Money, Power and Class in America
ANGLO AMERICA, 5 Nov 2012
Francis Fukuyama - The Globe and Mail
Is America a plutocracy?
It has been a central theme of the Obama campaign that Mitt Romney wants to undo the President’s hard work to end the rule of, by and for the rich in America. In one sense, this is all just crude campaign rhetoric to paint Mr. Romney as an out-of-touch elitist. But it also touches on a serious case to be made that the rich throughout American history have manipulated government in such a way as to protect and expand their own wealth and influence at the expense of others.
It is well established that income inequality has increased substantially in the United States over the past three decades, and that gains from the prolonged period of economic growth that ended in 2007-2008 have gone disproportionately to the upper end of the richest layer of society. A study by French economists Thomas Piketty and Emmanuel Saez shows that, between 1978 and 2007, the share of U.S. income accruing to the top 1 per cent of American families jumped from 9 per cent to 23.5 per cent of the total.
As the years went by and those outsized gains at the top of the income distribution pyramid failed to trickle down in any substantial way, one would have expected growing demand for a left-leaning politics that sought, if not to equalize outcomes, then at least to bound their inequality.
But that did not happen. The election of Barack Obama, it turned out, did not arrive on a tide of left-wing populism. While the Democratic majorities in Congress succeeded in moving his ambitious legislative agenda forward, the results fell far short of expectations. The stimulus package did not end the recession quickly. The health-care bill did not include a public option and failed to address the real sources of cost inflation.
Above all, the Dodd-Frank financial regulation reform bill did not change the perverse incentives that led to the crisis in the first place. Indeed, while Wall Street brought considerable opprobrium upon itself, it was arguably the sector of the U.S. economy that suffered the least in the long run. Bank earnings were restored after a couple of quarters. And though the banks now face tougher regulation, Congress failed to seriously consider the one thing that would prevent a future crisis, which was to break up the big banks and put a hard cap on their size. Indeed, the U.S. financial sector is now concentrated in fewer hands than it was before the crisis.
This swing did not happen all by itself. Wall Street spent a huge amount of money lobbying to make sure that the inevitable financial regulation was as weak as possible.
But money alone does not create political trends in the United States. Within a year of Mr. Obama’s inauguration, the most energized and angry Americans were not the homeowners with subprime mortgages who faced foreclosure as a result of the crisis, but rather those who faulted the government for taking steps to protect those homeowners and to prevent the crisis from deepening. It was a strange phenomenon that saw many of those most deeply injured by the crisis become, in effect, objective allies of those who caused it.
This, then, is the contemporary context in which we raise the question of plutocracy in America: Why, given the economic history of the past 30 years, have we not seen the emergence of a powerful left-wing political movement seeking fairer distribution of growth? Why was Mr. Obama pilloried during the 2008 campaign for even using the word “redistribution,” when all modern democracies (including the U.S.) already engage in a substantial degree of redistribution? Why has anti-elite populism taken a right-wing form, one that sees vast conspiracies not among private-sector actors such as bankers and hedge-fund operators but among government officials who were arguably trying to protect the public against real collusions if not outright conspiracies?
Why have there been so few demands for a rethinking of the basic American social contract, when the current one has been revealed to be so flawed? How can it be that large numbers of congressional Democrats and arguably the most socially liberal president in American history seriously considered extending, and even making permanent, the Bush tax cuts of 2001 and 2003? Is this not prima facie evidence of plutocracy?
The most frequent response from the left is “yes” – corporate America can protect its interests through lobbyists and campaign contributions, and money does lock in their advantages and defeat all efforts at, say, campaign finance reform. A second explanation has to do with American exceptionalism. Many observers have noted that Americans are much less bothered than Europeans by unequal economic outcomes, being far more concerned about equality of opportunity. A third possible reason is much more time-specific: Americans have learned to distrust big government in a way they had not between 1933 and 1969. Like taxpayers in Latin America, but unlike various Swedes, Danes and Germans, Americans don’t want to pay taxes because they are convinced that the government will waste whatever it takes in.
A fourth explanation is offered by Raghuram Rajan in his book Fault Lines: How Hidden Fractures Still Threaten the World Economy. He argues that the working and middle classes whose incomes either stagnated or fell during the past generation were, in effect, bought off by cheap credit. With easy credit having dried up, people are only now waking up to the stark reality that their bankers have done far, far better than they. A final explanation is the one offered by Thomas Frank in What’s the Matter With Kansas? –working class voters continue to vote for conservative candidates because cultural issues such as guns and abortion are more important to them than economic ones.
It has come as a surprise to many on the left that Mr. Romney – the “sneering plutocrat,” in the words of New York magazine’s Jonathan Chait – has pulled alongside or even ahead of Mr. Obama in some polls. They shouldn’t be so shocked. Money, power and class continue to play out in American politics in highly complex and puzzling ways. Plutocracy has kept the system going despite the enormous policy failures it has generated, not to exclude the recent crisis. And it just might push one of its prime beneficiaries, Mitt Romney, to a victory at the polls next month.
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Francis Fukuyama is the Olivier Nomellini Senior Fellow at the Freeman Spogli Institute for International Studies at Stanford University. He is the author of such works as The End of History and the Last Man (1992) and The Origins of Political Order (2011) and, most recently, is a contributor to the e-book essay collection Plutocracy & Democracy: How Money Corrupts Our Politics and Culture (The American Interest, October 2012).
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