NewsWire: 12/04/2020
- A new Deutsche Bank report suggests taxing Boomers’ gains to help close the wealth gap between Boomers and Millennials. Some of the proposed policies include taxing the profit on the sale of one’s primary residence and a “super tax” on stocks to fund investments to combat climate change. (Business Insider)
- NH: “Dramatic” government subsidies for higher education. A capital gains tax on primary residences. A “super tax” on stocks to offset gains companies have made through pollution. Are these new policy ideas coming from Bernie Sanders or AOC? Think again. They’re recommendations from Deutsche Bank.
- These are among a handful of wealth redistribution policies explored in the latest issue of the bank’s magazine, Konzept. The authors argue that the growing inequality gap between the young and the old is unsustainable, and that Boomers have reaped outsized gains in five key areas by virtue of luck or external forces. Taxing these gains is the best way to help level the playing field and ensure young people have a brighter future.
- It might seem hard to believe that a major bank is calling for higher taxes on itself and its most affluent customers--along, perhaps, with financial transactions fees and other redistributive goodies. What in the world could be motivating these German bankers, whom we ordinarily think of as "Schwartze Null" pillars of noninflationary austerity?
- At first glance, I thought that this was just another harmless PR missive that big brands routinely issue to make the public feel better about who they are. A good example of this was the "commitment to promote an economy that serves all Americans" issued last year by the Business Roundtable, which is chaired by JP Morgan's CEO, Jamie Dimon. (See "Roundtable's CEOs Claim Commitment to All Stakeholders.") It's long on attitude and short on specifics. It's similar to "greenwashing." Unilever's CEO calls it "woke-washing."
- But on further reflection, I think Deutsche Bank's new manifesto cannot be so easily dismissed.
- For one thing, brands ordinarily engage in virtue signaling when they feel their image is plunging. But during the pandemic, big bank brands have been climbing, not falling. Households and businesses seem to be thankful that banks are there--albeit with full government backstopping--to serve their needs. American Banker reports that the big banks' reputation has transformed in 2020 from "villain to hero." According to Gallup, Americans' confidence in banks has climbed back to nearly where it was before the Great Recession, with 38% of consumers saying they have “a great deal” or “quite a lot” of confidence in banks.
- What's more, PR branding typically limits itself to showing off what a company wants or feels or prioritizes. It avoids committing the company to concrete recommendations. (This is precisely why I wrote that the Business Roundtable statement "deserves every bit of ridicule that critics on both the left and the right are certain to pour on it.") The Deutsche Bank document is different. It commits the bank, at least rhetorically, to favoring massive legislated wealth transfers. It's the kind of document that could start to constrain the bank in any future lobbying campaign.
- So why might Deutsche Bank be going a couple of steps beyond mere PR? I think it's because its leadership recognizes that the world has change in 2020. It understands that, come the next large shock to the world's economy and financial system, governments and voters may move a lot harder and faster toward redistributive intervention. It therefore makes sense for the largest bank in Germany (and the fourth-largest in the Eurozone) to get out ahead on the progressive end of the spectrum. A massive incumbent like Deutsche Bank knows it will be called on to play a role. Why not make sure that it reserves a special seat at the table when any big "new deal" is negotiated?
- During the last crisis, Deutsche Bank was poorly positioned, and thereafter it was slow to adjust. As a result, it has suffered a decade of misery. This time, it may be trying to reposition itself. IMO, this is a smart move. And I expect a lot of other big cornerstone incumbents will soon do likewise--that is, to engage in preemptive policy positioning that goes beyond mere "social responsibility" rhetoric. In time, I expect, we'll even hear from Jamie Dimon.
- When asked to justify what the New Deal did to the American economy, FDR often replied that his emergency measures "prevented a revolution and saved capitalism." The Konzept manifesto has much of that tone. In effect, it suggests that a big preemptive move up front may dissuade frustrated young people from embracing much worse populist or socialist alternatives.
- Let me quote: “In a liberal society, we should not over-engineer redistribution policies. They should incentivize work and the effective allocation of resources while providing an appropriate cushion to those who experience hard times. Yet, we must realize and accept the risk of a politician harnessing anger and upending capitalism such that it is detrimental to the lives of everyone in society. To reduce this risk, we must distribute to the young, even if it means cleaving away some of the assets of the old.”
