Valentina Nguyen
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EN 10? – ???
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The Concentration of Wealth: The Ultimate Path to Tyranny and Dystopia
This paper analyzes how the accumulation of wealth in the hands of a select few not only exacerbates economic disparities but also undermines the foundational principles of democracy and social stability. Early in the history of economics in general, and microeconomics in particular, Adam Smith coined a helpful term, the “Invisible Hand,” a concept which refers to the unseen forces that guide the free market economy (Smith 1759). However, those “unseen forces” are, in reality, foreseeable by the minority who possess disproportionate financial impact. This minority may wield such significant economic power that they can anticipate these forces and even manipulate a nation’s economy. Despite the anti-democratic nature of this matter, the intricate web of financial power is incredibly complicated, and often hinders majority populations from understanding how it shapes their lives. Here, in this essay, I analyze this convoluted economic territory in relation to the United States. I argue that the increased concentration of wealth in the U.S. may lead to authoritarian economic policies in government and may potentially lead the country down the path of tyranny. First, I start by providing some insights into wealth, including its definition, and expose how it accumulates over time, which has ultimately resulted in immense concentration in today’s world. From there I use case studies of financially and politically powerful figures, such as the Koch family, and major financial institutions to expose how wealth concentration at various levels has promoted antidemocratic values and even tyranny within the political system. Finally, I conclude by outlining the implications of concentrated wealth on social well-being and offer possible solutions to mitigate its adverse effect.
Roughly speaking, the word wealth is either associated or identified as cash, transaction account, certificates of deposit, bonds, stocks, investment funds, and retirement accounts (Polako). In the context of this paper, the concentration of wealth indicates a scenario where a minority owns most of the total wealth, while a large fraction of society has little to no wealth. Wealth is highly concentrated and unequally distributed in developed nations’ economies. Michał Cieśla and Małgorzata Snarska, in their news article titled “A Simple Mechanism Causing Wealth Concentration,” state that in the United States, “almost one-third of total wealth is kept by only 1% of households, while the top 5% of the population holds more than one half of total wealth” (Cieśla and Snarska). However, such a stark concentration of wealth did not simply appear ex nihilo. On the CityTalks podcast, the Nobel Prize winning economist, Professor Joseph Stiglitz, identified Macroeconomic and monetary policies as pivotal contributors to increasing unemployment rates and decreasing wages for ordinary citizens (Spencer). He claimed that these policies “failed to produce sustainable growth” because the monetary system is run by people whose thinking prioritizes the benefit of the elite (Spencer). Other studies back up this claim. For instance, Polacko (2010) explored additional factors of this phenomenon, including globalization, skill-biased technological change, tax policies, rise in executive pay, and union decline. In sum, it can be concluded that wealth concentration did not emerge accidentally, but rather is a result of complex and interconnected factors that demand further examination.
At the heart of wealth concentration lies a challenge to democratic principles. Wealthy individuals and families can exert power over political parties, interfering with the results of elections and shaping policy agendas to align with their economic interests. One prominent case study exemplifying this phenomenon is the Koch family. The journalist Jane Mayer, in her book Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right,” quotes Louis Brandeis in the epigraph: “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both” (xiii). Mayer argues this exact point as she investigates the mechanisms by which the Kochs have converted their money into political power. She describes the Koch family as a small group of ultra-wealthy people who poured money “into influencing how Americans thought and voted” (Mayer 14). Moreover, she argues this family are the main factors within three trends: [1] “the increasing concentration of American wealth in the hands of a few, [2] the growing influence of corporations in politics, and [3] the rise of the far right” (Mayer 124). Mayer reveals the Kochs’ intricate strategy, employing a “multi-dimensional operation” spanning all aspects of political life (Mayer 125). They utilize “tax-deductible donations” to finance movements and policies aimed at reducing taxes for the wealthy and easing regulations on their businesses (Mayer 127-128). This sophisticated strategy not only influences policies but also controls public perception by framing these “self-serving policies” as “matters of dire public interest” (Mayer 129). Furthermore, the Kochs play a pivotal role in the outcome of political elections. Through campaign contributions, lobbying efforts, and support for think tanks promoting libertarian ideologies, they aim at reshaping the Republican Party into a right-wing, antigovernment organization (Mayer 132-134). Politicians, as portrayed by Mayer, “flocked to their secret seminars like supplicants eager to please them in hopes of earning their support” (Mayer 137). For parties to uphold democracy, they must “build strong organizations” and “compete for the loyalty of citizens” (Levitsky and Ziblatt 67). However, parties that serve as a “pipeline for the wealthy” often overlook these tasks (Levitsky and Ziblatt 67). This raises critical questions about the extent to which the political landscape truly reflects the will of the entire population rather than the financial interests of a select few. Consequently, this phenomenon not only erodes the principles of equal representation but also discourages citizen participation. The examples provided by the Koch family’s actions illustrates the broader trend where concentrated wealth also means concentrated political power. Understanding this connection is essential for comprehending the challenges posed by wealth concentration to the democratic foundations of political systems.
Of course, the Koch family—and family’s like them—do not work alone. In fact, in order to provide a more complete picture of wealth concentration, an examination of this concentration of financial power at the institutional level is needed. Here, I am referring to distinguished US banks whose economic policies may unfairly benefit the wealthier portion of the population. This phenomenon is exposed at length in Inside Job, Charles Ferguson’s documentary about how the American financial industry set out deliberately to defraud the ordinary American investor. According to the documentary, with enormous support from economists and financial lobbyists, the Clinton administration decided to deregulate financial market, which created a perfect opportunity for the financial sector to consolidate into a few gigantic entities in the 1990s (Ferguson). The so-claimed too-big-to-fail phenomenon emerged, foreshadowing the scenario where their failure could put the entire economy in jeopardy. Banks and financial conglomerates employed excessive risk-taking and aggressive financial instruments. In particular, the banks provided mortgage-backed securities, which helped lead to a collapse of the financial market in 2008. According to Renae Merie, a writer for The Washington Post, the crisis was “the worst U.S. economic disaster since the Great Depression” (2018). As the housing prices plummeted, Americans “lost $9.8 trillion in wealth”, “millions lost their homes to foreclosure,” and their retirement accounts “vaporized” (Merie 2018). Despite playing the central role in this large-scale financial crisis, no major bank CEOs were charged (Merie). Even the Office of the Special Inspector General for the Troubled Asset Relief Program, established to oversee companies receiving bailout funds in the aftermath of the crisis, expressed their frustration over the challenges in prosecuting executives from leading firms (Merie). Inside Job explained the unique nature of banking: “The worst that can happen to the leaders of this industry is that they have to give back their bonuses” (Ferguson 2010). Furthermore, the documentary explains, the recession of 2008 was not the first case where major banks were involved in crimes against democracy, nor is it the only example in the 21st century. Unfortunately, there are too many examples to list them all: Near the end of the 20th century, in the 1990s, questions were raised regarding the ethical conduct of financial institutions in their pursuit of favorable business conditions. Riggs Bank laundered money for a Chilean dictator in 2005. J.P Morgan bribed the Alabama government in 2009. In the same year, Credit Suisse violated US Sanctions by laundering money for Iran’s nuclear program in 2009 (Ferguson). Nonetheless, regardless of the severity of the crime or its consequences on citizens, the firms only faced fines and did not admit to any wrong-doings (Ferguson).
The failure of major banks to face consequences for their actions and the absence of self-accountability within the financial sector poses a significant threat to the representative democracy. In essence, democracy depends on checks and balances, with institutions prioritizing ethical conduct and societal impact of their decisions instead of compromising ethical principles for profit. When financial giants operate without facing consequences, it sends a message that the rules governing other sectors in society don’t apply to them. As a result, this perceived double standard weakens the democratic ideals of fairness and justice. Moreover, the implications of wealth accumulation have long been a heated topic debate in the field of economy, politics and sociology. A high level of wealth concentration also means a higher level of income inequality and social inequality, as many instances have shown. According to Matthew Polacko’s study, rising inequality correlates with costs of debt, since individuals with lower incomes tend to borrow more to maintain their standard of living, especially in the face of increasing living cost and many layoffs in industries (2010). As a result, greater debt gives rise to poverty and social unrest such as high crime levels and poor public health that ultimately interfere with the economic growth of a nation (Pfeffer and Schoeni). Furthermore, as Scheuer and Wolitzky draw from their research, a “fundamental observation” in contemporary political economy is that “high levels of economic inequality,” in the form of capital concentration, may lead to “political instability” (Scheuer and Wolitzky 1). In several above-mentioned study cases, the top of the wealth distribution receives political advantages through engaging in legal processes and corrupt practices. Meanwhile, political engagement within the low-income segment of the population is very limited since they are “completely excluded and disconnected from the political process” (Ruth). The working-class group is less able to shape outcomes as they lack the same amount of time and resources available to extremely affluent individuals or major financial entities. This can result in a lack of representation for the broader population and create divisions between different socioeconomic groups, negatively affecting societal well-being.
Because of these challenges, combating economic inequality and addressing the wealth concentration issue requires actions beyond individual and institutional self-responsibility. To address this issue, a multifaceted approach is required, including economic policies and social initiatives. One of the most direct ways to tackle this problem could be the direct taxation of wealth. As highlighted in a Reuters report, US “trickle down” economic policies, propose that benefits provided to the wealthy, such as tax cuts and incentives, will lead to job growth and increased average earnings, benefiting the broader population (Goering). However, those policies have led to a “$2 trillion annual redistribution of wealth from the bottom 99 percent of earners to the top 1 percent” in the last 30 years (Goering). According to a report published by Fight Inequality Alliance, the Institute for Policy Studies, Oxfam and Patriotic Millionaires, “an annual wealth tax” on the global “billionaires and multi-millionaires” could “raise over $2.5 trillion each year” (Collins). This is enough funding to “vaccinate the entire world”, and deliver “health care and social protection” for “an estimated 3.6 billion people” from lower or middle-income nations (Collins). Simply put, progressive taxation can play a pivotal role in redistributing wealth.
Another way to address this problem is through other instruments that can ensure a more equal and transparent political representation, such as “regulating campaign contributions and public financing of political campaigns” (Scheuer and Slemrod 24). Transparency can contribute to a more democratic political process, allow for a fair political representation, and reduce the impact of wealth concentration on political outcomes. By implementing such an approach, I believe nations can strive towards a more equal society, addressing the problem of wealth concentration and preserving the core value of democracy.
In conclusion, the examination of wealth concentration reveals its potential for authoritarian economic policies within government, undermining democratic value and ultimately guiding this country down a dangerous path of tyranny. By providing insights into wealth definition and case studies involving influential figures and financial institutions, this research helps illuminate the intricate relationship between wealth concentration and anti-democratic values. The role of various interest groups in shaping political processes leads to economic crises, political instability, and social injustices. As we recognize the consequences of this issue in our society, it becomes crucial to enhance awareness among the population on this topic and address the issue before it becomes irreversible. Hence, if this research contributes in any way, it is by shedding light on the challenges and implications posed by wealth concentration to the democratic system and the broader population. It also offers potential strategies that could contribute to minimizing concentrated wealth and its impact on society, such as tax policy changes or measures that promote a more equitable distribution of wealth to foster a healthier and more inclusive society.
Work cited
Cieśla, Michał, and Małgorzata Snarska. “A Simple Mechanism Causing Wealth Concentration.” Entropy (Basel, Switzerland), U.S. National Library of Medicine, 13 Oct. 2020, www.ncbi.nlm.nih.gov/pmc/articles/PMC7597306/.
Collins, Chuck. “Taxing extreme wealth could lift 2.3 billion people out of poverty.” CNN Business, 19 Jan. 2022, https://www.cnn.com/2022/01/19/perspectives/inequality- poverty-wealth-tax/index.html
Ferguson, Charles. Inside Job. Sony Pictures, 2010.
Goering, Laurie. “Growing wealth inequality ‘dangerous’ threat to democracy: experts.” Reuters, 15 April 2016, https://www.reuters.com/article/us-democracy-wealth-inequality-idUSKCN0XC1Q2/#:~:text=OXFORD%2C%20England%20(Thomson%20Reuters%20Foundation,and%20governance%20experts%20said%20Friday.
Levitsky, Steven and Daniel D. Ziblatt. How Democracies Die. Crown, 2018.
Merie, Renae. “A guide to the financial crisis – 10 years later.” The Washington Post, 10 Sept. 2018. https://www.washingtonpost.com/business/economy/a-guide-to-the-financial-crisis–10-years-later/2018/09/10/114b76ba-af10-11e8-a20b-5f4f84429666_story.html
Mayer, J. L. Dark Money: The Hidden History of the Billionaires Behind the Rise of the Radical Right. Doubleday, 2016.
Polacko, Matthew. “Causes and Consequences of Income Inequality – An Overview.” Statistics, Politics, and Policy, 2010. https://www.degruyter.com/document/doi/10.1515/spp-2021-0017/html
Pfeffer, Fabian T., and Robert F. Schoeni. “How Wealth Inequality Shapes Our Future”, The Russell Sage Foundation Journal of the Social Sciences, vol. 2, no. 6, Wealth Inequality: Economic and Social Dimensions, 2016, pp. 4.
Ruth, Patrick. “How poverty makes people less likely to vote.” The Guardian, 16 May 2017. https://www.theguardian.com/society/2017/may/16/poverty-election-vote-apathy
Scheuer, Florian and Joel Slemrod. “Taxing our wealth”, Journal of Economic Perspectives, vol. 35, Number 1, 2021, pp. 207–230 https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.35.1.207
Scheuer, Florian and Alexander Wolitzky. “Capital Taxation Under Political Constraints”, American Economic Review, vol. 106(8), pp. 2304-2328 https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.35.1.207
Smith, Adam. “The Theory of Moral Sentiments.” Oxford University Press eBooks, 1759, https://doi.org/10.1093/oseo/instance.00042831.
Spencer, Adam. CityTalks. “Professor Joseph Stiglitz on the price of inequality.” 23 October 2018. Podcast. https://www.audacy.com/podcast/citytalks6a6a2?action=AUTOPLAY_FULL&actionContentId=201-fa41d93e-aff3-4b82-85fb-af60140a061e