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OpEdNews Op Eds    H2'ed 10/18/12

Land of Elites

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Few Americans have significant influence on the country or the lives of people in it. The number of Americans with real influence is very small, but their influence is very, very great. Although they are not organized into a formal institution, they nonetheless constitute the "invisible government" Edward Bernays wrote about in his book Propaganda in 1928

The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country.

It is enough to follow the money. From its earliest years the United States has been a land of the wealthy few and the marginalized many. Long before industrialization, in the large population centers of the east coast, the richest few percent controlled 80% or more of the wealth, while by 1910 (the earliest available data for income) the top 10% of American households had a larger income than the bottom 50%. Another way to put it is that for every dollar earned by labor, the owners claimed more than five dollars.

After the last Great Depression and following World War II, the country experienced thirty years of somewhat lessened inequality. Programs such as Social Security, a high rate of taxation on corporate income, and a progressive schedule of personal income tax rates helped to empower working people to claim a larger proportion of income. Together with increased productivity owing to improved technology and management, working Americans' larger incomes fueled a long period of stable economic expansion. However, from approximately 1980 to the present the gains of increased productivity have gone almost entirely to the wealthiest 1% of Americans, while income distribution and tax rates have returned to historical norms in what has been called the Great Divergence.

Just as happened many times in the past, most dramatically in the crash of 1929, this inequality led to a breakdown of the financial system in 2008, and here in the 2010s we are living through a Great Depression that closely parallels that of the 1930s, characterized again by extreme disparities between wealth and poverty and the material ruin of the middle class. Income disparity in the United States is now markedly greater than in any other western democracy, worse even than in many undeveloped, autocratic regimes.

By the numbers: Half of American households are either "low-income" or in poverty. At the other end of the scale, the richest 1% takes 24% of the income. The 400 richest Americans have more wealth than the bottom 150 million. Measured just in terms of financial wealth, the top 1% has nearly 43% of the wealth and the next 19% controls another 50%, leaving just 7% of the total financial wealth of the country in the hands of the bottom 80% of Americans. The top 1% controls 62% of the business equity and 61% of the securities, while the bottom 90% controls only 7% and 2% respectively. In 1980 the top executives in corporations were paid 42 times the average worker's pay; by 2011 they were being paid 380 times the average worker's pay. Since the current economic collapse began the incomes of the top 1% have risen 11.6% while average incomes (for those who can find employment) in the bottom 99% remain essentially unchanged. Using the methodology the government used until 1994 unemployment hovers, at the time of this writing, at 15--16%. If the long-term (>1 year) unemployed are counted, the rate is probably around 22%.

Those are Great Depression numbers, but it does not tell the whole story. The principal asset for most Americans is their home, if they own one, but in the 2008 crash 55% of homeowner equity was lost, more than $7.3 trillion. An additional $3.4 trillion evaporated from retirement accounts such as 401(k)s and IRAs. That money is never coming back, not during the lifetimes of those who lost it. The American middle class, carefully cultivated in the generation following World War II, has been wiped out. The wealth they built is gone, and the infrastructure and jobs needed to rebuild it are gone. The owners are doing fine.

The only institution capable of redressing these imbalances will not do so. As a result of the propaganda successes outlined previously a large majority of Americans are convinced that government is the cause of their problems and should be prevented from enacting policies meant to help them. Moreover, no mainstream politician at the state or national level can receive the enormous contributions necessary to compete in political campaigns except by promising to serve the owners' interests. As of the 8th of August, 2.5 million people had donated up to $200 each to the 2012 campaigns, but this amounts to only 18% of the funds raised. The top 2,100 donors had given $200 million--with 3 months of campaigning yet to go--and this does not include the much greater amounts being given by billionaires, in secret, to bogus non-profits and so-called superPACs to support their candidates. The owners own the politicians too.

Not content merely to keep elected leaders dependent on their patronage, financial elites also shape and often actually write the laws. When the politicians they own are in office, the representatives of elite interests are employed on the public payroll as their legislative directors and assistants. When out of office, the same individuals are employed as lobbyists. In either capacity their role is the same: to write or edit the legislation that is passed by the House of Representatives and the Senate to insure that it reflects the will of the interests they represent. This practice is also commonplace in state legislatures, even as it is organized at the national level.

The things our national, state, and local governments are directed to do on behalf of elite interests make a long list. Topping the list is a tax code that allows the wealthiest to pay modest taxes on their income, and frequently allows them to avoid paying taxes altogether. The wealthiest Americans keep the bulk of their wealth, $7-$10 trillion, in secret overseas tax havens beyond the view or reach of the IRS. Corporations, in collusion with legislatures, have devised schemes that permit them to treat income as expenses by, for example, deducting profits transferred directly to executives through stock options, accelerating depreciations on investments, deferring taxes to future years, and setting up subsidiaries of themselves in tax-free countries like the Cayman Islands and then "paying" their profits to the subsidiaries. As a result, twenty-six of the largest companies, including AT&T, Boeing, and Citigroup, paid more to their own C.E.O.s than they did in taxes in 2011. Coporate taxes as a percentage of all federal revenues have fallen from over 27% in 1955 to less than 9% today. During the same period, payroll taxes paid by working people increased from 58% to more than 81% of federal revenues.

Direct cash subsidies from the federal government to energy, agriculture, pharmaceutical, and other large corporations amount to $100 billion every year. This does not include frequent government bailouts of financial institutions to cover the losses incurred by banks and insurers. From 1980 to 1999 the loss to taxpayers at the national level for covering bad mortgage loans was $124 billion. This figure does not include additional bailouts by states and municipalities during that period. While such bailouts have been common in the past, they are dwarfed by the enormous transfer of money from the public to private lenders following the 2008 crash. Between 2008 and 2012 taxpayers have lost $169 billion to bailout the major mortgage companies. The Troubled Asset Relief Program (TARP--created to buy junk assets from investment banks) will ultimately cost taxpayers more than $47 billion, and the bailout of the major automakers such as General Motors and Chrysler will cost $25 billion. During the same period the Federal Reserve has loaned at least $3 trillion to banks at near-zero interest, which the banks have frequently used to purchase treasury bonds that yield a comparatively much higher rate of interest--in effect loaning the money back to the government and earning free profit from the taxpayers.

The "costs to taxpayers" listed in the previous paragraph are government estimates based on the assumption that the economy fully recovers and the financial recipients of the bailouts pay back everything they are supposed to. But in fact the government disbursed $13 trillion to America's top banks and corporations in the year following the crash. This is more than 16 times the size of the "stimulus package" that was passed to help non-elite Americans weather the economic crisis--actually it was 26 times bigger if you only count the part of the stimulus that was real spending, not tax breaks.

Many volumes could be filled with examples of government being induced to transfer the wealth of the people to private hands, from the giveaways of the nation's mining and grazing rights and its broadcast spectrum to targeted tax breaks to favor specific interests. But all of this corporate welfare--the bailouts, the tax breaks, all of it--is dwarfed by the grand giveaway that President Eisenhower named "The Military Industrial Complex."

The Cold War ended more than 20 years ago and the United States has not been under threat of attack by any rival military since that time. Yet our government spends 20% of it's budget on the Defense Department alone, more than $700 billion, higher than at any time since World War II. Considering just federal funds (so not including Social Security, which is self-funding), and adding in the military portions of other federal departments' budgets, the cost of past military operations (including veteran's benefits and the interest on debt incurred for military expenditures), and the budget for intelligence operations, the total yearly federal outlay for the MIC at more than $1.2 trillion is well over half of the entire federal budget. The United States military budget dwarfs that of its allies, and its allies and the United States taken together spend many times more than the entire rest of the world, including Russia and China, combined. Alone the United States outspends China by a factor of 4 to 1, and every other country in the world by at least 10 to 1. In addition to regular military spending, the final costs of the Iraq and Afghanistan wars is expected to be $4 trillion.

These vast expenses only make sense, not from a need for increased national security, but as a means of transferring the wealth of the nation. The bulk of the funds expended go to private profit; the biggest chunk of all to arms manufacturers. The United States produces 60% of the world's armaments. Much is sold abroad, but most is purchased by our government. Thirteen of the twenty largest arms manufacturers are American companies, and they spend more than $17 million annually on lobbyists. But war brings profits to many favored industries, from the financial sector to energy, general manufacturing, construction, and special services.

Government in the United States is of, by, and for its most elite citizens. The national and state legislatures and the executive administrations of the country operate day to day on behalf of private rather than public interest, in a system that in any other context would be immediately recognized as one of organized criminality.

So what about the judicial branch? Although the nation's founders believed that governance should be reserved to the elites, they were adamant that all should be equal before the law. John Adams' famous phrase that the United States must be a "government of laws, not men" has always in principle (if not always in practice) been a core value of our nation.

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B. Sidney Smith is a recovering math professor, gardener, and creative loafer living near Appomattox, Virginia. His autobio, curriculum vitae, favorite recipes, and much more besides can be found on his website,
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