The Perfect Storm

by on October 19, 2010 · 7 comments

in Civil Rights, Culture, Economy, Election, War and Peace


Editor: This article by Robert Reich – the former Secretary of Labor under Clinton – has been making the rounds on the internet, and we thought we’d also share it. His analysis is that America has become a plutocracy – a system of government by, of, and for the wealthy. An excellent point.  The only weakness here is that Reich fails to mention the huge, huge military and Pentagon budget, and the billions spent on two and a half wars.  Yet, it’s a good read as long as you keep that in mind.

Robert Reichby Robert Reich / / October 18,  2010

It’s a perfect storm. And I’m not talking about the impending dangers facing Democrats. I’m talking about the dangers facing our democracy.

First, income in America is now more concentrated in fewer hands than it’s been in 80 years. Almost a quarter of total income generated in the United States is going to the top 1 percent of Americans.

The top one-tenth of one percent of Americans now earn as much as the bottom 120 million of us.

Who are these people? With the exception of a few entrepreneurs like Bill Gates, they’re top executives of big corporations and Wall Street, hedge-fund managers, and private equity managers. They include the Koch brothers, whose wealth increased by billions last year, and who are now funding tea party candidates across the nation.

Which gets us to the second part of the perfect storm. A relatively few Americans are buying our democracy as never before. And they’re doing it completely in secret.

Hundreds of millions of dollars are pouring into advertisements for and against candidates — without a trace of where the dollars are coming from. They’re laundered through a handful of groups. Fred Maleck, whom you may remember as deputy director of Richard Nixon’s notorious Committee to Reelect the President (dubbed Creep in the Watergate scandal), is running one of them. Republican operative Karl Rove runs another. The U.S. Chamber of Commerce, a third.

The Supreme Court’s Citizens United vs. the Federal Election Commission made it possible. The Federal Election Commission says only 32 percent of groups paying for election ads are disclosing the names of their donors. By comparison, in the 2006 midterm, 97 percent disclosed; in 2008, almost half disclosed.

We’re back to the late 19th century when the lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators. The public never knew who was bribing whom.

Just before it recessed the House passed a bill that would require that the names of all such donors be publicly disclosed. But it couldn’t get through the Senate. Every Republican voted against it. (To see how far the GOP has come, nearly ten years ago campaign disclosure was supported by 48 of 54 Republican senators.)

Here’s the third part of the perfect storm. Most Americans are in trouble. Their jobs, incomes, savings, and even homes are on the line. They need a government that’s working for them, not for the privileged and the powerful.

Yet their state and local taxes are rising. And their services are being cut. Teachers and firefighters are being laid off. The roads and bridges they count on are crumbling, pipelines are leaking, schools are dilapidated, and public libraries are being shut.

There’s no jobs bill to speak of. No WPA to hire those who can’t find jobs in the private sector. Unemployment insurance doesn’t reach half of the unemployed.

Washington says nothing can be done. There’s no money left.

No money? The marginal income tax rate on the very rich is the lowest it’s been in more than 80 years. Under President Dwight Eisenhower (who no one would have accused of being a radical) it was 91 percent. Now it’s 36 percent. Congress is even fighting over whether to end the temporary Bush tax cut for the rich and return them to the Clinton top tax of 39 percent.

Much of the income of the highest earners is treated as capital gains, anyway — subject to a 15 percent tax. The typical hedge-fund and private-equity manager paid only 17 percent last year. Their earnings were not exactly modest. The top 15 hedge-fund managers earned an average of $1 billion.

Congress won’t even return to the estate tax in place during the Clinton administration – which applied only to those in the top 2 percent of incomes.

It won’t limit the tax deductions of the very rich, which include interest payments on multi-million dollar mortgages. (Yet Wall Street refuses to allow homeowners who can’t meet mortgage payments to include their primary residence in personal bankruptcy.)

There’s plenty of money to help stranded Americans, just not the political will to raise it. And at the rate secret money is flooding our political system, even less political will in the future.

The perfect storm: An unprecedented concentration of income and wealth at the top; a record amount of secret money flooding our democracy; and a public becoming increasingly angry and cynical about a government that’s raising its taxes, reducing its services, and unable to get it back to work.

We’re losing our democracy to a different system. It’s called plutocracy.

Robert Reich is Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written twelve books, including The Work of Nations, Locked in the Cabinet, and his most recent book, Supercapitalism. His “Marketplace” commentaries can be found on and iTunes.

{ 7 comments… read them below or add one }

avatar Seth October 19, 2010 at 3:29 pm

This article, and the state of our national politics in general, makes me sad. We should be better than this.


avatar RB October 20, 2010 at 6:36 am

Kennedy and Reagan got it right and Reich, Romer and the Berkley clan has got it wrong for the last two years. Cutting taxes not raising taxes is the right course to improve the economy and create new jobs.

I would make a couple corrections to the reasons for the perfect storm.
The perfect storm: An unprecedented concentration of income, wealth and power in Washington DC with benefits given to the rich special interest; a record amount of secret money flooding our democracy instead of public financed elections; and a public becoming increasingly angry and cynical about a government that’s raising its taxes, reducing its services, and unable to get it back to work.


avatar Frank Gormlie October 20, 2010 at 4:20 pm

RB – I’m afraid that you’re over-glossing history here. Reagan raised taxes big time, something the right doesn’t want to remember.

I’d add, as I did in an earlier comment, that the sector of government that really needs to be reduced and cut is the Pentagon, the monies being spent on 2 1/2 wars, on the 500 bases we have world-wide.

Plus, as you hinted, there’s a nearly unprecedented concentration of wealth in the hands of the very wealthy – not since the Gilded Age has there been such a disparity between the very rich and everyone else. I don’t think that wealth – and power – is all in Washington, however. And as you pointed out, this election has been swamped with money flooding what’s left of our “democracy” from hidden, secret sources, including foreign ones.

This element of government spending was ignored by Robert Reich.

The mainstream media is telling us that the angry “public” you cite is behind the Tea Parties, and is shaking up American politics. Look at all the media attention of late to “Faces of the Tea Party” by both the San Diego U-T and MSNBC, for starters. It’s more complicated than that – and more scary.


avatar Patty Jones October 20, 2010 at 4:30 pm


Most companies in US avoid federal income taxes

By Jennifer C. Kerr / Aug 12, 2008

WASHINGTON (AP) – Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress.The study by the Government Accountability Office, expected to be released Tuesday, said about 68 percent of foreign companies doing business in the U.S. avoided corporate taxes over the same period.

Collectively, the companies reported trillions of dollars in sales, according to GAO’s estimate. “It’s shameful that so many corporations make big profits and pay nothing to support our country,” said Sen. Byron Dorgan, D-N.D., who asked for the GAO study with Sen. Carl Levin, D-Mich.

I doubt the tax situations of these corporations has changed much in the last 2 years, and according to the Q3 report for the corporation I work for they showed 77 million in profit so far this year. Big gains for their shareholders while we, the workers, had 10 furlough days and a less than 3% increase. The furlough just washed the pay increase… And to top it off were recently told our shop is being closed and moved to an European country, where property and labor is cheaper.

I actually paid less taxes last year, for the first time ever I got more back than I paid in, and now am looking at being unemployed. I thanked Obama for the tax break but I’m not going to blame him for the corporate greed that is costing me my job.


avatar Seth October 20, 2010 at 10:41 am

I think it is pretty conclusive that the recent tax cuts, be they under Bush or Obama, have done nothing to spur the economy.


avatar RB October 20, 2010 at 12:22 pm

I don’t know how you measure the economy, but we had 3+% GDP growth and 4% unemployment after the Bush tax cuts. Raising taxes during a recession is Herbert Hoover economics.

Also, I predict after the election, after he plays tough for his left leaning base supporters, Obama will correctly not allow taxes to rise in 2011. Obama will join Kennedy and Reagan and avoid the failed ideas of Hoover and Reich. Note; Obama has already replaced many of the liberal, academic, economic advisers.


avatar Seth October 20, 2010 at 2:02 pm

Didn’t say we needed to raise them, just that the idea that the tax cuts somehow spurred the economy is false. The truth behind your talking point here is that the economic growth rate under Bush was the lowest in the post-WW2 era. Unemployment also rose from 4% to 8% during his tenure. Those are not facts I would hang my hat on, personally.

I do agree with you that he will move even further towards the center after the new Congress is sworn in next January. Partly of necessity, partly by design. It will be interesting to see if he calls the bluff of Republicans and makes them take on entitlement reform (SS/Medicaid/Medicare) and our wartime expenditures, areas where the federal spending actually takes place.


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