Nel's New Day

May 5, 2014

Piketty Highlights U.S. Oligarchy

A study released almost a month ago officially proclaimed the United States as an oligarchy, replete with fraud and wealthy people controlling the country. Since then, Thomas Piketty’s new book, Capital in the 21st Century, has sent shock waves throughout the country, continuing to pit conservatives against progressives.

Piketty has studied income equality since 1991 in both the U.S. and at least 30 other countries. His research shows how the climbing income share of richest U.S. households led to the top one percent taking 22.5 percent of total income, the highest figure since 1928. To Piketty, capital is anything that generates monetary return from real estate to patents and stocks.

In the 1950s, the average CEO salary was 20 times as  much as the typical employee. Last year CEOs made an average of 331 times as their workers. Apple’s Tim Cook made 6,258 times as much the wage of an average Apple employee in 2011.  The next year, Walmart’s CEO made 1,000 times the average Walmart worker. In terms of income generated by work, the level of inequality in the United States is “probably higher than in any other society at any time in the past, anywhere in the world,” Piketty writes.

In the 1950s, the rise of the income tax for the wealthiest to 90 percent and estate taxes to more than 70 percent on the largest land holdings meshed with minimum wages and encouragement of trade unions to produce far less wealth inequality. Spending heavily on infrastructure boosted GDP growth, and firms kept senior executive pay in check. Twenty years later, Ronald Reagan cut government expenditures, decimated the unions, and slashed tax rates on the wealthy. Now the bottom 40 percent is in debt while the top one percent owns more than 35 percent of the nation’s wealth.

Piketty’s solutions anger conservatives. He recommends a tax of over 80 percent on the wealthiest, those with annual incomes over $1 million. This tax would limit the destructive activities of Wall Street traders and investment bankers. He also suggests a one-percent levy on households worth between $1 million and $5 million, increasing the levy to over two percent for greater net worth.

GOP leader Rush Limbaugh referred to the author as “some French socialist, Marxist, communist economist.” Limbaugh missed the part in which Piketty, as a reasonable scholar, pointed out the fallacies of Marxist analysis.  Piketty argues that capitalism does not necessarily reduce inequality, as other economists and even the Pope have already said. The few accumulate capital when growth is slower than the rate of return on capital. The opposite movement results in “dis-accumulating.” Companies can replace workers with machines in times of slower growth, meaning that the owners will acquire a greater share of the income with unequal distribution of that capital.

Conservatives claim that a social safety net compensating workers with tragically low wages allotted by “markets” bolsters their income. This “transfer” system is much less in the United States than in other developed nations. Another conservative response is that redistribution in the U.S. is more difficult because of lower government revenues. If they believe that a better transfer system would help inequality, they need to put more money into the safety net. Nobody on the right, however, is arguing for this solution.

Another conservative argument is that consumption is equal between the bottom and the top fifths of households in the United States. It’s part of the “but they have cellphones” complaint from the right. The spending from the bottom fifth comes from debt, proving that wealth inequality is increasing: the poor go farther into debt, and the rich acquire more wealth. The recent increase in credit car debit comes from unemployment, children, declining home value, and lack of health insurance. The bottom 90 percent can’t save their incomes to establish a net worth.

saving rates comp. wealthy poor

Conservative economists such as Milton Friedman could afford to regard capitalism as an effective way to maintain income equality. Born in 1912, he did much of his work in the Golden Age of income and lived in the top 10 percent of income. The Reagan era built the coffin for a prosperous society. The following chart on shows the shifts in income inequality throughout the last century.

091113inequality-600x466

In the 1990s, President Clinton dropped the regulations on Wall Street, setting in motion the economic disaster excerbated by George W. Bush when he spent like a drunken sailor on wars and drastically reduced taxes for the rich. With almost no control on investment banks or regulations on borrowing, the country lacked resources to save itself from the Great Recession of 2008. The conservatives took over in 2010 and used their philosophy of not spending money to further reduce GDP growth. The solution to Bush’s disaster was increase spending and demand, but conservatives, especially the 2010 crop of Tea Party congressional legislators, depressed demand and thus depressed the recovery.

When the U.S. Supreme Court protects businesses against the rest of the population, they may be following the Constitution. In the early 1900s, historian Charles Beard wrote that the document’s authors wanted to favor wealthy merchants and plantation owners against laborers and small farmers. A primary author of the Constitution, James Madison, believed that government’s main goal is “to protect the minority of the opulent against the majority.” With a philosophy that “the property of landed proprietors would be insecure if elections were open to all classes of people,” he controlled the number of voters to six percent of the U.S. population. The first chief justice of the US Supreme Court, John Jay, believed that “those who own the country ought to govern it.”

The current Roberts court has sided with business 71 percent of the time compared to the 43 percent during the time under former Chief Justice Warren E. Burger between 1981 and 1986 and in 56 percent of cases decided during William Rehnquist’s tenure as chief. Carefully managed elections give voters a choice of candidates chosen by the corporations and the billionaires. Nomi Prins, a former managing partner at Goldman Sachs writes:

“With so much power in the hands of an elite few, America operates more as a plutocracy on behalf of the upper caste than a democracy or a republic. Voters are caught in the crossfire of two political parties vying to run Washington in a manner that benefits the banking caste, regardless of whether a Democrat or Republican is sitting in the Oval.”

The result is the Trans Pacific Partnership, a secretly negotiated trade agreement written by 600 corporate advisers; the attempt to do away with net neutrality and free transmission of data on the internet; and lack of criminal prosecutions for Wall Street regulation violations. Corporations like Monsanto defraud farmers and damage the health of people who suffer from their pesticides and GMOs. The Affordable Care Act, while helping many people, still enriches the insurance industry. The Keystone XL Pipeline comes ever nearer to completion so that wealthy companies can destroy the country’s resources in order to sell oil out of the country. The self-appointed militia is still terrorizing people in Nevada. And every minute the income inequality grows.

With the loss of income inequality comes the loss of rights—freedom of speech, freedom of assembly, voting rights, access to the internet.

May 1, celebrated last week, has many different meanings. It was originally a pagan celebration of spring and then commemorated the working class. In 1884, the Federation of Organized Trades and Labor Unions declared that “eight hours shall constitute a legal day’s labor from and after May 1, 1886.” Employers who refused could be faced with strikes and demonstrations. On that date, over 300,000 workers in 13,000 businesses walked off their jobs.

Frightened by a celebration of labor and bolstered by prejudice, the GOP declared May 1 as “Americanization Day” by 1921. In 1958, Eisenhower named May 1 as “Law Day,” and the Congress then changed “Americanization Day” to “Loyalty Day” when people are to affirm “loyalty to the United States.” The changes were meant to “suppress the celebration of May Day.” Adding to the multitude of “celebrations” this year is that the “National Day of Prayer,” designated on the first Thursday of May, also fell on May 1.

I live in one of the few towns that still celebrates “Loyalty Days” with a royal court, parade, and carnival. Last weekend I looked out my window at heavy wind and rain that may have ruined a bit of the “loyalty” fun and thought about the people who sacrificed their jobs and lives so that the middle class and the poor of the United States could have better lives. They deserved better from their efforts than the condition of the United States today. Thomas Piketty’s book on the growing income equality of the country may bring people closer to the tipping point where they refuse to accept the status quo of oligarchy.

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