Extracting, defending, and sanctifying the wealth of—and rule by—the few The post Our American Oligarchy appeared first on Washington Monthly.
Just as Dwight Eisenhower used the gravitas he had accumulated as a war hero and commander-in-chief to warn, in his farewell address, of the “military-industrial complex,” President Joe Biden used the Oval Office speech to sound the alarm about the super-rich people who are about to assume direct political power in the United States: an oligarchy.
“Today, an oligarchy is taking shape in America of extreme wealth, power, and influence that literally threatens our entire democracy, our basic rights and freedoms and a fair shot for everyone to get ahead,” Biden said.
The imagery of this beast—oligarchy—“taking shape” had an ominous ring, like the cinematic moment when a villain first appears. But Biden could just as well have used the verb “assembling” because they are doing just that. The world’s three wealthiest men—Elon Musk, Jeff Bezos, and Mark Zuckerberg—will stand with Donald Trump as he takes the oath of office on Jan. 20
Criticism of oligarchy has a deep history in the United States, from chief executives on down. President Martin Van Buren, the man most responsible for the modern idea of organized political parties in the United States, wrote, “A moneyed oligarchy [is] the most selfish and monopolizing of all depositories of political power.”
The “slave oligarchy” was the subject of a famous speech by abolitionist Charles Sumner, the U.S. Senator. The agrarian Populists had their beef with the “gold oligarchy.” Justice Louis Brandeis spoke of “financial oligarchy” early in the 20th century. Franklin D. Roosevelt did not mince words while running for president in 1932: “Put plainly, we are steering a steady course toward economic oligarchy, if we are not there already.”
In fact, oligarchy has enjoyed broad usage in American life to describe unjust power, even if not overtly economic, accumulated by the few. Progressives raged against a “judicial oligarchy” that deprived citizens of self-government, and Susan B. Anthony called opponents of women’s suffrage “an oligarchy of sex.”
Oligarchy’s original analyst was Aristotle. His Politics parsed power in ancient Greece, rattling off the many oligarchical systems that prevailed. Each had its internal logic.
So, what are the salient characteristics of American oligarchy? How did it come about? How did oligarchs marry money to political power? Plenty of the answers have echoes in American history.
The appointees to the new Trump administration boggle the mind. An average net worth—average!—$616 million, excluding Musk, the world’s richest man. Google “Trump’s billionaires,” and you get a lot of shoot-from-the-hip analysis of what it means that the likes of Musk, Vivek Ramaswamy, Scott Bessent, Howard Lutnick, Stephen Feinberg, Linda McMahon, Warren Stephens, controlling the levers of power.
Yes, Trump 1.0 had Stephen Schwarzman, Wilbur Ross, and Steven Mnuchin, but we’re at a new level now. Billionaire wealth surged a quarter-trillion dollars higher upon Trump’s election. It’s rule by the ultra-wealthy few, the very definition of oligarchy.
Wealth Accumulation
We like to tell ourselves how ingenuity and grit let some people accumulate wealth in a competitive free market. If nothing else, American oligarchs are not, we insist, like the Russians. The media, as one study observed some years ago, has long identified oligarchs as Russians and perhaps a few Ukrainians who stole their way to riches. We like to tell ourselves that American billionaires are exempt from the notion, attributed to Balzac, that behind every great fortune lies a crime.
Now, American billionaires, let’s stipulate, are not the kleptocratic billionaires of Russia. But they are not a naturally occurring cluster of Horatio Algers either. The answer to how they got rich lies in thinking less about these people and more about our system. Flip the question around—What allowed them to become billionaire-oligarchs?—and you get a simple answer: We let it happen.
Dan Riffle, a former staffer for Representative Alexandria Ocasio-Cortez, once posted something in his Twitter bio that was not a name: “Every Billionaire is a Policy Failure.” Riffle explained that when he came up with the slogan, he was thinking about the role of democratic polity in billionaire-oligarch creation. “It wasn’t just, ‘Every billionaire is a greedy asshole,’ which is true,” he said, “but doesn’t necessarily address the role that society has in the problem and the solution to it.” Political decisions made these people rich.
The facts vindicate Riffle. For example, Musk’s Tesla—the silent electric engine of his wealth—benefited from government subsidies of at least $5 billion. The myriad tax credits facilitating the shift to electric vehicles fill Musk’s pockets. SpaceX lives off the teat of the U.S. government.
The no-doubt creative world of Silicon Valley took shape thanks to higher education and government funding. The internet emerged from Pentagon research. Stock options, the fuel of tech startups, exist by the grace of a tax code that does not treat them as the company expense they so obviously are.
None of this conduct is new. In the Gilded Age, the robber barons of the 19th and 20th centuries benefited from public indulgences: mining concessions, land rights, railroad right-of-way grants, and so much more. Government largesse was essential for much of what they did.
Wealth Extraction
Also, what we don’t do matters; we tax oligarchs’ income very lightly, with marginal rates down from sky-high levels in the post-war era. And we choose to ignore, for tax purposes, the massive capital gains that oligarchs accumulate. We treat homeowners less well; if your house increases in value, you pay higher taxes.
Oligarchs also amass wealth in a manner that deserves a brutal label: wealth extraction. Great riches have come about via entrepreneurs who legally create wealth—and this process happens with society’s help—but extraction is qualitatively different. A previous American oligarchy of enslavers (and then southern landowners) extracted wealth from the labor of Black Americans. If wealth accumulation can turn 2+2 into 5, then wealth extraction more clearly resembles a zero-sum game.
Wall Street has churned out billionaires at a fast clip in recent decades, and one sector of it—private equity—acquired the nickname “the billionaire factory” from one of its leading analysts because its practitioners have perfected the art of levying fees on their investors, often pension funds. Put another way, Wall Street extracts money from current and future retirees.
Within finance, many billionaires secured their fortunes as glorified bridge trolls, positioning themselves at choke points where economic value must pay tribute. Amazon is a good example, as are pharmacy benefit managers. As the scholar Kate Judge has pointed out, the “middleman economy” doesn’t shine with entrepreneurial brilliance. Talented entrepreneurs can accumulate wealth, but wealth extraction is more like a stickup.
Many American oligarchs are, in fact, kleptocrats in a sense because they are monopolists. They’re all around us, and America’s favorite capitalist, Warren Buffett, is a prime example. He advises companies to build “moats” around their business to insulate themselves from competition. The central statute of American antitrust, the Sherman Act, is a criminal statute. The law is set up to enforce the idea that if you exercise monopoly power, you have stolen from consumers and competitors.
Biden channeled this very spirit in his speech: [W]’ve seen it before. Over a century ago, the American people stood up to the robber barons and busted the trusts.”
Wealth Defense and Expansion
Jeffrey Winter, a professor of political science at Northwestern, described rule by oligarchs as “the politics of wealth defense.” Winter used the phrase in his 2011 book, Oligarchy. A lot has happened since then—a year after the infamous 2010 Citizens United decision by the Supreme Court—and much of this activity falls into the category of wealth defense. The way private equity billionaires defended a most indefensible tax break (the carried interest loophole) illustrates this phenomenon, which takes many forms.
In 2020 alone, the loophole let Schwarzman, founder of Blackstone, harvest an extra $80 million in income. Schwarzman also forestalled the closure of this loophole in 2017 when Senator Susan Collins, a Maine Republican in a re-election fight, withdrew an amendment to close it. Schwarzman contributed $22 million to PACs supporting Collins and other Republicans in the 2018 election. Former Senator Kyrsten Sinema, the Arizona independent, prevented action on the carried interest loophole in 2022 after extensive contributions from the industry.
Three years later, we have oligarchs overtly bending state power to their ends because, well, they are the government. We’ve moved on, Professor Winter, though our current phase overlaps with wealth defense. It’s all about wealth expansion now.
Billionaire oligarchs will use the GOP trifecta to protect and expand the wealth they control. Musk blew up the Republican budget agreement because its restrictions on outbound investment in China might have tripped up Tesla’s expansion there. The incoming Trump 2.0 administration is eyeing plans for a $4 trillion reduction. Even by the standards of billionaire oligarchs, they are surely salivating.
Wealth Megalomania
Musk owns a social media platform that he’s turned into a personal megaphone that dwarfs Trump. Think of it as the problem of wealth megalomania.
Aristotle tells us in Politics something familiar. He writes: “Oligarchy is based on the notion that those who are unequal in one respect are in all respects unequal; being unequal, that is, in property, they suppose themselves to be unequal absolutely.”
Put another way: they get rich doing one thing—a piece of software, a widget, or a financial hustle—and view themselves as oracles of wisdom on any matter under the sun and accomplish everything the way North Korean propaganda once touted the god-like accomplishments of Kim Jong Il. Musk used X to pat himself on the back for being a great father and make transparently false claims about being a champion gamer.
Not all our oligarchs’ approaches are that pathetic. David Rubenstein has used his wealth accumulated at the private equity giant Carlyle Group to become a kind of sage historian-like interviewer of historians and other culturally prominent people. But his self-deprecating approach—very different from Musk’s—functions as a humblebrag intended to launder him into a brainy equal of these accomplished people. “[T]itles the rest of us have to earn by sweat and struggle, David Rubenstein possesses by right,” historian Rick Perlstein notes.
Perlstein also points out how furious Rubenstein turned when it came to the idea, proposed by several members of Congress, to tax wealth above $5 million. Aristotle would not have been surprised: “The rich,” Aristotle writes, “if the constitution gives them the power, are apt to be insolent and avaricious.”
Wealth – or at least oligarchical wealth – is holy. It’s time to talk about the problem of wealth sanctification.
Wealth Sanctification
The need to explain their wealth in almost religious terms never ceases to amaze. Lloyd Blankfein, while the CEO of Goldman Sachs, once spoke of doing “God’s work” as an investment banker—around 2009 when the country was plunging into a searing recession and he was paying out $16 billion in bonuses.
Marc Andreessen, the venture capitalist, penned an excruciating essay that proclaims he can do good by doing well and name-checks Italian fascists for good measure. “We believe that advancing technology is one of the most virtuous things that we can do,” per Andreessen. He also whined about how the public used to worship Silicon Valley guys like himself because they created companies and jobs. “Through that, you absolve yourself of all of your sins,” Andreesen said. “Then in your obituary, it talks about what an incredible person you were, both in your business career and in your philanthropic career.”
The pride and egos of oligarchs, for all their swagger, seem to stand on a very thin reed.
In a fascinating book, The Anti-Oligarchy Constitution: Reconstructing the Economic Foundations of American Democracy, Joseph Fishkin and William E. Forbath unfold an argument that we’ve forsaken the proud tradition the Americans once had in ascribing to the U.S. Constitution an affirmative duty of government to secure liberty by ensuring that a substantial measure of democracy obtains in the economic sphere.
An anti-oligarchy society can involve many things: tough antitrust laws strictly enforced, and the taxation of accumulated wealth are starting points. We can and should reinvigorate this proud American tradition. At the very least, with dangerous, arrogant oligarchs filling the ranks of the American government at this very moment, we must try.
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