Our democracy is in grave danger. In fact, it may already be fatally wounded as a financial oligopoly increasingly dominates American politics and the economy. What’s most remarkable about this new form of oligarchy is that it has no face. There are no flesh and blood oligarchs, only unnamed investors. The big financial sharks can swim among our 401ks. They can flex their awesome power without getting fingered. They can set the entire direction of government activity without lobbying at all.
Here are 10 reasons to worry.
1. Money and Politics
Our democracy is supposedly rooted in the idea of one person, one vote. But the introduction of big money into politics distorts, and perhaps, destroys that ideal. Unlike most advanced democracies, we have failed to eliminate the destructive impacts of money on politics. The cost of our campaigns are rapidly rising. The Citizens United Supreme Court decision further accelerated this trend so that now there are virtually no limits on how much billionaires can spend on their preferred candidates.
Bankers too are getting into the act. One recent super PAC, “Friends of Traditional Banking” is seeking races where it can “target the industry's enemies and support its friends in Congress.”
Of course the obvious result is that all candidates, regardless of party, spend most of their time begging for money, not legislating. You can’t get elected without kissing the oligarchs’ rings.
2. Voter Disenfranchisement
At the core of modern democracy is voting – we get to choose who governs us. If that’s the case, then we should be very concerned about how the electorate is being dismantled. Let’s start with the fact that if you’re a felon, you may not be permitted to vote at all. Since we have the largest prison population in the world, we also have more than 5 million disenfranchised felons, and former-felons. (The voting rules vary by state.)
Equally telling is the tidal wave of new voting laws sweeping through state legislatures. According to a recent report from NYU’s Brennan Center for Justice, “More than 5 million Americans could be affected by the new rules already put in place this year — a number larger than the margin of victory in two of the last three presidential elections.” These new restrictions include tougher laws requiring photo IDs, proof of citizenship, removal of early and absentee voting, and making it harder to restore voting rights after criminal convictions.
The rapid spread of these nearly identical disenfranchise efforts is not accidental. They come directly from the American Legislative Exchange Council, which the New York Times reorts is “a business-backed conservative group, which has circulated voter ID proposals in scores of state legislatures.” The oligarchs funding this effort include American Nuclear Energy Council, the American Petroleum Institute, Amoco, Chevron, Coors Brewing Company, Shell, Texaco, Chlorine Chemistry Council, Union Pacific Railroad, Pharmaceutical Research & Manufacturers of America, Waste Management, Philip Morris Management Corporation, and R.J. Reynolds Tobacco. (http://www.alecwatch.org/chapterone.html)
Perhaps the most pernicious efforts involve state legislation to discourage voter registration. (You would think that in a democracy we would do everything possible to register voters and to encourage them to vote.) Take Florida for example. The New York Times reports how the state has basically eliminated voter registration drives.
“The state’s new elections law — which requires groups that register voters to turn in completed forms within 48 hours or risk fines, among other things — has led the state’s League of Women Voters to halt its efforts this year. Rock the Vote, a national organization that encourages young people to vote, began an effort last week to register high school students around the nation — but not in Florida, over fears that teachers could face fines. And on college campuses, the once-ubiquitous folding tables piled high with voter registration forms are now a rarer sight.
3. Our Skewed Distribution of Income
Sometimes we forget that money in politics wouldn’t matter if our income distribution wasn’t so lopsided. Ever since the Greeks invented democracy, there has been a question about the relationship between political and economic democracy. Is it possible to have political democracy if the income distribution is severely skewed? Of course, you don’t need to have full equality of income to have a viable democracy. But does there come a point when a skewed distribution of income makes a sham of democracy? If we’re not already there, we may be getting close. As this chart shows, we lead the world when it comes to our income gap.
Ratio of CEO Compensation To Average Employee Compensation in 2000
Japan 10:1
Germany 11:1
Switzerland 11:1
Sweden 14:1
New Zealand 16:1
France 16:1
Spain 18:1
Belgium 19:1
Italy 19:1
Canada 21:1
Australia 22:1
Netherlands 22:1
Britain 25:1
Hong Kong 38:1
Mexico 45:1
Argentina 48:1
South Africa 51:1
U.S. 365:1
Germany 11:1
Switzerland 11:1
Sweden 14:1
New Zealand 16:1
France 16:1
Spain 18:1
Belgium 19:1
Italy 19:1
Canada 21:1
Australia 22:1
Netherlands 22:1
Britain 25:1
Hong Kong 38:1
Mexico 45:1
Argentina 48:1
South Africa 51:1
U.S. 365:1
(Source: Michael Hennigan, “Executive Pay and Inequality in the Winner-take-all Society,” Finfacts Ireland, August 7, 2005.)
4. Tax Breaks for the Super-rich
You know the oligarchy is rolling along when it wins enormous tax breaks during good times and bad, under Democrats and Republicans. This shows up in two important ways. First, we see a decline in the top marginal tax rate from 91 percent during the Eisenhower years down to 35 percent today. But what matters even more is the 15 percent marginal rate on capital gains and similar kinds of income. That’s how Mitt Romney gets to pay only 13.9 percent of his massive income in taxes.
While we would love to blame it all on the Republicans, the chart below shows that the effective tax rate on the rich (after all deductions) has been plummeting no matter which party holds office. And although President Obama is currently very upset about the Republicans call for even more tax cuts for the super-rich, he was also unable to raise taxes on top income earners when the Democrats controlled Congress. In addition, the Democrats were unable to close the outrageous carried interest loophole that fattens hedge funds. Nor did they get near passing a financial transaction tax on Wall Street. Oligarchs don’t like to pay. And their money makes sure it stays that way. Is that democracy?
5. Wall Street Bailouts
Another sure sign of financial oligarchy is when the national vault breaks open for Wall Street bailouts and stays open. It’s become clear that too-big-to-fail banks remain far too large to fail. In fact, they have grown larger. They can continue to bet with impunity knowing that if they lose big, we will bail them out again. Under democratic capitalism this is called a “moral hazard.” But really it’s the ancient morality of oligarchy.
The sequence of events leading up to and through the financial crash is a stain on our democracy. First the largest banks and investment houses went on a wildly profitable gambling spree. They created and sold fantasy finance instruments that they knew were toxic to the core. They got their lapdog rating agencies to bless them with AAA ratings. And then they peddled the trash all over the world. Along the way housing prices were puffed up to astronomical highs since high-risk mortgages were needed to create the corrupt securities. Government, after years of ideologically informed deregulation, aided and abetted the entire process. The toxic trash created the crash.
For a short time it seemed as if Wall Street would pay for the damage it had caused – that the large banks would be broken up, that homeowners would be bailed out, that the unemployed would be put to work, and that Wall Street gambling would be eliminated with the passage of New Deal-like controls.
But the oligarchs would not stand for it. They got bailed out, not the average American. Too-big-to-fail banks used our bailout funds to get even bigger. And the reforms are weak and yet to be instituted.
That’s not what Americans wanted or expected. But under our financialized democracy, that's what we’re getting…and more is yet to come.
19 Trillion in DEBT with a new debt ceiling of 21
6. Deficit Hysteria
It’s remarkable to watch how oligarchs shift the national conversation toward debt and away from themselves. By the summer of 2011, both parties where clamoring for cuts (which they call “reforms”) in Medicare, Medicaid and Social Security. As the Democrats moved to the right, the Republicans went even further, demanding more tax cuts for the rich and more draconian cuts in social programs – from food stamps to Head Start. All of this becomes possible because of the national drumbeat about deficits and debt.
With massive investments in think-tanks and media infrastructure, Wall Street’s minions successfully persuaded Washington that the American people, not Wall Street, should pay for the damage that Wall Street created. That’s the very definition of oligarchic chutzpah.
7. Crumbling Social and Physical Infrastructure
When you’re a financial oligarch, you live in your gated community, you send your kids to private schools, you go to your own expensive healthcare providers, and travel on your private jet which leaves from its own private terminal. You could care less what happens to the rest of America. You have no interest in funding public education. (In fact, the very profitable student loan market depends on rising education costs.) You would think that business leaders would want an educated workforce. But the real oligarchs don’t care. They can get their workers from anywhere in the world. What about the decay of our roads, bridges and public transportation? Doesn’t business need that too? Productive enterprises do, but the financial elites rely almost entirely on a privately controlled electronic infrastructure. Cracked bridges don’t matter.
But financial elites do care deeply about privatization. Turning over the government to the private sector is a thing of beauty for oligarchs. It’s a nice transfer of taxpayer money to firms that can use political muscle to gain contracts. The insecurity of competitive markets is eliminated as you waltz off with military and civilian contracts worth billions. (See Colin Greer’s “The Biggest Engine of Economic Growth? 8 Ways Taxpayers and the Government Are Necessary to Capitalism.”)
When America was competing with the USSR, maintaining some semblance of substantive democracy was critically important. It’s not an accident that during the Cold War we invested heavily in higher education, transportation and social programs like Medicare and Medicaid. We even supported unions. Oligarchs were constrained in the name of freedom. No more.
8. The Failure to Create Jobs
Until recently, our democracy would not tolerate high levels of unemployment. In fact it was suicidal for any politician or political party to preside over severe recessions that lasted over a year. And even during the Great Depression, it was expected that government would do everything possible to create jobs and protect the unemployed. That sense of urgency is long gone as the oligarchs have flexed their political muscle.
We are now four years into the crisis and the unemployment rate remains stuck at around 8 percent. In the past, such levels would have forced government to create jobs programs left and right. At the very least, federal money would have gone to state and local governments to prevent more public layoffs. Instead, we are witnessing an on-going human catastrophe, especially for the long term unemployed – those without jobs for 26 weeks or more. These workers will find it extremely difficult ever to find work again. A vital democracy would not stand for it. Instead, we are getting far too used to it.
9. The Revolving Door
Democracy is also in peril when financial personnel slide back and forth between Wall Street and Washington. It’s an unwritten rule that the top Treasury officials must come from Wall Street in order to “reassure” markets. Hank Paulson, Bush’s Treasury Secretary, formerly served as the CEO of Goldman Sachs. Tim Geithner, Obama’s Treasury Secretary previously was the head of the New York Fed, which is considered the informal board of directors for Wall Street. These officials truly believe that what’s good for Wall Street is good for the country.
For example, while Paulson was misleading Congress and the media about the dire situation at Fannie and Freddie in 2008, he then rushed to New York to tell his hedge fund buddies (who once worked for him at Goldman Sachs) that Freddie and Fannie soon would be nationalized. That secret tip was worth hundreds of millions to those hedge funds which then shorted the stocks and made a killing. Paulson obviously believed that the nation was served better by speaking truthfully to the oligarchs while lying to our democratic leaders.
Then there’s Peter Orzag, the former Obama budget director, widely known as a deficit hawk. Orzag was in government throughout the bailout period and was intimately involved in pouring hundreds of billions of dollars into failed banks like CitiGroup. Two years later Orzag leaves his high-level government position to take a multi-million dollar job with...CitiGroup.
Meanwhile congressional members, staff and civil servants also have their eyes glued on lucrative financial jobs in the very industries that are supposed to control in the name of the public good. Some already are auditioning by spending their time in Congress managing their own investment portfolios.Staff members are behaving like day traders.
This is what the ugly transition from democracy to oligarchy looks like.
10. Worshiping the Market Gods
Perhaps the biggest danger signal comes with the growing worship of financial markets. For nearly 3,000 years there has been an uneasy tension between money-lenders and governments of all kinds. But until recently government usually held the upper hand. Not so today. The financial markets have more power than ever before, and every political leader knows it. That power translates into the anthropomorphic qualities assigned to markets which now have a range of human emotions: Markets “approve or show their displeasure;” become “jittery or remain calm;” and “show concern or provide support.” They can take down governments, cause debt crises and generally veto policies that get them “uneasy.”
How bad is it? Just think about when the rating agencies – the petty apostles of Wall Street -- reduced their ratings on U.S. government debt last summer. Politicians and the media actually took them seriously. How crazy is that? These same rating agencies turned tricks for Wall Street banks and mis-rated thousands of mortgage-backed securities leading up to the crisis. They are the walking embodiment of abject failure and they should have gone under along with their mis-rated securities.
Instead, when the deficit discussion was mounting in Washington, these same rating agencies had the gall to cut U.S. debt ratings….and we took them seriously? The “markets” sure didn’t because interest rates remained at record lows. Yet, pundits asked, “What must we do to get our AAA rating back?” They should have been asking: “How much do those rating agencies owe the American people for damage they did to the economy and how do we get it back?”
Is It Too Late for Democracy?
The game’s not over yet. We still have freedom of expression and the right to protest – more or less. Occupy Wall Street both showed how the debate could be altered, and how easily the authorities could end the encampments. So, it’s an open question whether we have the will to build and sustain a broad, powerful anti-Wall Street movement.
The financial rot is deeply impacting our democratic structures. It should worry us when Wall Street and its political minions warn that we might become the next Greece. They, of course, are referring to the debt crisis. But Greece is also the very place where finance is crushing democracy. Austerity is being rammed down the throats of the Greek people and democratic government can no longer protect the infirm and the unemployed from the onslaught of the oligarchs. It is both sad and frightening that it’s happening at the historical birthplace of democracy.
We all are Greeks.
April 5, 2012' 2012'
Thanks Les
What is fractional reserve banking?
Creating money out of thin air.
