Where does wealth inequality in America come from? Why is it persistent and, indeed, growing? And what does that mean for the future of the country? In Plutocracy in America: How Increasing Inequality Destroys the Middle Class and Exploits the Poor, published by Johns Hopkins University Press, William T. Bryan Chair of American History and professor emeritus of history at the University of Kentucky Ronald Formisano asks and answers these questions, raising serious concerns about how the growing gap between the rich and the poor threatens the ambitious goals set by the framers of the American Constitution.

Hippo Reads Politics and Economics editor David Moscrop asked Dr. Formisano about the state of political and economic inequality in the United States.

 

DM: You argue that the claim that economic redistribution harms the economy is a myth. What accounts for the persistence of this myth? Why is there such a gap between perception and reality when it comes to this issue?

RF: Firstly, it needs to be publicized that inequality of income and wealth retards economic growth, and greater efforts by government to expand the safety net, with an emphasis on universal programs such as social security, will stimulate the economy. The Organization of Economic Cooperation and Development (OECD), often called “the West’s leading economic think tank,” issued a report asserting that economic inequality has significantly retarded economic development. It estimated that between 1990 and 2010 inequality cost the U.S. almost seven points of GDP increase. Further, OECD researchers concluded that, on balance, redistribution via taxes and benefits does not impede economic growth. Yet the idea or myth that redistribution hinders growth persists.

For decades libertarian and right-wing think tanks financed by wealthy and reactionary individuals and business interests have pumped out propaganda preaching the myth of the free market, opposing redistributive policies, and crusading for lower taxes on the rich and corporations. As economist Dean Baker has written, “the vast majority of the right does not give a damn about free markets, it just wants to redistribute income upwards… Progressives help to ratify the actions of conservatives [more accurately, reactionaries] by accusing them of allegiance to the free-market ideology instead of attacking them for pushing the agenda of the rich.”

 

DM: What’s the greatest danger in sustained, increasing economic inequality?

RF: The greatest danger of increasing inequality is that inherited wealth will be increasingly concentrated in a relatively few families who will possess enormous power and become an aristocracy of wealth. As French economist Thomas Piketty argued in his book Capital in the Twenty-First Century, acknowledged on all sides as the most important book in economics in a generation, this trend is already underway in Europe and the United States. Here it is being advanced by dynasty trusts that permit very rich people to provide their heirs with money and property largely free from taxes and protected against the claims of creditors. The American public knows little of these aristocracy-of-wealth building instruments that benefit children and grandchildren as well as subsequent generations in perpetuity.

 

DM: You suggest that the current state of economic and political disparity in America runs counter to the vision of the country held by its framers—even outpacing the aristocratic sympathies of Alexander Hamilton. What was the framers’ vision and how has the United States drifted away from it?

RF: From its beginning in an anticolonial revolution, what made the United States exceptional was its lack of extremes of wealth and poverty. Most of the framers of the constitution believed in what they called a general “equality of condition,” at least among the white population of European descent. The Founding generation not only accepted slavery but protected it in the constitution, though not by name in that document. The framers in Philadelphia were not egalitarian democrats in the modern sense disposed to erase social distinction, nor were they unrealistic about the inevitability of inequality. But they wanted the new republic to avoid the extremes of luxury and misery they knew existed in Europe, the Old World, and which some of them had witnessed personally.

So how unequal have we become? Since the 1970s the growth of income inequality in the US has outpaced other advanced nations; in the United Kingdom inequality has also increased, but at about half the rate of the U.S.—it’s grown faster here than in most other European countries.

In wealth distribution the U.S. is now the most unequal of all advanced economies; 75.4% of wealth is owned by the richest 10%. Comparisons: Canada 57.4%, Australia 50%, UK 53.3%; some European countries have higher concentration of wealth than that—but the U.S. is now in a class with India 83.3%, Indonesia 82.8%, South Africa 83.6%. Even more extreme are Kazakstan, Russia and the Ukraine, and the U.S. is not yet in their class but heading in their direction, not Canada’s.

At the same time the U.S. contains more people in poverty and the highest rate of poverty than almost all European countries, with at least 47 million in poverty, and millions of near poor.

So the U.S. has become more like the Europe of extremes disdained by the generation that made the American Revolution and Constitution.

 

DM: Which policies and practices are enabling such high levels of inequality? Can you identify one or two in particular that stand out as particularly egregious offenders?

RF: Inequality has not come about because of impersonal forces. Globalization and technology have played a role but government policy over the past three to four decades, and especially since the Reaganite 1980s, have been more important. Those policies include: a rigged tax system that has become less progressive favoring the wealthy and corporations; the lowering of corporate taxes and permitting multinational corporations to offshore tax responsibility and shifting the burden to the middle class and even lower income people. Further, “globalization” in the form of free trade deals have come at the expense of American workers in manufacturing putting them in competition with vastly underpaid workers in Asia and Latin America while those deals protected highly skilled professionals—so government policy has shaped globalization, it just does not “happen” like some act of God.

Federal and state governments’ failure to regulate predators on the poor, on low-income families, and veterans, such as payday loan shops, tax preparers, and for-profit colleges contributes hugely to inequality. These organizations often run by quick-buck scammers take billions of dollars every year out of the pockets of the working poor.

 

DM: What is the distinction between “deserving” poor and the “undeserving” poor, and why is it problematic? How does these conceptions of the poor affect how Americans think about income inequality?

RF: The concept of the “undeserving poor” according to the historian Michael Katz, in a book of that name, has for more than two hundred years been the one theme that has run through the American response to poverty. “It is the idea that some poor people are undeserving of help because they have brought poverty upon themselves.” Reactionary forces in and out of Congress regard most of those in poverty or the near-poor who need government assistance as undeserving, because these opponents of “help” are ignorant of what the lives—and work—of poor and low-income people are really like. Admittedly, there are poor people who game safety-net assistance, just as there are undeserving rich—especially banksters and finance officers—who make millions every day by cheating and committing criminal activity in the stock market, private equity, derivatives, and other financial transactions. The international bankers who fixed the Libor interest rate breaking laws and profiting for years have been fined but not gone to prison. No poor families commit safety-net fraud on such a gigantic scale. But reactionaries lump together the working poor, as well as those caught in a chronic and often inherited state of poverty and helplessness, with those few who are truly undeserving.

In recent decades, reactionaries—not “conservatives,” a misnomer—have emphasized less the poor’s lack of responsibility and opposed “help” because they argue that it creates dependency, “takers,” in Mitt Romney’s misperception of 47% of the American people. Yet strong majorities of the public actually favor government programs to alleviate poverty and believe that most poor people, given decent paying jobs, are willing to work their way out of poverty and to dignity.

We also need to ask, how much damage to society do people do who cheat to get food stamps, for example, compared to the Wall Street executives who committed fraud, brought down the economic system in 2007-2008, and at a cost of trillions. We need to compare the hedge fund manager Kenneth Griffin who makes $100 million a month to the 1.5 million people who get by on 2 dollars a day, according to a recent book.

 

DM: How can the United States begin to address the structural gap between its richest and poorest citizens? And how can we ensure that the gap, if closed, will remain so?

RF: An infrastructure of inequality and of unfairness permeates the entire society. The most positive thing that can be said about prospects for ending all the ways inequality shapes the lives of most Americans is that public awareness of it is rising steadily; President Obama, other prominent Americans, Pope Francis and religious leaders of all faiths, international organizations such as the UN, the IMF, World Bank, and OECD have called attention to extreme inequality. Obama has also taken small steps to alleviate inequality, but so much more needs to be done and the obstacles are great. Most of the Republican Party’s elected officials are committed to perpetuating it, and too many Democrats often lack the courage to confront the Republicans and the issue. Most of the Republican candidates for their party’s presidential nomination deny global warming, but public consciousness is rising of the connection between climate change and inequality, even among the Republican rank and file.

Wake-up calls about inequality need to continue because too many Americans are still unrealistic about the degree of inequality of income and wealth. When 5,000 respondents were asked to choose between two wealth distributions that they thought represented the U.S, one fairly equitable and close to that of Sweden, and the other (of the U.S.) unequal and highly skewed, they chose the more equitable; too many Americans think they live in Sweden. They don’t.

There is more chance that the condition of the American poor will improve over the next decade than that real structural change will come about to address poverty, a declining middle class, and increasing inequality.

 

DM: Honestly, what are the chances that the fortunes of America’s poor improve in the next decade? In the century?

RF: Another huge economic downturn like that of 2007-2009 and subsequent depression may shock the politicians into structural change—maybe, but don’t bet the house on it. There is another crisis, however, unfolding almost continuously now, with global warming creating extreme weather events: historic drought and heat (see California) and record-setting wildfires; epic rainfall and floods; once in a century storms devastating parts of the country and happening with frightening regularity; melting glaciers that already threaten the survival of seven villages of indigenous Eskimos—Americans—in Alaska, and that will eventually threaten other parts of the coast. Thus global warming and inequality are closely related, especially on a global scale, but the case of Alaska shows that Americans will be hurt too. Climate change deniers, including almost all the current Republican candidates for president, are rapidly becoming like Groucho Marx, who famously said, “Who are you going to believe, me or your lying eyes?”

 

DM: Is there anything you’d like to add?

RF: The connection between inequality and global warming is slowly becoming impressed on the public but only catastrophic events will lead to change, and leadership like that provided by Pope Francis and recently by President Obama on his recent visit to Alaska (hardly publicized by the media). If I were to update my book it would be to add a section on global warming and inequality.  

 

Further Reading

Thomas Piketty. 2014. Capital in the Twenty-First Century. Belknap Press.

Ronald Formisano. 2012. The Tea Party: A Brief History. Johns Hopkins University Press.

Michael B. Katz. 2013. The Undeserving Poor. Oxford University Press.

Dean Baker. 2013. Getting Back to Full Employment: A Better Bargain for Working People. Center for Economic & Policy Research.

Featured Image courtesy of Ronald P. Formisano

About the Authors

David Moscrop
Economics and Politics Editor

David Moscrop is a PhD candidate, Vanier Scholar, and Doctoral Fellow in the Department of Political Science at the University of British Columbia in Vancouver, B.C., Canada. He studies the social and cognitive psychology of political judgment in democratic societies. His doctoral research asks and answers the question “Can ordinary citizens make good political decisions?” He is also a freelance writer and pundit whose work has appeared in the National Post, the Globe and Mail, the Ottawa Citizen, the Vancouver Sun, the Huffington Post, Maclean’s, This Magazine, and several other media outlets and blogs. In October 2014, his research was featured on the Canadian Broadcasting Corporation Radio program Ideas in an episode entitled ‘Too Dumb for Democracy’. Why I Love Working at Hippo Very few publications bridge the gap between academic discourse and popular interests; Hippo Reads does this remarkably well. Being a part of a smart, on point, constructive, and ongoing discussion about contemporary ideas is a privilege. My Favorite Academic Work Plato's Republic. It's a mess, but it's the mess that started it all for the West. In another life I’d be Treasure hunter. I'm entirely serious. But I wouldn't keep anything that I found that was of historical value, because "It belongs in a museum!" My favorite animal: Shark! Unless I'm scuba diving and come across one, in which case my favorite animal is the boat that I'm swimming to very quickly.

Ronald P. Formisano
William T. Bryan Chair of American History and professor emeritus of history at the University of Kentucky

Ronald P. Formisano is the William T. Bryan Chair of American History and professor emeritus of history at the University of Kentucky. He is the author of The Tea Party: A Brief History and For the People: American Populist Movements from the Revolution to the 1850s.