What the rich & corporations know about our capitalist economy that you don’t

During my eight years of research on the past fifty years of our economy for my book THE HEIST – how the rich and corporations stole the American dream , I came early to the conclusion that the rich and corporations have a fundamentally different view of how the economy works as compared to the rhetoric of the political establishment and almost all of the economists teaching in our universities and business schools. Their knowledge, though not a well-organized body of knowledge, nevertheless reflects the actual history of capitalism’s development. They understand that by controlling the government, they can create an economy that profoundly enriches them while leaving the rest of us in a perpetual state of insecurity.

The two sources of the reigning mythologies

As you review the following, keep an eye out for assertions, theories that are not based on an analysis of the real world, they are idealizations.

Neoliberalism

Neoliberalism¹ grew out of European and American conservatives’ concerns with the threat of communism and socialism as seen through their eyes.

First, the primacy of markets. Competitive markets are the most effective way to coordinate economic activity. Prices are the best signals of value, scarcity, and preference. Government intervention is seen as distorting these signals and reducing efficiency.

Second, limited government. The role of the state should be constrained, focused mainly on enforcing property rights, contracts, and the rule of law. Direct state involvement in production, industrial policy, or extensive welfare provision is viewed skeptically.

Third, deregulation. Regulations,especially those affecting finance, labor markets, and business operations—are seen as impediments to efficiency and innovation. Removing or reducing regulatory constraints is expected to increase competition, investment, and growth.

Fourth, privatization. Activities previously carried out by the public sector (utilities, transportation, prisons, education in some cases) are shifted to private ownership or management. The assumption is that private firms, driven by profit and competition, will operate more efficiently than public agencies.

Fifth, free trade and capital mobility. Neoliberalism promotes the reduction of tariffs, quotas, and barriers to international investment. Global integration is seen as beneficial because it allows capital and goods to flow to their most productive uses, increasing overall economic efficiency.

Sixth, flexible labor markets. Labor protections such as strong unions, wage controls, or strict hiring and firing rules are viewed as sources of rigidity. Greater flexibility—often meaning weaker collective bargaining and more precarious employment—is considered necessary for competitiveness and growth.

Seventh, monetary discipline. Influenced by monetarist thinking, neoliberalism emphasizes controlling inflation over pursuing full employment through fiscal policy. Independent central banks and rules-based monetary policy are favored.

Eighth, individual responsibility. Social outcomes are framed more in terms of individual choices than structural conditions. Welfare systems are often redesigned to incentivize work and reduce dependency, sometimes through conditional benefits or work requirements.

Ninth, financialization. While not always stated as a principle, neoliberal policy frameworks tend to expand the role of financial markets and institutions.

Finally, competition as a governing principle. Competition is not just an economic mechanism but a broader organizing logic applied to sectors like education, healthcare, and even government services, often through quasi-markets or performance metrics.

Neoclassical Economics

We start with neoclassical economics², taught in virtually every university and business school. This dominant academic theory is built on assumptions that are simply wrong.

First, neoclassical economics completely ignores the fact that the economy is embedded in our society and that power, specifically the power to change the rules of the economy, is an important element of how the economy functions and distributes economic goods.

Second, market activities are based on decisions made by utility-maximizing agents who have complete knowledge of the issues at hand, have stable, if not fixed, preference, and always prefer the solution that maximizes their personal outcomes. This agent is frequently referred to as homo economicus, though folks like Paul Krugman refer to these economic players as utility maximizers. Strangely, over the past twenty years or so, a branch of economics, behavioral economics, has extensively researched how decisions are actually made by real people, not some idealized homo economicus. Despite the very interesting findings, the broader profession has not abandoned its counterfactual assumptions of homo economicus.

Third, markets automatically achieve an equilibrium based on the interplay of prices and supply. One only needs to recall the most recent economic meltdown and the many mini-meltdowns in our lifetime to wonder where this equilibrium machine is going? This also ignores the proven fact that most competition in markets is through improvements in the features and benefits of products and services. Though some important commodities are subject to actual price competition, think petrochemicals, price competition is not central to production and consumption patterns.

Fourth, the marginal productivity theory of income. This is idea that wages and returns to capital reflect marginal contributions to the corporations ou’s output. For example, executive pay, financial returns, and monopoly profits are disconnected from measurable productivity. And, this ignores the enormous disconnect in power between corporations and individuals seeking employment. How do we explain that average worker pay has only risen 29% in real terms over the past 50 years, while CEO and top management pay, which was 25 times the average worker pay in 1975, is now well over 350 times today.

There is more that can be said of neoclassical economics, but I will stop with these observations.

What do the rich and corporations know that you should know?

The rich and corporations know that whoever controls government gets to set or reset the rules of how our capitalist system works. That is why they spend $ billions each year to dominate elections and lobby and influence what is discussed and voted on in Congress. Of course, in the Trump regime, they have seats directly in the Oval Office and at Mar-a-Lago.

The rich and corporations dominate the election process by funding both the Republican and Democratic parties and expanding their influence through a network of lobbyists in Washington. Lobbyists work to ensure that the interests of the rich and corporations are safeguarded through legislation and regulations. There are 435 members of Congress and 100 Senators. In 2021, there were 12,136 registered lobbyists in Washington, supported by over $3.73 billion spent to influence legislation and regulations. This amounts to $6,972,000 per legislator and involves 23 lobbyists for each member.³

I won’t bother with an analysis of the control of our elections by the rich and corporations. Go to OpenSecrets.org for the depressing details.

What have the rich and corporations done with this control of the government?

They passed laws and changed regulations that produced the following key changes in the structure of the economy, with predictable results: a tsunami of income and wealth rushing into their pockets.

Deregulation

• Airline Deregulation Act (1978) — removed federal control over fares, routes, and market entry.
• Motor Carrier Act (1980) — deregulated trucking.
• Staggers Rail Act (1980) — deregulated rail freight pricing and operations.
• Depository Institutions Deregulation and Monetary Control Act (1980) — phased out interest rate caps on deposits.
• Garn–St. Germain Act (1982) — expanded lending powers of savings institutions

Financial liberalization and financialization

• Gramm–Leach–Bliley Act (1999) — repealed key provisions of Glass–Steagall, allowing commercial banks, investment banks, and insurers to merge.
• Commodity Futures Modernization Act (2000) — exempted most derivatives (including credit default swaps) from regulation.
• SEC Rule 10b-18 (1982) — effectively legalized large-scale corporate stock buybacks.

Privatization and marketization of public functions

• Growth of private prisons (1980s onward, supported by federal and state contracting policies).
• Expansion of Medicare Advantage (2003, Medicare Modernization Act) — private plans delivering public benefits.
• Increased outsourcing of government services at federal, state, and local levels.

Globalization

• Trade Act of 1974 (fast-track authority) — enabled streamlined approval of trade agreements.
• NAFTA (1994) — removed trade barriers between the U.S., Canada, and Mexico.
• Permanent Normal Trade Relations with China (2000) — integrated China into the global trading system.
• Ongoing WTO commitments and bilateral trade agreements.

Antitrust reinterpretation (Chicago School influence) – monopolization of the economy. The death of competitive capitalism.

• Shift beginning in the late 1970s toward the “consumer welfare standard”, associated with Robert Bork.
• Reduced enforcement against mergers unless clear consumer price harm could be shown.

This allowed significant increases in market concentration across sectors without changing any laws. Just a change in philosophy.

The Financialization of the Real Economy

With Milton Friedman’s 1970 New York Times pronouncement that the only responsibility of business is to expand profits for shareholders, shareholder value theory, egged on by Wall St., radically changed the objectives of corporate management. Traditional management practices, from the 1920s or so until the late 1970s, focused on customers’ needs for new products and services, keeping an eye on competitors, and building a stable workforce. If you did those things well, then sales and profits would follow. The financialized management of shareholder value theory focused on strategies to extract as much money as possible as quickly as possible.

This theory was put into action by top management’s compensation to quarterly results reported to Wall Street and energized by top management compensation in bonuses and stock options tied directly to those results. The legalization of stock buybacks by the SEC Rule 10b – 18 in 1982 opened a tsunami of $ trillions spent to boost share prices instead of reinvesting in the business and paying better wages. Keep in mind when examining the chart below that total US GDP in 2024 was about $29 trillion.

Tax policy favoring capital and high incomes

• Economic Recovery Tax Act (1981) — major cuts to top marginal income tax rates.
• Tax Reform Act (1986) — further reduced top rates and broadened the base.
• Bush tax cuts (2001, 2003) — reduced taxes on income, dividends, and capital gains.
• Tax Cuts and Jobs Act (2017) — lowered corporate tax rate from 35% to 21%.

Retrenchment and restructuring of welfare

• Personal Responsibility and Work Opportunity Reconciliation Act (1996) — replaced Aid to Families with Dependent Children (AFDC) with TANF, imposing work requirements and time limits.
• Expansion of Earned Income Tax Credit (EITC) — supports low-income workers but reinforces work-based assistance rather than unconditional aid.

This reflects the shift toward “individual responsibility” frameworks.

The Structural Changes That We Have Seen

Without going into any depth here (see the book, THE HEIST: how the rich & corporations stole the American dream, for a detailed discussion) five structural changes have driven this surge in income and wealth inequality:

1. Monopolization of the economy

2. Globalization

3. Decline in unionization in the US

4. Growth of the finance sector

5. Financialization of corporations in the real economy