In 2006 two economists turned their critical faculties on a surprising phenomenon: diplomatic parking tickets in New York City. The pair found remarkable variation among the diplomatic corps of different countries. Kuwait’s UN delegation led the pack, racking up an astounding 246 tickets per diplomat between 1997 and 2002. At the other end of the spectrum, Denmark’s diplomats didn’t get a single ticket. The economists discerned that the number of parking tickets per delegation tracked with Transparency International’s corruption index. Diplomats from high-corruption countries like Kuwait got loads of tickets; those from low-corruption countries like Denmark got few or none.
What the economists failed to note is that corruption itself tracks with another phenomenon–a nation’s level of economic inequality. Dramatically unequal countries like Kuwait tend to be hideously corrupt. Countries like Denmark–by most measures, the most economically egalitarian country in the world–tend to be honest and transparent. Because of the principle of diplomatic immunity, even the careless Kuwaitis were not technically breaking any laws. Still, their parking violations speak volumes about their sense of social cohesion, or what strangers owe one another as members of civil society.
It’s this type of elite misbehavior–self-serving though not always technically illegal–to which David Cay Johnston turns in Free Lunch. Johnston is a Pulitzer Prize-winning tax reporter at the New York Times. His recent articles have exposed the gaping economic inequality of George W. Bush’s America and given the lie to the apologists’ explanation that the new inequality stems from globalization or increasing returns to education. His analysis of tax data, which he recapitulates in Free Lunch, shows that it is not merely the poor and middle class who are being left behind. Even those Americans in the ninety-fifth and ninety-ninth percentiles on the income scale haven’t received outsized economic benefits over the past twenty-five years. The only people leaping ahead in winner-take-all America are in the top 1 percent–and more specifically the top .1 and .01 percents. In a sense, it’s not surprising to see Johnston’s work in the Times. Even its well-educated readership is just treading water in this economy. The big winners read the Wall Street Journal.
Johnston’s contention is an audacious one: the level of inequality and corruption in contemporary America puts us in league not with our putative economic peers, Canada, Europe and Japan, but with Brazil, Mexico and Russia, countries “in which adults have the right to vote, but real political power is wielded by a relatively narrow, and rich, segment of the population.” And, as in these unequal “democracies,” American elites routinely raid the public purse rather than rely on the free market to succeed. Since the “Reagan revolution,” and under the guise of privatization, deregulation and “market-based solutions,” wealthy interests have set up a system that Johnston dubs “corporate socialism,” in which they succeed through monopoly, public subsidy and even outright theft rather than through competition. And this rigged system, Johnston argues, is what’s driving the new inequality off the charts. “Subsidy economics,” he writes, “is at the core of the economic malaise felt for so long by a majority of Americans.”
Early in Free Lunch, Johnston’s lumping of the United States with Brazil, Mexico and Russia sounds inflammatory, even irresponsible, but the more one reads of his litany of plutocratic shenanigans, the less far-fetched it sounds. Johnston’s story of an oligarch getting $100 million in corporate welfare to open a call center filled with dead-end jobs in a frozen postindustrial city and then getting laudatory coverage in the local paper, which said oligarch owns, sounds right out of Putin’s Russia. But the Frost Belt city isn’t Vladivostok, and the oligarch isn’t Boris Berezovsky–it’s Buffalo and Warren Buffett.
As an investigative reporter, Johnston is a big-game hunter. He skewers popular plutocrats like Buffett, digs up the dirt on the unsavory sources of Paris Hilton’s fortune and details Apple executive Steve Jobs’s backdated stock options thievery. Some of these stories are well-known–Enron’s market manipulation, for example–but Johnston’s reporting makes the outrage boil over anyway. Unfortunately, the outrage sends Johnston’s prose into overdrive. His description of “government giveaways [that] flourish like weeds on Miracle-Gro” makes you wish he’d shown his copy to some strait-laced editors at the Times or even stuck with the standard cliché, “pop up like mushrooms.”
It is Johnston’s investigative skills, however, that distinguish the book from the usual social critic’s rant. He does his homework, crunches the numbers and makes astonishing discoveries. For example, the sporting goods chain Cabela’s, a leading purveyor of hunting equipment (and Dick Cheney’s favorite place to shop), earned $223.4 million in profits between 2004 and 2006 while soaking up at least $293.7 million in subsidies on its Nebraska stores alone. Playing one small town against another, Cabela’s arranged deals to waive property taxes, let the company pocket sales taxes and even get free land for its stores and distribution centers. In a very real sense, Johnston shows, Cabela’s is in the corporate welfare business, not the sporting goods business.
Johnston also profiles a mom-and-pop sporting goods store in tiny Hamburg, Pennsylvania, put out of business when a Cabela’s comes to town. The reporting is vivid, but the analysis is weak. This is indeed a case of unfair competition, but Johnston argues that in a system of fair competition, mom-and-pop stores would do just fine. A dogged reporter, he’s dug up a case of a mom-and-pop that can beat the big chain on price. But is such a comparison typical? There are plenty of reasons to oppose the big-box behemoths, but high prices is rarely one of them. With their economies of scale, chains can usually undercut independent stores without resorting to corporate welfare.
So Johnston ends up arguing, in effect, that laissez faire would be fair. But would it? He repeatedly makes references to how much Adam Smith would object if he could see our system, where “corporate socialists” troll Washington and the state capitols for favors rather than competing on the open market. Perhaps this is purely rhetorical–a way to appeal to a country where Smith is arguably more revered than the actual founders of the country. But is objecting to plutocracy in America on the grounds that it’s not Smithian really the most effective way to combat the new inequality? And is crony capitalism really the main source of the new inequality? It’s true that American crony capitalism produces even more inequality than a Smithian laissez-faire system would. But Smith’s laissez faire would still concentrate money in the hands of a few. That’s what unregulated capitalism does. The new inequality is the result both of market-based reforms that are implemented honestly and those implemented dishonestly.
Johnston seems to believe that our country is becoming unequal because it is corrupt, not that it is becoming corrupt because it is unequal. Certainly corruption and inequality are mutually reinforcing phenomena, but the causation generally runs from inequality to corruption. Rather than conjure up a Johnstonian metaphor here, let’s just say he’s putting the cart before the horse.
In a sense, Johnston’s book is exactly the type of angry but ultimately ineffectual analysis that Michael Thompson, an assistant professor at William Paterson University, takes aim at in The Politics of Inequality. Why, Thompson asks, is the critique of inequality–so salient for the first 200 years of American history–falling flat today, when inequality is as bad as it’s ever been? To take on the new inequality, Thompson argues, we must rediscover the older tradition of critiquing inequality from a small-r republican perspective. In this line of thinking, the problem with inequality is not so much that it is unfair for so few to have so much while so many have so little, or even that inequality undermines formal democratic politics. Rather, it’s that high degrees of economic inequality undermine democratic society itself, the society of equals. “Western political thought, from the writings of Plato on through those of John Dewey, saw economic inequality as dangerous…not out of a liberal concern for ‘fairness’ or opportunity but because it marked divisions that threatened a culture of equality and freedom,” Thompson writes. Thus, when Supreme Court Justice Louis Brandeis reputedly warned, “We can have a democracy in this country or we can have great wealth concentrated in the hands of the few. We cannot have both,” he was not offering an opinion. He was stating a fact. We can be a republic or we can be a society where elites park in front of the fire hydrants.
Ever since the beginnings of democracy, Thompson explains, political thinkers have understood that a democratic society can not endure under conditions of extreme inequality. There was broad agreement on this principle. The difference between left and right was not that progressive thinkers opposed extreme inequality and conservative theorists supported it. Rather, left and right differed only on why they feared inequality. Left thinkers worried that in a system of extreme inequality, the conspiratorial rich would subvert the forms of democracy for their own self-interested ends. You can hear this fear in Thomas Jefferson’s warning that “I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government.” Right-leaning thinkers worried that extreme inequality would push the poor to rise up and lead to mob rule–John Adams’s fear of the “lawless, tyrannical rabble.” Centrists like Aristotle were equally fearful of rich and poor. The Athenian philosopher thought that under unequal economic conditions, the poor view the system as a conspiracy against them and see no reason to follow the rules; similarly, the rich come to feel that they are better than their fellow citizens and see themselves as above the law. The key to a stable republic, Aristotle discerned, is a large and stable middle class. This understanding was hardly limited to philosophical idealists flitting about in Aristophanes’ Clouds. Even Machiavelli, the consummate pragmatist, not known for his sentimental attachments to abstract ideals, argued that a republic could endure only under conditions of relative economic equality; otherwise, corruption or revolution would ensue.
For 2,000 years, hardly anyone thought extreme inequality was tenable in a republic. So while William Greider has described (in these pages) the New Right agenda as “rolling back the twentieth century,” it is even more audacious than that–it is to roll back Western civilization (or perhaps human civilization, period, for even Confucius warned, “Where wealth is centralized, the people are dispersed. Where wealth is distributed, the people are brought together”). While Aristotle began Western political thought with his insight that “man is by nature a political animal,” Margaret Thatcher sought to end it: “Who is society? There is no such thing! There are individual men and women and there are families.”
Admittedly, in American political thought there has always been a counterargument that high degrees of economic inequality, if established under conditions of open competition, could coexist with democracy. Thompson traces this tradition from Alexander Hamilton through John C. Calhoun to Milton Friedman. But none of these thinkers, so sanguine about the risks inequality poses to democracy, were particularly committed to democracy. Hamilton humiliated himself on the floor of the Constitutional Convention by arguing that what the new nation really needed was a “monarch”; Calhoun was America’s leading intellectual apologist for slavery; Milton Friedman advised Chilean dictator Gen. Augusto Pinochet. The only thinkers who dismiss extreme inequality as no threat to democratic society appear to be, at best, indifferent to democracy.
Considering the brevity of Thompson’s sketches–Plato is discussed in six pages, Machiavelli in one–academics may dismiss the book as drive-by intellectual history. But if anything, the book is not broad enough. Why limit discussion to political philosophers simply because a balkanized academy calls for it? Why not analyze political rhetoric–the free-labor ideology of Lincoln’s Republican Party, for example–and religious thought? To what extent is our embrace of inequality rooted in our Puritan forebears’ transformation of the religion of Jesus, in which worldly wealth was a barrier to salvation (“It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God”) for a faith in which worldly wealth was a sign of salvation?
How, after 2,000 years of broad agreement that extreme levels of economic inequality were anathema to self-rule, does one explain the United States, an ostensibly democratic country where the concentration of wealth exceeds not only those of our peer countries but that of imperial Rome? Thompson blames this on the triumph of liberalism, with its emphasis on individual rights and equal opportunity, over republicanism, with its emphasis on civic virtue, social equality and the absence of domination. Conventionally seen as being in tension, liberalism and republicanism, Thompson argues, were initially aligned in their opposition to feudalism. Early American liberals assumed that an economy of open competition would lead to reasonable levels of economic equality. After all, every person had the capacity to work; freed from the constraints of feudalism, each worker could keep the fruits of his labor.
In the early American economy of small farms and shops, this idea seemed reasonable. What liberals didn’t understand was that in the industrial economy of large corporations that would develop after the Civil War, work and reward would again be separated. In the feudal system, serfs worked land owned by nobles; nobles got rich while serfs remained poor. Under industrial capitalism, workers work in corporations owned by industrialists and shareholders, who similarly get rich while workers often get shortchanged. Blindsided by the rise of industrial capitalism, with its bifurcation of work and reward, liberalism was impotent to take on the inequality of the first Gilded Age or its re-emergence in the second Gilded Age today. While a liberal ideology of open competition has been able to take on racial and gender inequality, it has nothing to offer against the scourge of economic inequality. Capitalism’s Smithian system of seemingly free and open competition is a mechanism for generating extreme economic inequality. Until liberals understand this–including liberals like David Cay Johnston–there is little chance of rolling back the new inequality.
Thompson urges broader criticism of inequality than analysis of the economic gains of the top 1 percent or how the rich monopolize government power. He writes of the “decline of civic engagement, the erosion of political life, and the shattering of a once vibrant public sphere” that ensues under conditions of extreme inequality. At its best moments, Free Lunch explores these themes, as when Johnston describes the fate of urban park systems under privatization. (In Los Angeles, where user fees have replaced tax funding, parks in poor neighborhoods rot while those in posh areas shine.) Thompson’s book is not a work of reporting, but the quotes he unearths from thinkers describing unequal societies of times past do seem to offer glimpses of our own time. Matthew Arnold’s description of a Dickensian England in which extreme inequality is “materializing our upper class, vulgarizing our middle class, and brutalizing our lower class” certainly sounds prescient. “This is to fail in civilization,” Arnold concludes. And when Thompson quotes Montesquieu as saying, “In monarchies and despotic governments, nobody aims at equality…they all aspire to superiority. People of the very lowest condition desire to emerge from their obscurity only to lord it over their fellow-subjects,” you can’t help but think of the French baron in powdered wig and tights, notebook in hand, wandering the streets of Las Vegas, past casinos and pawn shops.
Though Thompson provides a great service in revisiting–and reviving–the tradition of seeing extreme economic inequality and democracy as incompatible, the Montesquieu quote raises a dark truth the author never fully confronts. While it would be comforting to assume that extreme inequality would naturally lead to popular demands for greater equality, in highly unequal societies, people often aspire not to roll back inequality but to benefit from it. How to turn a nation of gamblers into a nation of citizens is the question that looms over America.