How Oligarchy Replaced Democracy in America
“We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.” -Louis Brandeis, 1941
This is the third in a series on how neoliberalism has aided the wealth gap turning America into an oligarchy. The first article in the series is here.
The Democrat leaders fully embraced neoliberalism. In an excellent review of neoliberalism in The Guardian, George Monboit comments, “Most remarkable was its adoption among parties that once belonged to the left: Labour [the UK] and the Democrats, for example.”
Within two years of obtaining the veneer of the prestigious Nobel prize, neoliberalism got its entry into Democratic circles. In 1970, the New York Times honoured Milton Friedman with an article that would change how corporate profits were shared: A Friedman doctrine‐- “The Social Responsibility of Business Is to Increase Its Profits.”
At the time,
* about 50% of profit was paid in dividends;
* an amount was shared by significant worker pay increases linked to their productivity; and
* the balance was held in retained earnings for R&D, business cycle-down turns concern for the environment, and such.
This article by Friedman changed all that. Friedman condemned the practice of considering anything but stripping out all profits to shareholders by dividends as “pure and unadulterated socialism”.
The only purpose of a business, he wrote in that article, is to make money for shareholders. Friedman came to his conclusion based on an imaginary shareholder that he crafted in his own image and likeness, and endowed with his sociopathic values.
* This shareholder had no empathy for workers nor a social conscience.
* It only wanted money.
The Freidman doctrine became known as ‘shareholder value’.
Corporate executives wholeheartedly agreed with Friedman and immediately began stripping out 100% of profits to dividends and share buybacks. According to a New York Times article in 2019, “Between 2008 and 2017, 466 of the S&P 500 companies spent around $4 trillion on stock buybacks, equal to 53 percent of profits. An additional 40 percent of corporate profits went to dividends.
Worker pay stagnated.
By so many adopting this new paradigm, America lost its kindness.
When Did Democrats Get Taken In?
Clinton and the Democrats began a deregulation extravaganza:
* Deregulated the banks by allowing the investment and commercial banks to merge.
* Prohibited Brooksley Born of the Commodity Futures Trading Commission from looking into the expanding and dangerous shadow derivative market.
* Legislated that credit default swaps were not insurance so the banks that sold them were not required to keep a fund to pay for the claims- which resulted in the banks needing the bailout in 2008 to pay the hedge funds.
Strangely, while journalists speak of the separation of the banks, they ignore the provision in Glass-Steagall that restricted commercial banks from using depositor money (other peoples’ money) to speculate in the markets. Julia Maues, writing in the history section of the Federal Reserve Bank of St. Louis quotes the preamble of the Act: “to provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations [emphasis added], and for other purposes.” “Basically”, she commented, “commercial banks, which took in deposits and made loans, were no longer allowed to underwrite or deal in securities, Only 10 percent of commercial banks’ total income could stem from securities.”
This stripping out of corporate profits for dividends is a major source of economic inequality because according to NYU economist Edward N. Wolff the richest 10% of Americans now own 84% of all stock and almost half of all Americans own zero!
The coefficient was high prior to 1930 in what has been disparaged as the ‘Gilded Age’, and it has returned to that level in the present age.
In her book Capitalism, Coronavirus and War: A Geopolitical Econom y (Pp 6–8), political economist Radhika Desai criticized neoliberal capitalism as fostering a “slowly unfolding economic disaster” and “bequeathed to the world increased inequalities, societal divisions, economic misery and a lack of meaningful politics.” [emphasis added]
Originally published at https://jandweir.substack.com.
