R.K.: Now, you have written about how the founders really established a country to secure their rights of property against the danger from inequality and universality of suffrage and you talk about how Aristotle thought that democracy was the best form of government but for a flaw was the great mass of the poor could use their voting power to take the property of the rich, which would be unfair.
Now, recently a number of people, including myself ,have been talking about a no-billionaires America– de-billionairizing the country, the world, because billionaires’, extreme wealth is dangerous. That is the opposite of what Aristotle was saying where he was saying it’s not fair. Do you have thoughts on extreme wealth and how it affects people?
N.C.: Well we have to be fair to Aristotle first. Actually, Aristotle and James Madison, the main framer of the US Constitution, they faced the same problem, they both recognized that in a democracy, the majority of poor ,could use their power to take away the property of the rich, going back to those days to carry out policies that we now call agrarian reform, you know distributing land and so on, and they both recognized that that was unfair but they picked opposite solutions.
Aristotle’s solution was to reduce inequality, and the ways he suggested, remember he was talking about a city, Athens, the ways he suggested were ,what we would today call welfare state measures to turn the population to what he called middle class so there wouldn’t be extreme variation of wealth and poverty. That would overcome the problem.
Madison faced the same problem– the conflict between democracy and what they considered fairness– and he picked the opposite solution. Hi solution was to reduce democracy. So the country was founded on principles which are embodied in the constitution which are basically Madisonian in conception and I’ll just quote Madison, the purpose was, he said, to place a political power in the hands of the wealth of the nation– the more responsible set of men, those who will be able to protect the rights of property owners and the way it was done, remember back in the early days of late 18th century the founding of the constitution, the power was mainly in the hands of the senate. The executive was kind of an administrator. The senate was the place where political power resided,. The senators of course weren’t elected and they had long tenures. They were kind of remote from popular control and they were to be the wealth of the nation. And the rest of the society was to be fragmented and divided in various ways that you wouldn’t get the effect of what was called the tyranny of the majority, that is, majority rule. You wouldn’t have that, that’s the Madisonian system.
So Madison actually faced the same problem as Aristotle but picked an opposite solution and what you’re suggesting is basically Aristotle’s solution– eliminate the vast disparities of wealth. Now this is not just a matter of going after the top 1/10 of 1%, there are institutional reasons for this, there are policy reasons. And it’s the policies that have to be changed. This enormous inequality that we now have, of historic heights, it didn’t happen kind of like a tornado, it was the result of very deliberate decisions beginning in the 1970’s escalating under Reagan, continuing with Clinton and onto the present. Very specific decisions and they’re not graven in stone, they can be reversed. So one decision was to sharply reduce taxes on the very wealthy and on the corporations. Now that’s because the public wants it. In fact there have been polls on this topic regularly since the 1970’s. The public, including the right wing incidentally, strongly supports the public, not the leadership, the public, strongly supports going back to the earlier tax rules, higher tax rules on the wealthy and the corporate sector. Another change that was introduced was just changes in the way was deregulation. That was pressed by democrats as well as republicans. It was a huge growth of financial institutions.
That’s quite new, they’re mostly harmful to the society and the economy but they’re enormous in scale and they’re totally different than what they were in the great growth period, the 50’s and 60’s. Then banks were banks. You’d put your money in them, they’d lend money and so on, but since the 70’s and on to the present, what has become of the financial institutions or investment banks which are engaged in massive speculation, very rapid flow of capital, exotic financial instruments, securitization of sub-prime mortgages, all sorts of trickery which has been extremely harmful to the economy.
That’s why we’ve had regular financial crises ever since the 1980’s. There weren’t any in the 50’s and the 60’s. But after the de-regulation and the enormous support for the growth of financial institutions, there has been crisis after crisis. The Reagan years ended with the savings and loan crisis. The Clinton years ended with the bursting of the tech bubble. There’s been the huge housing bubble burst during the Bush years, with the financial crisis that followed from it, and each one is worse than the last.
The congressional budget office, the main neutral independent research institute of congress just estimated recently that there’s about twenty five trillion dollars of lost output just from the recent housing and financial crisis. That’s a huge effect and of course the effect on the population is awful. I mean take a look at real wages, you know? Turns out they’re about at the level of 1989 and for male workers they’re back at the level of 1968. And of course the concentration of wealth has gone along with it and there are other as wealth gets concentrated, so does political power and that leads to legislation which carries the vicious cycle onward.
All of that can be reversed that has nothing to do with the way markets function, has nothing to do with what’s called capitalism, these are highly specific decisions designed to have these consequences. So I think that it’s, I mean you’re right, there shouldn’t be multi-billionaires while the United States has the worst poverty level in the developed world outside of Turkey, which is just a total scandal. That shouldn’t be happening, but the reasons are institutional structures and specific decisions that have been made all along the line which create these situations and those can be reversed, in fact I think we can go well beyond that to much more just and free institutions in the first place.