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The evidence for wealth inequality leading to democratic capture is extraordinarily thin
By Ryan Bourne of Cato.
"“Billionaires have seized our government,” Senator Elizabeth Warren claimed
earlier this year. This idea, that the rise in wealth inequality has
led to the capture of politics by super wealthy elites, is fast becoming
conventional wisdom on the left of politics and used as justification
for wealth taxes.
Paul Krugman has asked,
for example, “Can anyone seriously deny that our political system is
being warped by the influence of big money, and that the warping is
getting worse as the wealth of a few grows ever larger?”
Former lead economist at the World Bank, Branko Milanović, has claimed
“In every political system, even a democracy, the rich tend to hold
more political power. The danger is that this political power will be
used to promote policies that further cement the economic power of the
rich. The higher the inequality, the more likely we are to move away
from democracy toward plutocracy.”
Warren’s wealth tax architects, economists Emmanuel Saez and Gabriel Zucman, have said
that their tax was designed not to raise revenue or improve economic
efficiency, but to prevent this ongoing “oligarchic drift that, if left
unaddressed, will continue undermining the social compact and risk
killing democracy.”
So which millionaires and billionaires have captured the
US’s democracy as wealth inequality has risen? Liberal billionaires,
such as George Soros and Tom Steyer, perhaps? Or maybe conservative and
libertarian billionaires, such as Sheldon Anderson and Charles Koch? The
point I make here is an important one: there is no homogenous political
view among the wealthy; just as Martin Gilens found among the income
rich “the affluent are no more (or less) likely to be of one mind” than
the middle-classes or the poor.
This is unsurprising. Look at Congress itself. Roll Call’s analysis
shows that of the ten wealthiest members, five are Republicans and five
are Democrats. Analysis below uses the “nominate scores” method to map
apparent support for redistribution across those members with positive
net worth from roll calls during the 111th–115th congresses. As you can
see, there’s no relationship between wealth and support for
redistribution overall. Party allegiance is much more important. There
is little class-consciousness among the wealthy on the Capitol.
That’s not to say that the very wealthy across America might not, on average, have relatively different views than the rest of us. Evidence here is scarce, but one survey by Benjamin Page, Larry Bartels, and Jason Seawright of 104 wealthy individuals with wealth over $40 million in Chicago did find some differences.
Wealthy individuals, they found, were (on average) more
likely to worry about budget deficits and more likely to want to cut
Social Security, healthcare, food stamps, and homeland security spending
than the rest of the population. They were less likely to support more
redistribution, but overall supported income taxation at current rates
and backed a progressive Social Security system. On regulation, they
favored intervention in areas where scandals had occurred but considered
small businesses to be overregulated.
Other surveys by Martin Gilens on the top 10 percent by
income (a much broader group) have found that “the income rich” had
somewhat stronger opposition to taxes and business regulation than the
rest of the population, were less protectionist on trade policy; less
conservative on religious and moral issues; and more supportive of
foreign aid, top income and capital gains tax cuts, gas tax increases,
and restraint in Social Security and Medicare spending.
If the wealthy have captured politics, they are doing a
pretty good job of hiding it. Yes, we’ve recently seen the Tax Cuts and
Jobs Act, and an effective moratorium on new regulation. But we’ve also
seen rampant trade protectionism, a President attempting to cut foreign
aid, protection of entitlement spending, conservative justices appointed
to the Supreme Court, and the President push for much higher homeland
security spending. In recent years, there’s been much discussion over
pretty imaginative antitrust action against three of the top 10 richest
Americans’ companies: Jeff Bezos’ Amazon, Mark Zuckerberg’s Facebook,
and Larry Page’s Google. Some “capture of democracy.”
Progressive economists tend to focus, of course, just on
top taxes and social spending as a proxy, implicitly arguing that the
absence of a bigger welfare state with more taxes on the rich is
evidence itself that the wealthy have captured politics already. Surely,
simple strength of numbers shows the majority should have voted for
more progressive taxes to fund transfers to the rest of us?
But as the chart below shows, across countries there’s no
relationship between top wealth shares and social spending. And as top
wealth inequality has risen, the welfare state has expanded and not
shrank. Indeed, a growing welfare state may be a *cause* of higher private wealth inequality.
It’s easier for progressives to think that the super
wealthy are to blame for their policy preferences not being implemented
than to contemplate a more uncomfortable explanation: voters generally
do not think inequality a major problem, and to the extent they might,
they do not support big government policies to solve it. Two percent or less of the public say “the gap between rich and poor” is the “most important issue” facing the country. Estate taxes are widely loathed,
despite how few people pay them. Much evidence suggests the public’s
conception of fairness differs strongly from the progressive or
socialist worldviews.
At a PIIE conference
last week, Larry Summers outlined that he thought it extremely unlikely
that growing wealth inequality led to a captured democracy. Yes, the
rich tend to be more politically involved than the rest of us. But the
cost of access to politicians is relatively low. You don’t need to be
super wealthy to get on the top donor table. So the key driver of wealth
inequality we have seen – rising top wealth – is unlikely to have
changed many political outcomes. Vested interests and cronyism are far
more important causes, bringing (as they tend to) paths to obtaining
money and, more importantly, votes.
In short, the evidence for wealth inequality leading to
democratic capture is extraordinarily thin. A 2019 Cato-YouGov poll
found that 62 percent of Americans surveyed do not believe that
“billionaires are a threat to democracy.” What hard evidence do Warren
and others have to suggest they are wrong?"
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