On Plutocracy
America has long had what has been called a “crass plutocracy,” meaning that you are what you own. Wealth has defined people as long as there has been history, of course, in all parts of the world. The genius of our socio-economic system is that it is relatively open, enabling people from the humblest backgrounds to be wealthy. Andrew Carnegie is an oft-cited example of the extraordinary opportunity and economic success that continues to attract immigrants to the United States by the millions. The system, however, has three problems that seem especially large during this year of fluttering prosperity and elections.
In the first place, the disparities between the very wealthy and the average hard-working citizen can become so large that politicians will appear who promise to redistribute wealth on a grand scale. The gap is widening today, and there are Democrats, employing populist rhetoric, who threaten to raise taxes on even the most moderately prosperous, thereby endangering the whole of the economy. The gross nature of some incomes awarded in business intensifies the appeal of this approach. James Cayne, the chairman and chief executive of Bear Stearns, purchased two Manhattan apartments for $27.4 million just before his company was driven to the brink of bankruptcy. Blackstone Group CEO Stephen Schwarzman, collected $350 million in cash last year. Two of his colleagues exceeded $80 million each. The investment management firm’s top executives set their own pay, even after the corporation went public.
Secondly, it seems that capitalism depends increasingly on government assistance. Most Americans are aware of the existence of many loopholes in our fantastically complex tax system, and no doubt even more know about the economic subsidies that pour forth from federal and state governments. What, for example, would American agriculture be without taxpayer dollars? And now we have the bailout of Bear Stearns by the federal government, a guarantee of $30 billion, enabling J.P. Morgan Chase to swallow the failing corporation at a ridiculously low price. (When the initial price was increased, to settle stockholder unrest, Bear’s market value went from zero to over a billion dollars.) The Federal Reserve then opened its discount window wide to investment banks and their hedge fund clients. This kind of activity makes Big Government all that more inevitable, possibly fuels future corporate irresponsibility, shakes investor and consumer confidence, and plays into the hands of the leftist politicos. Corporate greed is bad enough; propping it up with taxpayer money is even worse, at least to the vast majority of Americans who are not invited into the most fashionable country clubs and walled neighborhoods.
At the same time, of course, the subprime scandal and the burst housing bubble have raised havoc with the financial well being of millions of Americans. This has also decreased public trust in the wisdom and even common sense of the business elite. Few fail to understand that the government is going to assume high costs in this fiasco as well. (Ironically, the chaos may have been caused in part by low interest rates set by the Federal Reserve.) Can the bankers and mortgage moguls reform themselves or will it take more government intervention to decrease the fraud and irresponsibility? We should soon find out. One thing is certain: Leftist politicians are going to use the issue profitably for some time.
And there is a third problem with plutocracy. If we are what we earn, that definition of respectability and preference excludes almost our entire intellectual class, which has historically seethed in its economic and political impotence. Teachers and professors are frequently driven to leftist extremism by the frustration of being virtually shut out of politics (always the playground of big money) and power. Look at the great American historian Arthur Schlesinger, Jr. slathering praise upon the Kennedy family for allowing him into the White House and having a silent voice at decision-making meetings. How many other scholars would tame their better sensibilities in order to enjoy the respect, praise, and income enjoyed by lawyers and shop keepers on all levels of politics? Envy and outrage are the furniture of the faculty lounge. Expect feverish political activity this fall on campus. It is no accident that young voters tilt strongly to the Left.
It has long been obvious that a strong federal government is a requirement for national prosperity and the general public good. But the exact limits of responsibility need more debate. Shouldn’t the Federal Reserve, for example, be working to contain bubbles rather than just picking up the pieces once they have burst? And big business itself needs to be more assertive about creating and maintaining standards for integrity and efficiency. If free enterprise is to remain free, then it must be responsible and earn public trust. Soon.
As for the frustrations of the professors and teachers, well, even after victories by Democrats, life will never be entirely fair or perhaps even tolerable for those who believe that they hold the keys to knowledge and wisdom; and at the same time are largely ignored.