Use plutocracy to broaden our economic debate

By Zachary Karabell
October 22, 2012

This is the fifth response to an excerpt from Chrystia Freeland’s Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, published this week by Penguin Press. The first response can be read here, the second here, the third here and the fourth here

When historians write the story of the presidential campaign of 2012, it is a fair bet they will focus on how the candidates approached the question of wealth, taxation and the responsibilities of America’s richest citizens. In fact, 2012 may be the year that class – long unspoken and unacknowledged in American life – finally became an explicit issue, the year when the illusion that America is a land of universal economic opportunity and relative equality was at last shattered.

The United States as a whole is one of the wealthiest societies the world has ever known. But aggregate wealth is not individual wealth. Per capita income may look good, but it’s a number and an average, easily distorted in a society with a handful of plutocrats. It brings to mind the old joke that when Bill Gates walks into a bar, per capita everyone suddenly becomes a millionaire.

In short, the U.S. may be rich but few of its citizens are – at least in terms of net worth. Wealth is not evenly distributed, and the gap between the super-rich and the rest has never yawned wider. Chrystia Freeland addresses the causes and consequences of that gap, not just in the United States but also throughout the world. And her conclusions are that the new plutocracy is not good for democracy or the future of free-market capitalism.

The  lives of the rich and occasionally famous have always drawn fascination, and today’s plutocrats are no different. CNBC  has a full-time reporter focused on the super-rich, and a host of reality shows festoon the cable universe charting various aspects of wealth. That the U.S. presidential campaign is so focused on what the very wealthy owe  to the common good is simply the political aspect of a cultural obsession.

But is the concern warranted? Is the rise of a global plutocracy endangering open societies and keeping others – China, Saudi Arabia – from opening further? This is where we have a classic challenge of causation and correlation. Yes, mobility has declined, wages have stagnated and the gap between the very rich and the rest has rarely yawned wider. And yes, America is no longer an egalitarian society, though most Americans seem to retain a vestigial conviction that it is. But as Freeland describes, over American and in fact world history these gaps expand and contract, almost organically, and over time tend to self-correct.

So has the rise of today’s plutocracy caused or contributed to the current system’s inequities? That is hard to prove, which Freeland concedes, but she wisely cautions that t would be unwise to wait till all the evidence is in, since by that point it would likely be too late to do much about it.

That leaves open the question of whether the plutocrats’ rise is a cause or an effect of the challenges we face today. In some countries – especially Russia, with its resource-capture oligarchs ( the topic of Freeland’s previous book) – the case is easier to make that the super-rich are undermining the middle class and civil society. Economists such as Joseph Stiglitz and James Galbraith have argued rigorously and passionately that income inequality is a prime cause of the hollowing out of the middle class and the fraying bonds of civil society that once made the United States at least an unusually potent and successful experiment.

The rise of the plutocrats, however, is directly linked to the waves of globalization that have buffeted nation-states and the middle class in the past 20 years. Their wealth is also one by-product of the vast profits accrued by global corporations, which continue to register double-digit growth even as global economic growth barely registers a pulse. Companies have been able to externalize or outsource costs that once would have showed up on balance sheets, such as pensions, healthcare and disability and environmental consequences, not to mention some commitment to employees. The result is that nation-states have been saddled with costs, while corporations have been graced with profits.

Many plutocrats are simply the individual beneficiaries of that trend. Freeland exposes their unwillingness to see themselves as citizens of any one country and their troubling hostility toward taxes, which of course provide for the commons that they profit from. But it’s not evident what can be done here. Because capital has gone global and governments are increasingly unable to reestablish the controls that once existed, raising taxes can have as much effect as bad levees do in the face of a flood. The money, and the plutocrats, just go elsewhere. Until there is global governance able to tax and enforce on a global scale, that is unlikely to change.

For now, the rise of the plutocrats is a challenge with no evident response, or at least no evidently effective response. But rather than depressing, that could be liberating. Leave the plutocrats to their playgrounds and fantasies, and the rest of society can attend to the pressing issues of constructing a viable future. That may mean assessing what levels of growth and wealth are necessary and what are not; what quality of life, rather than per capita income alone, is imperative; and what constitutes a good society. It has been a long time since Americans asked those questions. Now would be a good time to begin asking them again.

2 comments

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nice article zach. i own a small business lets say construction and as demand increases i raise my prices which means i generate more profit.weather i share that profit with my 50 employees is up to me. with such a weak job market employees are not in position to demand higher pay.this is why we employers can get fewer people to do more work thus taking advantage of the help.unless labor organizes and speaks with one voice they have little chance of keeping up

Posted by dennyboy1 | Report as abusive

A refreshingly unbiased and honest article.

Yes, money is very much like water in how it flows here and there responding to forces obvious and almost invisible simultaneously. Tax incentives and disincentives can and do create the great majority of any given society.

But , multinational companies can move wherever gives them the best “deal”, just as manufacturers who find the “business climate” in a state with strong unions today move operations to states with “right to work” laws. It isn’t all that difficult or expensive to shed an American “corporate shell” and set up shop in a country that offers a “better deal”.

There may someday be “…global governance able to tax and enforce on a global scale…” but that day is not today nor is it tomorrow, nor am I likely to live to see it. That means that “the rest of us” had better get our act together while we can.

“We, the people” very much need to have an increasingly serious national dialogue as to what kind of future is today possible. We must “do what we can, where we are, with what we have” while we have time.

We do not have the luxury of picking and choosing “…what levels of growth and wealth are necessary…”. What is, is. We have to work with that. And we had better separate experts from idiots and deal more with reality than wishful thinking to do what we MUST do.

Our quality of life will very much be affected by our quantity of life. Each child is NOT an economic plus at the family level, as it was in the largely agrarian society that existed up to WW II. If we ignore the “value” of cannon fodder among governments that would squabble endlessly over how to divide the world’s resources, it doesn’t take a rocket scientist to see that every developed society needs fewer and fewer workers to keep it running.

We need to quit listening to those who sing that “siren song” to lure America’s “ship of state” onto economic rocks that would rip open it’s bowels. Those would “even out” per capita income don’t seem to understand that if their dream were instantly achieved two things are assured. 1. There would be instant universal poverty. 2. All human progress towards a “better life” would cease.

What “constitutes a good society”? Ask a dozen people and you get a dozen answers. It doesn’t MATTER what each of us think. What matters is what sort of society we can afford as we move forward twenty-five, fifty, and a hundred years; tweaking as we move forward!

America is the richest nation in the history of the world, and yet we are living today hopelessly beyond our nation’s collective productivity. As a nation we are getting fatter and fatter, expending less and less energy, and yet eating bigger and bigger portions. So, as bad as qwe are at self-denial, we are going to HAVE to learn one more that we can’t “have it all”. We must again learn to prioritize. We need to come to a national consensus as to “needs” a “tax revenue stream” consistent with America’s gross national product can support over time. We need to understand that government produces NOTHING, and so that expense needs to be reduced to a minimum consistent with efficiency and absolute necessity. Nobody is promising easy, but this MUST be done!

John Smith was right. Those who don’t contribute to this nation’s strength and wealth may not partake of it’s bounty except for that portion set aside for charity. Yes, good faith contributors should not have to work until they die…part of what they earn should support them in a retirement without want.

Kick all the illegal aliens out of our resturants, our hotel industry, our food production industry, our hospitals, and our schools thay will be left with no other economic choice but to go home. That will result in a HUGE “dividend” of jobs, taxes, a higher school graduation rate, less crowded classrooms, less crowded hospitals and emergency rooms

But “medical coverage” is going to have to be cut in two…the “basics” everyone gets and then the “options” that only those who have personal resources get. Until very recently this was “the way it was”. Only now are we seeing what it costs to give everyone who raises their hand access to available doctors for not only basic medical needs but organ transplants, new joints, etc. under our existing medical “system”.

“Retirement” is already that way. Social Security is the “basics”, and those who are able may earn separate pensions (if their company doesn’t underfund or shed those obligations), or a 401K, etc. otherwise. We have the freedom to pursue happiness and/or affluence; and rightfully so because these are “opportunities”. But no government can ever afford to assure ANY outcome.

America today is producing more and more college graduates for fewer and fewer positions actually requiring expertise. Many are in fields of limited or NO commercial potential.

Ideally, there would be national competitions funded by American businesses who would choose high school graduate applicants to further educate according to their needs under a mutually binding contract for an agreed term of years. That way, every graduate’s education would be funded, in whole or in part, with a specific position awaiting a the end of the process.

Today some join the military, and the military trains them and, after discharge, awards them a GI Bill with which to further prepare themselves for civilian employment. These might well be the “first choice” of business arrangement discussed in the preceding paragraph.

In short, America needs to institutionally become the meritocracy it has always pretended to be. Think of our “college graduates” as our “commissioned officers” and every one else “enlisted” or “non-commissioned officers.

In WW II America produced, in addition to soldiers [think police], but firefighters, pilots, navigators, radio operators, maintenance specialists of every kind needed, in an average of six weeks. Such “citizen-soldiers” beat the best the rest of the world could throw at them with America’s manufacturing might behind them. They successfully defended a “way of life”.

Well today we must re-define our “way of life” for a future quite different from a few years ago. That world is gone and isn’t coming back. With all our computers, more and more of what “needs doing” in our society can be reduced to “on-the-job training” and mastered in a few weeks. Such jobs can be easily filled with anyone “off the street with sixth grade math and ninth grade reading and writing skills. The “next level up” of “intelligent technician” can easily be trained as we did in WW II.

As I look around, I see NO great benefit from the endless non-specialized college hours and courses that make “well rounded” citizens. Blue-collar sports fans throw endless and meaningless statistics back and forth with a skill indistinguishable from that of our higher educated.

Judging from the “representatives” that “We, the people” elect, it’s clear we are doing something terribly wrong. And the election so nearly upon us is no different, with a choice only between bad and worse.

Posted by OneOfTheSheep | Report as abusive