Economic rule by the rich
By James McCusker Oct.
The impressions made when we are
young are all but indelible. That is why, even though I know better, when
somebody says that America is a plutocracy, my first thoughts turn to Pluto, and
then to Mickey and Donald. And if that is America, how could that be so
But without the capital "P," plutocracy turns out to be less of a
happy thing. It means government by the rich, and despite the lingering Disney
imagery that some of us can’t entirely shake off, a plutocrat is not Pluto in a
The author Kevin Phillips says that the United States has
turned into a plutocracy in which "money not
only talks, money screams." In his recent book "Wealth and Democracy’” he writes
of how money has come to dominate both major political parties and how the
wealthy exert their influence and control over our lives.
recent interviews, Phillips emphasized that the extremely lopsided distribution
of income in America -where the few at the top own nearly everything - is
something we haven't seen since the so-called Gilded Age of the 1890s and early
In "Wealth and Democracy, Phillips paints a very
unflattering portrait of the politicians and corporate executives who, by his
estimate, are both running and ruining the United States. He is a political
analyst by nature and is at his best when skewering the politicians maneuvering
for position at the trough of campaign finance cash.
In one sense,
Phillips picked an easy target. Greed today has few defenders. In a world of
collapsing corporate shell games, the "Greed is good" motto of the movie
character Gordon Gekko in "Wall Street" sounds closer to insane than insightful.
But while it is difficult to argue that greed is good for government, or CEOs,
the broader economic issues raised by Phillips are tougher to analyze.
The two basic questions are these: Does unfettered market capitalism naturally
progress to a plutocracy where our lives are controlled by the rich? And is a
Gilded Age inherently a bad thing. In other words, if everybody is better off,
should we be concerned about lopsided income distribution?
answer to the first question is yes. The same Adam Smith who free market
enthusiasts turn to for their inspiration made it quite clear that market forces
were not always sufficient to overcome the natural tendency of merchants to
control markets at the expense of consumers.
But while Smith was an
astute observer of human nature and its effects on economics, it was left to his
successor, David Ricardo, to do the pick and shovel analysis that explained how
markets really work Ricardo showed that market expansions, particularly in
natural resource industries, tend to benefit the rich. And if that weren’t
enough, he also describes in detail. how the rich are able to exert economic
control -because they made the rules under which markets operate. Sound
The second question is more difficult. The Gilded Age, which
began about 1890 and lasted until the World War I began in 1914, was a time of
economic prosperity But more for some than for others. While it was the time
when great fortunes were amassed by captains of industry it was also a time of
great economic instability.
The financial panic of 1893, for example,
was bad enough, but it was followed by another in 1903 that had such devastating
effects on financial markets and personal savings that Congress was finally
frightened enough to pass the Federal Reserve Act.
question is whether the unbalanced income distribution contributed to that
economic instability. It certainly did in one sense, since the wealthy were
opposed to bank regulation and delayed the Federal Reserve System for over a
More directly, though, the wealthy accumulate money faster
than they can spend it, and their savings fuel the crucial investment sector.
But since the rich are such a tiny minority, when they go through mood swings -
and they do - the effect on the investment sector can jerk around the entire
So we are right to be concerned about the link between
plutocracy and panics, between lopsided wealth and economic instability. But
what to do about it isn’t clear. Phillips recommends income redistribution, but,
historically, efforts to redistribute income through the income tax system have
failed miserably - in no small part because once government gets its hands on
the money it has its own ideas about how to spend it.
What we really need are some clear thoughts
on how the wealthy could be made not less wealthy but less dangerous to the rest
of us. And this will be most likely found in regulating markets, and market
volatility, rather than individuals.
James McCusker is a Bothwell
economist, educator and consultant He also writes "Business 101," which appears
monthly in The Herald Business Journal.