Tuesday, September 07, 2010

The President Takes a Stand Against Inequality

Frank Pasquale

Though I'm usually loath to comment on DC politics, I find the recent report that President Obama will "rule out any compromise that would extend the Bush-era tax cuts for the wealthy beyond this year" a possible turning point for this administration. It's easy to exaggerate the effect of any given announcement. But the President may just be realizing that the US is reaching a "point of no return" when it comes to inequality.

Thomas Pogge has described the self-reinforcing nature of extreme inequality. He explains that:

The most affluent understand very well that their future wealth is affected by the social rules. They will therefore generally use their influence on the design of the social rules towards defending and expanding their advantages. The richer the top 10 percent are relative to the rest of the population, the more their interests will differ from the interests of the rest and the greater their influence on the design of the social rules will be relative to the influence of the majority.

Political scientist Larry M. Bartels describes in detail the political dynamics here in the prize-winning book Unequal Democracy: The Political Economy of the New Gilded Age:

Economic inequality clearly has profound ramifications for democratic politics. However, that is only half the story of this book. The other half of the story is that politics also profoundly shapes economics. While technological change, globalization, demographic shifts, and other economic and social forces have produced powerful pressures toward greater in equality in recent decades, politics and public policy can and do significantly reinforce or mitigate those pressures, depending on the political aims and priorities of elected officials.

I trace the impact of public policies on changes in the U.S. income distribution over the past half- century, from the tripled income share of Dahl’s “economic notables” at the top to the plight of minimum wage workers at the bottom. I find that partisan politics and the ideological convictions of political elites have had a substantial impact on the American economy, especially on the economic fortunes of middle-class and poor people. Economic inequality is, in substantial part, a political phenomenon.

The usual reporting on the nuts and bolts of the Obama tax proposal ignores the profound political effect of ever-increasing wealth and income at the top of the socioeconomic ladder.

Income inequality has generated mind-bending disparities in opportunities for political influence. The Koch Brothers' "combined fortune of thirty-five billion dollars" has frequently been used to promote "drastically lower personal and corporate taxes, minimal social services for the needy, and much less oversight of industry." Imagine the Kochs plan on spending 1% of their fortune on politics each year: that's $350 million. An individual with a net worth of $100,000 spending the same percentage of her "fortune" would only have $1,000 of influence. (And this would be something of a "widow's mite"--her financial situation is far more precarious than that of the Kochs!) It would take three hundred and fifty thousand such individuals to match the putative $350 million of one pair of brothers. Moreover, contributors themselves are a pretty rarefied group: Spencer Overton found that "Less than one percent of the U.S. population makes financial contributions over $200 to federal candidates." No wonder, as Larry Lessig concludes, "Under our current system of campaign finance, there is a fundamental gap between the interests of voters and of contributors."

The Kochs are not alone in their extraordinary wealth. The world has around 1,000 billionaires, and in 2006 the “Fortunate 400″-–the 400 highest earning households in the US--made, on average, more than $263 million apiece. Post-Citizens United, corporations have even more power to get in on the game. Exxon could have deployed 10% of its 2008 profits (of $85 billion) to outspend every presidential and senatorial candidate that year.

We often hear that, in the marketplace of ideas, "counterspeech" is all that is needed to address such imbalances. But this response is downright Pollyanna-ish given the rise of astroturfing and other ways of hiding influence. Consider this quote from James Verini's profile of the Chamber of Commerce:

[The Chamber has] also established a branch of a front group, the Campaign for Responsible Health Reform, and hired a Little Rock Republican strategist to run it. The strategist, Bill Vickery, told me that his activities were “backed solely” by the Chamber. In other words, a large part of what the Chamber sells is political cover.

For multibillion-dollar insurers, drug makers, and medical device manufacturers who are too smart and image conscious to make public attacks of their own, the Chamber of Commerce is a friend who will do the dirty work. “I want to give them all the deniability they need,” says [US Chamber of Commerce President and CEO] Donohue. That deniability is evidently worth a lot. According to a January article in the National Journal, six insurers alone—Aetna, Cigna, Humana, Kaiser Foundation Health Plans, UnitedHealth Group, and Wellpoint—pumped up to $20 million into the Chamber last year.

Meyer also describes Koch strategies to obscure their influence, which Mike Konczal suggests goes well beyond Congress.

All these developments point to some disturbing conclusions about the future of democracy in a time of extreme inequality. Even the most centrist policy prescriptions of "better education," "re-skilling workers," "re-building infrastructure," or "green jobs" need public funding. Even the barest sentiment of solidarity would demand that those who have benefited so disproportionately from economic growth give something back to the larger economy that made it possible. If the polity cannot manage to raise taxes on the very top earners in a time of economic crisis and war, it may never be able to do so. The self-reinforcing "circularity" of money invested in powerful people motivated to shift more money to their benefactors will be too strong to overcome.