There was a time of massive income inequality in America when no one was mad at the rich, because they kept to themselves, or else they were the nation’s entertainment. The Gilded Age – roughly 1890 through the First World War – was simply elegant, if you had big money. The privileged few did, and those were the days before income taxes of any kind, or really, most taxes of any sort. The privileged few kept all their money, and, except for the curiously parsimonious Rockefellers, spent what they could, foolishly, and still couldn’t figure out how to spend even a fraction of it. The media of the time, almost entirely newspapers, covered all the extravagant balls and dinners and massive parties, because the public couldn’t get enough of the amazing extravagance. Those were the days before professional sports, so who could outdo whom was the intense competition that fascinated everyone else. The rich amused America. No one seemed to resent them, or envy them. Everyone just watched, to see who would do what next, and talked about it all. It was the only entertainment widely available. Movies, as entertainment for the masses, would come later.
The late Walter Lord covered this nicely in his book The Good Years in a chapter he titled The Golden Circus – all about the social season of 1905 in Manhattan, concentrating on James Hazen Hyde, the pleasant but aimless young man whose father had founded the Equitable Life Assurance Society in 1859 and made a fortune, starting with nothing but a box of cigars. He had groomed his son to take over, but the son was also into all things elegant, and French, and he was fond of throwing amazing parties. He drew a salary of a hundred grand a year from Equitable, a ton of money at the time, and even if he couldn’t possibly find a way to spend it all each year, or even a fraction of it, he did the best he could.
That came to an end. Hyde was the talk of the town, elegant Manhattan in the Gaslight Era, and the talk of the nation, until his father suddenly died and the giant insurance firm realized the son was all fluff and nonsense. In spite of the younger Hyde’s many absurdly rich and quite powerful friends, or because of them, the directors finally eased him out, which signaled a massive shift in how business was conducted in America. Equitable was reorganized into a rational profit-generating arrangement of discrete departments and divisions, not a gentlemen’s club for the right sort of people.
Something was in the air. Teddy Roosevelt was in the White House doing the same sort of thing, busting trusts. James Pierpont Morgan was deeply offended, and met privately with Roosevelt to tell him so, but Teddy Roosevelt won the day. Morgan’s Great Northern Trust was busted up. Teddy Roosevelt was a progressive, as they say.
The Gilded Age was ending, and it might have actually ended on February 3, 1913, when the Sixteenth Amendment was adopted – allowing Congress to levy an income tax on all citizens, which they did, and they made it progressive – the higher your income, the higher your tax rate. That was only logical. The nature of the country – its freedoms and its infrastructure – made it possible for you to become rich. You owed the country something for providing you that framework that made your rise to riches even feasible. Bitch all you want about how the government has no right to do that, that there’s none of that anywhere in the Constitution – but it was in the Constitution now. Deal with it.
That was that. The government – of the people and by the people and for the people, by the way – ended the Gilded Age. The amusing rich would no longer be left alone, to do what they felt like doing at any given moment, and they’ve been unhappy about it ever since, and the people no longer find them amusing either. There are other sources of entertainment – a new Transformers movie every summer now that there are no new Harry Potter stories to tell – and the economy is in dire shape. The rich are no longer entertaining. They’re actually quite irritating. Actually, they may be awful people ruining everything. People might not be grabbing pitchforks, but there was the Occupy Wall Street movement – long gone now but hardly forgotten. Mitt Romney couldn’t get America to elect him president, seemly on the proposition that he was rich and ruthless and that was a good thing – and his comment about the forty-seven percent of Americans who were worthless parasites, expecting “stuff” from the good people, like him, didn’t help matters.
The rich had lost their charm. Republicans are still puzzled by that, but Hillary Clinton and Joe Biden get it – they keep insisting that they’re kind of poor actually – because poor is the new normal. The idea here is that Hillary Clinton is on the side of America’s workers, but from 1986 to 1992 she was on the board of Wal-Mart as they demolished any effort by workers to unionize, keeping those workers at minimum wage, or less, and on welfare even if they were working full time. That was her Mitt Romney phase, but she’s over that now. She got the message. There’s something wrong with the rich. Hide the money. People might grab pitchforks.
You can’t leave the rich alone, to do what they will, because free-market capitalism will create the greatest good for the greatest number. Americans seem to have decided, for good reason, the rich aren’t that charming and things don’t work that way. The famous economist Joseph Stiglitz is ending his Great Divide series in the New York Times – an extended forum on income inequality – and offers an assessment of what many have decided:
Our current brand of capitalism is an ersatz capitalism. For proof of this, go back to our response to the Great Recession, where we socialized losses, even as we privatized gains. Perfect competition should drive profits to zero, at least theoretically, but we have monopolies and oligopolies making persistently high profits. CEOs enjoy incomes that are on average 295 times that of the typical worker, a much higher ratio than in the past, without any evidence of a proportionate increase in productivity.
If it is not the inexorable laws of economics that have led to America’s great divide, what is it? The straightforward answer: our policies and our politics. People get tired of hearing about Scandinavian success stories, but the fact of the matter is that Sweden, Finland and Norway have all succeeded in having about as much or faster growth in per capita incomes than the United States and with far greater equality.
Forget the rich for a moment. Our policies and our politics are the problem here:
So why has America chosen these inequality-enhancing policies? Part of the answer is that as World War II faded into memory, so too did the solidarity it had engendered. As America triumphed in the Cold War, there didn’t seem to be a viable competitor to our economic model. Without this international competition, we no longer had to show that our system could deliver for most of our citizens.
Ideology and interests combined nefariously. Some drew the wrong lesson from the collapse of the Soviet system. The pendulum swung, from much too much government there to much too little here. Corporate interests argued for getting rid of regulations, even when those regulations had done so much to protect and improve our environment, our safety, our health and the economy itself.
But this ideology was hypocritical. The bankers, among the strongest advocates of laissez-faire economics, were only too willing to accept hundreds of billions of dollars from the government in the bailouts that have been a recurring feature of the global economy since the beginning of the Thatcher-Reagan era of “free” markets and deregulation.
Erik Loomis adds this:
My only critique here is that Stiglitz doesn’t talk about racism as part of the choice structure. After all, a lot of Americans chose against their own economic self-interest by committing to racial self-interest and voting for politicians promising to cut welfare so those big black bucks would stop driving up to the store in their Cadillac and buying T-bone steaks on food stamps. Of course, these same politicians were cutting jobs and government programs for whites too, but so long as it was played as a race thing, millions of Americans were okay with it.
There is that, but Stiglitz notes that there is also this:
The American political system is overrun by money. Economic inequality translates into political inequality, and political inequality yields increasing economic inequality… the ability of wealth-holders to keep their after-tax rate of return high relative to economic growth. How do they do this? By designing the rules of the game to ensure this outcome; that is, through politics…
So, corporate welfare increases as we curtail welfare for the poor. Congress maintains subsidies for rich farmers as we cut back on nutritional support for the needy. Drug companies have been given hundreds of billions of dollars as we limit Medicaid benefits. The banks that brought on the global financial crisis got billions while a pittance went to the homeowners and victims of the same banks’ predatory lending practices. This last decision was particularly foolish. There were alternatives to throwing money at the banks and hoping it would circulate through increased lending. We could have helped underwater homeowners and the victims of predatory behavior directly. This would not only have helped the economy, it would have put us on the path to robust recovery.
That caused something else:
Economic and geographic segregation have immunized those at the top from the problems of those down below. Like the kings of yore, they have come to perceive their privileged positions essentially as a natural right. How else to explain the recent comments of the venture capitalist Tom Perkins, who suggested that criticism of the one percent was akin to Nazi fascism, or those coming from the private equity titan Stephen A. Schwarzman, who compared asking financiers to pay taxes at the same rate as those who work for a living to Hitler’s invasion of Poland.
Whatever, but with the economy a mess, except for the very rich, Stiglitz suggests we go back to the basics:
The problem of inequality is not so much a matter of technical economics. It’s really a problem of practical politics. Ensuring that those at the top pay their fair share of taxes – ending the special privileges of speculators, corporations and the rich – is both pragmatic and fair. We are not embracing a politics of envy if we reverse a politics of greed. Inequality is not just about the top marginal tax rate but also about our children’s access to food and the right to justice for all. If we spent more on education, health and infrastructure, we would strengthen our economy, now and in the future. Just because you’ve heard it before doesn’t mean we shouldn’t try it again.
Stiglitz, however, is a world famous economist with a Nobel Prize and all that, not the founder of Bain Capital or anything like that, so what does he know? If he’s so smart, how come he’s not rich? No successful person would agree with him, but then there’s this:
Memo: From Nick Hanauer
To: My Fellow Zillionaires
You probably don’t know me, but like you I am one of those .01%ers, a proud and unapologetic capitalist. I have founded, co-founded and funded more than 30 companies across a range of industries – from itsy-bitsy ones like the night club I started in my 20s to giant ones like Amazon.com, for which I was the first nonfamily investor. Then I founded aQuantive, an Internet advertising company that was sold to Microsoft in 2007 for $6.4 billion – in cash. My friends and I own a bank. I tell you all this to demonstrate that in many ways I’m no different from you. Like you, I have a broad perspective on business and capitalism. And also like you, I have been rewarded obscenely for my success, with a life that the other 99.99 percent of Americans can’t even imagine. Multiple homes, my own plane, etc., etc. You know what I’m talking about.
Hanauer has a message for his friends in this new Gilded Age:
Let’s speak frankly to each other. I’m not the smartest guy you’ve ever met, or the hardest-working. I was a mediocre student. I’m not technical at all – I can’t write a word of code. What sets me apart, I think, is a tolerance for risk and an intuition about what will happen in the future. Seeing where things are headed is the essence of entrepreneurship. And what do I see in our future now?
I see pitchforks…
What happened before can happen again:
The problem isn’t that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution.
And so I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.
If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us. No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when….
Think chickens, coming home to roost:
It’s the long-overdue rebuttal to the trickle-down economics worldview that has become economic orthodoxy across party lines – and has so screwed the American middle class and our economy generally. Middle-out economics rejects the old misconception that an economy is a perfectly efficient, mechanistic system and embraces the much more accurate idea of an economy as a complex ecosystem made up of real people who are dependent on one another.
Which is why the fundamental law of capitalism must be: If workers have more money, businesses have more customers – which makes middle-class consumers, not rich businesspeople like us, the true job creators. Which means a thriving middle class is the source of American prosperity, not a consequence of it. The middle class creates us rich people, not the other way around.
In short, you’re neither charmed nor charming, so get over yourselves:
The thing about us businesspeople is that we love our customers rich and our employees poor. So for as long as there has been capitalism, capitalists have said the same thing about any effort to raise wages. We’ve had seventy-five years of complaints from big business – when the minimum wage was instituted, when women had to be paid equitable amounts, when child labor laws were created. Every time the capitalists said exactly the same thing in the same way: We’re all going to go bankrupt. I’ll have to close. I’ll have to lay everyone off.
It hasn’t happened. In fact, the data show that when workers are better treated, business gets better. The naysayers are just wrong.
There’s much more, but that’s the core of it, and Heather Parton (Digby) can only add this:
Hanauer has his work cut out for him if he expects to make the capitalist’s smartest self-interested case against being a total greedhead. I’m not sure this generation of Marie Antoinettes is reachable. And they’re intent upon taking the rest of us down with them.
The best play for a wily capitalist is to buy pitchfork futures.
Maybe, but another economist, Robert Reich, notes that Nick Hanauer is not alone:
Lloyd Blankfein, CEO of Goldman Sachs, warned recently on “CBS This Morning” that income inequality is “destabilizing” the nation and is “responsible for the divisions in the country.” He went on to say that “too much of the GDP over the last generation has gone to too few of the people.”
Blankfein should know. He pulled in $23 million last year in salary and bonus, a 9.5 percent raise over the year before and his best payday since the Wall Street meltdown. This doesn’t make his point any less valid.
Several of business leaders are suggesting raising the minimum wage and increasing taxes on the wealthy.
Bill Gross, Chairman of Pimco, the largest bond-trading firm in the world, said this week that America needs policies that bring labor and capital back into balance, including a higher minimum wage and higher taxes on the rich.
Gross has noted that developed economies function best when income inequality is minimal.
Several months ago Gross urged his wealthy investors, who benefit the most from a capital-gains tax rate substantially lower than the tax on ordinary income, to support higher taxes on capital gains. “The era of taxing ‘capital’ at lower rates than ‘labor’ should now end,” he stated.
Similar proposals have come from billionaires Warren Buffett and Stanley Druckenmiller, founder of Duquesne Capital Management and one of the top performing hedge fund managers of the past three decades. Buffett has suggested the wealthy pay a minimum tax of 30 percent of their incomes.
The response from the denizens of the right has been predictable: If these gentlemen want to pay more taxes, there’s nothing stopping them.
Of course that misses the point, because none of them read the Walter Lord book about those good years, or much of anything else:
In this respect they resemble the handful of business leaders in the Gilded Age who spearheaded the progressive reforms enacted in the first decade of the twentieth century, or those who joined with Franklin D. Roosevelt to create Social Security, a minimum wage, and the forty-hour workweek during the Depression.
Unfortunately, the voices of these forward-thinking business leaders are being drowned out by backward-lobbying groups like the U.S. Chamber of Commerce that are organized to reflect the views of their lowest common denominator.
And by billionaires like Charles and David Koch, who harbor such deep-seated hatred for government they’re blind to the real dangers capitalism now faces.
Those dangers are a sinking middle class lacking the purchasing power to keep the economy going, and an American public losing faith that the current system will deliver for them and their kids.
That would explain any sudden increase in the purchase of pitchforks. Luckily, those who wish to purchase them don’t have the money to do so.
What are these rich people thinking? Elizabeth Stoker says they’re thinking this:
If you haven’t seen Atlas Shrugged I or Atlas Shrugged II, you’re hardly alone: both film adaptations of Ayn Rand’s novel fared poorly at the box office. The filmmakers evidently haven’t received the free market’s message.
Contrary to Randian logic, a third and final installment is due in September, and to drum up viewership, producers have indulged in a bit of novelty casting. Ron Paul will be metastasizing from the small screen to the silver screen in his acting debut in the upcoming film, and will be joined on screen by Glenn Beck and Sean Hannity, evidently in an effort to draw out the audiences each of them already commands. For the film itself, it’s an embarrassing move, underscoring the painful degree to which Atlas isn’t quite able to interest viewers on its own merits; for Hannity, Beck, and Paul, however, it begs a more profound moral question… why the sanguine agreement on the part of three outspokenly Christian political players to appear in a film so deeply and totally antithetical to Christian ethics?
These are the God guys, and Stoker sees this as one more sign of “a bizarre ongoing project undertaken by Rand-entranced members of the political right to jam Christianity and Randian ‘Objectivism’ together” – and she misses the days when conservatives like William F. Buckley, Jr. and Whittaker Chambers rejected Rand’s brand of libertarianism:
Buckley, like Chambers, didn’t capitulate to Rand and her philosophy; they understood correctly that there is no room for Objectivism in a coherent, genuine Christianity. While Rand’s ideal human is self-interested and self-sufficient, the Christian person is devoted to serving others and is always in need: of God, forgiveness, grace, mercy, and the love of Christ. The ideal Randian person, on the other hand, is entirely capable of managing and perfecting his own satisfaction, a far cry from the Christian understanding of a person as perfectible, but not through his own means.
Of course, that aspect of Christianity is a problem for those who prefer to think of themselves as John Galt–esque supermen. Indeed, the disturbing trend of trying to force Christianity to accommodate Rand’s antithetical philosophy is likely a result of her seductive appeal to the very egoism Christianity warns against.
It’s a shame conservatives like Paul, Beck, and Hannity have lost the courage of conviction that motivated Buckley and Chambers (among others) to call a spade a spade when it came to Rand; the resulting “philosophy,” if it can be called that, amounts to a vitiated version of Objectivism as well as a pathetic Christian testimony. That Paul, Beck, and Hannity intend to peddle this mess to their broad audiences bodes poorly for a right wing that once knew better.
Perhaps the right wing once knew better, but John Kenneth Galbraith summed it up pretty well – “The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.”
Those moral justifications are hard to come by, as are practical justifications – and it’s not turn-of-the-century Manhattan any longer either. The one percent, and especially the top one hundredth of one percent, are no longer endlessly amusing. Did someone mention pitchforks?