It is helpful to step back from this account of political pressures and think about the concepts of government being used by the various parts of the dual economy. This can be seen very simply by distinguishing three types of government: democratic, oligarchic, and autocratic. A democratic government is one that is controlled by all or almost all of the people. Lincoln’s immortal words, “a government of the people, by the people, for the people,” describe it well. It may take the form of a republic if the numbers in the democracy are too large for unified meetings and actions. An oligarchic government is one controlled by only part of the population. It may be a large or small part of the population, and it may behave differently depending on how large the oligarchy is. It is called an aristocratic government when membership in the oligarchy is bestowed by birth and a plutocracy when membership is by income and wealth. An autocratic government is one ruled by an individual, a family, or another very small group.
A dual economy is a plutocracy, since the FTE sector determines policy for the whole economy. Most Americans refer to their country as a democracy, but this is not accurate. The growing inequality of income has generated politics that are oligarchic and even at risk of becoming autocratic.
Autocratic governments have been the rule during most of recorded history. From Roman emperors to Western European kings, single men (almost always men) have ruled over other people. Only a few cases of democracy and oligarchy are known before the Industrial Revolution. Greek cities and the Roman Republic are famous for recording the dealings of these more complex forms of government. Some medieval cities also were republics. But the general pattern was that democracies did not last; they were succeeded by one or another form of autocracy.
Modern democracies only made their appearance about two hundred years ago. The United States was the first modern democracy. The conventional story is that the American colonies broke away from the autocratic English government to form an independent democratic country. But it is clear from the history in chapters 5 and 7 that this is a misleading story. Slavery was very important to the Southern colonies, and they were determined to continue owning slaves in the new government. As they saw it, black people were not fit to be considered in forming this government. They thought of themselves as democrats, but only of and by white people. Their attitude toward slaves may have been shared by some in the North, but after a bloody Civil War and various constitutional amendments and laws, racecraft is no longer part of our legal framework, although its residue is still in our society and economy.1
From the point of view of the people involved, the framers of the U.S. Constitution were democrats. Southerners insisted on a series of compromises to preserve both their representation in the new government and the institution of slavery. The resulting document can only be seen in the twenty-first century as a deal between the democratic Northern states and the oligarchic Southern states.
This deal broke down as the United States spread west, and it finally erupted into the Civil War. Even though the North won the war, it did not succeed in destroying the oligarchic organization of the South. As described in chapter 5, the long tradition of viewing voting as a privilege rather than a right has combined with a growing inequality of income to make our current government more oligarchic than democratic. We have gone in the last generation from an aristocracy—when Southern political control was vested in the descendants of slave-owning families—to a plutocracy. We had something close to democracy in the interval between these different oligarchies in the middle-class economic growth after the Second World War, but it did not last very long.
Democracy appears to be unstable in the United States because of the legacy of slavery. Voting was conceptualized in the new country as a privilege, not a right. Until we shake that conception, we will have trouble sustaining a durable democracy. Change will come slowly because of the federalized nature of our government. The federal government delegated voting regulation to the states to implement the constitutional compromise. This practice was sustained by whites who wanted to maintain blacks in subservient positions, a view supported by racecraft. States delegate the administration of voting to localities, where the privilege concept is still expressed. In order to change the fundamental nature of American voting, we need to restructure many levels of government.
This can be seen in major developments of the past few decades. The close presidential election of 2000 was decided by the Supreme Court, which took the unusual step of banning further recounts of votes. The Court stated that Bush v. Gore (531 US 98 [2000]) should set no precedent. Perhaps that was true for court decisions; the impact of this decision on the lives of low-wage workers and the future composition of the Supreme Court were immense. President George W. Bush appointed two conservative justices to the Supreme Court. The Supreme Court weighed in again in Shelby County v. Holder in 2013, in which they ruled the most important part of Johnson’s Voting Rights Act of 1965 unconstitutional. This part of the act allowed the federal government to ban restrictive state voting rules before they went into effect. The Voting Rights Act had been renewed by several sessions of the Congress with lopsided votes, but the Supreme Court, with conservative Bush appointees, differed. The result was a spate of new voting restrictions in the states. Ironically, even though the Supreme Court stated that the old Confederacy was gone and should not be discriminated against, most of the new voting restrictions appeared in the states that had been part of the Confederacy.2
This history is very important, as it is only in a democracy that public policies will be made for all the people. This is the implication both of the Lewis model and the Investment Theory of Politics. It also is common sense. We can expect gifts from others for many reasons: family occasions, reciprocity for past favors, and high spirits. But if we want sustained policies to alter conditions created by past political decisions, we need universal voting and governance. An oligarchy will not willingly provide social insurance for all. Only a functioning democracy will do that.
What would such a policy for all the people look like? One way to summarize the role of a democracy is as a promoter of security, which can be seen also as a reducer of risk. Living is a process that involves many risks, ranging from bankruptcy to illness and beyond. The government is in the best position to offer people insurance because it can compel people to join in the insurance process, it has a perfect credit rating since it can tax and print money, and it can monitor people at risk. The government has to want to offer security and insurance, and a democratic government responsive to its citizens will want to do so.
The American government can be thought of as offering insurance in three stages. The first stage in the nineteenth century was to provide security for business. The second phase in the first half of the twentieth century provided insurance for workers. And the current phase since then provides security for all. This progression is due partly to the increasing incomes of Americans and partly to the expansion of the franchise to bring the United States closer and closer to being a democracy.3
One of the first ways the United States helped reduce risk was by allowing limited liability for businesses. In this process, an investor could limit his or her liability if the company failed. Another way to improve the security of businesses is to keep prices stable. The United States had an enviable run of stable prices in the nineteenth century, and the government has been active since then in trying to deal with the price effects of wars, depressions, and financial crises.
Bankruptcy is both a business and a personal risk. It is a way to socialize the risks, that is, to make others share in the risks facing a business or person. If a company or person borrows heavily, there is a risk that the debts may be too many or too large to pay off. This problem arises for individuals all the time, and this risk spreads around the economy in times of crises. Since every loan has a lender and a borrower, how can we know who is at fault? Bankruptcy makes the lenders and borrowers share the cost of excessive loans, reducing the size of loans in bankruptcy proceedings.4
Insurance for workers applies the same principles to workers’ risk of injury on the job. The worker obviously suffers from an injury. Workers’ compensation eases the burden by compensating the injured worker for lost wages. As in bankruptcy, the cost of the accident is shared between the company and the worker. Government is needed here to compel all companies to carry workers’ compensation. If it were voluntary to offer this insurance, companies would try to compel workers to take jobs without compensation. Workers’ compensation was initiated in the early twentieth century and has been augmented by regulations from the Occupational Safety and Health Administration, known everywhere as OSHA, a century later.5
Social Security protects people in their old age. Many workers do not earn enough for them to provide for a retirement by themselves. Social Security allows workers to retire and maintain something close to their prior standard of living. As described in chapter 6, the system is not set up as an investment made by individuals for their own retirement, but by an intergenerational bargain in which current workers pay for the retirement of the last generation in the expectation that future workers will pay for their retirement. Like workers’ compensation, Social Security is done best by the federal government, which can assure workers both that all eligible workers will pay into the system and that these funds will be used to pay their benefits.
Product liability law developed to provide purchasers of goods a way to share the loss they may incur from poorly designed or fabricated goods. This branch of law is like workers’ compensation for consumers. As the economy increasingly moves to technical, financial, and electronic products, the link between the maker and the consumer of products has become increasing opaque. The new Consumer Financial Protection Bureau extends product liability from manufactured goods to financial products.
Medicare and Medicaid provide medical care to individuals who qualify for these programs. As in the previous examples, the cost of illness is socialized, so that the cost is not borne entirely by the sick person. These programs are set up as insurance systems, and the government allows every eligible person to ask for help. This help is financed by taxation, and the cost is borne by everyone who pays taxes. Medicare for older people is run by the federal government; Medicaid for poor people is run by states. As noted earlier, state control often is a way to deny benefits for disadvantaged people. African Americans and recent Latino immigrants have been denied Medicaid benefits by lack of funds after the 2008 financial crisis and by state politicians objecting to the Affordable Care Act.
The Affordable Care Act that President Obama signed into law in 2009 was approved by the Supreme Court in 2012 with the caveat that states could opt out of the part that was run through an expansion of Medicaid. Many states chose to deny the expansion of Medicaid to their residents even though the federal government would pay all the costs for the first few years and most of the costs thereafter. The states that opted out of the free extension of Medicaid were clustered in the South, reflecting again the racecraft involved in such decisions on compensation of care.
Part of the anger against the Affordable Care Act, popularly known as “Obamacare,” is because its benefits are seen in racist terms by some critics as gifts from one black man—who happens to be the president—to the black population. This factor may be most important to less educated whites. Another reason for the anger is that Obamacare raised taxes on the very rich. In fact, the Obama administration raised taxes in two ways: by letting some tax breaks for people earning over half a million dollars to expire, and by the Affordable Care Act provisions raising taxes on the rich to support healthcare for the poor. Some among the very rich, as noted in chapter 7, do not take well to having their taxes increase.6
Falling ill is something that happens after being born, but there are additional risks in being born. Perhaps the biggest birth risk we take is in the identity of our parents. We do not choose our parents, and John Rawls, the author of A Theory of Justice, suggested that we think of a random process assigning children to parents. If we turn that around, we can say that the largest risk that a person faces in America is of being born into the “wrong” part of society, in the low-wage sector with a black or brown skin. Rawls argued that we should agree to organize a democratic society to reduce the risk of a disadvantaged birth. Such a society would be a just society, and Rawls urged us to minimize the effects of the risk inherent in the family-matching process. This summons provides a framework for the role of a democratic society in minimizing risks to its members.7
Democracy has waxed and waned in American history, and the federal government expanded over time its efforts to provide security for all citizens. In good times, like the equitable growth that followed the Second World War, the government increased its role of reducing risks. In times when our democracy looks more like an oligopoly than a democracy, the care has been restricted in one dimension or another.
The opposite pole from democracy is autocracy. The actions of the very rich suggest that we should try to visualize what autocracy might look like. Start by considering 1 percent of the Forbes 400. That yields four people. Consider a government dominated by the four most politically active of the Forbes 400—or any smaller group drawn from these four: Charles Koch, David Koch, Sheldon Adelson, and Donald Trump. That would be an autocratic government, and we know from their actions what the policies of this government might be.
It would make policies without anyone but a few advisers knowing why. Secrecy would be the watchword, and information about the reasoning behind policies would be managed by the autocratic leadership. Recall the invasion of Iraq in 2003, which anticipated autocratic operations.
An autocratic government would reduce taxes greatly. More precisely, it would greatly reduce or even eliminate taxes on rich people and large business firms. Tax relief might extend throughout the FTE sector, although it might not get down the income ladder very far. It would not extend to the low-wage sector. Essentially all government revenue would be raised from the low-wage sector.
Since the autocratic government would try to balance its budget, government services would be cut back significantly. The regulatory state that has been constructed since the Great Depression would be starved into impotence or eliminated outright. There would be a free market in the anarchist sense, although not in the sense used by most economists. The Securities and Exchange Commission, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Environmental Protection Agency, and other checks on autocratic decisions in governance and finance would disappear. There would be no government agency devoted to preserving level playing fields between companies. Social Security and Medicare would be phased out; Medicaid would be funded entirely at the state level.8
Education also would be financed and controlled entirely at the state level. No federal funds would flow to the states, and no centralized direction would come to the states. Given the inability of states to raise enough money to support a good educational system without federal funds, education in American would continue to decline.9
The federal government would restrict itself to a few functions: national defense (interpreted broadly), federal prisons, the Federal Reserve System. Within that minimal framework, life would be anarchic. It might look more like a current kleptocracy such as Putin’s Russia than a preindustrial kingship. Corruption is the key to operating any activity in a kleptocracy. Businesses operate corruptly in that system, and the autocrats reward their friends by direct support and the elimination of competitors. The organization of a corrupt economy is stable because any attempt to oppose it by operating a noncorrupt business that did not pay bribes or engage in other underhand actions would likely fail. In this dog-eat-dog environment, corrupt business firms with ties to the government would be able to eliminate honest businesses one way or another.10
Autocracy needs prisons to control the population. I discuss prisons as social control in chapter 9, but they can also serve the function of keeping the peace when dissenters threaten an autocratic government. The United States is an outlier in the size of its prison population, which grew rapidly since 1970. Its prison system now differs from the prison systems in other more or less democratic countries and resembles the prison systems in autocratic ones. There would be little capital cost in modifying our judicial system to accommodate a political change.
Between democracy and autocracy lies oligarchy. Oligarchies are where materially endowed actors defend their wealth. They defend both their wealth and the flow of services from their property in the form of income. The extremes can be described more easily than oligarchies because there are many varieties of oligarchies. In other words, oligarchies take different forms in the space between the extremes of democracy and autocracy. There can be an oligarchy like the early Northern United States and Britain in the early nineteenth century, where the right to vote was defined by gender and a property requirement. If the property requirement was low, then the government was almost a democracy. If, by contrast, one-third of the population was excluded from voting, as slaves were in the antebellum United States, then the oligarchy seems closer to autocracy. The dual economy that we live in today is governed largely by the FTE sector, one-fifth of the population. That is an oligarchic government we know from our own experience.11
The political history of the United States can be summarized in these terms as follows: From the signing of the Constitution to the Civil War, the country was divided by slavery into two parts. There were experiments with democracy in the North, but oligarchy was maintained in the South where slaves could not vote—or even get an education. From the Civil War to the First World War this condition more or less continued. African Americans voted in some states, but the experiments with opening the vote to women in the North had ceased. The inequality of income at the end of the nineteenth century meant that rich people dominated politics by the various avenues open then.
After the war, women got the vote, and the franchise opened up somewhat. African Americans, however, still were denied the ability to vote until the Civil Rights Movement of the 1960s. With that stimulus, the United States came close to being a democracy for half a century until the Supreme Court gutted the 1965 Voting Rights Act in 2013. Inequality increased between those dates, and the Investment Theory of Politics teaches us that the effectiveness of the ordinary voters decreased as rich people and large businesses began to influence elections. It may not be misleading to say that the effectiveness of democracy has been decreasing over time since the initiation of the American dual economy in 1971, and democracy has now given way to a new oligarchy or, to be more specific, a plutocracy.12
The process became visible in the 1990s when Congress, dominated by the adolescent FTE sector, shut down the government over a dispute with President Clinton and then voted to impeach him. It was even more dramatic in the resolution of the 2000 election to choose Clinton’s successor. The election was close, but it did not end up in the House of Representatives as the Constitution anticipated. Instead it ended in disputed votes in the state of Florida, whose governor was the brother of the Republican candidate George W. Bush. Governor Jeb Bush did not recuse himself, as a judge would have done, but instead worked to certify his brother’s election. Then the Supreme Court, in Bush v. Gore, 531 US 98 (2000), ruled that there should be no recounts and therefore George W. Bush would be president. The chief justice was William Rehnquist, appointed to the Supreme Court by Richard Nixon in 1971 (confirmed in 1972). The memory of democracy assured that this political decision by the Court was accepted peacefully, but the excesses of the process stimulated a literature on how to make sure that people could vote and their votes would count. This literature assumed that public policy would work to restore democracy, while public policy increasingly has worked to restrict influence to an ever richer and more select plutocracy.13
How much difference did this controversial conclusion to Bush v. Gore make? It is hard to conjecture what might have been, since we know only what was and have to guess about possible alternatives. Parts of domestic policy might have been more or less similar, as Clinton had approved the 1994 crime bill that confirmed and may have encouraged mass incarceration. But Bush reduced taxes while invading Iraq, creating federal budget deficits similar to those run by Reagan. The invasion of Iraq and the ideological handling of the aftermath was one of the causes for the formation of ISIS that plagues Europe and America today. According to a recent history of this organization, “ISIS’s command-and-control tier emerged with ‘made-in-US-run-prisons’ tags. ... Seventeen of the twenty-five most important leaders [two-thirds of the leaders] running the war in Iraq and Syria spent time in US-run detention facilities between 2004 and 2011.” Exporting incarceration for social control to Iraq backfired mightily.14
The Republican State Leadership Committee (RSLC), founded in 2002, was considerably more successful in its effort to take over Congress. With a budget of more than $30 million from the U.S. Chamber of Commerce, an organization close to ALEC, and many large companies, the RSLC focused in on a variety of state races in 2010. The Democrats were discouraged after the fight for the Affordable Care Act and the slow recovery from the financial crisis of 2008, and they did not understand how quickly Citizens United, decided in January, was changing the political landscape.
As a result of this lopsided spending, Republicans emerged from the 2010 election with just shy of thirty Republican state governors and almost as many Republican-controlled state legislatures. The RSLC then put into operation its REDMAP, a plan to redistrict in favor of Republicans. Gerrymandering is a traditional American practice, but REDMAP was the first set of state actions orchestrated in a national effort. The first step was to jam voters likely to favor your opponents into a few throwaway districts where the other side could win lopsided victories, a strategy known as “packing.” The second step was to arrange other boundaries to win close victories, “cracking” opposition groups into many districts.
As a result of REDMAP, Democrats received 1.4 million more votes for the House of Representatives in 2012, yet Republicans won control of the House by a 234 to 201 margin. Democrats would have had to win the popular vote by 7 percentage points to take control of the House given the newly manipulated boundaries of REDMAP districts (assuming that votes shifted by a similar percentage across all districts), a margin that happens in only about one-third of congressional elections. The ability of democratic voters to change the leadership of the House of Representatives is very limited; plutocrats—the 1 percent—have sharply hampered their access.15
As the middle class shrinks, the FTE sector increasingly directs public policy. Democratic preferences no longer dominate policy decisions. Given the free use of dark money in politics, the oligarchy has gotten smaller. The oligarchy is moving further away from a democratic state and closer to an autocratic one. In that sense, the extreme cases are useful to characterize the tendencies, if not the actual operations, of different oligarchies.
President Obama nominated Merrick Garland, a federal appeals court judge, to the Supreme Court in March 2016, a month after the sudden death of Justice Antonin Scalia, who was personally connected with many rich and conservative people and the leader of five conservative justices who often voted together to make conservative decisions. The refusal of the Senate to process Obama’s nomination of federal judges and particularly a Supreme Court justice nominee in 2016 indicates that we are moving in the direction of an autocratic government. The Constitution is perfectly clear. The president nominates judges, and the Senate is directed to provide advice and consent for the president’s nominee. The Senate also had held back confirming many of Obama’s candidates for federal district court judges, a breach of its constitutional duty that only came to light in the Garland stonewall.16
There were over one hundred prior cases where an elected president faced a vacancy on the Supreme Court and began an appointment process. In all of these cases, the president was able to both nominate and appoint a replacement justice. There were only six cases in which the Senate sought to transfer a sitting president’s appointment power to a successor. These exceptions were confined to cases where the president was appointed rather than elected or where the nomination came after the election of his successor. Neither of these conditions was present in 2016; the Senate’s actions were without historical precedent and risk politicizing the Supreme Court in a way that threatens the very foundation of our government.17
Senator Ron Johnson stated, “We absolutely will not allow the Supreme Court to flip.” The Majority Leader of the Senate, Senator Mitch McConnell said, “I can’t imagine that a Republican majority in the United States Senate would want to confirm, in a lame duck session, a nominee opposed by the National Rifle Association, the National Federation of Independent Business that represents small businesses.” This refusal to follow the Constitution is an extension of the 2010 redistricting coup that moved our oligarchic society closer to an autocratic one. If it succeeds in politicizing the court system and restricting the Executive Branch, it will distort greatly or even destroy the division of political power set by the Constitution into three independent branches.18
The Kochtopus spent more than $40 million on state races in the 2016 elections, and, as the regression shown in figure 5 predicted, its candidates generally won. This kept conservative state governors in power and conservatives in Congress still powerful. We are on the way to an autocratic government.19
“Whoever has the gold rules.” And nothing is new under the sun. Augustus, the first Roman emperor, kept the form of the Roman Republic intact while wielding autocratic power; the Koch brothers and their friends could do the same.20