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The Greater Deformation: the Corruption of Democracy in America

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This article was inspired by the recent critical assessment of American economic policy embodied in two writings by David Stockman. As readers will recall, Stockman was Director of the Office of Management and Budget under Ronald Reagan and the ultimately disillusioned chief architect of Reagan's supply-side, or "trickle-down," economic policies. His assessment of what's wrong now with American economic policy is fully developed in his 2013 New York Times bestseller The Great Deformation: The Corruption of Capitalism in America, and, in more succinct form, in a companion New York Times opinion piece of March 31, 2013. That is entitled "State-Wrecked: The Corruption of Capitalism in America."

As reflected in its title, Stockman makes the case in his NYT op-ed that the U.S. federal government and its central-bank sidekick have corrupted American capitalism by enabling crony capitalism. It is the State, Stockman makes clear, that is responsible for the corruption of American capitalism. It is not the other way around.

What Stockman doesn't tell us, however, is why the government is willing to enable crony capitalism. He doesn't address the root-cause behind the motivation.

The question we have to ask ourselves is this: Why, after four decades (the 1930s to the 1960s) in which government policies resulted in a narrowing of the wealth gap, did U.S. officeholders from both parties enact policies over the following four decades (the 1970s to the 2000s) that had the effect of widening the wealth gap? Clearly, there was no ground-swell among U.S. voters to get policy makers to make such a U-Turn. The only explanation for such a sea change in policy is that it was the result of a planned and orchestrated effort by powerful people and organizations.

The ground-swell for the U-Turn came not from the people, but from corporate America. It was orchestrated by the U.S. Chamber of Commerce, following prompting by a future U.S. Supreme Court Justice.

The Lewis Powell Memo and Its Effects in Widening the Income Gap

On August 23, 1971, Lewis F. Powell, Jr. drafted a confidential memorandum to the U.S. Chamber of Commerce. It was entitled: "Attack on American Free Enterprise System." The Powell Memo pointed out that "the most disquieting voices joining the chorus of criticism [of American free enterprise] come from perfectly respectable elements of society: from the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences, and from politicians."

By the end of 1973, a U.S. Chamber of Commerce task force, which included executives from corporate giants ranging from G.E. to General Motors, had translated the Powell Memo into an action plan. It proposed actions predominantly in the fields of education, communications, politics, and the judiciary. The full breadth and depth of this action plan can be found by searching: Business Response to the Powell Memorandum-Anderson.pdf.
The Keynesian Endgame by The Mises Institute

Defenders of the current income/wealth gap in America like to claim that it results naturally from the dynamics of the free enterprise system. They fail to mention, however, the effect the Powell memo has had on that system since 1973. The Powell memo can in fact be viewed as the smoking-gun that triggered the present historic gaps in U.S. income and wealth.

Some may view Lewis F. Powell, Jr. as America's 20th - century Paul Revere. It was Powell who warned the country's financial aristocracy that their security, standard of living, and quality of life were in jeopardy, unless actions were taken to defend and preserve them. Ultimately, the actions that were taken not only defended and preserved the interests of the rich, but greatly enhanced them. Over the last four decades, the income and wealth gaps in the U.S. have widened greatly at the expense of the 99%.

The Companion Democracy Gap and the Supreme Court

An issue that has received much less attention than the widening income and wealth gaps, but should be even more troubling to the 99%, is the companion "democracy gap." The actions taken by America's financial aristocracy have not only reduced the economic power of the 99% on a relative basis, but reduced their political power on an absolute basis. Voters among the 99% choose people to represent them, based on their expectations of how the candidates will respond to their interests once in office. Unfortunately, those expectations are systematically undermined once the candidates take power.

Campaign promises to pursue policies that could narrow the income/wealth gap are soon swept under the rug. Why else would the slogan "It's the economy, stupid!" still be an election-year mantra two decades after its first use? To be blunt, it's because our political leaders once in office are less responsive to the 99% on fundamental economic issues than they are to the 1%. How else could the 1% get a return on their campaign contributions?

The Democracy Gap can be best defined as the gap between relevant election issues and relevant policy issues. This gap should be the most troubling to the 99%, because, as long as America's financial aristocracy determines which economic issues warrant action, there can be no end in sight for the ever-widening income and wealth gaps. The same scenario plays out with respect to America's cumulative trade deficit, which, not coincidently, has also been increasing for almost four decades.

Since 1999, the Supreme Court of the United States (SCOTUS) has, on balance, been the best friend in government to America's financial aristocracy. Currently, the SCOTUS is the only branch of our government whose decisions American voters have no direct power to influence.  This can be viewed as a major democracy deficit, when it is considered that, since the year 2000, Supreme Court rulings on issues most vital to the 99% have come on 5-to-4 decisions.

If American free enterprise was in fact under attack in 1971, it is obvious that it has now swung to the opposite extreme. It is our democracy that is now under attack. In a late May/early June 2012 CBS News/New York Times poll, 76 percent of respondents said that the Supreme Court decides cases based on personal and political views, not legal analysis.  

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A seasoned financial professional, currently providing subject matter expertise on a variety of regulatory topics, including the Dodd-Frank Act, the Foreign Account Tax Compliance Act (FATCA) and overall compliance monitoring. He has previously held (more...)
 

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The Root Causes of crony capitalism: Campaign Co... by Hugh Campbell on Thursday, Mar 27, 2014 at 4:50:06 PM
VERY well written and thought out!This article is ... by Charles Roll on Thursday, Mar 27, 2014 at 6:02:55 PM
Thank you Charles! The use of the term "C... by Hugh Campbell on Thursday, Mar 27, 2014 at 7:19:37 PM
This line of reasoning begs the question: Is lobby... by Charles Roll on Friday, Mar 28, 2014 at 7:18:50 AM
But why make the highly theoretical and never-rea... by Will Wilkin on Friday, Mar 28, 2014 at 9:21:59 AM
Yes, all economies are mixed. The so-called but fi... by Steve Hudson on Friday, Mar 28, 2014 at 1:55:48 PM
The Fed, however, is another govt. institution th... by Charles Roll on Saturday, Apr 5, 2014 at 2:27:17 PM
BTW: I would replace the phrase "the rich and thei... by Charles Roll on Saturday, Apr 5, 2014 at 2:30:15 PM
Good point.  Capitalism is presented as a sy... by Derryl Hermanutz on Friday, Mar 28, 2014 at 9:10:56 PM
Hi Derryl I agree that capitalism freed the prope... by Will Wilkin on Thursday, Apr 3, 2014 at 7:13:32 AM
Actually, tyranny is built in to our Constitution... by Pal Palsimon on Saturday, Apr 5, 2014 at 1:45:42 AM
There is nothing in the Constitution to prevent C... by Charles Roll on Saturday, Apr 5, 2014 at 2:58:53 PM
If the question is whether its Constitutional and ... by Pal Palsimon on Saturday, Apr 5, 2014 at 3:20:32 PM
I am opposed to any new Constitution of the United... by Charles Roll on Saturday, Apr 5, 2014 at 8:57:42 PM
In the first place the dissent is saying there w... by Pal Palsimon on Sunday, Apr 6, 2014 at 2:13:59 AM
I would like to have a link to the actual decisio... by Charles Roll on Sunday, Apr 6, 2014 at 7:13:59 PM
Maybe you, yourself, are a right-wing troll. - Pa... by Charles Roll on Sunday, Apr 6, 2014 at 7:16:29 PM
I have read the maj opinion you linked and must sa... by Pal Palsimon on Monday, Apr 7, 2014 at 3:04:18 AM
Legal instruments are often used to overrule the "... by Pal Palsimon on Monday, Apr 7, 2014 at 11:51:34 AM
Pretty hard to dispute Hermanutz's analysis. As to... by Charles Roll on Saturday, Apr 5, 2014 at 2:41:17 PM
My comment regarding "Crony Socialism" was to poi... by Hugh Campbell on Friday, Apr 4, 2014 at 9:13:47 AM
The most pervasive cronyism today is the governme... by Charles Roll on Saturday, Apr 5, 2014 at 12:01:39 AM
My comment regarding "Crony Socialism" was to p... by Hugh Campbell on Friday, Mar 28, 2014 at 3:16:24 PM
Regarding the "democracy gap" of the glaring diffe... by Will Wilkin on Friday, Mar 28, 2014 at 9:33:24 AM
Will, Thank you for your comment, especially the t... by Hugh Campbell on Friday, Mar 28, 2014 at 10:15:56 AM
I view our elections as political theater and unf... by Hugh Campbell on Friday, Mar 28, 2014 at 3:25:56 PM
Yes, but we can't give up, there must be a way to ... by Will Wilkin on Thursday, Apr 3, 2014 at 7:19:34 AM
Mostly the influence is by bankers and Wall Stree... by Pal Palsimon on Saturday, Apr 5, 2014 at 1:40:50 AM
Wall Street is just the USA branch of global capit... by Charles Roll on Saturday, Apr 5, 2014 at 3:04:39 PM
I agree with the article only to the extent that a... by Pal Palsimon on Wednesday, Apr 2, 2014 at 3:14:54 AM
Thank you for your comment and referring me to "C... by Hugh Campbell on Wednesday, Apr 2, 2014 at 7:51:59 AM
The sad problem is that many Presidents have made... by Pal Palsimon on Saturday, Apr 5, 2014 at 10:33:45 AM
As shown see this article for more:Article: The M... by Pal Palsimon on Saturday, Apr 5, 2014 at 12:07:11 PM
There is the entirety of the spirit and letter of ... by Charles Roll on Saturday, Apr 5, 2014 at 9:06:39 PM
Every world-system contains within itself the seed... by Charles Roll on Saturday, Apr 5, 2014 at 3:06:21 PM
Good article, but lacking in critical thinking.&nb... by patriotgal on Wednesday, Apr 2, 2014 at 3:50:57 PM
We, as citizen voters, were able do a better job ... by Hugh Campbell on Wednesday, Apr 2, 2014 at 6:11:04 PM
Yes, I was just reading about the Powell Memo in a... by patriotgal on Wednesday, Apr 2, 2014 at 11:25:13 PM
Founding Fathers were wise enough to realize that... by Charles Roll on Saturday, Apr 5, 2014 at 3:12:46 PM
BTW there were a few wise men, but they usually di... by Pal Palsimon on Sunday, Apr 6, 2014 at 2:50:18 AM
when Charles Roll talks about "the wise men" (sor... by Charles Roll on Sunday, Apr 6, 2014 at 7:45:44 PM
You are correct on this particular issue about yo... by Pal Palsimon on Monday, Apr 7, 2014 at 3:13:41 AM
You are correct on this particular issue about yo... by Charles Roll on Monday, Apr 7, 2014 at 3:52:54 AM
Redundant. ... by Pal Palsimon on Monday, Apr 7, 2014 at 11:49:56 AM
The sad problem is that many Presidents have made... by Pal Palsimon on Saturday, Apr 5, 2014 at 10:30:33 AM
Read the opinions and you can see clearly the rat... by Charles Roll on Saturday, Apr 5, 2014 at 3:33:52 PM
I bet you didn't like a lot of other First Amendm... by Pal Palsimon on Sunday, Apr 6, 2014 at 2:24:55 AM
The Constitution IS DEFECTIVE AND NEEDS CHANGE. - ... by Charles Roll on Sunday, Apr 6, 2014 at 8:00:49 PM
It is not yet clear if those who are delegates wil... by Pal Palsimon on Monday, Apr 7, 2014 at 1:55:51 AM
I actually read all your articles advocating an A... by Charles Roll on Monday, Apr 7, 2014 at 4:16:24 AM
I don't like when you misrepresent what I said or ... by Pal Palsimon on Monday, Apr 7, 2014 at 11:55:48 AM
" the Court's entire Citizens United opinion ... by Pal Palsimon on Sunday, Apr 6, 2014 at 12:14:05 PM
Thank you for the link to the Lessig article publ... by Charles Roll on Monday, Apr 7, 2014 at 5:54:14 AM
No amendment is absolute but is always subject to... by Charles Roll on Monday, Apr 7, 2014 at 6:11:54 AM
Consider also the Second Amendment. The Court h... by Charles Roll on Monday, Apr 7, 2014 at 6:17:45 AM
Mainly, you do not properly represent what I thin... by Pal Palsimon on Monday, Apr 7, 2014 at 11:38:37 AM
I did not say what you said I said ... you are sa... by Charles Roll on Tuesday, Apr 8, 2014 at 5:01:37 PM
Whether I referred to the problem as caused by th... by Charles Roll on Tuesday, Apr 8, 2014 at 5:33:42 PM
Your view is that the SCOTUS 5-4 has written its ... by Charles Roll on Tuesday, Apr 8, 2014 at 5:40:05 PM
For sake of full disclosure, while I am not a revo... by Charles Roll on Tuesday, Apr 8, 2014 at 5:47:46 PM
Perhaps a Constitutional Amendment or increasing ... by Hugh Campbell on Tuesday, Apr 8, 2014 at 6:50:30 PM
Yes I very much like the idea, as in 1937, Preside... by Pal Palsimon on Wednesday, Apr 9, 2014 at 1:58:06 AM
These are two different things. I did not say Les... by Pal Palsimon on Wednesday, Apr 9, 2014 at 1:28:58 AM
When you say that Lessig never says or implies - ... by Pal Palsimon on Wednesday, Apr 9, 2014 at 1:42:19 AM
Ooops! Typo! When I wrote: "Consider that with jus... by Charles Roll on Monday, Apr 7, 2014 at 6:28:24 AM
Perhaps a Constitutional Amendment or increasing t... by Charles Roll on Wednesday, Apr 9, 2014 at 1:35:17 AM
Certainly, your referendum idea is an important r... by Charles Roll on Wednesday, Apr 9, 2014 at 1:48:47 AM
The issues of legislative power vs judicial power... by Pal Palsimon on Wednesday, Apr 9, 2014 at 6:28:45 AM
http:// 1.usa.gov/1lPSNzd  "The Supreme Cou... by Pal Palsimon on Wednesday, Apr 9, 2014 at 7:30:20 AM