enough, my calculations are based upon the work of that darling of the progressives, Thomas Piketty. 

In his 2013 book, Capital in the Twenty-First Century, Piketty plotted the “Tobin Q ratios” for various nations from 1970 to 2010.  The Tobin Q Ratio was developed by Nobel-Prize-winning economist James Tobin, and is simply the ratio between the market value of a company and the book value of its invested capital. 

Put simply, a Tobin Q ratio higher than 100% means that a company is creating economic value, and a Tobin Q below 100% means that a company is destroying value.  The most fundamental social responsibility of a company is to add value to the capital it employs, so the most fundamental job responsibility of a corporate CEO is to keep the Tobin Q ratio of the company he or she leads above 100%. 

Writing for The New Republic, progressive David Dayen argues:

“There’s proven evidence that this model of corporate governance can work. “Co- determination,” the term for worker representation on corporate boards, has created a form of capitalism in Germany where workers are far more equitably compensated and decisions are made with an eye toward long-term goals.”

The problem with this argument is that Piketty’s data shows that, since 1995, America’s Tobin Q ratio has averaged more than 100%, while Germany’s Tobin Q ratio has averaged about 55%.  In other words, America’s evil, rapacious corporations are creating economic value, while Germany’s enlightened companies are doing the equivalent of burning 45% of the euros entrusted to them.

If I wanted to use Federal Reserve numbers, I could make a case that the Warren plan would cut the value of American corporations by 67% ($20 trillion), rather than by merely 45%.  This is because the total value of U.S equities averaged 143% of GDP in 2017, three time higher than Germany’s 47%. 

Progressives might also want to look at the economic growth data before using Germany (or any of the European social welfare states) as an example of what American capitalism should be.

Many progressives would date American capitalism’s turn to the Dark Side with the election of Ronald Reagan in 1980.  Well, from 1981 through 2017 U.S. real GDP (RGDP) growth averaged 2.69%, vs. 1.74% for Germany.  If America had grown at the same rate as Germany during those 37 years, 2017 U.S. GDP would have been only $13.8 trillion, which is $5.7 trillion (29.1%) below what we actually produced. 

Progressives should consider this: the European welfare states that progressives want America to emulate are militarily helpless.  Would the U.S. still be able to afford to defend Europe from aggression if federal revenues were $973 billion lower?  That number is more than America’s entire defense budget.

Even more to the point, do progressives really believe that it is possible for government to redistribute enough money from “from rich executives and shareholders” to “the middle class” to make up for the impoverishing impact of a sclerotic, slow-growth economy?

Actually I doubt that progressives really do believe that that degree of wealth transfer is possible.  Although they talk incessantly about “benefiting the middle class,” progressives have had the same agenda for more than 100 years: to “progressively” transfer all power to unelected, unaccountable “experts” in Washington D.C.

Progressivism is simply the time-release form of communism.  And, socialism is a faster-acting version of progressivism.  Both progressivism and socialism inevitably lead to totalitarianism.  This is because if people retain any freedom at all, they will use it to frustrate the designs of the progressive “experts” seeking to control everything.

We can’t have that, so all money and power must be “progressively” relocated from “We the People” to progressive instrumentalities like the IRS, the Federal Reserve, and Senator Warren’s Office of United States Corporations.

Senator Warren proudly calls herself a progressive.  She had better hope that the voters of Massachusetts don’t find out before November 6 what “progressive” really means, and what her Accountable Capitalism Act would really do to their jobs and savings.