Will Economic Inequality Bring Down Our Entire System of Government?

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Occupy Wall Street protest in New York City in 2011. Photo credit: Coco Curranski / Flickr (CC BY 2.0)
Reading Time: 18 minutes

Are politics and economics even more interdependent than we think? Our guest on this week’s WhoWhatWhy podcast, Ganesh Sitaraman, argues that extreme economic inequality threatens the United States’ democratic form of governance.

Having been a longtime senior policy adviser to Elizabeth Warren and a Harvard classmate and close friend of Pete Buttigieg, Sitaraman, currently a Vanderbilt law professor, has a unique perspective on US politics.

Sitaraman brings deep historical knowledge to the discussion as he makes his case that today’s economic inequality is creating deep political instability. He argues that the general idea of economic inequality is something that the founders anticipated, and that we have historically prevented other such periods of inequality from destroying the very constitutional system the founders bequeathed to us. Albeit not without some pain.

He argues that previous attempts to use the government as an engine of economic reform have worked relatively well and have historically prevented economic elites from gaining too much unchecked power.  

This time, however, he says it could be very different. If economic inequality continues as it is now, he warns, it could undermine the very idea of representative democracy. 

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Jeff Schechtman: Welcome to the WhoWhatWhy podcast. I’m your host Jeff Schechtman.

What is the nexus between our political system and our economic system? Certainly during the cold war we fought to defend our political system against the economic threat of communism. So does it work the other way? Do we now have to defend our Republic and our democracy against the threat of a new gilded age, of oligarchs, and of deep income inequality? Is the fight for civility injustice also a fight for economic justice? In a system designed to be class blind can the widening economic divide actually bring down the system?

Jeff Schechtman: The way in which these political and economic ideas are related is the basis of the work of Vanderbilt University law professor Ganesh Sitaraman. Ganesh occupies a unique position in the 2020 campaign as a long time senior policy advisor to Elizabeth Warren and as a former Harvard classmate and close friend of Pete Buttigieg. He is the author of the previous books The Great Democracy and The Crisis of the Middle-Class Constitution and it is my pleasure to welcome Ganesh Sitaraman to the WhoWhatWhy podcast. Ganesh, thanks so much for joining us.
Ganesh Sitaraman: Thanks so much for having me.
Jeff Schechtman: It’s great to have you here. When we talk about income inequality and all the things that it portends, we tend to think of it and tend to focus on it as an economic problem. One of the things that you do in the book is expand this idea and really bring it into the realm of politics and more specifically the realm of what the founders intended with respect to the Constitution.
Ganesh Sitaraman: That’s exactly right. You know, a lot of the debates that we have today about economic inequality focus on the consequences of inequality for our economy, for economic growth, for the distribution of wealth. Or they focus on moral questions about what people are doing and what kind of society we want to live in as an ethical matter. What they don’t really talk as much about is how important economic equality is actually to our constitutional system. And my argument is that it’s critical that economic inequality is one of the underlying assumptions. It’s a background condition under which our constitutional system was designed and that our constitutional system requires for it to continue and persist.
Jeff Schechtman: And talk a little bit about why you believe that, why in fact if we look at the work of the founders and what they did with respect to the constitution, that it becomes clearer that this concern about economic equality was an important part of how the Republic was designed.
Ganesh Sitaraman: So one of the most important things we can do is to go back and try to figure out what the founding generation was doing. And to do that, we also have to know what came before them. And so for most of the history of Western political and constitutional thought from the ancient Greeks and Romans, all the way up until the founding, people were very worried about the problem of economic inequality. They worried that if their society was divided into a rich and a poor, the rich would oppress the poor or the poor would try to confiscate the wealth of the rich. And the result would be strife, violence, and revolution.
Ganesh Sitaraman: And so the answer to that problem, for much of history, was to try to build class conflict directly into the structure of government. So in ancient Rome, there’s a patrician Senate for the wealthy and there’s a Tribune of the Plebs, the plebeians for the ordinary people of Rome. In England, there’s a House of Lords for the wealthy and there’s a House of Commons for the commoners, for everybody else. And the idea between this, between both of these systems is that each class, rich and everyone else, have a share in governing, but also a check on the other. And that’s what’s going to create stability and prevent strife and oppression and revolutions.
Ganesh Sitaraman: Now what’s very striking about our constitution is that we don’t have a Tribune of the Plebs and we don’t have a House of Lords. We have no structural checks and balances built into our constitution that are a function of checking the class power of the rich or the poor. That is a radical change in the history of constitutional thinking and it’s something that is critical to our document, but you won’t really notice unless you’re comparing it to what came before.
Jeff Schechtman: And to what extent did this come about by design or simply because the founding generation didn’t imagine anything like the economic inequality that we see today.
Ganesh Sitaraman: So it was a combination of the two in an important way. You know, the founders knew about these kinds of class warfare constitutions where class is built right into the structure of government and they actually debated whether the new countries should have one of those kinds of systems and they rejected that choice. They did not make the choice to do that even though they were well aware of it and discussed it. The reason why though is a combination of things partly, and I think one of the very important parts of this is that they knew that the American people would not accept a government like that.
Ganesh Sitaraman: And the reason why is because people at the time believed that America was the most equal country in the history of the world. And I know that might sound shocking or even baffling today, but if you go back and imagine yourself in, you know, the 1770s and 1780s in America, what’s different about America from Europe, and from the history books they’re reading, is there’s no feudalism in America. There’s no hereditary aristocracy in America. And America appears to have these vast lands to the West, which means that any white man – and it is limited to white men at the time – could become a property owner. And property was the main form of wealth at the time.
Ganesh Sitaraman: And so under their worldview and in their conditions and in their time, they seem to themselves to be shockingly equal and to have this unique opportunity to create a government that is unlike anything the world has ever seen. And that’s what they do and that’s why they do it.
Jeff Schechtman: And yet did the inequality as it related to women and African Americans was an issue and an issue that that has been part of the American experiment for 250 years.
Ganesh Sitaraman: That’s exactly right. You know, so, the tradition I trace to have a middle-class constitution, a constitution like ours that assumes relatively low inequality, it assumes a large middle class. You have to have a middle class among the members of the political community. But it leaves open a question of who is in the political community. And that’s a question that’s been contested, including violently over our history. And we can also see a tradition of inclusion that’s emerged over much of our history in which we’ve expanded our political community over time to include women, to include minorities.
Ganesh Sitaraman: And I think what’s really important is what happens when these two traditions intersect. You know, if you have an expansive political community, you now have to ensure that every member of that political community can join the middle-class. And this is something that people throughout our history understood. So if you go back to reconstruction after the civil war, for example, the Republicans in the North who are working on the civil… on the constitutional amendments after the civil war, they weren’t just fighting for political rights for the freed slaves, the South. They were also fighting for economic justice.
Ganesh Sitaraman: And so this is the era where we get the phrase “40 acres and a mule” because the radical idea, the idea of these reconstruction Republicans was that we had to ensure that people in the South had not just political freedom, but also had land because you couldn’t have a landed aristocracy or a landless class of people and still have a Republic. And that’s what they were fighting for. So, there was an understanding of this throughout our history
Jeff Schechtman: And that fight for economic justice also became part of the civil rights movement in the 60s.
Ganesh Sitaraman: Absolutely. And we often forget this about the civil rights era. But you know, when Martin Luther King gives his, “I have a dream” speech in Washington at the Lincoln Memorial, you know, that March is not just the March on Washington, it was officially titled the March for jobs and freedom, which is both about economic justice and also about political and civil rights. You know, Martin Luther King also spent the last years of his life working on the Poor People’s Campaign. And this was a question of economic justice, not just civil and political rights. And the reason why is because these things are intertwined and have always intertwined.
Jeff Schechtman: With respect though too to the founders, to what extent was it a chicken or the egg proposition in that the founders designed the constitution in such a way that they thought it would promote a middle class and promote this kind of equality? And what mechanism, if any, was structured to deal with that lack of inequality and how the government might act in that circumstance?
Ganesh Sitaraman: So I think the biggest things that we have to think about is the context of the late 18th century in America, 1780s and 1790s and the biggest thing that is hard for us to really grapple with is that this is a pre-industrial society. There’s no corporations as we understand them today, there aren’t factories and machines as we understand them today. There is nothing like that going on. So the nature of the economy is very, very different then.
Ganesh Sitaraman: But the founders give the central government, the federal government, significant powers, including the power to regulate commerce, which is, which is significant over the economy, the power to levy tariffs and taxes, and to regulate a variety of economic issues, all part of Congress’s powers in the first article of the Constitution. So they give the government the ability to make these changes to adapt over time. And, what I think is the most striking thing is actually what happens after the founding, which is as you have a massive shifts in the economy in the 19th century, industrialization, transportation revolution, the communications revolution, the closing of the frontier, the shift from artisanal and agricultural work to wage labor in factories, the rise of the corporation and then trusts and monopolies.
Ganesh Sitaraman: As all of that happens by the mid 19th century and into the late 19th century, people are very worried that the economic conditions around them can no longer sustain our constitutional system, are no longer the kind of economy that we need to have a Republic. And so they argue for reforms in order to try to fix that. And so in the gilded age and the progressive era, what you get are the exercise of these constitutional powers and the creation of new constitutional powers in order to try to preserve the spirit of our constitutional democracy.
Ganesh Sitaraman: So the Progressives and the populists at that time period create the first antitrust laws in order to break up big concentrations of economic power. They advocate for minimum wages and for a 40 hour work week and for equal pay for women. They advocate for labor rights. They do all of this in the economic sphere in addition to pushing forward a constitutional amendment to have an income tax so that the wealthiest pay more. And they do this because they understand that inequality is a big problem for our constitutional system. At the same time they try to attack politics as well and the kind of influence the wealthiest people have over politics. And so we got the first campaign finance regulations in this era and a shift in how senators are elected to be democratically elected by the people.
Jeff Schechtman: There was also the fear, not only of the economic concern, but that that would produce instability and there was real fear about that. Talk about that.
Ganesh Sitaraman: Yeah, there was real worry throughout much of our history that economic inequality would lead to instability. And in the late 19th century, after each panic and recession and depression economically, there are strike waves. There’s, in some cases, extreme violence. It’s a serious concern and people are very worried about it. And that’s one of the things that pushes for reform, is that there’s a mobilized set of people out there who are protesting the conditions under which they’re working and they’re protesting the policies of the government that have created those conditions.
Jeff Schechtman: Talk a little bit about other historical periods where we’ve seen this shift towards a much more unequal situation similar to what we have today, maybe not quite as dramatic, and how we’ve gotten through those.
Ganesh Sitaraman: Yeah, so I think that the progressive era really is the great example of this in our history. It’s not too far back. It’s in our own context and a lot of the tools that the progressives came up with are still tools that are available to us today. Things like antitrust taxes, regulations, worker and labor union power, and support, so a lot of those, those tools are still there. I think one of the really striking things that happens in that era is we push for those things and the New Dealers continue pushing for a lot of these kinds of reforms and they try a lot of different things. You know, Franklin Roosevelt wants bold, persistent experimentation and that’s what the New Dealers do to try to get the economy out of the great depression.
Ganesh Sitaraman: What I think is so striking though is how we’ve forgotten about the fact that we need to create that kind of economy and that it’s something that we actively do through public policy and through our democracy. And I think that happened in the mid 20th century for a few reasons. The first is that we went through a period of extraordinary economic success. The economy was growing, the middle class was growing, everyone seemed to be doing better at different rates, yes, but doing better. And that was something that pushed us away from it.
Ganesh Sitaraman: I think the second big shift in that period is that we started… we stopped thinking about these issues as having constitutional significance. And that was partly because the New Deal was so successful. New Dealers convinced the courts and others that the Congress should have the power to regulate the economy as it wants to, and that this was a constitutional power that Congress had. So a lot of the debate left that arena.
Ganesh Sitaraman: And then the third thing you alluded to already, which was the cold war. You know, this was an era in which communism was fighting capitalism. And that’s a very different kind of framing of the problem than democracy fighting against aristocracies and oligarchies. And I know that sounds kind of ancient history, but, what’s important to remember is that the founding generation fought a revolution against a monarchy and an aristocracy in England. And pretty much every successive wave of immigrants that were coming from Europe or elsewhere in the 19th century were fleeing aristocracies. They were fleeing feudalism in order to come to a Republic. That was a meaningful distinction for people throughout much of our history.
Jeff Schechtman: Talk about the impact of both the Depression, and you made reference to the New Deal before, and particularly the post-World-War-II period, where we seem to be much more focused on this rise in the middle class.
Ganesh Sitaraman: So one of the really important things that happens in the Depression and afterwards is that we actually built the middle class. It’s not something that spontaneously happened out of nowhere. It was that our democracy came together and made the choice to build and to invest and to create something. And that was a prosperous society for all of us. And so what that meant was that we did a couple of things. The first is we put some real regulations in place to prevent speculation and to prevent some of the more predatory and negative aspects of capitalism that had caused the Depression.
Ganesh Sitaraman: So we created the Securities and Exchange Commission to regulate the financial sector. We had a Glass Steagall Act, which broke up the banks into depository banks that are separate from investment banking and that made banking much more boring and stable. So we had these kind of rules in place. We created FDIC insurance is another version, another set of rules in this area. At the same time we actually invested in the kinds of things that would build the middle-class. So the GI Bill sends a generation of people to college. We have investments in the highway system which create jobs but also make it more possible for commerce to operate throughout the country.
Ganesh Sitaraman: These were investments that we were making as a people and over time we continue to make those kinds of investments both to lift up the poorest people. And so things like Social Security for the elderly, Medicare, Medicaid, Headstart, also contributed to the declining inequality of this era. And so we were actually very successful at actively building a middle class and that was one of the great triumphs of the postwar system of public policy.
Jeff Schechtman: And when we look at what the pushback was, even during the New Deal period to some of these programs, do we see kind of a model for the way these tensions are playing out today? The way these forces are opposing each other today?
Ganesh Sitaraman: Yeah. So, so throughout this period there were, there were people who were opposed, but I think what’s, what’s actually more striking is how much agreement there was. You know, even businesses agreed that it was important to have labor unions and that they were committed to working with labor unions, and to rising wages, and to improving benefits, and to using part of their gains from growth and productivity and using their profits to make sure that all the stakeholders in society were doing better.
Ganesh Sitaraman: What I think is more striking is what happens later, which is that this covenant that… that business and government and workers have together in the postwar era breaks down. And instead what happens is we see deregulation of a lot of the kinds of rules that had created a more stable financial sector. We see attacks on unions and the attempt… the successful attempt to really break unions in a lot of different places. And then the decline of the labor movement in a lot of places as a result. And a lack of protections for workers and other people in addition to far lower tax rates on the wealthiest people, less antitrust enforcement and more mergers and consolidation of businesses. So it’s really almost a total reversal of the system that helped build the middle-class and the successful economy in the mid-20th century.
Jeff Schechtman: And what does history tell us and what are some of these other constitutional examples telling us about a system that we have now where this level of inequality exists and is not brought into balance?
Ganesh Sitaraman: So I think the real worry that we should have here is that because relative equality is a precondition for our system, we don’t have the kinds of checks and balances to prevent the rich from oppressing the poor or the poor from the kind of populist uprising that overthrows the rich and replaces oligarchy with demagogues or tyrants. We don’t have something like that and that means we are at risk, we are at serious risk of two different kinds of things. The first is an oligarchy, that just means that the government by the few, but you know, usually those few tend to be very wealthy. And so it’s a government by a small number of wealthy people who use the government then to serve their own interests. And that’s a serious risk on the one side.
Ganesh Sitaraman: But you know, people aren’t stupid, they recognize when that’s happening and they recognize that they don’t like it. And so what happens is people protest that, they object to it. And the way that usually happens, commentators throughout history have suggested, is not through anarchy, it happens by finding someone, a leader who’s usually a demagogue, who captures their interest and then you know, takes power in government. And you know, Alexander Hamilton worries, for example, in the Federalist Papers that what happens in that kind of situation is demagogues turn into tyrants. And so you’re left with the futures of oligarchy or tyranny, both of which are pretty undesirable. And so that’s the risk of not doing something about the kind of underlying inequality problem.
Jeff Schechtman: And is there a point where the political system shifts so much, as maybe it has already, that it’s impossible to change this within the context of the existing political system?
Ganesh Sitaraman: Well, I think there’re challenges here. The first is it’s really hard to know. You know, one of the things that happens and that commentators throughout history make clear is that you don’t shift from a republic or a democracy to an oligarchy by having a constitutional convention and everyone declaring, “We want to be an oligarchy now”, that’s not how it works. The way it works is it very slowly happens. It happens through the passage of new kind of laws and then one day you wake up and it turns out everything is really different. And this was not the kind of society that you wanted to happen… that you wanted to have.
Ganesh Sitaraman: So it’s a very slow process. And so it’s hard to know when it happens. And that’s a real challenge of how we figure it out. But, but I do think change is still possible through the system. And part of the reason why is we fundamentally still do have a democratic system, at least still right now, in which the people can vote and can change who our elected officials are and can protest that and can bring about a change in policy as a result. So I do think there’s opportunity, but it requires massive numbers of people to really get active as citizens to participate and to vote to change the system.
Jeff Schechtman: Of course the counter overlay to that is the degree to which money and politics have become so synonymous today.
Ganesh Sitaraman: Absolutely. So the challenge is that at the same time we have a system in which the government is increasingly responsive to the wealthiest people and corporations. And those people in corporations as they get wealthier, have the resources and tools to be able to influence the government. And so it creates this kind of vicious cycle and that is the big challenge. And so I think part of how we need to think about the world today and the world of politics today is if you want to reclaim our Republic and save our Constitution and our constitutional system, you have to be invested in fighting against the influence of money and in politics.
Ganesh Sitaraman: And that’s not just on the campaign finance side in elections, but that’s on lobbying. That’s on the revolving door of people going in and out of industry, into government. You know, there’s people who go from industry directly into jobs as regulators regulating their old industry. And you know, there’s a lot of conflicts of interests that can emerge from that kind of thing. That kind of thing has to be part of our conversation, not just campaign finance reform.
Jeff Schechtman: And is there something though from an economic perspective, is there something inherent in the way the economy is changing today? Not unlike what we went through in the industrial revolution, but as we move into this digital… further and further into this digital economy, and the nature of work changes then the nature of so much in the economy, changes that makes this kind of inequality almost baked into the system?
Ganesh Sitaraman: So I think one of the big changes that’s happened is that similar to about a hundred years ago in the gilded age and progressive era is the consolidation of economic power into a small number of firms. And so if you look in almost any sector of the economy, there’s a smaller and smaller number of companies that dominates. We actually have comparatively little competition actually going on in a lot of sectors of the economy and we have lots of consolidation. And that’s a problem. It’s a problem because it means that within those sectors there’s less innovation, there’s less competition, there’s more of an opportunity to squeeze startups and small businesses.
Ganesh Sitaraman: But it also means that the big entities have greater ability to influence government and to lobby for certain kinds of things and to get rules that benefit them and prevent any future competition. So I think that is a similarity and this is partly why, you know that more than a hundred years ago, the populist and progressives invented antitrust law and really pushed for it strongly. And those are laws that are still on the books and that we could aggressively enforce and I think would have a big impact on our economy right now.
Ganesh Sitaraman: The other thing that I’ll just say is that we shouldn’t think of the changes in the economy, whether it’s technology or consolidation or anything else as something that’s God-given or that comes from nature or that springs forth organically from nowhere. These are all shaped and created by laws and we have the power to be able to shape their future direction.
Ganesh Sitaraman: You know, I’ll just give you a quick example of a technology, the television. If you were to turn on the TV in the middle of the day, you will not find bad language. You will not find nudity. And that’s because we’ve chosen to regulate that and to say we don’t want children to be able to see that during the day. We’re not going to put it on. That’s a choice. That’s a choice that a democracy makes. And so for all the new technologies or other things that out there we can make choices about how we want to live as a society and what kinds of things we want those technologies to be used for or not to be used for.
Jeff Schechtman: And finally, Ganesh. Do you have reason for optimism in all of this?
Ganesh Sitaraman: I do. I think the biggest thing that makes me optimistic is when you look out at people, even though we are very, very divided today, pretty much a lot of people on both sides of the political spectrum agree that our system is deeply broken and they think the system is rigged and they think it’s rigged because it is. And that’s I think a shared foundation at least, whether you’re a Bernie Sanders supporter or a Donald Trump supporter, the general sense that our system is deeply broken in this way and the recognition that we have to have fundamental change to fix that, that is something that we share in common. And that is something that we can build upon as a recognition of one of the problems for how we really get back to saving our Constitution and supporting our Democracy.
Jeff Schechtman: Ganesh Sitaraman. Ganesh, I thank you so much for spending time with us here on the WhoWhatWhy podcast.
Ganesh Sitaraman: Thank you
Jeff Schechtman: And thank you for listening and for joining us here on radio WhoWhatWhy. I hope you join us next week for another radio WhoWhatWhy podcast I’m Jeff Schechtman. If you liked this podcast, please feel free to share and help others find it by rating and reviewing it on iTunes. You can also support this podcast and all the work we do by going to WhoWhatWhy.org/donate.

Related front page panorama photo credit: Adapted by WhoWhatWhy from Lara Eakins / Flickr (CC BY-NC 2.0) and Ben Taylor / Flickr (CC BY 2.0).

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