The Effects of Financial Oligarchy on Income Inequality
Since the late 1970s, governments in affluent capitalist nations have failed to limit capitalism’s inherent tendency towards increasing inequality; instead they have only made matters worse.
Rising inequality impedes overall economic growth by decreasing household spending. According to estimates by EPI, rising inequality in post-tax and benefits income has had an estimated drag on aggregate demand of 1.5% of GDP each year.
1. The Concentration of Assets
American and global elites alike have seen their share of wealth increase as wages remain flat or have fallen, even amid an explosion of stock and housing market prices that disproportionately benefit those owning such assets. As a result, inequality has skyrocketed — even before considering tax payments and government transfers.
Inequality doesn’t automatically lead to “oligarchy.” Countries can have free and competitive elections, formal political equality among groups and high participation rates without suffering massive accumulations of wealth. But having an oligarchy does have serious ramifications. A financial crisis may hit all at once and cause much pain; banks could lose access to their full pool of borrowers thereby diminishing lending capacity while increasing risk – something no public wants or needs in this era of increasing global instability.
2. The Concentration of Power
Oligarchs possess huge amounts of private wealth and use state power to control major business cartels that dominate the economy. This concentration of power allows oligarchs to exploit both their country and its citizens for short-term economic gains.
Corporate concentration results in higher prices for consumers and limits consumer choice, while giving powerful corporations monopoly power that allows them to exploit workers and communities alike – this was evident during the pandemic, when hospital monopolies denied Americans medicine and test supplies that helped treat pandemic patients while sparking anti-labor backlash through noncompete agreements.
Taxing oligarchs at higher marginal rates would decrease their ability to extract wealth and income from the country, one reason they exert so much effort protecting their wealth through offshore banks, secrecy jurisdictions and industries dedicated to keeping rich people from losing their fortunes.
3. The Concentration of Income
Concentrated income is at the core of financial oligarchy; though some inequality is inevitable, large imbalances do not. Oligarchs can amass fortune by seizing control of a vast array of assets like stocks and real estate or reaping profits from businesses they own; or by buying politicians to influence policy with their wealth.
Even as stock market prices fluctuate, overall wealth concentration continues to increase due to access of wealthy individuals to more effective and cost-efficient instruments of wealth accumulation like private equity funds and real estate investments.
Though the Congressional Budget Office estimates that taxes and means-tested government benefits reduce income inequality, trends in pre-tax income have steadily been increasing inequality since 1979; gains for the top 1 percent have far outshone those seen by bottom 20 percent even after taking into account benefits provided by both taxes and government benefits.
4. The Concentration of Resources
Concentrated resources are an integral factor of inequality. Understanding where wealth and power are concentrated so policymakers can effectively address the issue is paramount to effectively combating it.
Jeffrey Winters refers to elites as those whose power derives from their position, such as presidents or prime ministers of countries. But unlike elites, which may occupy executive office or even hold other high positions within an institution, an oligarch’s wealth gives him or her immense power; that makes a key distinction between them and regular people with power due to position alone.
One of the most notable developments of recent history has been a massive shift of global wealth from public ownership to private ownership, leading to rising income inequality due to an increase in consumption among wealthy individuals, such as multiple homes, domestic servants and vacations. This surge in consumption has contributed significantly to higher budget deficits since 1990 – and consequently to widening wealth gaps.