Carnival of Venice

The Self-Destruction of the 1 Percent

By CHRYSTIA FREELAND, The New York Times

Published: October 13, 2012

Even as the winner-take-all economy has enriched those at the very top, their tax burden has lightened. Tolerance for high executive compensation has increased, even as the legal powers of unions have been weakened and an intellectual case against them has been relentlessly advanced by plutocrat-financed think tanks. In the 1950s, the marginal income tax rate for those at the top of the distribution soared above 90 percent, a figure that today makes even Democrats flinch. Meanwhile, of the 400 richest taxpayers in 2009, 6 paid no federal income tax at all, and 27 paid 10 percent or less. None paid more than 35 percent.

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Educational attainment, which created the American middle class, is no longer rising. The super-elite lavishes unlimited resources on its children, while public schools are starved of funding. This is the new Serrata. An elite education is increasingly available only to those already at the top. Bill Clinton and Barack Obama enrolled their daughters in an exclusive private school; I’ve done the same with mine.

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America’s Serrata also takes a more explicit form: the tilting of the economic rules in favor of those at the top. The crony capitalism of today’s oligarchs is far subtler than Venice’s. It works in two main ways.

The first is to channel the state’s scarce resources in their own direction. This is the absurdity of Mitt Romney’s comment about the “47 percent” who are “dependent upon government.” The reality is that it is those at the top, particularly the tippy-top, of the economic pyramid who have been most effective at capturing government support – and at getting others to pay for it.

Exhibit A is the bipartisan, $700 billion rescue of Wall Street in 2008. Exhibit B is the crony recovery. The economists Emmanuel Saez and Thomas Piketty found that 93 percent of the income gains from the 2009-10 recovery went to the top 1 percent of taxpayers. The top 0.01 percent captured 37 percent of these additional earnings, gaining an average of $4.2 million per household.

The second manifestation of crony capitalism is more direct: the tax perks, trade protections and government subsidies that companies and sectors secure for themselves. Corporate pork is a truly bipartisan dish: green energy companies and the health insurers have been winners in this administration, as oil and steel companies were under George W. Bush’s.

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Businessmen like to style themselves as the defenders of the free market economy, but as Luigi Zingales, an economist at the University of Chicago Booth School of Business, argued, “Most lobbying is pro-business, in the sense that it promotes the interests of existing businesses, not pro-market in the sense of fostering truly free and open competition.”

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That all changed with industrialization. As Franklin D. Roosevelt argued in a 1932 address to the Commonwealth Club, the industrial revolution was accomplished thanks to “a group of financial titans, whose methods were not scrutinized with too much care, and who were honored in proportion as they produced the results, irrespective of the means they used.” America may have needed its robber barons; Roosevelt said the United States was right to accept “the bitter with the sweet.”

But as these titans amassed wealth and power, and as America ran out of free land on its frontier, the country faced the threat of a Serrata. As Roosevelt put it, “equality of opportunity as we have known it no longer exists.” Instead, “we are steering a steady course toward economic oligarchy, if we are not there already.”

It is no accident that in America today the gap between the very rich and everyone else is wider than at any time since the Gilded Age. Now, as then, the titans are seeking an even greater political voice to match their economic power. Now, as then, the inevitable danger is that they will confuse their own self-interest with the common good. The irony of the political rise of the plutocrats is that, like Venice’s oligarchs, they threaten the system that created them.