The Real Threat to Democracy is Corrupting Wealth Inequality

January 10, 2022

Try to find a developing-world kleptocracy in which the top few collect more than 97% of the income from capital. There aren't any that top the USA, the world's most extreme kleptocracy. We're Number 1.

Imagine a town of 1,000 adults and their dependents in which one person holds the vast majority of wealth and political influence. Would that qualify as a democracy? Now imagine that 100 of the 1,000 adults own 90% of all the wealth, collect 97% of all the income from capital and have virtually all the political power. How can a society in which 90% of the populace is decapitalized, disenfranchised and demoralized by political powerlessness be a democracy?

This is America: a kleptocratic autocracy that serves the few at the expense of the many, stripmining the bottom 90% under the guise of a fraudulent "democracy" in which only the few wield real power. Recall Smith's Neofeudalism Principle #1: If the citizenry cannot replace a kleptocratic government and/or limit the power of the financial Aristocracy at the ballot box, the nation is a democracy in name only.

That our elected government responds only to the super-wealthy and corporations has been well-established: Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens.

It's also a fact that the top 10% get virtually all the gains from the nation's capital, and this wealth is concentrated in the top 0.1%: Monopoly Versus Democracy: How to End a Gilded Age
Ten percent of Americans now control 97 percent of all capital income in the country. Nearly half of the new income generated since the global financial crisis of 2008 has gone to the wealthiest one percent of U.S. citizens. The richest three Americans collectively have more wealth than the poorest 160 million Americans.

Exactly how can a system of governance that is nothing but an invitation-only auction of political favors in which the top 0.1% own more than the bottom 80% be a functional democracy? The answer is it cannot. Politics and government have been reduced to protecting and enriching a neofeudal autocracy while claiming to serve the stripmined public.

This extreme concentration of wealth and power is not accidental; the government's policies have generated this concentration of wealth which has hollowed out democracy. The super-wealthy didn't siphon $50 trillion from those earning their living from labor on their own; government policies aided and abetted this vast transfer of wealth.

Trends in Income From 1975 to 2018: $50 trillion in earnings has been transferred to the Financial Aristocracy from the bottom 90% of American households over the past 45 years.

The catastrophic consequences of this systemic concentration of wealth and power are also well documented. For example, Human and nature dynamics (HANDY): Modeling inequality and use of resources in the collapse or sustainability of societies. Extreme inequality brings down societies, and America is now a society dominated by extreme inequality.

America is nothing but a vast moral cesspool that the public is told is a pristine pond of "democracy". Self-enrichment is cloaked as "doing God's work," profiteering is sold as "value," fraud is packaged as "finance" and rapacious monopolies are marketed as "enterprise."

Institutions have become little more than rackets enriching insiders and the wealthiest few; they have lost moral legitimacy which is the fundamental foundation of democracy and a market-based economy.

As I explain in my new book Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States, moral legitimacy is the foundation of social cohesion. Once moral legitimacy has been lost, social cohesion unravels and the nation falls.

It wasn't just bad luck that financialization and globalization hollowed out America's economy and democracy and turned the bottom 90% into debt-serfs and tax donkeys; it was government policies implemented by elected officials and the appointed handmaidens of the super-wealthy. Virtually every major policy implemented by either party served the interests of the super-wealthy and corporations: tax cuts had trivial impacts on the bottom 90% while vastly increasing the wealth of the super-wealthy; the Supreme Court's rulings in favor of corporate "personhood" and "free speech" (a.k.a. the best government we can buy), and the evisceration of the rule of law for corporate fraud, collusion and embezzlement ("too big to fail, too big to jail").

The Federal Reserve's free money for financiers distributes gains on the order of 20-to-1 in favor of the super-wealthy: $2 trillion in gains for the bottom 90%, $40 trillion for the top tier.

The list is long and painful proof that the elected government of the United States serves the interests of the top few--a reality masked by expert PR and partisanship.

Partisanship reflects a core structural dynamic: America is now a two-tier society and economy. If you're an executive at a big Wall Street investment bank, you can rig markets and embezzle billions and you'll never face any personal legal consequences such as being indicted, convicted and imprisoned. (Bernie Madoff's conviction was a classic Soviet-style show trial to mask the fact that thousands of other white-collar criminals kept their ill-gotten gains and faced no consequences.)

But try being an employee at a local credit union and embezzle $5,000--a prison sentence is very predictable.

If a spoiled-rotten rich kid gets caught with drugs, Mommy and Daddy's lawyer kicks into gear and gets a suspended sentence plea bargain. The kid from the bottom 90% gets a tenner in the Drug War Gulag. And so on.

America is also a regional two-tier economy/society. When a society kneels down and worships financialization and globalization, it gives all the political and financial power to the already-super-wealthy and corporations who get 97% of the gains from financialization and globalization.

Since the majority of already-super-wealthy and corporate managers reside in coastal metropolitan areas, the tide of new wealth flooding into the hands of the few boosts the economies of these select regions. The Brookings chart below may look like a chart of political polarization, and superficially that's obvious: the 500 counties Biden won hold 70% of the nation's GDP while the 2,500 counties Trump won hold 30% of the nation's GDP.

The real polarization is economic-financial: there are two economies in America and there's very little commonality in the two economies. One benefited greatly from financialization and globalization, and the other was hollowed out and brought to its knees by financialization and globalization.

Since income and political power flow to capital, the disparity / inequality far exceed the 70/30 split depicted in this chart. The chart showing the soaring wealth of billionaires is a more accurate reflection of inequality in America.

What's missing from the 70/30 map is the staggering percentage of residents in the wealthiest 500 counties who are precariats living paycheck to paycheck, the ALICE Americans: Asset Limited, Income Constrained, Employed.

Is there any wonder that stripmined Americans who sense their powerlessness are attracted to virulent partisanship? The more extreme the pendulum swing of wealth-power inequality, the more extreme the political blowback.

America's political class has no plan to reverse this destructive tide. Our leadership's "plan" is something they know well first-hand: bribery and complicity: just send a monthly stipend of bread and circuses to all the disempowered, decapitalized households, urban and rural, so they can stay out of trouble and not bother the elites' profitable pillaging of America and the planet.

The insurrection and coup happened long ago, when financialization and globalization hollowed out the real economy and disempowered the bottom 90%. When the whole rotten palace of corruption collapses in a putrid heap, look no further for the cause than the extremes of wealth-power inequality that rendered "democracy" a convenient facade for the stripmining of the bottom 90%.

Try to find a developing-world kleptocracy in which the top few collect more than 97% of the income from capital. There aren't any that top the USA, the world's most extreme kleptocracy. We're Number 1.










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