(Crony-Capitalism aggregates wealth and power in an accelerating cycle; it unduly influences political power to support the wealthy interests; and it exploits the non-wealthy.)
The Roman Empire, like the United States, had reached a zenith of unrivaled military superiority and economic control. And like every empire in world history, wealth disparity in the Roman Empire fueled by greed led to its slow demise. Characterized by excesses in wealth and political influence building, the aristocrat’s stewardship of the state and its people became so warped and self-centered that failure was the only real outcome.
Like the many examples in the trash heap of history, the US political system is now disproportionately represented by and attuned to the rich. Whether through frustration or a result of malicious disenfranchisement, the political participation of the poor (and what’s left of the middle class) has been dwindling for years.
Peter Turchin, known for his contributions to population biology and historical dynamics, has pointed to “a rapidly approaching” historical cusp, a point at which several leading indicators are likely to peak, where the US will be “particularly vulnerable to violent upheaval”, unless we act to reverse the trend of ever-growing inequality. He sees this culminating around 2020.
After the near collapse of the United States resulting from the excesses and speculation of the Gilded Age and culminating in the market crash and Great Depression, a series of policy changes were employed which became known as the New Deal. This period of great reform, however, came to an abrupt change in 1980, with the adoption of supply-side economics driven by a culture of politically active wealthy elites. Since 1982 the wealth of the Forbes 400, adjusted for inflation, has increased 612%, while at the same time the wealth of the bottom 60% of American families has actually DECLINED!
There is significant truth to the saying “money equals power”. This Golden Rule (the man with the gold makes the rules) suggests that the more unequal our society becomes, the greater the threat to meaningful democracy. This lopsided power may be exercised legally, with hundreds of millions spent each year on lobbying politicians, or illegitimately with money used to corrupt the political process.
History consistently illustrates that when societies become too unequal bad things happen. They either become economically inefficient or they become subject to social upheaval. Or both. The oligarchies of the banana republics in South and Central America are recent examples.
Today’s economic conditions are a return to those that led to the Great Depression, as we now witness a migration of wealth from the poor and middle class to the top 1% of the population, resulting in wealth inequality not seen since the 1920’s.
Wealth accumulates more wealth, disproportionally influences political and economic conditions to accelerate even more wealth, resulting in income inequality.
The wealthy have more money to put into financial assets, and gains from financial assets are taxed much more lightly than traditional income, as Mitt Romney’s tax returns illustrated when they finally went public. So as the income from financial assets is spread very unevenly, this has a magnifying affect on income inequality — which is, of course, what we are witnessing. Then the inheritance of this wealth moves to the next generation, with very limited estate taxes, again having a multiplier effect on subsequent generations. These wealthy elites not only have the means to hire financial experts who can maximize their wealth by navigating a very complex maze of tax codes and intricate financial transactions, but they actually design and implement such complexities into the system.
In addressing wealth inequality, our focus traditionally has centered on helping the poor through humanitarian efforts. But it is also critical to tackle inequality by looking not just at the poorest, but also at the richest. Here too, it is the wealthy that actually derive tremendous benefit in the form of tax incentives through their support of charitable humanitarian efforts.
While there has been amazing progress in the fight against hunger and extreme poverty, our hyper-Calvinistic orientation causes many to be suspect of those that aren’t making it in society, as if they are just lazy freeloaders that are a burden on the rest of us. In a world of finite resources, we cannot end poverty unless we reduce inequality rapidly.
If income were more relatively spread across the population, and a relative fairness to taxation and wealth accumulation policies were in place, then it would give more people more spending power, which in turn would drive growth and begin to mitigate inequality.
With this in mind I call for a “neo-capitalism” movement to replace the “crony-capitalism” that is pervasive in America. It’s time we modify markets to provide limits and controls, eliminating speculation of aggregated financial savings. Any corporate entity whose failure would cause undue ramifications to the market should be abrogated. Public funds should be used to invest in programs that “level the disparity” such as education, loans, and investments in infrastructure.
The tax code should be progressive and simplified, a case even billionaire Warren Buffet has called for. We should restructure the estate tax, and increase taxes on financial gains so they become similar to ordinary income rates. There should be limits to how much people can earn as a multiple of the earnings of the lowest paid. There should be limits to interest rates or incentives for non-predatory lending. Finally, there should be limits to capital accumulation, through progressive taxation.