Oligarchy and Redistribution: A Reply to Paul Krugman
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.
Global Empire as Domestic Policy
While many mainstream commentators blanch at the characterization of the United States as an empire, the hard data show that it is today impossible to seriously dispute. The U.S. military operates between 750 and 800 bases around the world, located in around 80 foreign countries and territories. Because there is no fixed or standard definition of “base” for these purposes, there is no accepted number, and some estimates place the figure at closer to 900. The U.S. is also known to operate dozens of secret military bases and black sites, further complicating attempts to settle upon an exact and definitive number.
Just as the number of military bases is disputed, experts have continued longstanding disagreements about how best to tally up total military spending. As the Peter G. Peterson Foundation observed earlier this year, “The United States continues to lead the world in defense spending by a wide margin. In 2025, defense spending by the United States accounted for 33 percent of all military expenditures by countries around the world,” with its nearly trillion-dollar outlay that year exceeding the combined spending of the other six biggest military spenders. This number is down from 2025’s value of nine to six largely because several other countries dramatically increased their military spending (Germany, for example, upped its spending by 24 percent). Breaking Defense reports, “The Pentagon is betting big on a $1.15 trillion discretionary budget request with a further $350 billion coming from the reconciliation process — together adding up to a historic $1.5 trillion defense budget.” The Trump administration’s discretionary funding request of $1.15 trillion marks the first time in history that a discretionary defense request has exceeded $1 trillion on its own. In the previous budget, for FY 2026, the total number hit the $1 trillion mark with a combination of $848 billion in discretionary spending and $113.3 billion in mandatory reconciliation spending.
The Project on Government Oversight (POGO) notes that many “obvious examples of programs many would consider ‘military spending’” under commonsense definitions are not a part of the Pentagon budget, including spending for veteran benefits, the Coast Guard, and even nuclear weapons. Looking at five different methodologies, a POGO report published in June points out that all five share at least one conclusion: “Military spending in the United States has long been radically underestimated.” (Not unrelated to this slippery accounting is that fact that the Pentagon hasn’t passed an audit in years, failing its eighth in a row at the end of last year.) This recent POGO report finds that “the true total military budget for the last fiscal year (FY 2025) was significantly higher than $1 trillion: It was likely between $1.5 trillion and $1.8 trillion.” If we count interest payments associated with debts for military spending, then “the range is between $1.7 trillion and $2.3 trillion.”
We rarely consider the domestic political implications of Washington’s globe-spanning empire, yet government spending on war and empire functions as the de facto national industrial policy of the United States, largely determining which cutting-edge technologies receive the most investment, which companies will enjoy massive state-guaranteed markets, and which physical objects will be the focus of the country’s industrial production capacity. Through the military empire, the state becomes both the architect of and primary consumer for a huge industrial sector. And while it has grabbed more headlines this year due to the parlous speculative bubble surrounding AI, the political consequences of the connection between the global military empire and the private sector tech industry remain woefully under-discussed in the mainstream discourse. The federal government is funneling billions to AI companies willing to work directly with the military, overpowering objections from employees and the investor market.
Just this week it was reported that “Palantir’s Maven Smart System, an artificial intelligence-powered military platform, is now an official program of record for the Pentagon.” The executive and strategic leadership of major technology companies also increasingly connects and overlaps with the military and national security establishment, often through the Pentagon’s Defense Innovation Unit and liaisons dedicated to recruiting talent and procuring products from the tech sector. As we have already witnessed for decades, cutting-edge technologies developed for the war and empire inevitably end up being deployed domestically against Americans inside the country. Now more than 50 years ago, the Senator Frank Church Committee showed that the intelligence agencies used programs originally designed for foreign surveillance to monitor Americans here at home without warrants. We still have not seriously reckoned with this connection between the policies and technologies of the empire and the ways our own government sees us and governs us.
Since classical antiquity, astute observers have understood that this kind of worldwide military empire is fundamentally incompatible with the rule of law, constitutional government, and even the thinnest definitions of democracy. The administration of such an empire demands secret and centralized forms of decision-making and thus necessarily precludes transparency, accountability, and popular sovereignty. Contemporary political language has managed to disguise what is patently a system of permanent war and empire in the terminology of a liberal and rules-based order of international law and free trade. We have consigned terms like imperialism and colonialism to the history books even as we continue these systems in different forms today. Even the liberal side of our mainstream discourse no longer seriously questions the political system of war and empire that actually governs the country. We will not understand the form of domestic politics we have in the U.S. today until we stop trying to separate it from the imperatives of empire.
Reprinted with permission from CounterPunch.
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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