Forum Post: "Oligarchy in the U.S.A. : The wealth defence industry protects the richest of the rich." By Jeffrey A. Winters.

Oligarchy in the U.S.A.

The wealth defence industry protects the richest of the rich.

by Jeffrey A. Winters.

April 12, 2012 "Information Clearing House" ( http://www.informationclearinghouse.info/ ) ---

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In 2005, Citigroup offered its high net-worth clients in the United States a concise statement of the threats they and their money faced.

The report told them they were the leaders of a “plutonomy,” an economy driven by the spending of its ultra-rich citizens. “At the heart of plutonomy is income inequality,” which is made possible by “capitalist-friendly governments and tax regimes.”

The danger, according to Citigroup’s analysts, is that “personal taxation rates could rise – dividends, capital gains, and inheritance taxes would hurt the plutonomy.”

But the ultra-rich already knew that. In fact, even as America’s income distribution has skewed to favor the upper classes, the very richest have successfully managed to reduce their overall tax burden. Look no further than Republican presidential contender Mitt Romney, who in 2010 paid 13.9 percent of his $21.6 million income in taxes that year, the same tax rate as an individual who earned a mere $8,500 to $34,500.

How is that possible? How can a country make so much progress toward equality on other fronts – race, gender, sexual orientation and disability – but run the opposite way in its policy on taxing the rich?

In 2004, the American Political Science Association (APSA) tried to answer that very question. The explanation they came up with viewed the problem as a classic case of democratic participation: While the poor have overwhelming numbers, the wealthy have higher rates of political participation, more advanced skills and greater access to resources and information. In short, APSA said, the wealthy use their social capital to offset their minority status at the ballot box.

But this explanation has one major flaw. Regardless of the Occupy movement’s rhetoric, most of the growth in the wealth gap has actually gone to a tiny sliver of the 1% – one-tenth of it, or even one-one-hundredth.

Even more shockingly, that 1 percent of the 1% has shifted its tax burden not to the middle class or poor, but to rich households in the 85th to 99th percentile range. In 2007, the effective income tax rate for the richest 400 Americans was below 17 percent, while the “mass affluent” 1% paid nearly 24 percent. Disparities in Social Security taxes were even greater, with the merely rich paying 12.4 percent of their income, while the super-rich paid only one-one-thousandth of a percent.

It’s one thing for the poor to lose the democratic participation game, but APSA has no explanation for why the majority of the upper class – which has no shortage of government-influencing social capital – should fall so far behind the very top earners. (Of course, relative to middle- and lower-class earners, they’ve done just fine.)

For a better explanation, we need to look more closely at the relationship between wealth and political power. I propose an updated theory of “oligarchy,” the same lens developed by Plato and Aristotle when they studied the same problem in their own times.

A quick review.

First, let’s review what we think we know about power in America.

We begin with a theory of “democratic pluralism,” which posits that democracy is basically a tug-of-war with different interest groups trying to pull government policy toward an outcome. In this framework, the rich are just one group among many competing “special interests.”

Of course, it’s hard not to notice that some groups can tug better than others. So in the 1950s, social scientists, like C. Wright Mills, author of The Power Elite, developed another theory of “elites” – those who wield more pull thanks to factors like education, social networks and ethnicity. In this view, wealth is just one of many factors that might help someone become the leader of a major business or gain a government position, thereby joining the elite.

But neither theory explains how the super-rich are turning public policy to their benefit even at the expense of the moderately rich. The mass affluent vastly outnumber the super-rich, and the super-rich aren’t necessarily better-educated, more skilled or more able to participate in politics; nor do the super-rich dominate the top posts of American government – our representatives tend to be among the slightly lower rungs of the upper class who are losing the tax battle.

Also, neither theory takes into account the unique power that comes with enormous wealth – the kind found in that one-tenth of the 1%. Whether or not the super-rich hold any official position in business or government, they remain powerful.

Only when we separate wealth from all other kinds of power can we begin to understand why our tax system looks the way it does – and, by extension, how the top one-tenth of 1% of the income distribution has distorted American democracy.

Enormous wealth is the heart of oligarchy.

Oligarchy, or Democracy ?

To argue that the United States is a thriving oligarchy does not imply that our democracy is a sham: There are many policies about which oligarchs have no shared interests. Their influence in these areas is either small or mutually cancelling.

Though it may strike at the heart of elitism, greater democratic participation is not an antidote to oligarchic power. It is merely a potential threat. Only when participation challenges material inequality – when extreme wealth is redistributed – do oligarchy and democracy finally clash.

The answer to the question of inequality, then, is troubling. Wars and revolutions have destroyed oligarchies by forcibly dispersing their wealth, but a democracy never has.

Democracy and the rule of law can, however, tame oligarchs.

A campaign to tame oligarchs is a struggle unlikely to fire the spirits of those outraged by the profound injustices between rich and poor. However, to those enduring the economic and political burdens of living among wild oligarchs, it is an achievement that can improve the absolute welfare of average citizens, even if the relative gap between them and oligarchs widens rather than narrows.

A graduate student in one of my seminars – resisting my terminology – once declared that the “U.S. has rich people, not oligarchs.” More than anything else, that statement claims that somehow American democracy has managed to do something no other political system in history ever has: strip the holders of extreme wealth of their inherent power resources and the political interests linked to protecting those fortunes.

Of course, this hasn’t happened.

But it is endlessly fascinating that we’re now in a moment when Americans are once again asking fundamental questions about how the oligarchic power of wealth distorts and outflanks the democratic power of participation.

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fiat justitia ruat caelum ...

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Jeffrey A. Winters is an associate professor of political science at Northwestern University. For a more extensive explanation of his theory of oligarchy, read Oligarchy (Cambridge University Press, 2011).

This article was first published at 'In These Times' ( http://www.inthesetimes.com/article/12698/oligarchy_in_the_u.s.a/ )

© 2012 In These Times All rights reserved.

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