Is Rising Inequality A Failure Of U.S. Democracy?


It is a conceit of democracy that opposing parties, after months of trying to convince the public the other would be a disaster for the country, should after the election cooperate for the good of the whole.

In fact, with rare exception, what happens was postulated by the Italian economist Vilfredo Pareto over a century ago.  Power is contested between competing elites, each wooing the general public, and to the winner the spoils, distributing enough crumbs to maintain an orderly society.

The last U.S. president was a multi-millionaire.  His party’s 2016 candidate, Hillary Clinton, was even wealthier, contesting of course a billionaire rival.  A majority of U.S. congressmen are millionaires and the median net worth of Senators is $2.7 million.

Since the election of Donald Trump, the stock market has been booming.  He promises huge tax cuts for corporations and Wall Street is salivating.  This is all nothing new.  Tax cuts for corporations is supposed to increase their retained profits allowing them a chance to invest more and create jobs.  It has all been tried before.  Asset holders get richer and income and asset inequality rises.  The corporations of course continue to invest where shareholder gains are maximized.

In the past decades since Ronald Reagan, when the trickle-down theory (often accompanied by a loosening of financial regulations) has been applied, there has been a Savings and Loan institutions disaster — checks on their behavior were loosened — followed by an identical scenario for large commercial banks in 2008.

Meanwhile, the U.S. Gini coefficient, measuring income inequality, is near the bottom among developed countries, and is even worse than India.  As could be expected, Scandinavian countries score well.

The courts have reversed the Trump anti-immigration order and deregulation is going to require Congressional approval; governing is turning out to be not quite the same as running a business.

What’s more, when bombast hits reality, Mr. Trump reverses policy.  Following a brief flirtation with Taiwan and the questioning of a ‘one-China’ policy, the new news is that the President affirmed his support for a ‘one-China’ in a telephone conversation with Mr. Xi Jinping, the Chinese leader.

Bombast also turned to whimper with the visit of Japanese Prime Minister Shinzo Abe.  No more talk about the Japanese getting a free ride on the defense of their country and the U.S. nuclear umbrella.  Mr. Trump promised to defend Japan and its territories without reservation.

The truth of the matter is great powers are not in the charity business.  Their actions are motivated by self-interest.  The U.S. needs alliances with Japan, South Korea, Philippines to meet the rising power of China, a country also capable of projecting power globally.  There is a good reason for the hub-and-spoke plan used in the east as opposed to a unified alliance, NATO, in the west.  The countries involved in the east differ enormously in their economic development from the advanced industrial democracy in Japan to a third world Philippines.

As a postscript on the rule of elite consider the recent ‘demonetization’ — a misleading term — in India.  Supposedly designed to flush out black (untaxed) money, it withdrew the five hundred and thousand rupee notes causing economic chaos and hardship for the poor, who do not have bank accounts.  Required to exchange the money for new notes, the latter had to choose between standing in long lines at banks or working to feed themselves.  Of course, it pushed the middle classes towards banks and credit cards, a huge bonus for the providers.  In the end, about Rs 15 trillion out of the Rs 15.4 trillion removed from circulation was retrieved.  Wherever the black money was hidden — possibly in gold and real estate — it was not in currency.  Another pointless sock-in-the-eye to the poor in the world’s largest democracy.
Dr Arshad M Khan ( is a former Professor whose comments over several decades have appeared in a wide-ranging array of print and electronic media.  His work has been quoted in the U.S. Congress and published in the Congressional Record.



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