The Political Power of BIG MONEY in America - Part One

This blog has a loyal following, but I doubt that few would be among the top 5% of the wealthy in this country. I would hazard a guess that while this country’s GDP has increased 2 to 3 percent a year since 2002, most of you have seen no increase in your family’s income and maybe have watched it decline. You may even be wondering why recovery of employment from the Great Recession of 2008 is so slow and tentative.

An address by Dr. George C. Yates a few weeks ago offered such clarity to what has happened that I want to share it with you.

Dr. Yates is Associate Professor Emeritus in the Management and Accountancy Department at U.N.C. Asheville. George Yates' particular scholarly interest is Strategic and International Management, and he has extensive business experience across the globe.

He has kindly given me permission to post his lecture. Although separated into a series of three posts, I have kept his lecture in the order in which he delivered it. By dividing it this way, I hope you will be able to focus on it in manageable “chunks”. If any of you are impatient with having it presented over a three day period, send me a note and I’ll send you the lecture all in one piece.

One of Dr. Yates’ themes is the persistence of irrationality in U.S. political discussion. That’s why when a friend in North Carolina sent me the speech the subject line said, “Please Read (I don’t ask that too often).” And now I ask you to do the same. And if what Dr. Yates says makes sense to you, please send links to whoever you think will read it.

I begin with these words:

“Our country is divided into 2 nations, between whom there is no contact and no sympathy, which are as ignorant of each other’s habits, thoughts and feelings as if they were inhabitants of different worlds”.

That’s certainly an accurate description of the effects of America’s political polarization today. Yet these are the words the famous early 19th century British Prime Minister, Benjamin Disraeli, used to describe British society’s polarization between the small, rich upper class and everyone else. I cite this quote to put into perspective America’s current situation. While our nation is suffering from an unusually intense polarized society, the condition has been experienced before.

However, the unique aspect of America’s current version of polarization is that it features a very effective and mutually beneficial, “you scratch my back and I’ll scratch yours” type of tacit agreement between the rich and the Tea Party co-opted Republicans – hereafter I’ll refer to that political grouping by its acronym ‘TPR’. The rich give the TPR unlimited amounts of money, thereby assisting the TPR’s objective of controlling the political system so it can impose its ideology on America. In return, the TPR enacts laws enabling the rich to become far richer. This tacit agreement hangs over our democracy like the sword of Damocles, and the hair holding that sword up is fraying badly.

How did America get itself into this democracy-endangering polarization? Well, a certain amount of the blame is attributable to the Democratic Party. In a 1936 speech to Parliament, Winston Churchill excoriated his own party’s failure to take a firm position against Nazi Germany. However, his words accurately describe the Democratic Party’s recent behavior: “We are decided only to be undecided, resolved to be irresolute, adamant for drift, solid for fluidity, and all-powerful to be impotent.”

And the Democrat’s typical reaction to TPR policies can be aptly described in terms of its being a baseball team at bat. Most of the Democratic batters go to the plate, bat on shoulder, and then with open-mouthed amazement watch 3 TPR policy fast balls whiz past them. That’s called striking out. Do Democrats want to lose this crucial ballgame? Well, to win they must hit those pitches so hard the balls unravel; they must realize they are a team that has to work together or else be demoted to the minor leagues; and they must bluntly tell the American public everybody has to pay for a ticket to once again enjoy a winning economy.

Now I’ll define who America’s ‘rich’ are. They consist of corporations with equity of $200 million or more combined with the wealthiest 5% of individuals. Actually, corporations and wealthy individuals are one and the same. Why? Because corporations can’t do anything – they are just legal fictions. The senior managers determine all of a corporation’s policies and make all of its critical decisions, including how to allocate its profits – generally to themselves and their fellow rich. Since the wealthiest 5% own over 65% of the nation’s common stock, it’s understandable that they receive over 60% of annual corporate dividends and capital gains paid in the U.S. So when large corporations do well, the rich do even better.

Here is an example of that symbiotic relationship. Over the last 9 years America’s productivity has annually increased on average by 2% to 3%. Yet American workers have received no increased benefits from their increased productivity. Why not? Because most all of the income attributable to that growth in productivity has been retained by the corporations’ senior managers and paid to its shareholders. That is why the earnings of middle and lower class workers today make up the smallest percentage of GDP since such data were first recorded in 1929!

Meanwhile, the TPR constantly endeavors to further cut taxes and increase tax loopholes for the rich, asserting they now pay unfairly high taxes. This is false. The World Bank reported that for the 20 most industrialized nations, the 2008 total effective income tax rate for U.S. corporations was lower than 2/3rd of those 20 nations. Clearly, corporations are being treated very fairly. And for the year 2007, the latest data available, the nation’s 400 highest gross income taxpayers paid an effective average income tax rate of about 17%. In comparison, in 1995 their effective average income tax rate was about 30%. The wealthiest 5% of Americans have enjoyed comparable reductions in actual taxes paid, so they are also being treated very nicely. And that is why the U.S. now has the most inequitable distribution of wealth of the 27 largest industrialized nations.

Here is one result of that inequitable distribution. Which would you say is the best predictor of the future wealth a child will possess – diligence, intelligence, knowledge, or creativity? Well, those are all wrong choices, because the best predictor is the current wealth of that child’s parents. As a result, economic mobility in the U.S. has in recent years been significantly declining. In 2008, the median American worker 30 to 39 years old had an inflation-adjusted income that was 20% less than what a comparable worker made just 11 years ago. As a result, of the 27 largest industrialized nations, the U.S. now has the most limited upward income mobility from one generation to the next.

- Dr. George C. Yates

Look for Part Two on Monday: The Super Rich and Tea Party Republicans United