[Plura-list] What the hell is "carried interest"; Korea set to break the Samsung dynasty; Disney's writer wage-theft is far worse than reported

[Cory Doctorow]

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Later today, I'm helping Bruce Sterling launch "Robot Artists & Black
Swans," a book of sf short stories in the Italian "fantascienza" mode,
at Austin's Book People!

https://www.bookpeople.com/event/virtual-event-bruce-sterling-robot-artists-black-swans

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Today's links

* What the hell is "carried interest": A scam, obviously, but the real
ripoff is preferential tax-treatment of capital gains.

* Korea set to break the Samsung dynasty: Intergenerational wealth
transfers, dynastic fortunes, and eugenic meritocracy.

* Disney's writer wage-theft is far worse than reported: Allan Dean
Foster was just the first to go public.

* This day in history: 2006, 2011, 2020

* Colophon: Recent publications, upcoming/recent appearances, current
writing projects, current reading

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🗣 What the hell is "carried interest"

For at least a decade, US politicians have made symbolic, unfulfilled
promises to do something about the "carried interest tax loophole," a
thing that virtually no one understands. Yves Smith's explanation will
remedy that.

https://www.nakedcapitalism.com/2021/04/private-equity-and-hedge-fund-barons-having-a-hissy-over-carried-interest-grift-because-biden-isnt-staying-bought.html

To understand carried interest, you have to start with capital gains
tax. In the US, wages - money you get for working - are taxed at a
higher rate than capital gains (money you get because you sold something
you own at a profit).

Supposedly, that's because capital gains are critical to pension
savings. That's important given the annihilation of employer-backed
pensions and the rise of "market-based" pensions dependent on working
stiffs figuring out how to win at the stock-market casino.

But that's not a very compelling reason to protect capital gains.
401k-based pensions are a near-total failure.

https://pluralistic.net/2020/07/25/derechos-humanos/#are-there-no-poorhouses

Virtually the only people who have adequate 401ks are the very earliest
workers who transitioned to them, at a time when employers offered
generous matching funds as a sweetener while they got rid of real
pensions with a guarantee of a dignified retirement.

The real beneficiaries of tax-preferred status for capital gains are not
retirement savers, they're wealthy people, especially super-wealthy
people, because the richer you are, the more you make from *owning*
stuff relative to what you make from *doing* stuff.

As with other wealth-preferencing tax policies, the super-rich use the
nearly nonexistent benefits to the middle class as an excuse for wildly
regressive policies (think of the agitation for a SALT Cap repeal or the
near-elimination of estate taxes):

https://pluralistic.net/2021/04/28/inequality-r-us/#neotrumpism

The idea that people who make money from toil should be punished because
they didn't make money by owning things is obviously fucked up - not
least because if you tax workers' wages it leaves them with less money
to buy capital on which to realize gains.

And if you let the ownership class retain more of their income, it lets
them buy more stuff on which they can realize those tax-preferenced
gains. Preferential tax rates for capital gains are a way to make
workers poorer and owners richer, period.

So that's capital gains. What about "carried interest?" It has nothing
to do with "interest" on a loan - it's a way for a specific kind of
very, very rich person to pretend that what wages they *do* receive are
actually capital gains and eligible for tax-preferenced treatment.

The name "carried interest" dates to 16th century mercantalist
sea-captains, paid a 20% share ("interest") in the goods they shipped
("carried").

It's not the 16th century anymore, and the beneficiaries of carried
interest aren't sea captains, they're money managers.

If you run a hedge fund or a private equity firm, you're typically
compensated in a "2-and-20" scheme: every year, you pocket 2% of the
money you've been given to manage, and 20% of any profits that money has
realized.

These are wages, not capital gains. The money in the fund isn't your
money, it's someone else's (money managers investment in their own funds
is a token sum, 1-3% of the total), and your share doesn't come from
selling something you own, it comes from doing a job.

PE and hedge fund managers make millions - sometimes hundreds of
millions - every year this way, and because of the carried interest
loophole, they get to treat those wages as if they were capital gains.

That's how it is that if you work your guts our bending steel at a
sheet-metal plant, your wages are taxed at a higher rate than the wages
of the distant finance-ghoul  who bought that plant, debt-loaded it, and
drove it into bankruptcy.

So carried interest is bullshit and yeah, we should kill it. But as
Smith points out, that would be a largely symbolic victory: there are
many new tax-gimmicks that money-managers could use to shift those wages
around and maintain the pretense that they are capital gains.

The only reason that these ripoff plutes are even fighting about the
loophole is that they find it aesthetically untenable that the US
government should poke holes in the risible fiction that their wages
are, in fact, capital gains.

The thing is, PE and hedge-fund managers really do see themselves as
saviors of civilization, somehow characterizing their ruinous,
real-economy-destroying financial engineering as socially necessary.

In support of this, they cite hedge-fund and PE takeovers of health-care
and renewable energy -two vital sectors driven they've actually driven
into crisis and, frequently, collapse.

https://www.nber.org/papers/w28474

As Smith points out, the fact that killing carried interest will merely
trigger new accounting fictions to maintain the status quo tells us that
this isn't the fight we should be having: instead, we should eliminate
the tax-preferenced treatment of capital gains altogether.

If we taxed capital gains at the same rate (or higher) as wages, we'd
eliminate the entire purpose of carried interest shenanigans - and we'd
blunt the lobbying power of the casino-riggers who stole our pensions
and forced us to rely on the market to support our old age.

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🗣 Korea set to break the Samsung dynasty

For a society to be unequal and stable, it needs a *story*. If you have
less-than-enough and your neighbour has more-than-enough, it's natural
to ask why you shouldn't take it from them.

If that sounds weird to you, that's because you believe the story
property is, by and large, legitimate. But what if you *knew* that your
neighbor had cheated other people to get their stuff? Maybe then you'd
support taking it away?

https://www.latimes.com/california/story/2021-04-23/zachary-horwitz-hollywood-film-ponzi-scheme

Market societies are, by nature, unequal. Markets produce
winner-take-all wealth distributions of great inequality. The winners in
markets have guards and cops and courts to help them defend those
winnings, but their primary defense is *legitimacy*.

The primary reason that rich people don't have to worry about having
their stuff seized by poor people is the *story* of markets, which is
that markets allocate capital to people who can use it to make us all
better off.

https://memex.craphound.com/2014/06/24/thomas-pikettys-capital-in-the-21st-century/

That is, at any given moment, in any given situation, some of us have
better ideas than the rest of us about what to do with our planet's
resources to make the most of them. In this story, markets find these
people and give them money to spend for the common good.

That's the significance of wealth in market societies: the vast,
inscrutable, self-correcting system of markets has identified you as a
"job-creator," a "wealth-creator."

This is better than hereditary aristocracy, where the nation's capital
allocations depend on the whims of people whose only qualification is
whose orifice they emerged from. Those people squander our resources on
palaces while the people starve.

This is obviously circular: if you're rich, you're good at allocating
capital; we know that you're good at allocating capital because you're rich.

But there's something seductive about meritocracy, the idea that
prosperity relies on something smarter than orifice-emergence.

Markets are sold as superior to the outdated divine right of kings, the
eugenic notion that "good blood" and "breeding" determine who is good at
capital allocation. Instead, we have a machine (the market) to find the
people who have the right stuff for this particular moment.

But there's a problem with all this: the winners in markets are
determined to pass their fortunes onto their children, creating
intergenerational dynasties.

And because markets always yield investment returns faster than they
grow, the most reliable way to get rich is to already *be* rich - not to
produce something of value to society yourself.

That means that markets produce aristocracies, entrusting capital
allocation to the wealthy, rather than the "deserving" (that is, people
doing things that make the world better off).

Here's a concrete example from Thomas Piketty's CAPITAL. It's a
comparison of the growth in three fortunes: Bill Gates during his tenure
at Microsoft; L'Oreal heirsess Liliane Bettencourt (who has never worked
a day), and Gates since her retirement from Microsoft.

Over the period where Microsoft-CEO-Gates founded and built the most
successful company in the world and Liliane Bettencourt ate bon-bons and
went to fancy parties, Gates made a *lot* of money. Betancourt made more.

But guess who made the most? Investor-Gates: that is to say, when Gates
stopped running a successful company (a proxy for "doing a thing that
makes other people better off") and started shuffling money around, the
market allocated *more* capital to him.

Markets are only incidentally systems for allocating capital to people
who do stuff. Mostly they are systems for allocating capital to people
who already have capital.

That means that if you let people pass on fortunes to their kids, their
kids will amass even-greater fortunes without having to make anyone
better off; and *they* will pass that fortune onto *their* kids, who
will do the same, and so on. We're back to aristocracy.

If it sounds familiar, you might be thinking of the Trump family. Fred
Trump was a Klansman and slumlord who cheated his way to a fortune, who
passed it on to his bungling idiot child who made it even larger,
despite a string of cheats and bankruptcies.

Now *his* kids are poised to be richer still, despite their obvious
detriment to society and unsuitability for making allocation decisions
to increase broad prosperity.

Trump has a story to explain why this is OK: "good blood."

Trump frequently talks about his good blood, as do many wealthy people
involved in intergenerational wealth transfers. They reveal the
intrinsic contradiction of markets' superiority to aristocracy.

When people who make money doing stuff get to pass it all on to their
heirs, we quickly arrive at a society where capital allocations depend
on which orifice you emerged from, not what you do for the rest of us.

In other words, over time, the winners of markets sideline "meritocracy"
in favor of old-fasioned eugenics. This process has been underway,
slowly but surely, for decades, so much so that it's surprising to read
about any interruption to it.

Take this story: "Samsung’s Lee family to pay more than $10.8 bln
inheritance tax." The reason it's newsworthy is that the heirs of
Samsung chair Lee Kun-hee stand to lose control of the giant Korean
chaebol (family-owned conglomerate).

https://www.reuters.com/business/samsungs-lee-family-pay-more-than-12-trln-won-inheritance-taxes-2021-04-28/

Kun-hee was the eldest son of the founder, Lee Byung-chul, who benefited
from a postwar program in which the US assisted (or arm-twisted,
depending on who you ask) the new South Korean state to restructure as a
semi-planned economy.

The chaebols were formed out of family businesses that had demonstrated
some success through Japanese occupation and the civil war, and were
given quasi-monopolies over large parts of national production, all but
guaranteeing their success.

Ironically, this mixed economy accomplished the notional goal of a
market economy - it produced jobs and material prosperity, and allocated
capital to the people who made that happen.

But if Lee Byung-chul was the right person at the right time, and if his
son Lee Kun-hee learned enough to carry on the family business
successfully, that suitability petered out by the time the third
generation took over the company.

How unsuitable? Well, Lee Jae-yong, Samsung's largest shareholder, is
currently serving a 2.5 year prison stint for his role in a corruption
scandal that brought down the presidency of Park Geun-hye.

https://www.bangkokpost.com/business/2052871/samsung-chief-jailed-for-2-5-years-over-corruption-scandal

Given the general impunity of the chaebol aristos, the fact that he's
doing *any* time tells you that he's an utterly indefensible sociopath.

It's his generation of Lees that stands to lose control of Samsung when
they pay their sensible and proportionate inheritance tax.

As Piketty points out, if this generation *was* qualified to be good
capital allocators and not mere winners of the orifice-emergence lotto,
they'd have reproduced their vast capital stake ahead of the inheritance
tax and be able to retain control.

The fact that they can't beat the market and the taxman is prima facie
evidence that whatever made Grampa and Daddy suitable CEOs isn't present
in their generation.

That, and the corruption conviction.

The Lees aren't going to be poor. They'll never have to work a day in
their lives. What they face is being stripped of their power to make
vast, nation-scale capital allocations.

If their kids don't reproduce the remaining family capital ahead of the
inheritance tax, they'll be a little poorer, but still rich, and so on,
until, finally, a Lee descendant will have to get a job. If you believe
in markets, this should fill you with joy.

This is what we've been promised by the market's story: a world where
the right to allocate capital arises due to your track record of
excellence, not due to which orifice you emerged from.

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🗣 Disney's writer wage-theft is far worse than reported

Back in November, we learned that Disney had pulled a breathtakingly
criminal wage-theft manuever on one of science-fiction's most beloved
authors, Allan Dean Foster, an elderly cancer-patient caring for his
sick wife.

https://pluralistic.net/2020/11/19/disneymustpay/#disneymustpay

Foster is the bestselling author of some of the most successful movie
novelizations ever, from the first STAR WARS novel to ALIENS novels and
more. Thanks to Disney's monopolistic buying spree of companies like
Lucas and Fox, they now owned the movies and Foster's contract.

Here's where things get criminally weird. Disney argued that when they
bought out Lucas, Fox, etc, they acquired their assets, but not their
liabilities. In other words, they'd acquired the right to sell Foster's
work, but not the obligation to pay him when they did.

This is not how copyright contracts work, period. If it were, then any
publisher with a runaway bestseller novel could incorporate a new
company, sell its assets - but not its liabilities - to that company,
and stiff the writer.

Both Foster's agent and the Science Fiction Writers of America tried to
negotiate with Disney quietly on this, but they were stonewalled and
insulted (Disney insisted that they wouldn't even *discuss* a deal
without first getting nondisclosure agreements from Foster, another
unheard-of tactic).

After failing to make progress with private negotiations, they went
loudly public, launching the #DisneyMustPay campaign. The good news is,
the campaign was successful, and Foster has been paid.

The bad news is that the campaign flushed out *many* writers who are
also having their wages stolen by Disney. The company is stalling them,
too - refusing to search its records or volunteer info unless the
authors can name the specific instances in which they've been robbed.

In response, SFWA has joined forces with the Romance Writers of America,
the Horror Writers of America, the National Writers Union, Sisters in
Crime and the Authors Guild to form a coalition called Writers Must Be Paid.

https://www.writersmustbepaid.org/

They have a form where writers who suspect that Disney has stolen their
wages can report it, anonymously:

https://airtable.com/shrE1hJbqMHsjP9Ll

There's a reason for the anonymity: Disney's anticompetitive mergers
(culminating with the destructive Fox merger) has created a monopoly
with vast market-power to destroy creators' livelihoods by excluding
them for speaking out.

The coalition has five modest demands for Disney:

I. Honor contracts now held by Disney and its subsidiaries

II. Provide royalty payments and statements to all affected authors

III. Update their licensing page with an FAQ for writers about how to
handle missing royalties

IV. Create a clear, easy-to-find contact person or point for affected
authors.

V. Cooperate with author organizations who are providing support to
authors and agents.

More broadly, I hope this brings more creative workers into the
discussion about competition.

Specifically, "monopsony," the excessive buying power that happens when
a companies dominate access to a market, which allows them to squeeze
their suppliers, especially workers.

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🗣 This day in history

#15yrsago Stephen Colbert kicks ass at White House press corps dinner
https://web.archive.org/web/20060610064209/http://blog.myspace.com/index.cfm?fuseaction=blog.view&friendID=63355761&blogID=115701988

#10yrsago Jay Rosen: What I Think I Know About Journalism
https://pressthink.org/2011/04/what-i-think-i-know-about-journalism/

#1yrago NSO Group employee used Pegasus cyberweapon to stalk a woman
https://pluralistic.net/2020/04/29/banjo-nazis/#loveint

#1yrago Founder of AI surveillance company was a Nazi who helped shoot
up a synagogue
https://pluralistic.net/2020/04/29/banjo-nazis/#damien-patton-nazi

#1yrago Cigna claims to be rolling in dough and on the verge of
bankruptcy https://pluralistic.net/2020/04/29/banjo-nazis/#someones-lying

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🗣 Colophon

Today's top sources: Naked Capitalism (https://nakedcapitalism.com/),
Super Punch (https://superpunch.net/).

Currently writing:

* A Little Brother short story about pipeline protests.  RESEARCH PHASE

* A short story about consumer data co-ops.  PLANNING

* A Little Brother short story about remote invigilation.  PLANNING

* A nonfiction book about excessive buyer-power in the arts, co-written
with Rebecca Giblin, "The Shakedown."  FINAL EDITS

* A post-GND utopian novel, "The Lost Cause."  FINISHED

* A cyberpunk noir thriller novel, "Red Team Blues."  FINISHED

Currently reading: Analogia by George Dyson.

Latest podcast: Past Performance is Not Indicative of Future Results
https://craphound.com/news/2021/03/28/past-performance-is-not-indicative-of-future-results/

Upcoming appearances:

* Book launch for Bruce Sterling's Robot Artists & Black Swans (Book
People), Apr 27,
https://www.bookpeople.com/event/virtual-event-bruce-sterling-robot-artists-black-swans

* Book launch for Aminder Dhaliwal's Cyclopedia Exotica (Indigo), May
13, https://www.crowdcast.io/e/udbva8py/register

* Seize the Means of Computation, Ryerson Centre for Free Expression,
May 19,
https://cfe.ryerson.ca/events/how-destroy-surveillance-capitalism-seize-means-computation

Recent appearances:

* The Right to Repair Movement, Monopolies, and Solarpunk
https://www.youtube.com/watch?v=mmosdDCrL-4

* The surveillance state, digital monopolies, and why we should be
worried (Podsongs)
https://anchor.fm/podsongs/episodes/Cory-Doctorow-on-the-Surveillance-State--digital-monopolies--and-why-we-should-be-worried-eso43k

* Conspiracy Theories (Utopian Horizons):
https://soundcloud.com/utopianhorizons/conspiracy-theory-w-cory-doctorow

Latest book:

* "Attack Surface": The third Little Brother novel, a standalone
technothriller for adults. The *Washington Post* called it "a political
cyberthriller, vigorous, bold and savvy about the limits of revolution
and resistance." Order signed, personalized copies from Dark Delicacies
https://www.darkdel.com/store/p1840/Available_Now%3A_Attack_Surface.html

* "How to Destroy Surveillance Capitalism": an anti-monopoly pamphlet
analyzing the true harms of surveillance capitalism and proposing a
solution.
https://onezero.medium.com/how-to-destroy-surveillance-capitalism-8135e6744d59
(print edition:
https://bookshop.org/books/how-to-destroy-surveillance-capitalism/9781736205907)
(signed copies:
https://www.darkdel.com/store/p2024/Available_Now%3A__How_to_Destroy_Surveillance_Capitalism.html)

* "Little Brother/Homeland": A reissue omnibus edition with a new
introduction by Edward Snowden:
https://us.macmillan.com/books/9781250774583; personalized/signed copies
here:
https://www.darkdel.com/store/p1750/July%3A__Little_Brother_%26_Homeland.html

* "Poesy the Monster Slayer" a picture book about monsters, bedtime,
gender, and kicking ass. Order here:
https://us.macmillan.com/books/9781626723627. Get a personalized, signed
copy here:
https://www.darkdel.com/store/p1562/_Poesy_the_Monster_Slayer.html.

Upcoming books:

* The Shakedown, with Rebecca Giblin, nonfiction/business/politics,
Beacon Press 2022

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"*When life gives you SARS, you make sarsaparilla*" -Joey "Accordion
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