EconoMatters

The Terrible Truth About Income Inequality

U.S. politicians pretend to support the poor and middle class. They are firmly in the pockets of the super-rich.

Takeaways


  • The US economy mimics Russia’s in some unsavory ways. Their oligarchs are our plutocrats.
  • US politicians pretend to be generous. What they are really doing is giving the country away to the hyper-rich.
  • The United States has its own set of acts of outrageous corporate favoritism, a la Putin.
  • From cable TV to banking, the US government has supported oligopolies in many industries.

Economic inequality has emerged as the central political challenge of the 21st Century.

U.S. Senator Bernie Sanders (Independent-Vermont) recently asked Federal Reserve Chairwoman Janet Yellen a poignant question: “Are we still a capitalist democracy — or have we gone over into an oligarchic form of society, in which incredible economic and political power now rests with the billionaire class?”

Yellen deflected, saying she preferred not to assign labels, but Sanders struck a nerve.

Russia’s oligarchy has two salient characteristics. The government uses its power to regulate markets to concentrate wealth in the hands of an influential few, while most of its citizens stay poor by western standards.

The U.S.’s government-sanctioned monopolies

In recent decades, the U.S. federal government has enabled monopolization in many industries. This has occurred, for example, in cable TV and high speed Internet, banking and health care. How so? Simply by failing to use its antitrust and regulatory powers properly to curb abusive practices.

Comcast enjoys monopoly access to most homes’ IT services. Each year, it raises rates for cable TV bundled with high-speed Internet faster than the rate of inflation. Why is the company able to do that? Because federal policies do not allow local governments to regulate broadband and cable rates in the way they can regulate rates for electric and water utilities.

How Comcast takes the country to the cleaners

Comcast’s fee structure discourages subscribers from purchasing only high-speed Internet and independently obtaining entertainment content over the internet.

To expand on this already heavily rigged business model, Comcast now proposes to acquire Time Warner Cable. Its goal is to establish a virtual national monopoly, which would give it huge bargaining leverage with content providers, such as ESPN, Turner and Fox, even though it already owns NBC.

In short, Comcast is transforming a public utility into an international media giant on the backs of overtaxed subscribers. Yet, U.S. federal regulators will likely approve the acquisition, because Comcast has “close ties” with the Obama White House.

In other words, we here in the United States pretty much have our own set of acts of outrageous Putinism. Where the favored few with access to the “throne” get far better deals than the entire rest of us. And, in the U.S. case, this is — sadly — a bipartisan sport. Neither party insists on any more signs of clean housekeeping.

Insider dealings for the haves

Similarly, the Dodd-Frank financial reforms impose regulatory costs so onerous that small banks are selling out to bigger ones. In the “bargain,” small business loans and mortgages are tougher to obtain and grandma can’t get a decent rate on CDs.

Meanwhile, big bank executives pull down huge bonuses. Importantly, though, they also make generous contributions to political candidates. They know to grease the necessary wheels.

Next, ObamaCare has effectively monopolized many local markets for health insurance and hospital care. That not only further undermines market mechanisms. It also reinforces pharmaceutical companies’ ability to charge higher drug prices than prevail in other wealthy countries like Germany and Holland.

To salve the masses, Washington politicians exempt nearly 50% of voters from income taxes and offer subsidized health care, food stamps and the earned income tax credit for lower income Americans.

A rabbit out of a hat

All are great vote buying schemes financed by taxing upper-income Americans. But those politicians wouldn’t be guileless politicians if they didn’t manage to pull a veritable rabbit out of the hat.

To make amends, they skillfully exclude from those high taxes the very top of the 1% — the oligarchs in communications, finance and other industries. They are often paid in stock options which, in a curious form of bipartisan consensus, continue to be subject to much lower capital-gains tax rates.

No wonder that a recent Wall Street Journal poll found the majority of Americans view the economic and political system stacked against them.

Washington corruption — distastefully in the pattern of Vladimir Putin — is driving U.S. inequality and sinking family incomes.

Politicians pretend to be generous — by offering ordinary voters a free ride on taxes, subsidized health care and other enticements. What they are really doing is picking their pockets — by giving the country away to the oligarchs.

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  • TheBlogFodder

    For a long time, I have said that there are more similarities between USA and Putin’s Russia that I care to think about. At least in Russia you are not likely to be shot by police simply because they feel like it, but only is someone paid them to do it. This may be changing.

  • Shirley_Mae

    I’m old enough to remember Nikita Kruschev saying something to the effect “You Americans are so gullible! We don’t have to invade you! We will
    destroy you from within without firing a shot! We will bury you by the
    billions! We spoon feed you socialism until you’re Communists and don’t
    even know it! We assist your elected leaders in giving you small doses
    of Socialism until you suddenly awake to find you have Communism. The
    day will come when your grandchildren will live under communism.”

  • PeterBurgess

    I came to the United States almost 50 years ago. The deterioration of almost everything that matters in the USA in this time is something that bothers me immensely. There are many different things that have contributed to the malaise, but I find two areas to be central. One is that children in the US are not getting educated very well, and the second is that the media is incredibly superficial in almost everything it covers.

    This enables a relatively small elite to game the economic system in all sorts of creative ways for their own benefit, and few in the general populace have much of an idea about what is going on.

    I very much agree with the theme of Peter Morici’s piece

    Peter Burgess – TrueValueMetrics
    Multi Dimension Impact Accounting