Por David S. D’Amato
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Photograph by Nathaniel St. Clair |
The Nobel Prize-winning economist Paul Krugman continues his “series on the rise of American oligarchy” this week by discussing “the decades-long dismantling of the system of progressive taxation.” Krugman defines oligarchy “as the extreme concentration of wealth and political power in the hands of a small number of people—not the 1 percent, but the .01 percent or even the .0001 percent, the 300 billionaires who made 19 percent of all reported federal political donations in the 2024 election.” He argues that widespread tax avoidance, and accordingly the plummeting of effective tax rates, is largely responsible for giving us a system of oligarchy.
Krugman admits that where he once saw the absurd inequalities of the present day as primarily the consequences of technological change and the market economy, “looking into the math” changed his mind, and it became clear to him that “much of the rise of the modern American oligarchy has been driven by deliberate policy.” The math Krugman is focused on is the tax gap and thus the effective tax rate. The problem for Krugman’s hypothesis is that the United States was already firmly an oligarchy when the tax gap was much smaller and the effective tax rate much higher. Oligarchy is not first and foremost a product of the system of taxation, and it never has been. It is rather a product of the pre-distribution of wealth through state-created special economic privileges.
Though the American “free market” is riddled with these political privileges, they are not well understood or formally quantified. Indeed, they are all but ignored by the economics profession and popular commentary. If we’re trying to address inequalities of both wealth and power—inseparable in practice—through more progressive taxation, then we have already conceded the game, leaving the pervasive legal privileges that create the problem untouched. The mainstream conversation on politics and economics (which some of us prefer to discuss as political economy, precisely because the two are historically and materially inseparable) should work to reestablish careful distinctions between redistribution and pre-distribution.
What economists must begin is the project of formalizing the study of state-granted privilege and quantifying these special giveaways to corporations and the ultra-rich—not only tax credits and other favorable tax treatment, but intellectual property rights, land transfers and eminent domain, professional licensure and barriers to market, arbitrary limitations on civil and criminal liability, and the countless other features of corporate capitalism that have nothing to do with “market forces” or economic freedom in itself. If we began to quantify these in a serious and rigorous way, we would quickly see that capitalism is a system rife with welfare for the infinitesimal billionaire ruling class. It is a system that shifts enormous quantities of wealth upward by systematically restricting opportunities for the popular masses as it creates special prerogatives for our corporate overlords.
Today’s U.S. government is a system of arbitrary administrative rule under the permanent control of interlocking elites in the major corporations and government agencies; this system of discretion under “expert” rule-making is much easier for oligarchs to manipulate than the one contemplated by the Constitution’s three-part structure, under which the people’s representatives are charged with making law. If elected officials don’t actually make the rules or shape public policy toward a level playing field, the common good, and equality of rights under the law, then it matters little or at all who wins any given election. Oligarchy is much easier to create and maintain when it is thus insulated from popular political pressure.
Capitalism is not a free market economy with some minor noise and deviations; regarding the math—the massive gaps of wealth and income and the actual, observable relations of domination and exploitation—capitalism is a continuation of feudalism and mercantilism in a different form, one under which there is intense competition between workers, but strong anti-competitive protections for capital. There is a reason that no liberal of the nineteenth century saw their philosophy as a defense of the capitalist or the capitalist system. Free trade and equal rights were once understood explicitly as a blow against elite, organized, government-aligned economic interests.
Properly understanding and quantifying the pre-distribution of wealth would require that we shift our analytical paradigm: rather than looking only at after-the-fact inequalities of income and wealth, we should also examine the structural rents built into our political and economic system before any taxes are taken. Pre-distribution in this context could be measured by the difference between inequality (and the various inputs, for example, wages, prices, profit margins, revenues, and capital accumulation processes more generally) under current conditions as opposed to a counter-factual situation of actually-competitive markets without special privilege and with widely distributed property.
In the final analysis, Krugman is correct about at least one thing, that what we are witnessing today is the consequence of public policy choices, not any supposedly neutral market forces or technological changes. Even the notion of a natural or pre-political economic system is a profound misunderstanding of historical and social realities. Instead of focusing on the system of taxes and redistribution, what happens after the benefits to capital have already done their job, we desperately need to start seriously examining the structure of the political and legal system that aggrandizes and protects capital at the expense of society at large.
David S. D’Amato is an attorney, businessman, and independent researcher. He is a Policy Advisor to the Future of Freedom Foundation and a regular opinion contributor to The Hill. His writing has appeared in Forbes, Newsweek, Investor’s Business Daily, RealClearPolitics, The Washington Examiner, and many other publications, both popular and scholarly. His work has been cited by the ACLU and Human Rights Watch, among others.
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