Rising Income Inequality Is Direct Result Of Campaign Finance Cases

The massive rise in income inequality in the U.S. is directly related to campaign finance cases, such as Citizens United, being decided in favor of society’s top earners, said a constitutional scholar in his recent book.

These cases have also led to the huge increase in household and government debt, which is artificially propping up the economy’s demand curve and could have severe repercussions as the country tries to emerge from the Covid-19 economic lockdown. It could also lead to more economic downturns in the future.

Not only are campaign finance cases the driving force behind income inequality, but they also correlate with the decline of economic regulation, the rise in U.S. debt, the decline of the middle class, and huge tax cuts disproportionately going to the very wealthy, said John Attanasio, the author of “Politics and Capital: Auctioning the American Dream” in an interview with Forbes.com. Attanasio served as the dean of two law schools and was the first Fulbright lecturer to teach American constitutional law in the Soviet Union.

The demand curve is a graphical representation of the law of supply and demand, which defines the relationship between the price and quantity demanded for a good or service.

In the U.S., 70% of demand is consumer driven. When 70% of the population doesn’t earn much money, it produces a weak demand curve. With 46% of the population unable to manage an unforeseen $400 expense, according the Federal Reserve, when an event like the coronavirus occurs the demand curve evaporates.

In this situation, individuals are forced to make ends meet by using debt. Low interest rates, such as the current environment, can lead both people and companies to take on a lot of debt, leading to asset bubbles. At the end of 2019, household debt totaled $14.15 trillion, up from $12.68 trillion in the third quarter of 2008.

“Supply and demand were being put in better balance by very large amounts of debt,” Attanasio said.

“If the ballooning poor and dramatically shrinking middle class have less and less income, their purchasing power will contract once these consumers are loaded down with debt. Demand and supply could contract in a synergistic downward spiral,” wrote Attanasio.

Attanasio said the current situation began with a 1976 lawsuit Buckley v. Valeo, a direct precursor to Citizens United. In this campaign finance case the U.S. Supreme Court ruled that limits on election spending are unconstitutional. The ruling said expenditure limits conflict with the First Amendment provision of freedom of speech.

“Predictably, a few short years after Buckley was decided,” wrote Attanasio, “legislative policy began to turn sharply toward property inter­ests as evidenced by the astonishing and temporally correlated rise in income share of the top 0.1 percent, to levels not seen since the Great Depression.”

Soon after the ruling, in the 1980s during the Reagan Administration, commentators began to see a sharp increase in the con­centration of income and wealth favoring the wealthiest members of society.

In 1969, 1 percent of the population held 24.9 percent of the country’s wealth. By 1987, ten years after Buckley, the 1 percent saw their wealth increase 44.5 percent to nearly 36 percent of all the country’s wealth. By 2015, the Credit Suisse Global Wealth Databook reported that the top 10 percent of Americans held 75 percent of all the wealth in the U.S., while the top 1 percent held nearly half that total, 35.5 percent. Both figures represented the highest concentration of wealth in any country the report covered.

In the 2010 case Citizens United v. Federal Election Commission, the Supreme Court ruled that the free speech clause in the constitution prohibits the government from restricting spending for political communications by corporations. The ruling allowed unlimited spending by corporations and started the rise of Super PACs (political action committees).

After Citizens United outside spending in the 2012 election totaled more than $1 billion, almost triple the amount spent in 2008. In 1980, the richest 0.01 percent contributed approximately 15 percent of all campaign contributions. That number doubled in 2010, after the case was decided. By 2015, that number had grown to 40%, wrote Attanasio. The result of the wealthy spending more on elections has led    to an increase in legislative policy beneficial to the wealthy and corporations, such as tax breaks and the removal of regulations. This has directly correlated with the growth in income inequality.

The rising inequality has directly led to lower economic growth. From 1946 to 1980, real macroeconomic growth per adult was a strong 95% and equally distributed. From 1980 to 2014, aggregate growth slowed to 60% and became extremely uneven, according to a paper by economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman.

“There is also a correlation between the tremendous rise in inequality and the frequency and severity of economic downturns,” said Attanasio. This creates a weak economic demand curve, with the economy being propped up by people taking on more debt. This makes the economy weak and vulnerable to exogenous causes like a pandemic.

The big problem is that when an economic downturn starts, people with large amounts of debt begin to default on their loans and their spending levels fall through the floor. This causes the top 20% of the population to get scared and pull back on their spending. In an economy based on personal consumption this can create big problems. And those problems are expected to manifest themselves very soon.