Wealth and Democracy

Wealth and Democracy, by Kevin Phillips, (NY: Broadway Books, 2002), 422 pages, 2 appendix, notes, bibliog., $29.95 U.S.

The book Wealth and Democracy opens with two long segments primarily about wealth and wealth creation and ends with a third segment primarily about democracy, or really politics. The first two segments have three chapters, the last segment has four and there is a closing chapter.

The beginning segment has a narrative history of wealth and the sources of wealth in America written in chronological order from 1776 to 2002. Information is documented and comes from a variety of sources. We learn, for example, that many of the wealthy from 1776 to 1790 acquired, or if you like, earned their wealth selling goods and munitions for the revolutionary war, or booty from privateering.

Moving along through 100 pages we hear about the Carnegies, the Rockefellers and others until we come to the year 2000. The year 2000 gets a separate chapter of about 70 pages, which describes the millennial plutocracy and many of its excesses. Details of the new wealth describe the whos, whys and wherefores and include Census and other government data showing the rapid rise of income inequality and unequal distribution of wealth.

Phillips narrative introduces causes for the millennial realignment. He mentions technology, especially biotechnology and computing, as sources of speculation that help generate rapid changes in income distribution as does speculation in financial assets. He uses the term financialization, which may or may not show up in your dictionary. It is a term to characterize the millennial obsession with buying and selling stocks, bonds, and exotic securities for money making rather than creating productive assets. Actually producing something takes time, whereas financialization caters to the urge to get rich quick.

Chapter 3 also has nine pages describing the changing and growing role of corporations in wealth inequality, noting their declining share of United States taxes and growing overseas investments.

The second segment begins with a chapter of historical precedents from three former great power eras: the Spanish Hapsburgs in the 1500’s, the Dutch Netherlands in the 1600’s, and Great Britain in the mid and late 1800’s. Phillips looks for meaningful repetitions of events and political attitudes in the rise and fall of great powers. Several common threads get attention in great power descents. Decline goes with a nation’s growing inequality of income and wealth. Decline goes with a country’s reliance on finance and services rather than domestic manufacturing. Decline goes with an increasing movement of capital abroad.

The middle chapter of this third segment develops the role of government in creating wealth, the wealthy and inequality. He continues to use historical precedents from Spain, Netherlands, Great Britain, but predominately from the United States.

After introducing technology as a means of rapid wealth creation in Chapter 3, the last chapter in this second segment picks up the technology thread again with a lengthy narrative and its historical association with wealth creation. Many lines characterize the 1990’s wave of high tech wealth built around the microprocessor and the Internet.

On this blog we can sympathize with Mr. Phillips in the trials and tribulations of writing narrative using supporting data. Writing economic and political narrative without data reads like preachy opinion or an editorial. Facts and figures and their documentation are an essential element to persuade readers, but it is hard to decide how much detail to include. If there are many numbers cited, with many ups and downs, and rising percents, or falling trends the reader may get bogged down and forget more than they remember.

In this way the reader should be warned that Mr. Phillips uses lots and lots of data from lots and lots of sources. When I think of data in this book I think of water pouring over Niagara Falls. It is good to try to have some numbers stand out so the reader can get some specific detail from their reading, but with this book the reader will need to have paper and pencil handy to make note of any particular number, figure or source that has special interest to them. Searching for it later may take more time than you think.

The third and last segment covers the Democracy part of the book’s title. The opening chapter describes the politics of wealth creation for the United States. The ebb and tide of United States wealth creation is tied to cycles of presidential politics, but with contrasting eras especially Andrew Jackson, Theodore Roosevelt and Franklin Roosevelt when there was moderation and a return to policies promoting equality.

The next two chapters zigzag among varied and interrelated media, academic and political attitudes towards wealth. These chapters have a more journalistic character to them than other parts of the book. Corruption in wealth distribution gets nearly eight pages, but greed, vice, and avarice pop up frequently and in other contexts. Discussions come from different eras and different countries. Many names are mentioned: Bill Clinton, Ronald Reagan, Adam Smith, Charles Darwin, Milton Friedman, even Leona Helmsley, “Only the little people pay taxes.” Readers are encouraged to question a broad range of social and political actions as they apply to wealth creation in the United States.

The next and last chapter in this third segment, Chapter 10, keeps a tight focus on voting and cycles of political resentment that affect voting patterns. It has historical examples mostly from the United States but other countries as well. The chapter is an admission that the worst abuses and egocentrism of the well placed wealthy gets a boost when a sour and cynical populace withdraws from politics and stops voting.

Phillips frustrations with America’s electorate come out most specifically beginning on page 391 and for several more pages. The many Americans who are overworked, underpaid and overtaxed have withdrawn from politics and do not vote. Even though the data presented by Phillips throughout the book and all of the data I look at from the Bureau of Labor Statistics and Bureau of Census shows a sharply polarizing distribution of income and wealth most of the inequality could be corrected in a decade or so with a more progressive rate schedule for personal income taxes, changing or eliminating the steeply regressive payroll tax and appropriate adjustments to the federal estate tax. But there in lies the problem since none of these changes will occur unless there is an up turn in the cycle of voter resentment. They have come in the past and we can tell Mr. Phillips is hoping for a new one in the future. Maybe there is room for optimism.

Books can be like houses. They can be neat and tidy; they might be cluttered. Mr. Phillips book is cluttered. There is just too much he wants to tell us and report to us to have arguments flow smoothly. Still, in spite of the clutter, I would say the common thread of historical precedents and their comparison to United States current events emerges as the most visible and most important thread in the book. In the times of the Spanish Hapsburgs, the Dutch Netherlands, and Great Britain it was not just that the wealthy were greedy, unethical and corrupt, their actions brought general economic and political decline. In the United States the parallels with inequality of income and wealth, unmanaged investment abroad and the decline of America’s domestic manufacturing base look similar. It is sobering that so many in economics, business and government think the United States can remain as an economic power even if our manufacturing industries move abroad or decline in the United States. Mr. Phillips does not believe that. In that view we can be sure he is correct.