Free Lesson in Economic History
Posted in the Pikeville Forum
#1 Jun 18, 2013
THE TWENTY-FIRST CENTURY AMERICAN POLITICAL ECONOMY
Where we are and how we got there.
From the beginning of the American Republic, too great a concentration of wealth in too few hands has been feared. Competency, meaning the acquiring enough wealth to live well, support one’s self in old age, and pass on to one’s children enough wealth in the form of productive property to enable them to start their own climb to competency, not accumulation of a great fortune, was deemed the goal that individuals should strive to achieve. American republicanism detested great accumulations of hereditary wealth and estates, which they considered the defining characteristic of European aristocracy, and opposed European-style monopolies such as the East India Company that served to restrain free trade.
Thomas Jefferson, who looked for exemplary warning to the ancient Roman Republic, where accumulation of great wealth by a few men led to the degeneration of the Republic into an Imperial tyranny ruled by a corrupt oligarchy, thought that republican liberty could survive only if the majority of the people were yeoman farmers and self-employed skilled craftsmen. His and other Republicans’ opposition to Hamilton and the Federalists lay in their belief that Federalist policies such as chartering a National Bank and protective tariffs for domestic manufacturers transferred too much money from the great mass of the people—i.e. the land-owning farmers and independent tradesmen—to merchants, bankers, and speculators. Jefferson had a very low opinion of the new manufacturer-merchant capitalists, and blamed them for creating the growing masses of urban wageworkers, a class that he equated with the propertyless Roman mob.
Historian William L. Barney defined this ideology succinctly in The Passage of the Republic; “Freedom from economic and political dependency upon the will of another was the most cherished value in republican thought. In turn, it was believed, this fundamental liberty had to be protected at all times from encroaching centers of outside power. Only civic virtue—the willingness of citizens to participate in politics and place public good above private interest—could provide that protection for the local autonomy of communities and the economic independence of individuals. Such civic virtue could be expected only as long as property was relatively evenly distributed in a society of economically independent propertyholders. Otherwise, the propertyless, dependent poor would fall prey to the political corruption of the power-hungry rich who controlled most of the property.”
Barney also identified the paradox inherent in republicanism when he wrote,“Although initially biased against commerce as a source of corrupting wealth, corporations as undemocratic centers of tyrannical power, and wage labor as a degraded state of dependency, republicanism also valued the right of the individual to pursue self-interest, free from external constraints.”
#2 Jun 18, 2013
Throughout the nineteenth century, American society struggled to reconcile republicanism’s essentially agrarian ideals to industrialization and the inequities inherent in capitalism. Thinkers who addressed the problem—Emerson, Hawthorne, Tocqueville, Theodore Parker, and William Graham Sumner—all recognized that industrialization promised an age of material plenty but were deeply worried that, as Tocqueville wrote, the capitalist industrial bourgeoisie “first impoverishes the men who serve it, and then abandons them….” Hawthorne, who looked back to an idealized feudal society governed by the medieval concept of noblesse oblige (the idea that God had made the nobility what they were and the lower classes what they were; the nobility therefore had the right to rule, but along with that right came a Christian duty to protect the lower classes, look after their welfare, etc.) and Parker, who asserted that government was a tool that society could use to remedy a situation that made a few extremely wealthy and impoverished the great many, established what would eventually become the underlying philosophy of Progressivism, the idea that the middle class could and should better the lot of the working class from above without the workers’ active participation. Sumner refined this thinking when he defined the prototypical Progressive as “the forgotten man,” an embodiment of middle class values, the hard-working solid citizen who must pay the costs of providing for those who do not or cannot provide for themselves. Importantly, Sumner vehemently condemned what he termed “band wagon jumpers,” unthinking, emotion driven people who rushed to support the popular cause of the moment be it utopian socialism, anarchy, or some millennial religious idiocy. This pattern of thought congealed into the “Trust Busting” and activist social reform philosophy associated with Theodore Roosevelt, a philosophy that was both progressive and deeply conservative. TR reasoned that if rational men did not take positive action to mitigate the bad side effects of capitalism, then the “lunatic fringe” would take over with catastrophic results.
#3 Jun 18, 2013
Until after the Civil War industrialized manufacturing was a minor part of the U.S. economy and the socio-economic problems arising from it remained relatively limited. In 1860 there were only 1.5 million factory workers, while nearly 6 million free workers were employed in agriculture. The Civil War saw a burst of business and industrial activity in the North. The Republican controlled Federal government spurred industrial development by enacting high protective tariffs on imported (mostly British) goods—something that had been impossible while Southern power was intact before the Civil War. Government subsidized railroad building by giving enormous grants of public land in the West to the railroad companies (the railroads were given slightly more acreage than there is in the state of Texas). When the war ended, the stage was set for rapid economic growth and industrialization. Population shift from farm to city increased, and an influx of immigrants provided a labor force willing to work for low wages in mills and factories and on railroad building crews. The Republicans did not abandon the egalitarian agrarian ideals of Jeffersonian republicanism, however. Congress passed and President Lincoln signed the Homestead Act in 1862, a law that granted 160 acres of public land in the West to anyone who would settle upon and improve it. This was a great change from previous practice whereby public land was sold in large tracts at oftentimes scandalously low prices to politically connected speculators who then resold it to settlers at a huge profit.
During this era the economic theories of British philosopher Herbert Spencer became into vogue. Spencer’s ideas, which were based in Charles Darwin’s concept of survival of the fittest in nature, held that business, left to its own devices, would cull out the weak and nurture the strong. Competition and the survival of the fittest became the philosophy of business. Corollary to this was the idea, drawn from the theories of Thomas Malthus and German economist Ferdinand Lassalle, that the supply of labor available and the demand for it would balance, with the result that wages could never fall below the minimum level necessary for the workers’ subsistence, but could never rise above it. David Ricardo stated the practical political implication of this in The Principles of Political Economy and Taxation,“Like all other contracts, wages should be left to the fair and free competition of the market, and should never be controlled by the interference of the legislature.” The U.S. government, like that of Great Britain, adopted a policy of laissez-faire; meaning government would not interfere in private enterprise.
#4 Jun 18, 2013
As business expanded and became nationwide, competition took on a ruthless character. For example, in the 1880s there were five railroads operating between New York and Chicago and two more were being built. Cutthroat competition between them led to price wars in which the freight rates between New York and Chicago fell to far below cost. As a result the railroads went bankrupt. A similar situation developed in the petroleum industry (kerosene was then the main source of light in the country) where savage competition in the 1870s led to the bankruptcy of many oil companies. John D. Rockefeller, the head of Standard Oil Company took the lead in trying to put an end to this suicidal economic warfare between competitors. Rockefeller made secret agreements with other oil companies to fix prices and share markets. Exposure of these secret cartels brought howls of outrage in the newspapers, and from small businessmen and consumers. In 1879 Rockefeller came up with a better (from his perspective) idea: the Trust. Under this plan the stockholders of some 40 small oil companies turned their shares over to a board of nine trustees (Rockefeller and his closest associates) who ran the subsidiary companies as one concern, fixed prices, limited production and used the combined strength of the 40 small companies to crush competition from companies outside the trust. Soon trusts were formed in a large number of industries including meatpacking, rubber, whiskey, tobacco, railroads, shoes, clothing, and iron and steel.
#5 Jun 18, 2013
Trusts soon became the target of public outrage. Farmers and rural businessmen were especially upset at the railroads, which charged extortionate freight rates to customers who had no alternative way to ship their goods. Angry farmers, in the form of the Grange, a powerful populist farmer’s organization formed in the Midwest in 1867, demanded redress and in response to the case of State of Illinois vs. Wabash, St. Louis, and Pacific Railway Company (the Wabash case) Congress in 1887 passed the Interstate Commerce Act. This marked the first major Federal regulation of business, and gave to a new Interstate Commerce Commission the power to regulate railroad rates and ban practices that it found to be harmful to the public. In 1890 Congress passed the Sherman Anti-Trust Act which declared illegal “every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade among the several states...” Even before the Sherman Anti-Trust Act was passed, big business had found a way to get around it. In 1888, New Jersey passed a law permitting one company to own stock in another company, thus creating the “holding company.” Under this scheme a financier wishing to control several companies in one industry would get the shareholders to exchange their shares of stock for shares in his newly incorporated holding company, sell additional shares in the holding company on the stock market, and then use the money so raised to finance and control the companies owned by the holding company. It was uncertain whether or not a holding company could be considered a conspiracy against trade under the Sherman Anti-Trust Act. A series of U.S. Supreme Court decisions at this time effectively blocked state and Federal efforts to regulate railroads, making the government reluctant to challenge the holding companies in court, and convincing the company barons that they had friends on the Court.
An unforeseen effect of the Sherman Anti-Trust Act was to stifle labor unions. In 1894 the government obtained a court injunction against the American Railway Union on the grounds that in supporting a strike against the Pullman Company by refusing to work on any train carrying a Pullman car during the strike the union was engaged in a conspiracy against interstate commerce. From 1894 until passage of the Clayton Act in 1914, employers regularly used the Sherman Anti-Trust Act to obtain injunctions to break strikes—and even then the Supreme Court so weakened the Clayton Act that the practice of using the courts to break strikes continued until reforms passed as part of Franklin D. Roosevelt’s New Deal.
#6 Jun 18, 2013
The post-Civil War “Gilded Age” saw the rise to prominence of a breed of unscrupulous businessmen who became known as “Robber Barons.” This designation came about through the activities of men who bilked investors and plundered companies to enrich themselves. Jay Gould was one such—a man who “brought the cunning of a pickpocket and the audacity of a burglar to the world of high finance.” In 1868 Gould and James Fisk wrested control of the Erie Railroad away from “Commodore” Cornelius Vanderbilt in an elaborate scheme that involved fraudulent stock trades. The next year Fisk and Gould attempted to manipulate the value of U.S. currency in foreign exchange by bidding up the price of gold, an effort that led to the Black Friday financial panic of 1869. It bankrupted companies and banks and plunged the country into a severe recession but greatly enriched Gould and Fisk. Jay Gould lived like a king (his mansion, Lyndhurst, in Tarrytown, New York, rivaled the palaces of European royalty and his private yacht was larger and more luxurious than those owned by the Tsar of Russia and the German Kaiser), but Gould paid workers on his railroads wages that were below poverty level and working conditions were horrendous.
As historian Nell Irvin Painter shows in her aptly titled book Standing at Armageddon, the grossly inequitable distribution of wealth and the disproportionate power of big capital over labor caused American society to tilt dangerously toward the conditions necessary for a proletarian-agrarian revolution to occur during the decades between the end of the Civil War and 1920. To get an idea of just how close the country came to agrarian revolution, one has to look no further than the Kentucky-Tennessee Black Patch tobacco region’s Night Rider heritage, strip it of its nostalgia, and see it for the agrarian revolutionary movement that it really was.
#7 Jun 18, 2013
The Eastern Dark Fired Tobacco Growers’ Association was founded at a mass meeting of several thousand disgruntled farmers in a pasture field near Hopkinsville, Kentucky, in 1900 in response to James B. Duke’s American Tobacco Company, a trust that had depressed tobacco prices below the cost of production and sometimes paid farmers in script that was redeemable in goods only at certain stores with whom the Trust had an agreement, not in cash. The farmers made two basic demands: auction sales with several competing buyers and cash payment for their tobacco. These two demands, simple and reasonable on their face by today’s standards, were in the context of their time revolutionary, since meeting them required a complete restructuring of the tobacco sector of the national economy: before there could be auction sales of tobacco with several competing buyers the Tobacco Trust had to be destroyed. The tobacco farmers were neither socialists nor anarchists, however. They were committed to private property and the free market, and they demanded government action to restore the balance of competition that the Tobacco Trust had eliminated. When its grievances were ignored, the EDFTGA adopted the masked panoply and night riding tactics of the Ku Klux Klan, enforced a sales embargo against the Trust, and then mounted a series of raids that seized control of several tobacco market towns in the Kentucky-Tennessee Black Patch region and burned several million dollars worth of Tobacco Trust facilities. Growers throughout the South followed the Black Patch farmers’ lead, though without the destructive quasi-guerrilla warfare, and organized militant growers’ associations on the EDFTGA model. Alarmed that the violence in the Black Patch might escalate and spread throughout the tobacco region, and under pressure from the powerful Southern bloc in Congress, the Justice Department began an anti-trust action that resulted in the breakup of the Tobacco Trust in 1909. This opened the way for other tobacco companies to compete in the market, and met the farmers’ demands for competitive free-market bidding for their tobacco. Its demands met, the EDFTGA put away its Night Rider robes and transformed itself into an a political organization active on behalf of tobacco farmers; eventually it and the other tobacco growers’ associations modeled after it became the intermediary farmers’ cooperatives through which the New Deal tobacco production quota/price support program was administered—a function that they served until the tobacco price support program was abolished in 2003.(Contrary to popular misconception, the tobacco price support program was not a “subsidy”. Tobacco taken under loan by the cooperatives was held until it could be sold at a profit, often to overseas buyers; funds advanced by the Treasury were then repaid in full, with interest.)
#8 Jun 18, 2013
Financial panics in 1893, 1901 and 1907 led many people to suspect that there existed a “money trust”—a secret cartel of big banks, insurance companies, and industrial firms—controlled by a very few wealthy, powerful men (J.P. Morgan, George Baker, James Stillman and their close associates) that controlled high finance. In 1911 then-presidential candidate Woodrow Wilson’s friend, principal advisor, and unofficial chef de cabinet E. M. House called big capital, or ‘Wall Street’ in popular parlance,“the most pernicious of all trusts…. A few individuals…control the leading banks and trust companies in America. They also control the leading corporations; and if they are to be permitted on the one hand to use the corporations as a bar against loss to any speculation which they may make, and to use on the other hand the banks and trust companies to borrow all the funds they may need for such speculations, the stockholders of the corporations which they dominate and the business world that depends upon funds from the trust companies and banks…are bound to suffer.”
Industrial capitalists and labor entered into a tacit compromise after the wave of violent strikes and terrorism that erupted during the so-called “Red Summer” of 1919, a time when many people became frightened that the United States was on the brink of a Bolshevik Revolution-type working class upheaval. Industrialists, taking the lead of Henry Ford, who believed that industry’s profits depended on workers’ wages being high enough to allow them to buy the full range of consumer products, began paying higher wages and providing better working conditions, health care, retirement, and other benefits for their employees in exchange for labor peace. When the Great Depression made the cost of this welfare capitalism prohibitive, it was the industrialists led by the Business Advisory Council (a group headed by railroad magnate W. Averell Harriman and including the top executives of Standard Oil, General Motors, International Harvester, and General Electric) who turned to the federal government and sought to shift the social welfare burden to it. BAC put its full support behind passage of Social Security. It also supported the WPA and other public works projects on the premise that putting paychecks into workers’ hands would stimulate the economy.
#9 Jun 18, 2013
Franklin D. Roosevelt’s New Deal was cursed as “socialism” by its hard-core opponents, but New Dealers never seriously contemplated transitioning to a socialist economic system. Instead, the New Deal aimed to restart the capitalist economy with an infusion of government money, while at the same time alleviating working class hardship through direct employment public works programs, most notably the WPA. Concurrent with the bailout, the New Deal regulatory regime placed an elaborate array of props around and barriers to reckless speculative shenanigans within American capitalism to protect its structure from collapse. These regulations were supported by the BAC, whose members, though unwavering in their commitment to free enterprise, were responsible men who wanted to maintain the health of the economy, and who knew that only the federal government was powerful enough to restrain the likes of Jay Gould.
Richard Parker contends in John Kenneth Galbraith: His Life, His Politics, His Economics that the New Deal became a casualty of the Second World War shortly before the election of 1942. According to this argument, the nation’s 3,000 wealthiest individuals who controlled the major corporations were willing to continence government management of the economy only so long as it was to their benefit. They resisted government orders that industry cease producing profitable consumer goods and begin making war materiel. They also objected to efforts to regulate prices of essential goods in order to more equitably spread the burden of sacrifice demanded of all citizens by the war effort. When FDR imposed a steep income tax on the very rich the wealthy elite contributed large amounts of money to Republican congressional candidates in the 1942 election, resulting in a significant narrowing of the Democrats’ majority in Congress. This meant that enactment of further New Deal legislation that might have restructured the economy and altered the distribution of wealth in truly basic ways became impossible. This situation carried over into the Truman administration, which had a Democratic majority in both houses of Congress but one in which arch-conservative Southern Democrats allied with Republicans to control the legislative process and block enactment of progressive socio-economic reforms.
#10 Jun 18, 2013
In the summer of 1957 President Dwight D. Eisenhower echoed Thomas Jefferson when he wrote in a confidential letter to a Republican National Committee official,“We believe that private enterprise should be encouraged, but that the leadership of government should be devoted toward insuring a just and wide distribution of the profits from such enterprise.” Ike, who grew up in a frugal, self-reliant working poor family in Abilene, Kansas, believed in free enterprise and the work ethic. But he also understood that for capitalism to thrive the profits that free enterprise generated could not be allowed to accumulate exclusively in the hands of the wealthy few but had to be spread into as many hands as possible. History proved him right. Industrialists who adhered to the philosophy that mass production of low cost products and high wages paid to workers were the road to prosperity were in the drivers’ seats of big business. The post World War II boom that they managed and Ike’s “Middle Way” economic policies combined to bring about the greatest economic expansion, widest distribution of wealth, and most dramatic and evenly spread increase in standard of living in the nation’s history.
It appeared that the Progressives had succeeded: the American working class had adopted solid lower middle class values. However, they did not become the middle class. They still identified themselves as working class, and looked to labor unions and government to secure their fair share of the profits generated by capitalist free enterprise. Capitalists, who had been badly frightened by the Great Depression, were concerned that there just might be some truth to Karl Marx’s contention that capitalism contained the seeds of its own destruction. As a result they were willing to negotiate with labor and allow government to prohibit risky, irresponsible actions aimed at short-term profits that might endanger the system in the long run. Steady return on investments and full employment, not ballooning growth and astronomical short-term profits, was the goal sought by the government, capital, and labor. At the same time government heeded the advice of influential economists such as Galbraith who advocated that more of the profits of big business be taxed away and the money spent on building public works; a wealth redistribution policy that served to stimulate the private sector economy, provided jobs, and left the public with the durable infrastructure and amenities built. These projects included big-ticket items like hydroelectric dams, major airports, and the interstate highway system, but federal funding also made possible the paving of country roads and construction of such things as small town sewerage systems and rural water works.
#11 Jun 18, 2013
Liberal Democrats who wanted to further develop and expand the New Deal’s social welfare programs became their own worst enemies during the Eisenhower years. Liberal Democrats sought to establish a counter-identity to Eisenhower’s middle-of-the-road conservatism by proposing radical social legislation that they knew would never be enacted. In doing so they inadvertently labeled themselves as much further to the left than they really were; and too radical for the majority of the American people to accept. When the roadblock imposed by the Republican-Southern Democrat alliance in Congress was finally broken in 1960 the untenable positions that the liberals had taken during the Eisenhower years came back to haunt them. The majority in Congress, gauging the mood of their constituents, did not embrace Kennedy’s New Frontier legislative program that contained much of what the liberals really did want. For their part, some liberals adopted the stance that central parts of the New Frontier, such as Kennedy’s proposed version of Medicare for the elderly, did not go far enough. At the same time the powerful, intensely conservative (and self-interested) American Medical Association denounced the New Frontier’s health care provisions, including Medicare, as “socialized medicine” and began a well financed all out campaign against it. The same thing happened with federal aid to education, where the stumbling blocks were localism and opposition to desegregation.
It was the backlash against Lyndon Johnson’s Great Society by the middle class and, more importantly, the working class that doomed the New Deal Order. In seeking to combat what became known as the “culture of poverty” Johnson brought into being ill-conceived experimental programs like the community action oriented Mobilization for Youth in New York City that accomplished nothing constructive and inflamed opinion against the entire Great Society program when young leftist radicals and militant welfare recipients seized control of it. When the idea of a negative income tax that would set a floor under family income by paying a subsidy to people who did not earn enough to pay income taxes resurfaced (Huey Long first proposed it in the 1930s as supplemental income for the working poor) as part of the War on Poverty, blue-collar workers and labor unions that represented them aligned with traditional bourgeoisie conservatives and denounced it with a vengeance. This trend of liberals overreaching the bounds of pragmatism and condemnation of “welfare” by the working class became an enduring feature of the American political landscape.
#12 Jun 18, 2013
During this timeframe three critical ideological shifts occurred. First, industrial workers came to identify themselves as middle class, a status denoted by the ability to own a home, purchase high cost consumer goods such as new cars, send their children to college, enjoy a certain amount of leisure, and afford medical care and a reasonably secure retirement. They also came to view most facets of the New Deal except Social Security and Medicare (in which they felt that they had invested a portion of their earnings) as handouts for the undeserving non-working poor. Second, there arose a new generation of upper middle class neo-conservative intellectuals who had little or no first-hand knowledge of poor people and moreover were not concerned about their welfare. Among this group, the old Progressive social ethos had been replaced by Libertarianism, a Social Darwinist philosophy rooted in the laissez-faire political economy theories propounded by Austrian economist Ludwig von Mises and expressed in American context by Murray N. Rothbard in The Libertarian Manifesto and The Ethics of Liberty. Simultaneously there arose a new type of fringe fundamentalist Christianity exemplified by self-styled “Christian economist” Gary North, who declared,“There is a tight relationship between wickedness and poverty.” The rationale behind traditional Christian charity held that poor people were pushed into wickedness by poverty. North turned that upside down and asserted that poor people’s wickedness caused their poverty. North denounced not only government-run social welfare programs (including Social Security, Medicare, Workmen’s Compensation, and unemployment insurance) but traditional Christian charity as well, declaring,“Subsidizing sluggards is the same as subsidizing evil.”
In the midst of this ideological shift, in 1973, the Supreme Court handed down its landmark Roe v. Wade decision legalizing abortion. Legalization of abortion energized and unified Christian fundamentalists into a cohesive political movement as nothing before ever had. Old issues, some of which had been dormant for decades—opposition to the teaching of evolution, opposition to sex education, prayer and Bible study in public schools—were given new life under the Christian Right’s banner.
#13 Jun 18, 2013
As Christine Todd Whitman points out in her book It’s My Party Too, The Battle for the Heart of the GOP and the Future of America, after Ronald Reagan was elected with the support of the center-right Moral Majority led by Jerry Falwell in 1980, the Christian Right’s “social fundamentalists” as Whitman calls them, came to dominate the Republican Party’s nominating process at the grass roots level. Shortly thereafter, Libertarians, hiding behind the neo-Conservative label, co-opted the Moral Majority’s hot-button “moral” issues (opposition to abortion, gay-marriage, and the teaching of evolution; support for vaguely defined “family values”), issues that are irrelevant to Libertarian economic ideology, and linked them to their own extreme laissez-faire free market economic ideas by way of the new “Christian” political economy concocted by Gary North, summed up in his statement,“When Christianity adheres to the judicial specifics of the Bible, it produces free market capitalism. On the other hand, when Christianity rejects the judicial specifics of the Bible, it produces socialism or some politically run hybrid ‘middle way’ between capitalism and socialism, where politicians and bureaucrats make the big decisions about how people’s wealth will be allocated. Economic growth then slows or is reversed. Always. Free market capitalism produces long-term economic growth. Socialism and middle-way economic interventionism by the state produce poverty and bureaucracy.”
#14 Jun 18, 2013
This synthetic “Christian conservative” doctrine was then popularized by televangelist Pat Robertson, who made North’s perversion of time-honored Christian notions of social responsibility palatable to traditional Christian evangelicals by veneering them with and insinuating them into familiar Protestant rhetorical themes centered round the traditional Puritan work ethic. Subsequently, North’s doctrine filtered its way into the thinking of mainstream Evangelicals. Dr. Del Tackett, host of the popular television program Cross Examine, echoed North when he told his audience,“An economic free enterprise system is the engine of society, and when you begin to pull the spark plugs out of it through regulation and taxation, well, there’s only one thing that’s going to happen, that engine will begin to sputter.” Appearing on a television program produced by Coral Ridge Ministries called Socialism: A Clear and Present Danger, the Southern Baptist Convention’s Rev. Richard Land, whose influence on the content of sermons delivered by Southern Baptist ministers and on the denomination’s instructional literature is enormous, declared,“The Bible teaches that we are to care for our neighbor, we’re to be compassionate to our neighbor, but it’s one thing for you to give out of compassion to someone who is less fortunate. It’s an entirely different thing for the government to confiscate your property and give it to someone else.” Note the subtle message in what Tackett and Land said: taxation to pay for social welfare is equated with confiscation of private property. By thus bundling religious issues with their own economic philosophy, the Libertarians convinced many people in the Evangelical core of the Christian Right to accept an essentially Social Darwinist view of economics, taxation, government regulation of business, and social responsibility, a philosophy that was the very antithesis of traditional Christian beliefs about the evil influence of excessive personal wealth. And, because it was clothed in religious garb, many fundamentalist Christians came to equate opposition to their political views about economic policy with opposition to God’s will.
#15 Jun 18, 2013
While this nexus of Christian fundamentalism and Libertarian economics was happening, wealthy opponents of the inheritance tax and progressive income taxes were waging a prolonged campaign that used scare tactics and misinformation to deceive middle class Americans into thinking that they were rich. The effort succeeded. In 2000, a CNN poll revealed that 39 percent of Americans thought that they were in the wealthiest 1 percent. In fact, most of those who thought that they were among the richest 1 percent were in fact not even in the richest 50 percent!
Spread and acceptance of this kind of thinking throughout the Bible Belt made the deregulation responsible for the economic disaster of 2008 politically possible, indeed drove it. Reading the mood of their constituents in the 1990s, politicians began systematically removing the New Deal props and internal safeguards from a capitalist consumer economy that the neo-cons deemed far too strong to need them. Even liberal Democrats like Bill Clinton were swept up in the headlong rush to deregulate the economy. Cautious economists and economic historians who warned that doing so might lead to catastrophe in the future were ignored, ridiculed as anachronistic cranks, and condemned as anti-Christian “socialists” by the Christian Right’s politicized preachers.
While these developments were unfolding, the generation of cautiously conservative bankers and business leaders old enough to remember the Great Depression passed from the scene. The younger generation that replaced them, although they hid behind the “conservative” label, were not conservatives in the old banker’s definition, but reckless risk-takers cast in the Jay Gould mould who were unwilling to tolerate barriers in the way of their personal ambitions and greed. This generation’s predatory mindset, coupled with executive compensation systems that awarded obscenely huge bonuses based solely upon generating short-term profits led to a high stakes gambling casino mentality coming to dominate Wall Street. The result was repetition of the conditions that E.M. House bemoaned in 1911, only worse, since this time consolidations and mergers had made the financial institutions so big and interconnected that if just one was to fail it would set in motion a domino effect that would topple the rest, and take the whole capitalist monetary system down with them (if that happened you would lose your retirement pension and your savings in the bank; even the money in your pocket would become worthless paper), leaving the government no choice but to bail them out.
#16 Jun 18, 2013
Jay Gould’s present-day successors profited handsomely from the crisis of their making. In 2008, as the economic crisis was developing, executives at the first nine banks to receive government bailout funds paid themselves $33 billion in bonuses, with 4,800 top employees getting more than $1 million each. According to ABC, Citicorp, which received $45 billion in bailout money from the government, paid one of its executives, Andrew Hall, a bonus of $100 million—that is $100,000,000 in taxpayers’ money paid straight into this robber baron’s pocket. Even more egregious was the case of Bank of America, whose management prior to saving Merrill Lynch from bankruptcy told shareholders that they would not pay any bonuses to Merrill Lynch executives, went ahead and paid $5.8 billion in bonuses despite that pledge, and then attempted to hide the fact that they had done so from shareholders. And all the while Bank of America was asking for and getting a $25 billion bailout from the taxpayers—23 cents out of every dollar of which ended up in the pockets of the scoundrels responsible for Merrill Lynch’s insolvency!
To give you some idea how much money $33 billion is, consider this: according to the Office of Management and Budget the much-maligned food stamp program, which provided food for 28 million poor people in fiscal year 2007, cost the taxpayers $30 billion. According to the January 2009 issue of Progressive Farmer magazine, in 2008 the net income for all the farms in the United States was $64 billion. For an idea of how much money Merrill Lynch’s executives got in bonuses, compare their $5.8 billion to the $8.75 billion per year budget for the Commonwealth of Kentucky for 2011-12.
#17 Jun 18, 2013
Wealth did not trickle down; it gushed upward. During the last twenty years the incomes of the top 10 percent of Americans soared (and their taxes were cut substantially), while the income of the other 90 percent lagged behind increases in the cost of living. Research done by Yale University professor of economics Jacob S. Hacker and Dr. Paul Pierson, Chair of the Department of Political Science at UC-Berkley reveals that in every year between 1979 and 2005 the average household in the top 1 percent became $597,241 richer. Everyone in the bottom 90 percent became poorer.
This massive transfer of wealth from the great mass of the people to the super-rich few translated into greatly reduced buying power, lower standards of living, and heavier debt for working people. At the same time that earnings for the majority of Americans was declining, the neo-conservative crusade to shift the rising costs of education, medical care, and retirement from government and employers to working-class people was underway. Working people in the South, Midwest, and West suffered the greatest loss in buying power. Yet this Bible Belt region is where support for the neo-cons’“trickle down” economic policies is strongest at the grass roots level, thanks in large part to the powerful influence that fundamentalist preachers wield over their ill informed, easily misled congregations.
Today, the top 20 percent of Americans own more than 85 percent of the nation’s total wealth, while the remaining 80 percent of Americans own less than 15 percent. The top 1 percent (3 million people) own 40 percent of the nation’s total wealth, while the bottom 60 percent (180 million people) own just 1 percent.
Concentration of too much wealth in too few hands and too little taxation of the rich combined with deregulation is our real problem. The Federal deficit is only a symptom of it. In 1950, the total of all U.S. government debt—federal, state, and local—was about 122 percent of gross domestic product. This was the result of deficit spending during World War II. Today the total government debt is actually proportionally less than it was in 1950, amounting to slightly more than 100 percent of gross domestic product. Today’s tax structure compounds this problem. Tax rates on the richest Americans are today less than half what they were in 1950, yet this has not stimulated investment in productive industry.
#18 Jun 18, 2013
The six Federal individual income tax brackets in 2012 are as follows:
10% on earned incomes $0—8,700
15% on earned incomes $8,700—35,350
25% on earned incomes $35,350—85,650
28% on earned incomes $85,650—178,650
33% on earned incomes $178,650—388,350
35% on all earned income over $388,350
People earning under $35,350 pay no taxes on capital gains. Those earning over $35,350 pay capital gains tax at the flat rate of 15%.
In 1950 there were many more tax brackets. People with the lowest incomes paid little or no taxes. Income in the very highest bracket was taxed at 90%, or 45% if it came from long-term investments. The top bracket was reduced to 70% in 1965, reduced to 50% in 1984, reduced to 36% in 2004, and is today at 35%, the lowest in 62 years.
Capital gains taxes have been tilted even more in favor of the rich, most of whose income is in the form of income from investments, not wages. Details varied over time, but in the past capital gains were generally taxed at about one-half the rate that a person paid on ordinary income in their tax bracket. Thus a person with income taxed at the 90% rate paid 45% in capital gains tax. With today’s 15% flat rate, a person who makes $100,000 in wages pays $18,730 in income taxes plus $5,650 to Social Security, while a wealthy individual whose investment income is $100,000 pays only $15,000 in taxes and nothing to Social Security. Someone who earns $388,500 in ordinary income pays $109,515 in income taxes plus $10,257 to Social Security. On the same $388,500 in investment income the millionaire investor pays only $58,275 in taxes and nothing to Social Security. Further, the capital gains tax rate is 15%, so matter how huge an individual’s investment income is. The capital gains tax rate does not increase as income increases as it did in the past.
#19 Jun 18, 2013
Income disparity has increased astronomically. In 1950, the average pay of industrial workers nationwide was about $2,860 per year; higher in the North, Midwest, and California; lower in the South. At that time, median family income in the United States was $3,200 per year. Minimum wage was 75 cents per hour, or $1,560 per year (52 weeks x 40 hours x .75). The Illinois Central Railroad’s approx. 38,000 employees did better than the national average, but were about par for the Midwest, making an average $3,625 per year. The lowest paid were its unskilled track repairmen, who were paid $2,770. Its clerks, bookkeepers, secretaries, ticket agents, etc. earned an average annual salary of $3,691. The best paid of its laborers were locomotive engineers, who earned on average $4,208 per year; senior engineers with 20 or more years of experience earned around $7,000. Illinois Central’s senior management group—of which there were a total of 347 people—were paid an average yearly salary of $8,827. Wayne Johnson, president of the company, was one of America’s best-paid executives; his yearly salary was $75,000. The salaries of the Illinois Central’s six vice-presidents ranged from $25,000 to $35,000. Insofar as company statements show, they were not paid any bonuses in addition to their salaries.
By this pay scale, the president of the ICRR, which at that time was one of the three largest railroads in America and one of the 100 largest companies, made 20.69 times as much as the average of all ICRR workers; 20.32 times as much as its white collar workers; 27.08 times as much as the company’s lowest paid employees; and 10.7 times as much as its best-paid locomotive engineers. Looked at another way, he was paid 48.08 times the minimum wage, or 23.44 times the U.S. median family income. The highest paid vice-president’s $35,000 salary amounted to 10.94 times the median income, or 22.44 times the minimum wage.
Minimum wage today is $7.25 per hour, or $15,080 for a full year’s work; the median family income in the U.S. in 2010 was $64,400.
Now compare executive pay in 1950 to today’s rates: The average corporate CEO today is paid 185 times as much as the average worker, or proportionally about nine times the going rate in 1950. Had Wayne Johnson been paid according to today’s scale, his salary in 1950 would have been somewhere between $592,000 and $670,000.
#20 Jun 18, 2013
Among Wall Street executives, the disparity is so great as to be obscene. For example, Citicorp executive Andrew Hall’s $100,000,000 bonus, pay over and above his undisclosed salary, amounts to 1,552.8 times the $64,400 median family income; it amounts to 6,631.3 times the yearly earnings of someone who is paid minimum wage. If he worked a 40-hour week and was paid by the hour, Hall’s bonus amounts to $48,076.93 per hour. On average, each of the 4,800 Wall Street executives who shared $33 billion in bonuses paid out of the Bush administration’s Wall Street bailout got $6,875,000. This amounts to 106.75 times median family income, or 455.90 times the earnings of someone working for minimum wage. Had Wayne Johnson been paid according to the same proportional pay scale as is applied to today’s Wall Street executives, his salary in 1950 would have had to be $2,422,500 instead of the $75,000 that it really was. Put another way, had Andrew Hall been paid in the same proportion to the minimum wage as Johnson was, he would have gotten $725,046, or seven-tenths of one percent of the $100 million that he actually got.
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