Archives—April 2014

Unsustainable wealth

An academic paper and a book are emerging that have made two large bangs in the world; both examine the sustainability (or lack thereof) of wealth inequality.

As reviewed in Common Dreams, a new paper in Perspectives in Politics by Martin Gilens and Benjamin Page, “Testing Theories of American Politics“, use a robust dataset to test four different possibilities of how our governance system is currently working. They find very little support for the forms of democracy that we commonly think we have, and instead find that our system most resembles an “Economic Elite Domination” and “Biased Pluralism”. In these systems, laws and policies are shaped by those who have the most resources in society, not the majority. Given the most recent Supreme Court decision that further reduced spending limits on political races, I fear that we’re seeing our system travel through a positive feedback, where fewer limits on money in politics begets more money for those who have it, who then have more to spend on further reducing political spending limits.

Thomas Piketty’s new book (at least new translation from French to English), “Capital in the 21st Century”, likewise uses data to demonstrate how capitalism inherently drives wealth inequality when the rate of return on capital exceeds the growth rate of an economy. Rave reviews by Paul Krugman in the New York Review of Books and by Nick Pearce in the New Statesman reflect the excitement that Piketty has empirically demonstrated what we have all intuitively understood for decades: concentration of wealth into a few families is due to system dynamics, not to the talent or intelligence of the wealthy. Indeed, concentration impedes progress of both individuals and societies. Just as unfettered money drives democracies towards oligarchy, wealth unfettered by taxes (to suppress return rates on capital below the growth of the economy) allows a positive feedback of wealth begetting wealth to form without any productivity to show for it. We are experiencing the outcome of this system dynamic: increased speculation and volatility in markets as more capital seeks higher returns, and stagnant and/or declining wealth in lower classes while wealth explodes in the upper 1% and 0.1%.

These two studies illustrate not just what we are experiencing, but why we must put the brakes on these feedbacks. The concentration of wealth and its influence on our democracy are self-reinforcing. These feedbacks pull us away from the democratic society we aspire to be, where we each have an equal chance to reach our potential and have an equal say in how the rules are made.