At first glance, money’s growing influence in politics appears impossible to challenge because of a powerful positive-feedback loop. Yet hope remains.
Although big-money donors are a diverse group, many of them want lower tax rates for themselves and less stringent regulations for their businesses — and they’ve been brilliantly effective in getting them.
Lower tax rates have affected these donors in two opposing ways. On the positive side, they have supported higher consumption in the private sector. But on the downside, the resulting budget deficits have reduced the quantity and quality of public services. Compelling evidence suggests that the negatives have been much larger, and the positives considerably smaller, than many donors have expected.
Through private schools, gated communities, personal aircraft and other adaptations, the wealthy have been insulated from many costs of a decaying public sphere. But ill effects remain. Declining quality of public schools, for example, makes it harder for businesses to recruit productive workers, and a shrinking middle class makes it harder to sell their products in volume.
The Pew study found that some of the shrinkage in the middle class came from people moving into the upper-income tier, which represented 20% of the nation's adults in 2011, up from 14% in 1971. The lower-income group rose to 29% of all adults, up from 25%.
Let’s say that two societies differ only in their mixes of public and private spending. In one society, lower taxes on the wealthy allow them to drive very fine cars — say, $180,000 Bentleys. The streets and highways in this society, however, are riddled with foot-deep potholes.
In the other society, the wealthy pay higher taxes that support well-maintained roads, but drive $120,000 BMWs. Some car buffs will grumble, but for argument’s sake, let’s assume that all view the Bentley as the better car.
In which society would the wealthy be happier? Because product-quality improvements cost much more to achieve beyond some point, the absolute quality of a $180,000 car may be only slightly higher than one costing $120,000. And because not even the most sophisticated automotive suspensions can neutralize deep potholes, it’s little wonder that most people think the BMW drivers would be happier, not to mention safer.
Compliance with regulations, of course, can be costly. And if only one company has to comply, its profits may indeed decline sharply. But regulation applies to all companies in an industry, which typically allows them to cover their costs by raising prices.