(Initially posted September 22, 2015. Latest revision October 15, 2015.)
An aristocracy occurs when a small, privileged ruling class controls government and most of the wealth of a country. The economic and associated political inequality in the United States is moving toward an aristocracy. Wealth and political power are increasingly concentrated among extremely wealthy individuals and large corporations. These financial elites successfully influence government policies to enhance their wealth and power. A few of the many examples include the Supreme Court ruling that allows unlimited donations to candidate-affiliated PACs, the special tax breaks for hedge fund managers, and federal deposit insurance for risky derivative investments by large banks. The federal deposit insurance for banks allows large banks to keep the profits from high risk investments, but have government bailouts if the bank gets in trouble from losses. This gives large banks an incentive to use customers’ savings for high risk investments rather than for loans to other customers. Federal insurance for high risk investments by banks was eliminated after the financial crisis of 2008, but at the initiative of Republicans was activated again in the budget compromise of 2014. As this example shows, the financial elites present arguments in terms of deregulation, but in practice they actually want and get regulations that favor their economic interests.
Both Republican and Democratic politicians in the U.S. act to enhance aristocracy; however, aristocratic ideology is much stronger for Republicans and has come to openly dominate their economic policies. Their economic policies appear to be set by the financial elites who control the party through donations. Historically, economic conservatives advocated limited government spending and avoiding deficits. However, the Republican establishment tends to now consider deficits acceptable when the deficits result from economic policies favoring the financial elites. Vice President Dick Cheney summarized this position with his well-known comment that “Reagan proved that deficits don’t matter.” In effect, the current Republican establishment has reversed the basic principles of economic conservatism. The lack to true economic conservatives is making the political processes out of balance.
The economic imbalance can be seen by looking at the percent of income that goes to the upper 1 percent of wealthy individuals. In 1928 before the great depression, the upper 1 percent obtained 23.9% of the income in the U.S. After the depression, that number declined to about 10% in the 1970s. Prosperity was widely shared during that time. The number began increasing in the 1980s (Reagan administration) and rose to 23.5% in 2007 before the financial crisis of 2008. After the financial crisis of 2008, the number dropped, but is rising again. (Graphs and additional information can be found by an internet search for “top1percentUSA” and at https://commons.wikimedia.org/wiki/File:2008_Top1percentUSA.svg.) This history suggests that economic instability occurs in the U.S. when about 23% of income goes to the upper 1% of wealthy individuals.
The basic strategy of the financial elites and their agents in the Republican establishment appears to be to keep the typical voters distracted by social issues such as abortion and same-sex marriage. While these controversies about social issues rage, the financial elites inconspicuously set self-serving economic policies. The financial elites appear to be largely indifferent to the social issues and are willing to go along with whatever position allows them to implement their self-serving economic policies. This strategy has been very effective at getting voters to support politicians who implement economic policies that are detrimental to most voters. The next blog article on authoritarianism in U.S. politics discusses another factor that causes some voters to support candidates who advocate detrimental economic policies.
The financial elites and their agents claim that anyone who challenges this increasing aristocracy is promoting “class warfare.” This accusation, of course, is actually another distraction that is intended to allow them to continue their dominance of economic policies.
To me it is obvious common sense that a healthy economy has broadly shared wealth. However, congress, the president, and the Supreme Court all readily implement policies that are favorable to the financial elites and promote aristocracy. Republicans are generally stronger and more open advocates for aristocratic policies than Democrats, but the financial elites obviously get what they want from both parties.
I believe that the assumption that deficits do not matter as long as the financial elites are doing well is profoundly wrong. The resulting aristocracy generates economic and political instability and will cause increasingly severe economic oscillations and crises. In addition, China currently holds a large amount of U.S. debt and is in a position to potentially create economic instability in the U.S. or to extort the U.S.
I do not expect that politicians within either the Republican or Democratic political parties can break free of the entrenched dominance of economic policies by the financial elites. I expect increasing economic and associated political turbulence. At some point, articulate, independent candidates will run for office and make the damaging economic policies clear. This can be achieved by focusing on the biased aristocratic economic policies and does not require a more socialistic economy. The independent candidates will get strong support from a range of voters and lead a stunning rejection of the established political parties. Some conservatives will recognize that their efforts to make no compromises on social issues have resulted in their support for politicians who are ruining the economy. These independent leaders will also hopefully make the financial elites realize that their long-term economic interests will be best served by less aristocratic economic policies.