THE BLOG
04/01/2013 12:30 pm ET Updated Jun 01, 2013

Plutocracy in America

Plutocracy literally means rule by the rich. "Rule" can have various shades of meaning: those who exercise the authority of public office are wealthy; their wealth explains why they hold that office; they exercise that authority in the interests of the rich; they have the primary influence over who holds those offices and the actions they take. These aspects of "plutocracy" are not exclusive. Government of the rich and for the rich need not be run directly by the rich. Also, in some exceptional circumstances rich individuals who hold powerful positions may govern in the interests of the many, e.g. Franklin Roosevelt.

The United States today qualifies as a plutocracy -- on a number of grounds. Let's look at some striking bits of evidence. Gross income redistribution upwards in the hierarchy has been a feature of American society for the past decades. The familiar statistics tell us that nearly 80 percent of the national wealth generated since 1973 has gone to the upper 2 percent, 65 percent to the upper 1 percent. Estimates as to the rise in real income for salaried workers over the past 40 years range from 0 percent to 28 percent. In that period, real GDP has risen by 110 percent -- it has more than doubled. To put it somewhat differently, according to the Congressional Budget Office, the top earning 1 percent of households gained about 8X more than those in the 60 percentile after federal taxes and income transfers over a period between 1979 and 2007; 10X those in lower percentiles. In short, the overwhelming fraction of all the wealth created over two generations has gone to those at the very top of the income pyramid. That pattern has been markedly accelerated since the financial crisis hit in 2008. Between 2000 and 2012, the real net worth of 90 percent of Americans has declined by 25 percent.

Theoretically, there is the possibility that this change is due to structural economic features operating nationally and internationally. That argument won't wash, though, for three reasons. First, there is no reason to think that such a process has accelerated over the past five years during which disparities have widened at a faster rate. Second, other countries (some even more enmeshed in the world economy) have seen nothing like the drastic phenomenon occurring in the United States. Third, the readiness of the country's political class to ignore what has been happening, and the absence of remedial action that could have been taken, in themselves are clear indicators of who shapes thinking and determines public policy. In addition, several significant governmental actions have been taken that directly favor the moneyed interests.

The latter include the dismantling of the apparatus to regulate financial activities specifically and big business generally. Runaway exploitation of the system by predatory banks was made possible by the Clinton "reforms" of the 1990s and the lax application of those rules that still prevailed. Attorney General Eric Holder just a few weeks ago went so far as to admit that the Department of Justice's decisions on when to bring criminal charges against the biggest financial institutions will depend not on the question of legal violations alone but would include the hypothetical effects on economic stability of their prosecution. Earlier, Holder had extended blanket immunity to Bank of America and other mortgage lenders for their apparent criminality in forging, robo-signing, foreclosure documents on millions of home owners. In brief, equal protection and application of the law has been suspended. That is plutocracy.

Moreover, the extreme of a regulatory culture that, in effect, turns public officials into tame accessories to financial abuse emerged in stark relief at the Levin Committee hearings on JPMorgan Chase's 'London Whale" scandal. Morgan officials stated baldly that they chose not to inform the Controller of the Currency about discrepancies in trading accounts, without the slightest regard that they might be breaking the law, in the conviction that it was Morgan's privilege not to do so. Senior regulators explained that they did not see it as their job to monitor compliance or to check whether claims made by their Morgan counterparts were correct. They also accepted abusive treatment, e.g. being called "stupid" to their face by senior Morgan executives. That's plutocracy at work. The Senate Finance Committee hearing drew only three senators -- yet another sign of plutocracy at work. When mega-banks make illicit profits by money laundering for drug cartels and get off with a slap on the wrist, as has HSBC and others, that too is plutocracy.

When the system of law that is meant to order the workings of society without reference to ascriptive persons is made malleable in the hands of officials to serve the preferred interests of some, it ceases to be a neutral instrument for the common good. In today's society, it is becoming the instrument of a plutocracy.

There are myriad other examples of complicity between legislators or regulators, on the one hand, and special business interests on the other. EPA judgments that are reversed under the combined pressure of the commercial interests affected and beholden politicians is one. The government's decision not to seek the power to bargain with pharmaceutical companies over the price of drugs paid for with public funds is another. Tolerance for the concealment of offshore profits in the tens of billions is a third. Relaxed interpretations of the tax laws by the IRS to the advantage of high income persons can be added to the list. So, too, can the give-away to sole source contractors of the tens of billions squandered in Iraq and Afghanistan. The number of such direct assists to big business and the wealthy is endless. The point is that government, at all levels, serves particular selfish interests no matter who holds high positions. While there is some difference between Republicans and Democrats on this score, it has narrowed on most major items to the point that the fundamental properties of the biased system are so entrenched as to be impervious to electoral outcomes. The most revealing experience that we have of that harsh reality is the Obama administration's strategic decision to allow Wall Street to determine how and by whom the financial crisis would be handled.

Systemic biases are the most crucial factor is creating and maintaining plutocratic orientations of government. They are confirmed, and reinforced, by the identities and identifications of the persons who actually hold high elected office. Our leaders are nearly all rich by any reasonable standard. Most are very rich. Those who weren't have aspired to become so and have succeeded. The Clintons are the striking case in point. That aspiration is evinced in how they conduct themselves in office. Congress, for its part, is composed of two rich men/women's clubs. In many cases, personal wealth helped win them their offices. In many others, they knit ties with lobbies that provided the necessary funds. Whether they are "bought off" in some sense or other, they surely are often coopted. The most insidious aspect of cooptation is to see the world from the vantage point of the advantaged and special economic interests.

The devolution of the Democratic Party from being the representative of ordinary people to being just "another bunch of guys" is a telling commentary on how American politics has degenerated into a plutocracy. The party's rolling over to accommodate the interests of the wealthy has been a theme of the past four years. From the Obama White House to the halls of Congress, party leaders (and most followers) have conceded the dominance of conservative ideas about macro-economic strategy (the austerity dogma), about retaining largely untouched the for-profit health care "non-system," about bailing out the big financial players as the expense of everyone else and the economy's stability, about degrading Social Security and Medicare. The last item is the most egregious -- and revealing -- of our plutocratic ways and means. For it entails a combination of intellectual deceit, blatant massaging of the numbers, and disregard for the human consequences in a time of growing distress for tens of millions. In other words, there is no way to conceal or spin the trade-offs made, who was being hurt and who would continue to enjoy the advantages of skewed fiscal policies.

Perhaps the most extraordinary achievement of the plutocracy's financial wing has been to win acceptance from the country's entire political class that its largely speculative activities are normal. Indeed, they are credited with being the economy's principal engine of growth. It follows that their well-being is crucial to the well-being of the national economy and, therefore, they should be given privileged treatment. How this was accomplished is the subject of a later commentary.