Defining the State in 2016: America’s Financial Oligarchy

-- By LaurenRoemke? - 23 Mar 2016

America’s state in 2016 most reflects a financial oligarchy. Even though Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread franchise, a few wealthy citizens and interest groups disproportionately control U.S. policymaking compared to median-income citizens (https://scholar.princeton.edu/sites/default/files/mgilens/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf). Over half the money given to presidential candidates in the 2016 campaign came from just 158 families (http://www.nytimes.com/interactive/2015/10/11/us/politics/2016-presidential-election-super-pac-donors.html?_r=0), and in 2012, lobbyists and interest groups spent $6.7 billion to influence Congress (http://sunlightfoundation.com/blog/2013/11/25/how-much-lobbying-is-there-in-washington-its-double-what-you-think/). As a result, people have lost faith in our political institutions; Americans’ trust in Congress declined from 42% in 1973 to just 7% in 2014 (http://www.gallup.com/poll/171710/public-faith-congress-falls-again-hits-historic-low.aspx). There is a widespread and accurate belief that our political institutions have lost all remnants of legitimacy and can no longer be used to effectuate change, as reflected by the Occupy Wall Street movement of 2008 and citizen rage in the 2016 election. In order to dismantle the oligarchic structure and create a participatory democracy, it will help to first understand the financial oligarchy’s origins and consequences.

Origins of America’s Oligarchy

In Winner Takes All Politics, Hacker and Pierson argue that President Carter’s administration kicked off income inequality through tax code revisions. In 1978, the Carter administration and Congress cut the top rate of the capital gains tax from 48% to 28% - “an enormous boon for wealthy Americans” (http://www.motherjones.com/politics/2010/12/how-oligarchs-took-america). Simultaneously, efforts to make it easier to unionize died in the Senate and a powerful business lobby defeated a proposed new agency that was to work on behalf of average Americans. Carter’s successor, Ronald Reagan, achieved a “fundamental rewriting of the nation’s tax laws in favor of winner-take-all outcomes” through his 1981 Economic Recovery and Tax Act, which cut taxes for corporations, reduced capital gains and estate taxes, and provided a 10% income tax exclusion for married couples in two-earner families (http://www.motherjones.com/politics/2010/12/how-oligarchs-took-america).

These policies continued into subsequent presidencies, allowing the rich to pull ahead of everyone else. Citizens and interest groups with this accumulated wealth could now mount stronger lobbying campaigns to achieve policies that tilted the playing field ever more steeply in their favor. The U.S. Supreme Court’s decision, Citizens United v. FEC (2010), allowed the wealthy few to gain an even stronger foothold in influencing U.S. policy by allowing unlimited funds to be spent in U.S. elections. America’s financial oligarchy has its origins in the 1970’s and 80’s tax cuts for the wealthy. These tax cuts not only enabled the concentration of wealth, but also of power through the use of the lobbying, revolving door policies, and campaign finance reforms.

Consequences of America’s Oligarchy

Holmes suggests that in order to understand something, we must look at what it does, or its consequences. In order to fully understand America’s financial oligarchy, we must look at what it does. First, it is not surprising that under a financial oligarchy, wealth inequality continues to grow. Today, the wealthiest 160,000 families own as much wealth as the poorest 145 million families (http://fortune.com/2014/10/31/inequality-wealth-income-us/). Second, laws in the U.S. disproportionately favor employers over employees. Of developed countries, the U.S. has the smallest percentage of women receiving paid maternity leave (http://www.politifact.com/truth-o-meter/statements/2015/jan/21/barack-obama/barack-obama-says-united-states-only-developed-cou/). U.S. employers also have greater freedom than their European counterparts when it comes to terminating employees (https://www.jacksonlewis.com/media/pnc/9/media.2089.pdf). Lastly, unions in the U.S. have become more passive in the face of declining membership and aggressive management. Today, unions represent just 7.4% of private-sector workers and many are understandably reluctant to strike for fear of repercussions (http://www.nytimes.com/2009/04/05/weekinreview/05greenhouse.html). For example, when the nation’s air traffic controllers engaged in an illegal strike in 1981, President Reagan fired the 11,500 striking traffic controllers and immediately hired replacements. In 2008, American unions engaged in 159 work stoppages, down from 1,352 in 1981 (http://www.nytimes.com/2009/04/05/weekinreview/05greenhouse.html). These absences of employee protections impede the ability of workers to bargain for higher wages and salaries, creating a wider gulf between the haves and the have-nots. As a result, very few families have enough wealth to sustain a job loss or high medical bill. In fact, 44% of households have less than three months of savings to live above the poverty level (http://www.marketwatch.com/story/americans-are-trapped-in-a-cycle-of-financial-insecurity-2016-01-25).

In With Liberty and Justice for Some, Glenn Greenwald argues that legal inequality is both a consequence and contributor of financial and political inequality. The past four decades have witnessed the rise of a two-tiered justice system that shields and immunizes the elite from the consequences of their criminal acts, yet subjects ordinary citizens to very harsh criminal sanctions. Examples include the failure to prosecute 2008 financial fraud criminals, and Obama officials’ decision to shield Bush torturers from all accountability.

Considering the consequences of America’s financial oligarchy, it is clear that the wealthy elites are engaged in class-based, self-interested advocacy that tilts the playing field ever more steeply in their favor to the disadvantage of ordinary citizens.

Moving Forward

The path moving forward is far from clear. Working within the system is unlikely to achieve meaningful results given the elite’s ability to maintain the status quo through resources and accumulated experience. At the same time, Theodore Roosevelt resolved America’s plutocracy of the late 19th and early 20th century through trust busting, and in 1907, banning corporate donations to federal campaigns, suggesting reform through existing channels may be possible. Ultimately, this transformation will not be easily accomplished. We must protest, advocate for change, and devise novel solutions if we are to transform our current government of the 1%, by the 1%, for the 1%, into a government of the people, by the people, for the people (http://www.vanityfair.com/news/2011/05/top-one-percent-201105).

• Greenwald, Glenn (2012). With Liberty and Justice for Some. Picador.
• Hacker, Jacob and Paul Pierson (2010). Winner-Take-All Politics: How Washington Made the Rich Richer—and Turned Its Back on the Middle Class. New York, New York: Simon & Schuster.
• Oliver Wendell Holmes, Jr., The Path of the Law, 10 Harvard Law Review 457 (1897)