Capitalism and democracy at cross-purposes

Mainstream politicians and mainstream economists in Anglophone countries have been very relaxed about people becoming “filthy rich”, as though a structure of income distribution with high concentration at the top has no society-wide costs. In the words of University of Chicago professor of economics and Nobel Prize winner Robert Lucas, “[O]f the tendencies that are harmful to sound economics, the most seductive and … poisonous is to focus on questions of distribution” (2004). In the words of Willem Buiter, former professor of economics at the London School of Economics and currently chief economist of Citigroup, “Poverty bothers me. Inequality does not. I just don’t care” (2007). This essay begins by describing the neoliberal thinking that sanctions a relaxed attitude to income inequality; next it describes why the discipline of economics has failed to provide a critical focus on income inequality; and then it summarizes evidence on the society-wide costs of inequality, especially the underemphasised political costs. The essay ends with some basic points for a centre-left strategy of reform. The central argument is that neoliberal thinking has helped to produce a rising degree of income concentration at the top both directly and indirectly through its contribution to the transformation of the Anglophone state into a “plutocratic” state. The plutocratic state has a structure of laws and policy settings which – net -- channels income upwards, even as some parts of the residual welfare state counter these tendencies by channelling income and services downwards. The combination of high-inequality capitalism and a plutocratic state undermines the democratic political system.