When rich people don't face the same consequences as the rest of us, the system falls apart — and it's bad for everyone

• Paul Constant is a writer at Civic Ventures, a cofounder of the Seattle Review of Books, and a frequent cohost of the "Pitchfork Economics" podcast with Nick Hanauer and David Goldstein.
• On the latest episode of Pitchfork Economics, former Secretary of Labor Robert Reich says the real looting has been the trickle-down looting of America's middle class.
• The system's been rigged to remove consequences for the powerful — and people have become angry and desperate.
• When the system is rigged, no one can hold onto vast wealth. 
• Visit Business Insider's homepage for more stories.

We talk a lot in this space about the three central tenets of trickle-down economics: wage suppression for workers, tax cuts for the wealthy, and deregulation for the powerful. We usually refer to these three tactics in terms of policy, like campaigns against minimum-wage laws and regulations lifted by presidential executive order. But the truth is that once you've passed enough trickle-down dogma into law, the whole structure of law and policy loses its meaning and the wealthy few become immune to the cause-and-effect that holds society together.

Consider this: If you or I were to walk into a gas station, grab a six-pack of soda, and walk back out the front door without paying, the attendant would call the police and we would be charged for shoplifting. But when the reckless behavior of out-of-control financial institutions tanked the stock market and kicked off the Great Recession of 2008, nobody went to jail.

Steal six dollars of merchandise, and you will face the consequences. Steal trillions of dollars in bailout money, and your bank will get a stern talking-to and a tiny fine.

Earlier this summer, before the coronavirus resurgence derailed his reelection campaign strategy, President Trump tried to position himself as the law-and-order candidate. He took an especially strong stance against people protesting the murder of George Floyd in cities around the nation, even going so far as to tweet the abhorrent "when the looting starts, the shooting starts." 

In a bracing video, former Secretary of Labor Robert Reich responded with an argument to the contrary: despite all his talk of law and order, Trump isn't interested in consequences for those who have been participating in the real looting which is destabilizing the country — specifically, the trickle-down looting of America's middle class.

Reich appears on the latest episode of Pitchfork Economics to elaborate on who the real looters are in America, and why for the wealthy few, our government's mechanisms for enforcing laws against economic fraud are basically nonexistent. 

Host Nick Hanauer recalls, "I used to be continually in fear of an audit from the IRS as a younger person." As he presided over billion-dollar deals, his accountants warned Hanauer that he would definitely be audited — and his finances had better be immaculate when that day comes. Amongst themselves, Hanauer said, wealthy people used to openly discuss their fears of the inevitable audits that they knew were coming. But now, he says, "nobody worries about it anymore. It just never comes up."

Why doesn't the specter of the IRS loom over the wealthiest people in the country anymore?

Because the IRS has openly admitted to Congress that it audits poor Americans far more often than the wealthiest people and corporations. In the words of ProPublica's Paul Kiel, "auditing poor taxpayers is a lot easier" than it is to engage in a lengthy back-and-forth with the fleets of expensive lawyers and accountants that wealthy people can hire. Funding at the IRS has been repeatedly slashed over the last decade by trickle-downers, and so they literally don't have enough money to handle the expenses incurred by auditing the wealthy. 

Without that fear of audits hanging over their heads, the wealthy are able to stash their money and move it around with relative impunity. Remove the consequences, Reich argues, and their actions become a lot more audacious.

The whole system, Reich argues, has been rigged to remove consequences for the powerful.

"We used to have anti-monopoly laws in this country, which made it very difficult to aggregate the kind of economic power we see in many companies — mostly in high-tech and in the banking sector right now," he said.  

"We've allowed changes in bankruptcy laws, making it impossible for households to reorganize their mortgage debt, or former students to reorganize their student debts," Reich said. "We permitted extensions of intellectual property — the durations of patents and copyrights — which drive up prices and squelch innovation, especially in Big Pharma and Big Tech. I could go on and on and on."

These changes started with trickle-down politicians enacting a law here and lifting a statute there at the behest of their wealthy donors. But all those changes aggregated into a wholesale weakening of the system — one which freed the top one percent from the consequences of their actions. The most that any given corporation will have to pay in fines for breaking the law amounts to a rounding error in their annual balance sheets. It's become an understood truth in American culture — everyone knows it.

"The political reality is that more and more people are angry and frustrated and desperate," Reich said. And then the pitchforks come out. "When people get that desperate, a demagogue like Trump can come along and convince them that their real enemies are not the people who were doing the rigging at the top, but are people whose skin color is Black or brown, or foreigners, or Muslims. It's not new in history that economic frustrations are channeled by a demagogue into hate."

When the super-rich aren't held accountable for their actions, everyone's faith in the system disappears.

It's very difficult to generate, or even hold on to, vast wealth when governments consistently fail to establish order. That kind of inequality is bad for everyone. 

"The wealthy would be wise to understand the dangers of an economy that is too out of whack," Reich said.

It would be cheaper in the long run for the rich and powerful to allow the guardrails to be put back in place — reversing the flood of income inequality through higher wages for working Americans, higher taxes on the rich, and regulation of powerful interests — than it would to try to hold onto their wealth in a nation where authoritarians routinely foment unrest through chaos and violence.