According to a New York Times report, published on April 21, democratic presidential candidate and former US secretary of state Hillary Clinton has said that the US economy requires a “toppling” of the wealthiest 1 per cent.
On April 12, in her candidacy announcement for the 2016 presidential election, Hillary, talking of the wealthy and powerful, reiterated her position by declaring that “the deck is still stacked in the favour of those at the top.” Building on that theme several days later, she said in New Hampshire, “My job is to reshuffle the cards.”
Some commentators, many of them conservative, argue that income and wealth inequalities in the US are not comparatively that high and suggest that such disparities are a natural consequence of market forces. Both claims merit scrutiny.
A study conducted by Emmanuel Saez and Gabriel Zucman — “two economists who have dedicated their careers to compiling and analysing wealth and income data,” says Fortune — demonstrates that the richest 160,000 families in the US own as much wealth as the poorest 145 million combined. The study establishes that the 40-year trend of imposing less progressive taxes has been a major factor responsible for wealth inequality.
Stagnant and even negative wage growth has made it difficult for middle- and lower-income families to set aside money and accumulate wealth. It may come as a surprise that the purchasing power of the US minimum wage peaked in 1969, which was $1.60 (Dh5.87) an hour, equal to $10.10 in 2013 dollars. Currently, the statutory minimum hourly wage is $7.25.
According to Ben Bernanke, the former head of the Federal Reserve, the 2008 financial crisis was the worst in global history, surpassing even the Great Depression. Raghuram Rajan, on leave from the University of Chicago as the current Governor of the Reserve Bank of India, was one of the few economists who warned of the global financial crisis before it struck.
In his seminal book, Fault Lines, he argues that criteria for providing mortgages were loosened because the middle-class and low-income earners were falling behind in living standards. As a result, credit was seen as the only viable way to increase their purchasing power, which then led to subprime lending. This strategy sparked an initial boom but, Rajan contends, contributed to the formation of the 2008 crisis.
In 2005, Martin Gilens, a Princeton University professor, authored a paper titled Inequality and Democratic Responsiveness. In it, Gilens used “an original data set of almost two thousand survey questions on proposed policy changes between 1981 and 2002.” He writes: “I also find that when Americans with different income levels differ in their policy preferences, actual policy outcomes strongly reflect the preferences of the most affluent but bear virtually no relationship to the preferences of poor or middle-income Americans.”
Gilens concluded that “influence over actual policy outcomes appears to be reserved almost exclusively for those at the top of the income distribution.”
It can be fairly argued that other industrial nations like the US also have inequality issues.
According to the OECD, a forum for the 34 wealthiest countries in the world, the rate of inequality and poverty in the US is the highest of any industrial nation. Among the OECD countries, the US is bettered only by Mexico and Turkey.But what needs further explanation is the magnitude of disparity in America.
The OECD also reports that “redistribution of income by government plays a relatively minor role in the US. Only in Korea is the effect smaller (emphasis added).
Another OECD report on the US explains that, “since 2000, income inequality has increased rapidly, continuing a long-term trend that goes back to the 1970s. Rich households in America have been leaving both middle and poorer income groups behind. This has happened in many countries, but nowhere has this trend been so stark as in the US (emphasis added).”
In their 2011 book, Winner-Take-All Politics: How Washington Made the Rich Richer -- and Turned Its Back on the Middle Class, Jacob Hacker (Yale) and Paul Pierson (Berkeley), departed from the explanation that income inequality in the US is the natural consequence of the free market. With extensive analysis, they conclude that “technological change and globalisation prove to be of surprisingly limited relevance. They matter, to be sure. But what matters more is how these forces have been channelled by major changes in what government has done and not done. … Where conventional wisdom confidently declares, ‘it’s the economy,’ we find, again and again, ‘it’s the politics.’”
Hacker and Pierson’s findings reaffirm Gilens conclusion that the political system responds mostly to the demands of the affluent. It is in this context that lobbying groups are able to continually push the system towards options that benefit the wealthy even when the economy as a whole diverges from their interests.
So the issue of fighting inequality in America comes down to the question of how realistic is a reform to fix large representational biases in the US. Paradoxically, such a reform must be shaped by the same politicians who are part of the problem. They are either wealthy or have direct or indirect links to the wealthy, who support their electoral campaigns and thus their political life.
The 2012 median net worth of senators has been estimated at $2.8 million. The wealthiest lawmaker in 2012, Darrell Issa, Republican-California., had a net worth totalling $355.4 million. Interestingly, Issa is a key watchdog in Washington, serving as the chair of the House Oversight and Reform Committee.
At a time when a congressional seat comes with an average $10-million price tag, obviously the wealthy are favoured and over-represented.
Given the status quo, it is reasonable to assume that effective regulations that would consistently and effectively supervise and restrict the private sector and its leading individuals — especially when the interests of the average tax-payer and the affluent diverge — is tantamount to a profound reform. Any successful reform should entail both ideological and political changes.
Regarding ideological adjustments, attention must be given to disagreements with large inequalities, consent to regulations, moving towards a more equitable distribution of wealth, and the reversal of the widening gap in earnings. In addition, political adjustments, including reforming campaign funding and restricting and monitoring the activities of lobbying groups, are required to confine the influence of the wealthy and make meaningful regulations possible.
Nevertheless, radical changes within such a large bureaucratic system that has numerous access points would face considerable resistance.
If elected, can Hillary Clinton overcome these insurmountable hurdles and shuffle the cards? Unlikely.
Shahir ShahidSaless is a political analyst and freelance journalist writing primarily about Iranian domestic and foreign affairs. He is also the co-author of Iran and the United States: An Insider’s View on the Failed Past and the Road to Peace, published in May 2014. He lives in Canada.
