In a great little interview on the Renegade Economist Talkshow, Tim O' Reilly mentions a 1993 paper by George Akerlof and Paul Romer called Looting: The Economic Underworld of Bankruptcy for Profit. The central idea is that there's a difference between creating wealth and extracting wealth from the economy.
The paper was the subject of a write-up in the NYTimes: The Looting of America’s Coffers.
There has never been a democratic society in which citizens' influence over government policy was unrelated to their financial resources. In this sense, the difference between democracy and plutocracy is one of degree. But by this same token, a government that is democratic in form but is in practice only responsive to its most affluent citizens is a democracy in name only.
Most Americans think that public officials don't care much about the preferences of "people like me." Sadly, the results presented above suggest they may be right. Whether or not elected officials and other decision makers "care" about middle-class Americans, influence over actual policy outcomes appears to be reserved almost exclusively for those at the top of the income distribution.
Inequality and Democratic Responsiveness:
Who Gets What They Want from Government?
Martin Gilens
Politics Department, Princeton University
Years ago, I came across a paper about welfare. Written in the context of the Clinton era welfare reforms, the paper acknowledged the perverse incentives and dependency that accompany welfare for the low end of the income distribution. It went on to talk about welfare for the wealthy. This, it explained, is much more pernicious, in that the wealthy have greater means to influence policy, influence they use to divert further resources to themselves.
Every now and then, I try to find that piece again because it really helped open my eyes. The quotation above was the closest I could come, this time.
