How Bad Policies Brought Us a New Gilded Age
How Bad Policies Brought Us a New Gilded Age
As voters and as Catholics, how should we evaluate the country’s economy and the government’s role in regulating it? More than a century of Catholic social doctrine, drawn together in the Compendium of the Social Doctrine of the Church and expressed most recently in Benedict XVI’s Caritas in veritate, provides some basic standards.
It is clear by now that the state of the U.S. economy will be the primary issue in this year’s election. As voters and as Catholics, how should we evaluate the country’s economy and the government’s role in regulating it? More than a century of Catholic social doctrine, drawn together in the Compendium of the Social Doctrine of the Church and expressed most recently in Benedict XVI’s Caritas in veritate, provides some basic standards.
In the words of John Paul II, the “first principle of the whole ethical and social order” is that of the “universal destination of goods,” which requires that all persons have access to sufficient goods to live in dignity and develop to their fullest potential. This is a goal best realized, furthermore, through a vibrant market economy based on private property, the economic arrangement that most efficiently creates wealth, respects human initiative, and allows people to support themselves and their families with dignity. The Catholic tradition is not opposed to wealth, private property, or free markets. Their value, however, is instrumental rather than intrinsic; they are beneficial to the extent that they contribute to the good of all, creating a widely shared prosperity. To ensure they do this, markets need government. Laws are needed to enforce contracts, insure transparency, and prevent corruption, and regulation is needed to prevent what Benedict XVI calls the “scandalous speculation” in the financial sector that recklessly risks the security of those in the larger economy. According to John Paul II, markets must be “appropriately controlled by the forces of society and by the state to assure that the basic needs of the whole society are satisfied.”
Beyond these basic needs, church doctrine consistently cites equality as a core measure of economic well-being, warning that growing disparities in wealth not only violate basic principles of justice but create concentrations of power that threaten social cohesion and democratic integrity. Again and again, church teaching explicitly calls for the “redistribution” of wealth, and demands that government action show what John Paul II calls a “preference for the poor” by maintaining a safety net to protect the most vulnerable against poverty, homelessness, hunger, and poor access to health care.
Above all, the church advocates policies protecting the dignity of work. Labor has an “intrinsic priority” over capital in the Catholic view, and all people deserve the opportunity to support themselves and their families. Government policy must therefore commit itself to full employment, protecting against what John Paul II calls the “social disaster” of unemployment. The law must ensure safe working conditions, adequate time off for rest and family responsibilities, and wages high enough for a single earner to support a family with dignity. To this end, Catholic doctrine considers labor unions “indispensible,” not only because they protect the rights of their members, but also because they provide a check on the concentration of economic power that threatens equality across society. In the words of Benedict XVI, any attempt to “limit the freedom or negotiating capacity of labor unions” clearly violates Catholic doctrine.
Government’s role in upholding economic justice is even more vital and direct in moments of economic crisis, when steep downturns threaten the common good and put particular stress on the vulnerable. These are precisely the times when a country should reject any move to weaken or endanger systems of social security—either through cuts in social spending or, as Benedict XVI has warned, through “lowering the level of protection accorded to the rights of workers or abandoning mechanisms of wealth redistribution.”
The downturn that began in 2008—the deepest since the Great Depression—makes the church’s economic teaching more important than ever. Unfortunately, we have paid it little heed. While a massive government bailout of the financial titans who caused the crisis attracted instant bipartisan support and trillions of dollars, help for those on the bottom has been less forthcoming. Stimulus measures taken by the government early in the crisis have been too modest and too sporadic. And for the past year and a half, the trend at both state and federal levels has been toward deep cuts in spending, including areas, such as national infrastructure and education, that are crucial to our long-term economic health—and where people need work now. These cuts are coming at exactly the wrong time, eliminating more than a million government jobs and preventing the creation of countless more in the private sector by sucking demand out of an economy that desperately needs more of it to restore growth. Even monetary stimulus by the Federal Reserve, once considered beyond political tampering, is now subject to unprecedented pressure by congressional leaders warning against any attempts to stimulate the economy.
Driving much of this is a remarkably successful effort to shift attention away from unemployment and poverty and focus instead on deficits as the country’s most significant problem. This sudden concern with deficits is telling. Over the past decade we turned structural surpluses into deficits through massive tax cuts for the wealthy, soaring defense spending, and a Medicare drug plan designed to enrich pharmaceutical companies by prohibiting the government from using its purchasing power to bargain for lower prices. Such fiscal recklessness during an expansion has made addressing the current contraction much more difficult. But to turn around and slash spending now is even more irresponsible. The great majority of economists agree that choosing deficits during expansions and austerity during recessions is the mirror opposite of wise fiscal policy. Yes, long-term deficits are a problem; but when the immediate priority is to restore a healthy economy, temporary deficit spending—spending that takes advantage of historically low interest rates—is entirely appropriate.
Once the country returns to robust growth, a fiscal policy guided by Catholic teaching should also recognize that the United States needs a more progressive and robust tax structure. The federal government’s revenues have sunk to a sixty-year low. We currently possess one of the lowest and least progressive tax rates in the world; indeed, simply adopting the tax rates of our northern neighbor, Canada, would instantly return us to surpluses—and still leave us one of the least-taxed countries on the planet. State governments for their part could balance their budgets simply by flattening their own regressive tax systems, asking their wealthiest taxpayers merely to pay the same percentage their poorest ones already do.
But such just and sensible approaches miss the real point of the new deficit alarmism: to leverage deep cuts to the safety net. Catholic Congressman Paul Ryan (R-Wis.), who voted for all the major policies that produced the deficit, has now used that deficit to justify a GOP budget blueprint that phases out Medicare and drastically cuts Medicaid, unemployment benefits, and food assistance—all while leaving defense spending untouched and offering the wealthy another round of tax cuts. Wisconsin’s Republican Governor Scott Walker, in a state where the wealthy pay a lower tax rate than the poor, used a budget shortfall not just to justify wage and benefit reductions, but to curtail the collective-bargaining rights of state-employee unions.
The economic crisis of the Great Recession has roots that go back three decades. The thirty years before the collapse saw dramatic changes in this country, changes that should alarm anyone who takes Catholic economic doctrines seriously. During that period, the richest 1 percent of U.S. households saw their incomes rise 260 percent (compared with 14 percent for the bottom 60 percent), more than doubling their share of the national income, until by 2007 this top 1 percent earned more than all 150 million people in the bottom 50 percent combined. In the six-year expansion that led up to the 2008 crash, the same top 1 percent saw its incomes rise by 10 percent a year, while median family income actually declined, and poverty increased—the first time in U.S. history it has done so during an expansion. This rise in poverty occurred as corporate CEO compensation ballooned from twenty-four times the average worker’s wage to three hundred times that amount. Just six members of the Walton family, whose patriarch founded Walmart, now have as much wealth as the bottom 30 percent of the entire U.S. population.
The United States, which once prided itself on its social mobility, now ranks below the rest of the developed world in the rate at which people born into one class leave it. Education, the time-honored means of American upward mobility, no longer seems to be functioning that way. Today, someone born in the poorest fifth of the income scale who earns a college degree is less likely to end up in the richest fifth than someone born in the richest fifth who doesn’t graduate from college at all. And that is just the poor kids who actually get to college. Among high school students with identical average test scores, two-thirds of poor kids don’t even go to college—while two-thirds of wealthy kids do.
The middle and bottom of the income scale have been hit particularly hard by these converging trends. During the same thirty-year period, the minimum wage in the United States fell to a fifty-year low; it now pays a worker $15,000 a year, not nearly enough to keep a family of four above the official poverty rate of $22,000. Even before the Great Recession, one in every five children lived in poverty, and over 40 million people lacked health-care coverage, making a family illness the leading cause of bankruptcy. And while American workers have put in more and more hours trying to keep up, the United States is virtually alone among advanced industrialized countries in not guaranteeing paid vacation time and family leave, putting an even greater strain on working families. Union membership, meanwhile, has been cut in half, falling to a new low of 12 percent of the overall workforce and only 7 percent of private-sector workers.
Of course, the current economic crisis has only exacerbated these dismaying realities. Many more Americans have fallen into poverty, record numbers are on food stamps, unemployment and the loss of health insurance have devastated millions, and working families have seen their incomes shrink and their wealth evaporate. Our country’s inequality, unparalleled in the developed world, now exceeds that of Nicaragua, Pakistan, and Ethiopia.
Economic trends over the past three decades involve many factors—globalization, immigration, family breakdown, and the rise of an information-based economy among others. What is striking, however, is the extent to which inequality has exploded in the United States compared with other countries facing the same challenges. The key difference is politics. While other developed countries have used government policy to counteract inequality, we have not. In fact, we have gone in the opposite direction and adopted policies that actually intensify it. We have, in other words, embraced plutocracy.
Plutocracy is a system in which political influence is used to maximize the interests of the wealthy and powerful at the expense of the rest of society. It is a political corruption of the Golden Rule—a society in which those with the gold rule. The plutocratic ideology in the United States often deploys promarket/antigovernment rhetoric, but tactically, in a way that is not consistent. It opposes government regulation when profits are threatened, yet also engages in rent-seeking—the use of government power to lock out competition, win state contracts, create special subsidies, and shape regulations to enhance wealth for the few. In the plutocratic dream scenario, all costs and risks are socialized—covered by government—while all profits are privatized, pocketed by corporations and wealthy individuals. By its very nature, a plutocratic elite is short-sighted, plundering the commonweal for profit and power regardless of harm to the social fabric and the country’s long-term economic health.
In their remarkable 2010 book Winner-Take-All Politics, political scientists Jacob Hacker and Paul Pierson show in painstaking detail how political decisions over the past three decades have brought us to this point. While the incomes of the top 1 percent soared, their tax rate dropped dramatically, as upper-income brackets were slashed and special loopholes opened. Taxes on inheritances and capital gains saw even more dramatic cuts, helping produce the scandal of hedge-fund managers who pay lower tax rates than their hired help. Shifts in policies governing corporate regulation and executive compensation, especially in the financial sector, have encouraged excessive risk-taking and short-term stock-price pumping while insulating corporate managers from the long-term consequences of their actions and restricting the ability of shareholders and consumers to object. Meanwhile, the minimum wage has lagged further and further behind, even as government has pursued policies that shift greater amounts of risk onto average Americans in areas from pensions to health care to bankruptcy protection. And while the desire to join unions has remained high among American workers, government policy has systematically shifted against unionization, allowing corporations to dismantle existing ones and making it almost impossible to begin new ones. Even pro-union laws still on the books go largely unenforced, allowing businesses, for example, to fire pro-union employees with impunity.
These policy shifts reveal the plutocracy of a system in which money rules with a blatancy not seen since the Gilded Age. Since the late 1970s, corporations and wealthy individuals have run an enormous advocacy operation, pouring billions into think tanks and lobbying operations designed to shape the political agenda, to frame issues in particular ways, and to influence policy behind the scenes. With the collapse of unions, the most powerful institutional force for egalitarian policies and government action on behalf of working and middle-class Americans has been hobbled. Plutocracy now sets the economic agenda of the GOP, but the growth of corporate influence in the Democratic Party has made it at best an ineffective opponent—and, at worst, an active abettor. Though Republicans are typically open about their plutocratic priorities—pushing upper-income tax cuts no matter what the situation—both parties are guilty of chipping away at regulations, adjusting loopholes, creating subsidies, blocking oversight, and greasing the revolving door between government and lobbying that plutocracy thrives on. All this has brought an enormous disconnect between the views of average Americans and government action. Studies show that while policies supported by those at the top of the income scale are usually adopted, support by the middle class has almost no impact and support by the working class actually makes policy adoption less likely.
Plutocracy is a repudiation of Catholic doctrine. Seeking to disconnect the fate of the wealthy and powerful from all others, and maximizing private gain at the expense of the common good, it is the opposite of solidarity. Throughout the thirty-year rise of the American plutocracy, many Catholics have embraced their tradition and resisted—raising voices in protest, taking political action, and ministering to those harmed by plutocratic policies. The country’s Catholic leaders have issued a long series of statements, most famously Economic Justice for All (1986), clearly condemning plutocracy. But these efforts, running against such a strong tide, have been largely ineffective. Letters on economic justice from the U.S. bishops to John Boehner, the (Catholic) speaker of the house, have as little impact as their letters on abortion had on Nancy Pelosi (also a Catholic) when she was the speaker of the house. The sad truth is that many Catholics don’t know or care about their tradition’s economic teaching. Others, especially the poor and recent immigrants, are disengaged from political matters. And unions, once a great bridge for Catholics to political action on behalf of church doctrine, are a shadow of their former selves.
Particularly disheartening, however, are those Catholics who work on behalf of plutocracy. Catholics who specialize in squaring plutocratic policies with Catholicism have long held a secure place in the world of conservative think tanks and journals, and since the Great Recession they have stuck to the script, repeating the conservative refrain that the real problem is not poverty, unemployment, or inequality, but the deficit, and that the only solution is cutting social spending, not raising taxes on the wealthy. The online magazine Crisis, to take one example, has run pieces by papal biographer and conservative polemicist George Weigel on the danger of deficits and the need to cut social spending in order to save the poor from becoming “serfs on the state welfare plantation”; by Fr. Robert Sirico, president of the Acton Institute, on how we can no longer afford to keep “shoveling government money into welfare programs”; and by Michael Orsi on the bane of “government handouts” and the need for all corporate and income taxes to be replaced by a national sales tax (a massive shift to regressive taxation, long a plutocratic goal). Sirico and Deal Hudson, formerly President George W. Bush’s director of Catholic outreach, have defended the Ryan budget on Catholic grounds, and the website Catholic Advocate went so far as to praise that budget’s “Catholicity” on the grounds that cutting an “uncontrolled welfare state” actually helps the poor. Ryan himself characterizes calls for the wealthiest Americans to pay higher taxes as “class warfare” and an attack by “takers” against “makers.” One of this year’s Catholic candidates for president, Newt Gingrich, offered a classic plutocratic tax plan that would deliver an enormous new tax break to the wealthy, even while he criticized unemployment insurance as paying people “for doing nothing.” On the union-busting front, Weigel and Sirico backed Governor Walker’s actions in Wisconsin because, in Weigel’s words, doing so was necessary to save the state from “going over the fiscal cliff,” and Hudson flatly stated that “there is nothing on the table in the Wisconsin legislature that would nullify or even weaken workers’ rights.” And the emergency, all-hands-on-deck effort by conservative Catholic commentators to dismiss last October’s Vatican statement on global financial regulation—often on websites ostensibly dedicated to championing Catholic principles in the public square—was almost farcical.
All these Catholic apologists for plutocracy point out that there is room in Catholic economic teaching for prudential disagreement, and they are right; Catholic doctrine doesn’t lock in a specific policy agenda. But it does have clear boundaries and clear basic values. Parents can legitimately disagree about how best to raise children, but that doesn’t mean anything a parent does is legitimate. Similarly, “prudential disagreement” is not a magic phrase you can utter to justify any economic policy in terms of church teaching. No fair-minded person reading Caritas in veritate and the Ryan budget side by side can escape their fundamental conflict in values and priorities. If the plutocratic policies supported by proponents on the Catholic right don’t violate Catholic economic doctrine, then what is the point of having that doctrine? Twisting principles to mean whatever one wants them to mean is a rejection of those principles.
What remains so puzzling about this rejection of church teaching is how unique it is to the United States. Culturally conservative Catholics elsewhere in the world agree with their American counterparts on most issues, yet find their economic arguments mystifying. After all, in Europe it was center-right Catholic parties that helped build (and still strongly support) unions, the social safety net, and progressive taxation. In the developing world, conservative Catholic leaders are highly attuned to the problems of poverty, unemployment, and inequality. But the United States, having installed plutocracy as part of today’s conservative Catholic agenda, is an outlier.
We need to remind ourselves that there is nothing inevitable about plutocracy, or any other dominant ideology for that matter. Political ideologies are the result of political choices. We have made some bad ones over the past three decades in this country, but that doesn’t mean we can’t change course. Catholic doctrine lays out a dramatically different and better direction for us to follow. But until Americans, including American Catholics, take back our political system and commit the country to this new direction, we will be stuck with the plutocracy—or beneath it—for a long time to come.
This is the first in a series of articles about the 2012 presidential campaign.