Letters at 3AM: 'O' Is for Oligarchy (Continued)

Illustration by Jason Stout

Part 1: What They've Done and Do

Oligarchy takes different forms in different countries, but its purpose is always to suck the lion's share of resources upward for the benefit of what I've called the Top Tier. While the United States has more than its portion of Top Tier cabals and plots, a surprising extent of Top Tier machinations have been so public as to be transparent, especially the crowning achievement: deregulation of the financial industry under President Bill Clinton.

After that deregulation, "finance accounted for more than a third of total U.S. profits" during the years that our real estate market inflated to fantastic levels (Nobel laureate economist Paul Krugman, in The New York Times, Jan. 7, p.A27). A line of exclamation points would not be inappropriate after the words "more than a third of total U.S. profits."

What that means for the rest of us involves gross domestic product, or GDP, roughly defined as the total amount of domestic goods and services. "Real GDP in America grew by an average of 1.9% a year during the 2000s. ... During the previous six decades, average growth was 3.9% a year. ... [Given America's population growth,] GDP per head has grown a good deal more sluggishly than GDP as a whole" (The Economist, Feb. 27, p.36).

In small words: With the finance industry siphoning one third of America's profits upward for the Top Tier, the rest of us were left with roughly half the growth that had been available yearly for the previous 60 years, and this half was split among a lot more people. This is why, through these and other machinations, the "after-tax income of the top 1 percent more than tripled since 1979, while the bottom-dwellers barely moved an inch" (The New York Times, April 15, p.A27).

Nobel laureate economist Edmund Phelps: "We are in a very unique period, in which we're seeing the biggest disconnection between financial capitalism and the real economy since modern economies began in the 19th century" (Newsweek, Jan. 18, p.42). "Very unique," indeed. In fact, it constitutes a kind of coup.

When the real estate bubble burst, the financial industry faced collapse. So President George W. Bush instituted the so-called "bailout." Using the same methods and employing many of the same people, President Barack Obama continued the bailout (without reforms he'd promised). A result:

"[T]he Federal Reserve has enabled banks to borrow cheaply. The banks re-lend that cheap money, but not necessarily to consumers and businesses. They can, for example, lend it back to the federal government by buying Treasury securities, and earn a nice spread between their cost of funds and Treasury yields" (The New York Times, Jan. 18, p.A20).

In small words: It's a shell game.

Big banks "borrow" from the Fed at low interest, supposedly to make borrowing easier for the "real economy," which is you and me. But, as has been widely reported, small businesses still have big trouble getting loans. That creates joblessness and stagnation, especially in what I've called the Skilled Service and Unskilled Service tiers of our society. Meanwhile, the banks that borrowed low-interest money from the government lend it back to the government at higher interest. They make a bundle.

It's called the "Fed" and the "Treasury," but it's taxpayer money. We're bailing banks out, then paying for the privilege. It's like a storm that rains upward. Our money is pouring up to the Top Tier.

That is Oligarchy.

Somewhat belatedly, the Obama administration is making noises about "curbing" the financial industry. The New York Times, April 14, p.A1: "G.O.P. Takes Aim at Plans to Curb Finance Industry." As usual, the Republicans make populist noises – this time for the tea partiers – while defending the banks. And, as usual, Democrats do too little too late, while explaining themselves so badly that it looks like they're defending the banks. And they have, and they are. But, these days, not as much as Republicans.

That, too, is Oligarchy. This dizzying arrangement is but one of its scams.

Part 2: What We've Done and Do

We let it happen. Until we admit this, we can change nothing.

The real estate bubble was the final empowerment of capital-"O" Oligarchy, but what made the bubble possible? Americans allowed the sacred concept of "home" to be perverted into the commercial concept of "investment."

A home is where you live. It houses you and yours and all you have. Use it as a credit card, borrow on its supposed value, and it is no longer yours. It's the bank's. Think of your home as an investment and it is no longer yours. It is a tool of banking. Buy your home because you believe that real estate will constantly go up in price and it was never yours to begin with. It is a product the bank created and controls, its security dependent on factors beyond your power.

It's not just homes. The growth of the American Oligarchy has been building for decades, and we've been its enablers.

When I was a boy in Brooklyn we shopped at Jack's Delicatessen. Jack was someone we knew and liked. When we ran short of money, Jack let us buy groceries "on the tab." He knew us. He trusted us to pay that tab. Most of us were good for it. Jack lived where we lived. He was our neighbor. Money spent at Jack's stayed in the neighborhood, and Jack and his kind had a stake in keeping our streets as decent as possible.

Then a shiny big supermarket came to the neighborhood with a bigger variety of products that cost less. Not much less. A nickel, a quarter. We didn't know who owned the supermarket, and we didn't ask. They didn't run tabs like Jack did, but it was all so shiny, and it was a little cheaper. We abandoned Jack, who'd been our friend. To save nickels and quarters, we abandoned him. Oh, we still went to Jack's, but not as often. Small businesses have slim profit margins. If customers come in "not as often," there goes the profit margin. There goes Jack. Now our money leaves the neighborhood. There goes the neighborhood. We "saved" our way out of the possibility of community.

By the 1990s, Wal-Mart was doing that to whole towns. Barnes & Noble and Borders did that to independent bookstores. Whole Foods did that to small health-food stores. Chains like McDonald's and Starbucks did that to Joe's Diner and Sally's Breakfast Nook. (Starbucks didn't even have to sell cheaply; it merely had to be convenient.) Detroit automakers invented "warranties" to have your car serviced at their outlets; indy garages went broke. Agribusiness did it to family farms. And each time we buy an item online when it's available at a local store, we're doing it all over again.

With every local business we abandoned, with every dime or dollar we saved, we bought into a system that had no need of community. No need of us, except purely as consumers. Once that system was established, we had nowhere else to go. We still need what we need, but when we buy it our money is siphoned to a capital-"E" Elsewhere that, over time, became capital-"O" Oligarchy. With globalization, the biggest firms not only no longer needed our communities, they no longer needed our country.

We gave Oligarchy the power to take our power. The plots and machinations of the Top Tier would have come to nothing had we not been willing and eager to cooperate. We didn't see what was right before our eyes: Jack cared about and needed us; the supermarket didn't care and used us. We sold out a way of life for dimes, nickels, and quarters. A buck here, three bucks there. We sold out for convenience, forgetting that the Devil is not such a fool as to offer what one doesn't want. In effect, we were disenfranchised by the satisfaction of our own desires and our stubborn refusal to pay attention to what's important.

Until we realize the willing part we played to transfer power out of our own hands, we can never get it back.

To be continued.