Modern American Capitalism is Destroying Democracy
Part II of "The End of the Age of Stupidity"
It is not that capitalism is, as its critics have suggested, inherently evil. However, neither is it, as American political and business leaders have asserted since time immemorial inherently good. It must be regulated. When it is not and it is allowed to morph from being an engine of economic growth to an engine of economic inequity, it undermines not only the principles of democracy but as we have seen, it underwrites the perversion of our institutions from serving us all to serving a wealthy few.
Supreme Court Justice Louis Brandeis summed it up perhaps better than anyone else when he said, “We can have democracy in this country or we can have great wealth concentrated in the hands of the few but we can’t have both.”
For Americans today, this can be easily illustrated. The Citizens United Supreme Court decision enshrined as US law the “principle” that spending money on campaigns is a form of protected free expression and therefore could not be regulated. By asserting that “money is speech” it by extension enshrined as the law of the land in the U.S. that those with more money have “more speech,” greater influence, more political power.
We also know that getting a Supreme Court constituted with judges that would hold such views and others that would deepen U.S. political and economic inequity did not just happen. It was the result of a long, concerted, expensive campaign waged on behalf of rich Republican donors to ensure justices were appointed to the court who would support their views not just on campaign finance but on other drivers of inequality from reducing regulation of corporations to making it harder for some groups in our society to participate in elections by rolling back voting rights. The Federalist Society and other big GOP donors were part of this effort. (If you want to read more about it, I suggest you start with Jane Mayer’s superb book, Dark Money.
As Nobel Prize-winner Joe Stiglitz, a friend of mine and a man I have admired since I first worked with him in the Clinton Administration in the 1990s, has written “The wealthy and powerful use their resources to influence the political process, creating a vicious cycle of inequality and privilege.” In the same book in which he wrote that, he also wrote, “The concentration of wealth and power in the hands of a few poses a threat to democracy.” And, he correctly observed, “The market, if left unchecked, will inevitably lead to extreme inequality. (The book in which he said this and which expertly describes the phenomenon and challenges to which I am referring to here is “The Price of Inequality.” It was originally published in 2012 but its core points are, if anything, more salient today.)
How Did We Get to This Very Bad Place
Understanding how extreme the disparities have become and the how the vicious cycle Joe cited work is essential if we are to have any chance of fixing what is broken in our system. It is also key to understanding why if we don’t stop them, the forces that used Trump to help advance their greed and ambition driven goals will grow stronger and stronger until ultimately few vestiges of our democracy remain. By the same token, we must understand how to properly strike a balance, harnessing the benefits that free markets and competition bring while recognizing that those markets were created to serve society as a whole and they must be regulated to ensure they remain a public good and not a threat to the cohesion, stability, and promise of our society.
The past forty years have seen, with little respite from the longer trend, increasing inequality in the United States. A brief essay like this is inadequate to describing the extent to which our society has grown more economically fragmented. But even an overview paints a clear and disturbing picture.
The top 1 percent of Americans hold over 40 percent of our national wealth, a far greater concentration at the very top than you will find in any other developed nation. While we are wealthier than any other nation, we have more super rich and media wealth in the U.S. is lower than in many other countries including virtually all OECD nations.
In fact, our middle class isshrinking . Just over six in ten Americans were middle income in 1971. Today it is just over five in ten. Income inequality has grown in the US since 1980. Over that period, the average income of the top .01 percent of households grew 17 times as fast as that of the bottom 20 percent of households. That means that now, the richest 1 percent average 104 times as much income as the bottom 20 percent.
The richest 1 percent of Americans own 54 percent of all stock and mutual funds while half of all Americans own no stock at all. Because we provide special tax incentives to investors, they get rich faster. Most people in the bottom 80 percent get most of their wealth from their houses. So when we reduce the mortgage deduction, for example, or make it harder for some groups to buy a home, it hurts them disproportionately to any impact on the top. And of course, systemic racism and the laws that keep it in place have the same effect. (White households hold 84.5 of all US wealth as of last year. Black households have only 3.4 percent, Latinos, only 2.3 percent. Women comprise only 27 percent of the top 10 percent of earners.) People who live in poorer communities that generate less taxes have less for good schools which impact what percentage of people in those communities go on to higher learning and better jobs. Etc. Policies exacerbate inequalities. It’s no accident. And there are many other ways that works that are too numerous to enumerate here. You know, for example, that the only major piece of legislation passed during the Trump presidency was a massive tax cut that ballooned the federal deficit and…benefited primarily the top 1 percent of Americans.. Getting the Supreme Court to make it harder to regulate companies (as it is likely to do any day now) will also produce big windfalls for the richest Americans—corporate executives and stockholders. And on and on with ever growing social and political costs.
Money is Power…and Vice Versa (With an Emphasis on the Vice)
Being rich translates into being powerful. Big companies can afford the lobbying operations that drive Washington policy debates and outcomes. Billionaires can buy big media outlets (almost every major media outlet in the US is today controlled by a billionaire). With few meaningful (or even sensible) campaign finance laws, politicians demand big bucks to retain power and they provide access and power to the folks who can give them the most money. We know who those people are. (The expectation is that the campaigns for this year’s elections will cost about $16 billion. So big money matters even more now than it did in the 1972 presidential election campaigns which cost about $50 million…or the 1860 campaign which cost about $150,000. )
It wasn’t always this way. This is not the future the founders imagined for America. As Alana Semuels wrote in a very good 2016 article in the Atlantic , “The colonies were among the most egalitarian places on earth at the time they declared independence. In the late 18th century ‘incomes were more equally distributed in colonial America that in any other place that can be measured.” This is not to minimize the slavery or theft of land that underpinned much of America’s wealth. Rather it is to note that for those who were seen as participants in our democracy, wealth disparities were a far cry from what they are today. As noted in the article, John Adams illustrated the prevailing view of his peers when he said, “The goal of a republic is the greatest happiness for the greatest number.”
Our break from the aristocracies of Europe and their grip on power was both an economic as well as a political revolution. But as those who first settled here saw their wealth grow, they also sought to use the mechanisms of democracy to enhance their wealth and their grip on power. The 19th and early 20th Centuries saw inequality increasing. There were several reasons for this. One was the lack of laws and regulations to maintain economic equity or fairness. Another was the fateful decision of the courts in 19th Century America to grant corporations greater rights than they enjoyed anywhere else. (The 14th Amendment to the Constitution, guaranteeing equal protection under the law) has in fact been used more times to assert the rights of imaginary people (corporations) than it has real ones (the rest of us.)
The concentration of wealth among big companies and the super wealthy has periodically reminded our leaders of the dangers of inequities. This in turn has led regulations and innovations that have helped lift up many in society, to level the playing field. These included during the first part of the 20th Century trust-busting, more education for everyone, improvements in public health, more corporate regulation, and the introduction of income taxes. After another spiking of wealth prior to the Great Depression, the New Deal saw an increase in financial regulation, programs to help the poor and disenfranchised, more equitable taxes, developments that produced “the greatest leveling of all time” between 1910 and 1970.
But within years, a backlash occurred. Top tax rates were brought down. “Big government” was framed as an enemy that drove up taxes and regulatory costs and created needless supports for those whom the market left behind. Both Republican and Democratic governments embraced neo-liberal ideas and preached the values of unencumbered markets, focusing on the indicators that mattered most to Wall Street rather than those that were important to average folks on Main Street.
A Revolution from an Unexpected Place with an Unexpected Leader
I was, I embarrassed to admit, part of it as a senior economic official in the Clinton Administration. We helped roll back regulations on Wall Street (Glass-Stegall), create industries with inadequate regulation (like the laws framing the start of big dot coms), promoted “welfare reform” and we preached “rising tides lift all boats”, Reaganism-lite. As a consequence we…and later the Obama Administration with many of the same people supporting the same kind of policies…fed the inequality monster and played into the hands of those who would translate it into profoundly dangerous changes in our institutional structure.
Then, shockingly, just as Trump was helping the 1 percent move into make their unwelcome alterations to our society permanent, something really shocking happened. A career politicians who had never been distinguished by his advocacy of any really radical economic ideas, won the presidency in 2020. The dramatic consequences of Biden’s embrace of a new New Deal approach to thinking and to fixing society from “the middle out and the bottom up” are not fully appreciated to this day.
But they tie directly to why Biden’s reelection is so central to the preservation of our democracy even if they are seldom cited as being connected to that great issue of our time.
Part III of this series, coming tomorrow, will focus on the most unexpected development of our current era, the revolution in economic policy championed by Joe Biden and why it is so important to maintain.