John Buell

Must We Have Government Of, By, and For the Wealthy?

Late last year, President Obama made an eloquent speech about growing inequality and declining mobility in our economy. He advocated several policy proposals to address both. The president, however, failed even to mention one of the most important impediments to his agenda, the role of big money in politics. Big money has not only taken over our politics, it has also reshaped the very nature of our political economy. Conservatives like to tout our “free market economy,” but the role of big money in politics has created a system better described as “crony capitalism.”

The financial sector of our economy is growing at the expense of the manufacturing and service sectors. The US financial industry’s share of GDP is at an all-time high. But does this reflect finance’s contribution to our well being? Hardly. Thanks to generations of coordinated effort by a cadre of well-funded foundations and think tanks, we have seen the growth of an uncompromising belief in free market capitalism. This faith in free markets has carried beyond commerce and industry to advocacy of deregulation of finance itself, the very basis of the market itself.

One outcome of this deregulation has been the consolidation of market power in the hands of a few firms. This in turn has led to accumulation of vast fortunes in the hands of a very few investment banks and their top executives. This concentration of wealth, however, hardly reflects the skill or the contributions of these select bankers. Banks that become “too big to fail” have privileged access to capital markets as investors know that government will bail them out if major speculative investments go awry. Banks in turn recycle these profits into the political process, media campaigns, and think tanks.

In the process, financial interests have built what University of Texas economist James Galbraith calls a predator state. Financial titans proclaim the beauties of free markets in any effort to deter any regulation that might protect ordinary borrowers or limit their ability to engage in risky practices. Yet when these concoctions blow up in their faces they demand bailouts and subsidies.

Perhaps the most blatant example of the lies and manipulation of the big finance is the repeated assertion in media ads by such firms as AIG that it has repaid the public for its bailout. What this talk neglects is the many below market interest rate loans the government extended to big finance at the height of the crisis. As Dean Baker of the Center for Economic Policy Research points out, any business leader knows that a below market interest rate loan is a gift. Paying back the principle doesn’t negate the benefits of the initial gift. Readers might want to calculate how their own fiscal situation would change if their mortgage holder cut the interest rate on their loans in half.

People working at the top of the finance sector are reaping disproportionate benefits, with growth in income going predominantly to a few players at the top of this sector. Some estimate that as much as 30 to 50% of the income growth in this industry may be attributable to economic “rents” – people getting paid more than they’re worth by manipulating the rules.

We now have more wealth and income disparity in this country than at any time in the last century, and the wealthy are using their money to shape political outcomes. Research at the federal level shows that legislators and policy makers are vastly more attentive to the interests of their donors than they are to those of ordinary voters. Although we each get one vote – and some of us have a hard time hanging on to that — we are not all represented with the same vigor.

And when big-money donors spend in political campaigns, they create a feedback loop in public policy that further advantages their own interests, deepening both the political and economic chasm between themselves and ordinary people.

Democrats do almost as well with the finance industry as Republicans. Over the last 25 years, the finance industry has contributed almost 50% of its campaign contributions to Democrats. This is significant because Republicans are generally seen as the pro business party and receive by far the lion’s share of business contributions. So the ability of Democrats to garner finance money is vital to the party’s electoral strategy. Is it any surprise that despite an economic crash that has devastated many of its base, the middle and working class, no investment banker has gone to jail and the fines the industry has paid amount to little more than a cost of doing business?

Ann Luther, chair of Maine Citizens for Clean Elections, points out that key corporate interests today are working for an unregulated system of free-market capitalism and no-limits, “money is speech” campaign financing under which the few are free to exert as much power as they can accumulate against the rights of the many in order to get the public policies that benefit their own narrow interests. Wealthy donors use their money to buy lobbying, election outcomes, gerrymandering, and a surgically altered electorate; the rest of us, meanwhile, seem helpless to pivot our public policy in a constructive direction.”

For the sake of a functioning democracy and a more just and environmentally sustainable economic system, we must continue to limit and counterbalance—as through pubic financing of campaigns— the role of big money in politics. As Luther argues, “Political equality has broad support across the political spectrum. This may be a never-ending endeavor, one that will continue for generations to come, but we can’t afford to give up.”

John Buell lives in Southwest Harbor, Maine and writes on labor and environmental issues. His books include Politics, Religion, and Culture in an Anxious Age (Palgrave MacMillan, 2011). Email jbuell@prexar.com.

From The Progressive Populist, February 1, 2014