The Scrooge McDuck theory of the rich

Readers of a certain age will remember Scrooge McDuck, the mega-rich uncle of Donald, who enjoys diving into his gigantic money bin filled with gold coins. Replace gold with paper currency[1] and you have the archetypal version of a theory of the rich[2] popular in some versions of Modern Monetary Theory.

Scrooge McMMT has a fancy house and a large bin to hold his money, but otherwise doesn’t spend that much on personal consumption or on physical investment. If the government increases his taxes, the level of money in the bin is lowered, but Scrooge’s expenditure on goods and services doesn’t change at all. Instead, he dips into the money bin a little further to buy politicians who will do his bidding, including (but not limited to) reversing the tax tax cuts increases.

Conversely, if the government prints money to buy goods and services from the (unspecified) businesses that provide Scrooge’s wealth, the money raises the level of the bin, and nothing else changes.

If this story is right, then there’s no need to tax Scrooge in order to divert resources from private to public use. The government can just create the money and let it pile up in Scrooge’s bin.

Entirely separately from economic effects, there’s Scrooge’s unfortunate habit of buying political influence for malign ends. If his wealth were all taxed away, that would stop.

This leads to a kind of motte and bailey argument. The full political program implied (the bailey) here is a combination of increased public spending and high taxes on the rich to reduce their influence. But since the two are logically separate, if the political resistance to taxation is too strong, we can retreat to the motte, and just spend the money, without running into any resource constraints.

When I get a round tuit, I’ll give some arguments as to why this model isn’t a good one. But (apart from the snarky cartoon reference), I think it’s a pretty fair characterization of the version of MMT presented in (for example), Stephanie Kelton’s The Deficit Myth

fn1. Paper would be more consistent with physical reality, since swimming in gold is a very bad idea.

fn2. An ambiguous term. The image conveyed, and the common use of examples like Bezos and Gates, suggests we are only talking about billionaires, but much of the actual debate concerns higher taxes on annual incomes starting at $250k or $400k.

13 thoughts on “The Scrooge McDuck theory of the rich

  1. The money doesn’t just pile up in Scrooge McDuck’s money bin. Sure, a relatively small amount of it – for him – is used to buy politicians. Politicians are cheap tarts and sell their virtue for billionaires’ chump change. The rest of the billionaires’ money is used to buy assets. Assets are power. The power of assets is the ability to shape the world against resistance. The resistance may be physical or social. A bulldozer moves heavy inanimate materials against inertial, gravitational and other forces. A media empire moves humans (who are also often relatively inert) to various actions.

    In the current system, billionaires use money to buy assets which will, most likely, return an income. The assets give them power to move things or people to get what they want and to also acquire more and more assets (for more and more power). Not caring about billionaires’ bins of money equates to not caring about billionaires and millionaires having all the assets and everyone else having none (to speak of).

    The rich would have to take a big haircut for things to change. They are determined to not take that haircut. The “Rules Based Order” is simply Washington’s rules. They have taken over control of SWIFT (Society for Worldwide Interbank Financial Telecommunication) and they have a worldwide network of military bases and nuclear submarines. This below explains why naive MMT, naive Keynesianism and naive armchair socialism are all doomed to fail:

    Key passage;

    “A little over a decade and a half ago, in 2004, Washington launched a whole new strategy of financial war, with the creation within the U.S. Treasury Department of the Office of Terrorism and Financial Intelligence, together with the Office of Intelligence and Analysis—the first intelligence office assigned to a treasury department anywhere in the world. These new organizations within the U.S. Treasury were to be the headquarters of a grand strategy utilizing Washington’s financial leverage, based on the role of the U.S. dollar as the hegemonic foreign-exchange currency, to cut off the economic circulation of targeted states. More than 60 percent of all global foreign exchange reserves are denominated in the U.S. dollar, which also plays the preponderant role in international currency transactions. This has allowed the United States to create, as part of its “rules-based international order,” a coercive global framework extending U.S. financial jurisdiction to every country, economic entity, and person engaged at any point in U.S. dollar transactions anywhere in the world.

    More specifically, Washington has imposed strict rules of compliance with U.S. standards on all of the world’s banks. It has given itself the right to designate any country, economic entity, or person in the world as a “terrorist” organization or individual, or as complicit with terrorism. Section 311 of the U.S. Patriot Act, passed by the U.S. Congress, gives the U.S. Treasury the authority to designate any bank throughout the globe as a “bad bank,” subject to U.S. financial and legal sanctions. Since 2016, the Global Magnitsky Act has authorized Washington to sanction all individuals in any country in the world that it stipulates as human rights offenders, freezing their assets. The U.S. Treasury has obtained complete access to the SWIFT (Society for Worldwide Interbank Financial Transactions) system that facilitates international transactions in U.S. dollars, thereby enabling U.S. surveillance of most international dollar exchanges. Close to a hundred executive orders have been issued to target various countries with financial sanctions. As a result, the United States has issued more economic sanctions on more occasions than have all other countries in the world put together (Jesse Van Genugten, “Conscripting the Global Banking Sector,” Berkeley Business Law Journal, 2019, 156).” – Editors, Monthly Review.

  2. The key here is to understand that not all assets are the same. An accountant would talk about three classes of assets: Current (Cash, Debtors, Inventory and Accounts Receivable); Fixed (Land and Buildings, Plant and Machinery; Motor Vehicles); and Intangibles (Goodwill, Trade Marks, Patents, Copyrights). An economists looks at all of these differently. Economic classifications of assets are usually based on their perceived utility. So most economists would recognize these two classes of assets: Real (all assets derived from land, labour and capital resource allocations); and
    Paper ( all asset derived from enterprise and risk taking).
    The trick for taxation reform is to create a wealth illusion. By not taxing, or in Australia’s case giving tax concession to, paper assets Treasury can encourage wealthy people to increase their paper assets. By then allowing freedom of trading in the derivatives markets, they can encourage the wealthy to over commit in many risk areas of paper assets. At one and the same time, land taxes and real wealth taxes (eg a luxury tax) can drive wealthy people to move even more into paper assets.If the wealthy can be driven into paper assets and out of real assets then they can be moved out of the real economy (or at least be made insensitive to real economy issues). By feeding their accumulation habit with more and more paper assets, Treasury can bypass their corruption influence. Once most of the wealth of a rich person is in paper assets they will have no vested interest in corrupting the real economy. The corruption of financial markets and financial regulators will increase but that will not adversely affect the real economy.
    If these clever Treasury tactics can keep the rich well fed on more and more paper assets; then they can get on with helping the creation of real wealth in the real economy; and not have to worry about corrupting influence of politicians paid to pander to rich people..

  3. Gregory, ‘paper wealth’ (shares, bonds, …. bank deposits) are used to store purchasing power and to accumulate purchasing power for the acquisition of physical assets. It is via physical assets that influence on politicians can be exercised as in “we provide jobs”. Solomon Lew of Premiers has been reported recently in the smh to be ready to buy up retailers who suffered from declining revenues during the pandemic (while Premiers and associated companies obtained paper wealth (bank deposits of) under the jobkeeper program). Yes, asking for tax concessions on paper wealth (capital gains tax) is part of the long term strategy. The housing price increases in Sydney and Melbourne primarily are due to ‘paper wealth’ of lending institutions home owner A’s loan is bank B’s asset).

  4. Motte-and- bailey is a nice metaphor. Here is William the Bestard attacking such a castle at Dinan, in panel 19 of the Bayeux Tapestry:

    William”s troops are shown trying to set fire to the wooden keep – stone was an expensive luxury, creating a huge survivor bias.

  5. Not all billionaires are ducks, and not all ducks are billionaires.

    Some of the wealthy inherited their wealth and other wealthy people started with no wealth.

    For the latter group, they just keep doing what they’ve always been doing, it’s obviously worked, the money isn’t that important, it’s being successful that brings the most satisfaction.

    Beneficiaries of wealth tend to be unfulfilled and confounded.

  6. Those in the $250k/$400k bracket wouldn’t describe themselves as being wealthy, What with the school fees, mortgage(s), leases etc they’re struggling to make ends meet. /sarc.

  7. Not at all the point of your post, but — Fantagraphics have been reprinting all the Uncle Scrooge comics by Carl Barks, who is one of the all-time great cartoonists and popular artists of the 20C. My kids love these comics to pieces (as do I).* A recurring gag is the absurd lengths Scrooge goes to in order to save a buck; there appears to be zero opportunity cost to his own time and labour.

  8. I distinctly remember the edition that laid out the Scrooge McDuck theory of earthquakes. One day Scrooge McDuck was diving off the diving board into his bin of money (gold coins). Without warning, an earthquake shook the bin, a great crack opened up and all the gold coins drained away into the bowels of the earth and the bin was left “dry”. To cut a long story short, it turned out earthquakes were caused by subterranean bowling ball like creatures whose greatness fun and pastime was rolling around en masse (in teams IIRC) and knocking down or at least rattling the pillars that held up the upper world. By negotiation or relativity benign trickery from Scrooge McDuck, with the assistance of Huey, Dewie and Louie, the “Earthquakers” were induced to eject all the money back upwards into Scrooge McDuck’s bin.

    There children, capitalists are just good negotiators guilty of nothing more than benign trickery at worst. They really are just lovable, old rascals. They don’t send children down coal mines (anymore) or cause workers to jump off the Foxconn building (recently). That’s just a bunch of socialist malarkey.

  9. Barks’ most pointed commentary on capitalism actually comes via Donald Duck’s nemesis, his insufferably smarmy cousin Gladstone Gander. Gladstone is supernaturally lucky to a comical degree. Donald hustles at a million and one different jobs to make a living (often jobs for Scrooge, like ‘doing his worrying for him’) while money literally just falls into Gladstone’s pocket. They often compete, but no matter how much Donald strives, he’s always defeated by Gladstone’s sickening good luck. Gladstone is the greatest, just a real sh*theel of entitlement with a face you’d love to punch — a dark counterpoint to Scrooge’s self-made meritocratic success.

  10. @Ikonoclast – the Scrooge McDuck earthquake story appears to have been a comic-book depiction of a conspiracy theory of sorts (or power-elite theory if you prefer) known as the ‘Yankee-Cowboy war’ that envisaged a mid-20th century competition for dominance between two US power elites – the East Coast old money establishment (“Yankees”) and an emerging new money Western and Texan elite (the “Cowboys”). You might recall the bowling ball shaped creatures were divided into two mutually antagonistic tribes – the ‘Terries’, who wore bow-ties (the Yankees) and the ‘Firmies’ who wore four-in-hands (the “Cowboys”). I’m not entirely sure of the precise origins of this theory but it seems to be be associated with the American activist Carl Oblesby.

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