To End Oligarchy, End Finance Capitalism

Rule by the Rich Isn't Democracy

The recently elected Trump administration is the most conspicuously oligarch-laden in recent history. Many of Mr. Trump’s senior advisors are oligarchs, which means that they have limited knowledge of the world that the rest of us inhabit. To suggestions that American democracy provided an alternative in 2024, Kamala Harris’s first stop on her way to the Democratic party nomination was to bend the knee to the oligarchs who control the Democratic party.

That the outgoing Biden administration thought that attacking oligarchs rhetorically would benefit the Democrats politically demonstrates a pathological incapacity for introspection. As argued below, most of the current crop of oligarchs owe their status to the resurrection of Wall Street carried out by Barack Obama and his administration. To the charge that there was no alternative, banking crises are as old as banks. There were lots of alternatives.

Graph: the link between finance capitalism and oligarchy is straightforward. Through theft, inheritance, and chance, oligarchs have tended to be those ensconced in the right chairs during epochs of finance capitalism. In the US, the proportion of wealth derived from financial markets perfectly rank-orders the wealth of today’s oligarchs. This renders the bipartisan American project to levitate stock prices in perpetuity the only ‘labor’ that the oligarchs perform. Source: inequality.org.

For instance, Sweden experienced a banking crisis in the early 1990s that was caused by self-dealing by Swedish bankers. The Swedish state assumed control of the banks, fired the culpable bankers, and segregated bank assets into good banks that were to survive and bad banks that weren’t. In contrast, the Obama administration restored the fortunes of culpable bankers, and even used bailout funds to pay banker bonuses. Mr. Obama saved his donors, not the ‘system.’

The social consequences of Mr. Obama’s actions go far toward explaining why Donald Trump is president. Between bailing out Wall Street and the Federal subsidies of the technology industry that flowed from doing so, urban economies recovered relatively quickly from the Great Recession, while the deindustrialized heartland was handed over to opioid addiction and suicide. The Federally subsidized distinction between urban and regional economies had the Democrats floating tech and Wall Street while leaving the heartland to rot. This is the very division that re-elected Donald Trump in 2024.

FDR (Franklin Delano Roosevelt), who created the New Deal in response to the Great Depression, was also born an oligarch. Following implementation of the New Deal, FDR was widely regarded as a class traitor by his fellow oligarchs. But a more constructive view of his reforms is between long and short-term planning. Europe succumbed to fascism as the Great Depression wore on. Adolf Hitler was appointed Chancellor of Germany in 1933, in the very pit of the Great Depression.

Graph: the two epochs of finance capitalism in the US ended in tears. The epoch of the 1920s ended with the Great Depression, the rise of European fascism, and WWII. The current epoch is still unwinding. Apparent ignorance of this history, or government capture by the oligarchs, led liberal technocrat Barack Obama to rebuild ‘the system’ after 2008. The result has been two elections of the only candidate promising to blow ‘the system’ up, with a full-blown racist genocide committed by liberal Democrats in between. Source: inequality.org, urie.

The US spent the subsequent decades allying with fascists, with the CIA hiring as much of the deposed Nazi leadership as it could accommodate (see here, here, here), while sending the rest to labor for American industry. Ex-Nazis taught torture to the US military and traveled with US-allied death squads to assassinate political leaders considered inconvenient to the interests of American oligarchs. Both of the wars that the US is currently engaged in (Russia and Israel) date to the end of WWII.

With oligarchs once again openly running the US, FDR neither redistributed the wealth of the robber barons (oligarchs) nor impinged on the tendency of American capitalism toward oligarchy. In other words, he saved the nation so that oligarchs could rule again. However, FDR’s time presented a very different set of historical circumstances. That the US was allied with the Soviets in WWII, and that they won the war, left the US with the only intact industrial base in the world.

With 70% of the wealth of the very rich coming from financial asset price gains (graph above), and most of the wealth of the lesser oligarchs coming from the same, the stock market bubble that has been fed and nurtured by the Federal government since the 1980s has stretched valuations to approximately 4x their starting point. What this means is that the financialized present is priced for perfection in circumstances that guarantee major disruptions.

Conceived in the 1990s to give executives stakes in the companies that they manage; stock options were believed to align their objectives with those of shareholders--- and against those of workers. For most of the 1990s and early 2000s, mass firings lifted stock prices, thereby rewarding executives who had granted themselves stock options. This was an impetus for outsourcing as well. Executives made themselves rich by making ‘their’ workers poor.

Mainstream economists, long taught that economic distribution is none of their business, are also taught that money is neutral and that financial asset valuations are stationary, as in only temporarily affected by Federal policies intended to support financial asset prices. This makes the epochal nature of finance capitalism difficult to explain. The cyclicality of financial asset valuations is proof of non-stationarity. The point: history matters.

Graph: the panic to reinvigorate Wall Street during the GFC (Global Financial Crisis) ranged from rich to poor, for opposite reasons. Rank-and-file workers needed jobs, while the neoliberal leadership of the Democratic party needed campaign contributions and the restoration of Wall Street’s neoliberal vision of the American economy. The graph illustrates who benefited from this cross-class alliance--- the rich today own 10% more of total financial assets than they did in 2009. Source: inequality.org, St. Louis Federal Reserve.

Because Barack Obama was perceived to be a representative of the people’s interests, he was initially given the benefit of the doubt when he bailed out Wall Street while ignoring the plight of the rest of the nation. Workers needed jobs and the oligarchs wanted their wealth back, creating broad political support for resurrecting Wall Street.

In this endeavor, one side knew what they were doing politically, while desperate workers had no idea. Wall Street had been one of the most enthusiastic supporters of NAFTA. Federal support for financial asset prices, through which Trump administration officials took Federal largesse by imagining that they deserved it, ‘lifted their boats’ while leaving the nation to rot.

As the graph above illustrates, not only was the wealth of the oligarchs recovered by Mr. Obama’s policies, but their ownership shares of financial wealth increased from 44% at the start of the bailouts to the 54% that it stands at today. In theory, financial assets represent claims on the underlying companies. And through capitalist property rights, ownership conveys control. Taken together, the results of Mr. Obama’s revivification of Wall Street transferred ownership control to the oligarchs at the same time that it made those ownership shares worth more.

Donald Trump understands the economic mechanisms at work here. His Covid-19 pandemic relief bill specifically targeted financial asset prices to be rescued by the Federal government. Why was doing so important to him? Because stock market wealth is the source of his political power. How plausible would his economic theories be to his constituents if he had been born rich, but ended up not-rich? Left unchecked, market forces would have left Trump with far less wealth three times (1987, 2008, 2020), had the Federal government not subsidized its resurrection.

Graph: before neoliberalism was made the reigning ethos of the West, corporate executives earned on average 20x what the average worker earned. By the time that Bill Clinton entered office, this ratio had risen to 60x, reflecting the growing economic power of corporate executives. From Clinton forward, this ratio has ranged from 200x to 400x average worker pay. This is what happens when executives are given the power to decide their own pay. It is a form of looting. The corporations are on the hook for repaying borrowed money while the proceeds go into the pockets of corrupt executives. Source: epi.org.

While the graph above is likely old news to most readers, it helps illustrate the epochal (cyclical) nature of US oligarchy. The current epoch of financial capitalism started in the US in the early 1980s. At that time, the ratio of CEO-to-worker pay was 31x. By the time that Bill Clinton ‘freed’ the banks to create the Great Recession and GFC, it was 60x. From the moment that Clinton’s financial deregulation was implemented to today, this value has ranged between 200x and 400x.

But the point here isn’t the levels of CEO-to-worker pay per se, but rather the epochal nature of the process by which this was accomplished. While politicians from Reagan to Clinton to Trump participated in financializing Western economies, critical mass was reached in the 1990s whereby the wealth of the oligarchs was increased to the point where it bought explicit political control. In American mythology, wealth is the product of skill attached to hard work. Question: skill at what?

In earlier decades, the large size of the US economy skewed global measures of income and wealth concentration. With the economic rise of China and BRICS, this US centric skew is today less pronounced. What is illustrated in the graph below is the rise in global income and wealth concentration. Within a mainstream economic frame, income is a flow and wealth is a stock. But what this framing misses is that saved income is wealth. The distribution of wealth is directly affected by the distribution of income.

Graph: in economics-speak, income is a flow and wealth a stock. What ties incomes to wealth is that incomes that are saved, as opposed to spent, become wealth. Because the rich save and the poor borrow, higher incomes produce higher wealth. And because ownership confers control, having higher wealth means that the rich control Western societies. This is called oligarchy. Source: wid.world.

In terms of wealth, meaning ownership control, the richest 10% globally owns 76% of the world’s wealth, while the bottom half owns (controls) 2%. With a political system like the US has, where political donations confer control of Federal decision making, the US is clearly an oligarchy. By the evidence, so is the rest of the world. The term ‘Davos man’ was coined to describe the top-down governance structures of Western ‘democracies,’ where hucksters and thieves with institutional support decide what is best for America’s future.

With a brief detour into the value of Davos Man’s insights, the Biden administration went all-in on AI (artificial intelligence), expecting something like fifteen percent of US GDP to come from AI investment directly and from ‘efficiencies’ created by it. Two years ago, I spoke with a senior developer from Google about AI. Having created and coded predictive ‘error-correction’ models myself, AI is a brute force method of error-correction. A goal is defined, and AI organizes existing information until a solution is produced. There is no magic to it.

Further, and unlike humans, it recreates only variations on what has already been created. Take away the ‘training sets’ to understand how AI output is a function of AI input. My acquaintance from Google agreed with this basic explanation. The literary results that I have seen have been workaday, what a reasonably intelligent and hard-working 11^th grader would produce once trained in how to conduct research on the internet. What it isn’t is (artist) Jackson Pollack cobbled to (musician) John Coltrane.

As related metaphor, it was recently revealed that Amazon’s AI driven grocery stores require large rooms filled with humans to function. The idea was that AI would monitor customers in a way that allowed them to put items into bags and walk out of the store without standing in line at checkout. The problem is that AI only does what it is coded to do. The contingencies of being human don’t fit very well into this rules-based logic. Therefore, Amazon’s techno-fraud was created to give the illusion that its technology works when it doesn’t. This is AI.

Much has been written by economic historians regarding the global nature of the Great Depression. Charles Kindleberger wrote The World in Depression to explain the global nature of that crisis. Global views tend to be very different from the localized explanations that Western economists conjure. For instance, the American idealist discourse around fascism 2016 – today focused on personalities, not unemployment and capital flows.

The GFC and Great Recession left the EU with a second-wave crisis around 2013 that elevated the European right. This refers to bankers in suits, not European ‘deplorables’ trading sieg heils. Race and class loathing were expressed through who got bailed out (EU bankers), and who didn’t (the humans of the European periphery). That Europe has been destroyed economically since joining the US in war against Russia is a surprise only to Europeans.

The number of natural limits that the US is currently up against should give concern. Efforts by the Federal government to keep the stock market afloat have created the most generalized financial bubble in known history. Stock market valuations are currently 4x the level considered excessive when the current epoch of finance capitalism was launched in the 1980s. House prices, adjusted for inflation, are currently 11% above the peak of the greatest housing bubble in history. And Donald Trump’s proposed tariffs are structured as regressive taxes. They will impact the poor far more than the rich.

And Mr. Trump’s newly planned tax cuts for the rich will exacerbate future economic woes. The economic logic that is motivating the cuts, known as capital accumulation, misses that capital markets, and to a lesser extent banks, fund capital investment today. Not only does the West not need the savings of oligarchs to fund capitalism, it doesn’t need oligarchs at all except possibly for human companionship.

Economic production in the US is currently funded in capital markets and by banks. What this means is that tax cuts are a pure gift to the rich, intended to serve no economic purpose other than to allow the already rich to keep running up house prices until the rest of the country is homeless. Money pollution from the cities that was intended to keep stock prices afloat has contaminated the entire country. Very little more can be squeezed from hard-pressed Americans.

The soon-to-be-active DOGE, the Department of Government Efficiency, is based in the same delusion that motivates the tax cuts. The theory, to the extent that there is one, is that private economic production is always and everywhere more efficient than public investment. In fact, it is basic to mainstream economics in the West that government provides public goods more efficiently than do capitalists.

This flips the American practice of privatizing the public provision of public goods on its head. By inserting a profit motive where it doesn’t belong, the public purpose of public goods is converted to earning profits for private providers. Ye olde P = R – C; where P = profits, R = revenues, and C = Costs, comes in handy here. What is a cost to private enterprise is a benefit to the people who receive it. Cutting costs therefore means cutting benefits, not raising efficiency.

The tragedy of Barack Obama’s tenure in the White House was that the only opportunity for violence-free reorganization of Western political economy in recent history was when Wall Street was prostrate and in need of help to survive. Wall Street could have been allowed to take up residence in the great hereafter as public banks replaced what was revealed to be a publicly-funded casino.

For those who imagine that the current ‘system’ will still exist in a few years, food is too expensive, housing is too expensive, health care is a roll of the dice, cars went from costing $17,000 to $47,000 in a few years, the Biden administration just proved that Democrats are incapable of governing, and the Republicans are in the process of doing the same.

The quickest, if not necessarily the most efficient, way to rebalance Western economies is to end finance capitalism. Replace Wall Street with public banks whose mandate it is to fund investment in the public interest. To the counter that Wall Street already does a good job of this, why the serial bailouts? Wall Street is a tool of the oligarchs and a de facto arm of the captured US state. Ending it is a first step toward restoring democratic control across the West.