Fear Can Be Productive, Fearlessness Destructive

There is something different happening in this economic downturn. It's not just the fact that the recovery has been stubbornly slow, but the political response to it. For the first time in modern American history, conservatives have no fear of the social consequences of economic distress.

This is an unprecedented situation, and a dangerous one. It has turned one of the two political parties into an uncompromising, extremist faction blinded by ideology.

In his column in the New York Times last Friday, David Brooks argues that Republicans today are not extreme, they just have a different viewpoint: "many Republicans have now come to the conclusion that the welfare-state model is in its death throes." Democrats, on the other hand, fail to see the writing on the wall and are simply re-arranging the deck chairs on the old Titanic.

The behavior of today's Republican Party is a problem for those like Brooks who see themselves as responsible conservatives. No reasonable person wants to defend the people who still question where the president was born, or the people in Michigan who put a sign saying "Obama Presidential Library" on a bullet-hole pocked outhouse last week, or even legislators who are willing to take the government to the brink of default.

So Brooks ignores that kind of embarrassing extremism and focuses instead on this big-picture "viewpoint" that he clearly views as much more intellectually respectable. The problem is this: the very viewpoint he identifies is also an extremist one.

Brooks implicitly suggests that the perception of extremism is due to the extremity of the situation: we are at a turning point in world history: the "welfare-state model" is dying. I would respond that we are now seeing the domestic economic and political consequences of a real turning point in world history that came over twenty years ago: the death of communism.

The limited welfare state in this country came into being as a response to two great crises of American capitalism--the depression of the 1890s and the Great Depression of the 1930s. What we call the "welfare state" was initially the product of two large movements that followed those economic calamities: the Progressivism of the early 20th century and the New Deal.

In both cases, intelligent American political leaders had one central insight: the only way to preserve American capitalism from the threat of revolution was to reform it, to moderate it, to curb its worst excesses. As Theodore Roosevelt put it in 1912:

There is urgent necessity of applying both common sense and the highest ethical standard to this movement for better economic conditions among the mass of our people if we are to make it one of healthy evolution and not one of revolution.

Without reform, revolution was inevitable. The true conservative, TR knew, was a reformer.

The reformers of both eras knew there was something worse out there as a possibility: the specter of communism. That radical ideology gave disgruntled workers an alternative that promised a more just and equitable society. The wisest of the capitalists understood the threat this ideology represented, and more importantly, they knew that the only way to preserve capitalism was to reform and limit it. On some level, they were scared--but this was the good kind of scared, the kind that sees a real threat and responds to it rationally and reasonably, producing something better.

The result was a regulatory system that began modestly under TR with legislation like the Pure Food and Drug Act and the Hepburn Act (which empowered the Interstate Commerce Commission so that it could effectively regulate the railroad industry). Under FDR, the result was Social Security and unemployment insurance, both of which were designed (at least in part) to prevent future economic downturns from spiraling out of control. The New Deal also saw the creation of the SEC to regulate Wall Street and the Glass-Steagall Act to regulate the banks.

The result of all of this reform was the emergence of the United States as the great economic powerhouse of the mid-to-late 20th century.

What is different in this latest crisis of capitalism is that capitalists today are not scared of the "mass of our people." Ever since the collapse of the Soviet empire and communism 20 years ago, American conservatives have had no fear of social unrest, at home or abroad. They believe that there is no alternative for frustrated workers, so these reforms of the 20th century are no longer needed. They can turn back the clock on reforms they never really liked, ones they'd only grudgingly accepted as necessary to preserve social peace.

With nothing to fear, they have spent the last 20 years trying to undermine the regulatory state and the limited welfare state. They've deregulated the financial industries, repealed Glass-Steagal. They've repeatedly cut taxes to "starve the beast." They've encouraged the growing income disparity that has left the middle and lower classes stagnant or declining while the wealthiest accumulate ever-greater shares of the national wealth.

And when as a result it all came crashing down in 2008, they blamed not the tax cuts, not the increasing concentration of wealth at the very top, not the deregulation, not the banks, not the markets. Instead, they blamed the unions, people on unemployment, recipients of public assistance, government workers. The people they no longer feared, the people they've long seen as impediments to even greater profits and concentrations of wealth.

The Republican Party has, for the last three years, acted like people who think they hold all the cards. They don't need to compromise. The worse the economy gets, the better it is for them politically, the easier it becomes to scapegoat the government and administer the final death blows to the welfare state. They are not afraid.

Unlike smart conservatives in earlier ages, today's conservatives see no reason to curb the excesses of capitalism. Far from it. They rail against "Obamacare" despite the fact that it retains (and arguably subsidizes) the private insurance system and is dominated by conservative ideas of health insurance reform. They whine that the modest financial industry reforms of the Dodd-Frank Act mark the end of freedom.

More cruelly, rather than trying to take the edge off in tough times, they seem intent on sharpening the pain inflicted by the failings of the economic system.

Feeling no fear, seeing no need to reform, they are pressing what they see as their advantages--not only do they refuse to raise taxes on the wealthiest Americans, they are pushing for further cuts in tax rates that are already unusually low. Rather than bolster the protections against the vicissitudes of the economic system (like unemployment insurance and food stamps), they seek to diminish or remove them. Rather than make concessions to unions to help workers, they try to destroy them.

The argument (such as it is) that Brooks makes is that we cannot afford the "welfare-state model" anymore. In this perverse vision, government is so big that it has strangled capitalism (fact--there are 500,000 fewer federal government employees today than there were in 1980, though there are 82 million more Americans). Now the welfare state is too expensive, we can't afford it, it has outlived its usefulness, so now it has to go.

But the historical reality is different. Yes, undeniably, the modern welfare state would be impossible without the wealth creation of capitalism. But it was also the emergence of the regulatory state and the welfare state that made possible the continued growth of capitalism after its near self-destruction in the depressions of the 1890s and the 1930s.

Without adequate regulation, without government policies to moderate its impact, free market capitalism produces socially destabilizing and destructive swings of boom and bust.

Smart conservatives in America's past knew that. Today, a precious few like David Frum occasionally try to pull conservatism back in that direction (e.g., reminding them that opposition to "Obamacare" is not enough, they need an alternative that addresses the problem of the uninsured).

But mostly, people like David Brooks, people who should know better, enable modern conservatism's short-sightedness by elevating it to a respectable "viewpoint" and ignoring its extremism.

It is extreme. It is short-sighted. It is stupid. And worst of all, it is self-destructive.

It used to be that conservatives were wise enough to fear extremism. Today, they embrace it.

Mitt Romney, Andrew Jackson, and the "Humble Members of Society"

Pundits are understandably fixating on Mitt Romney’s admission Tuesday that the tax rate on his income is “probably closer to the 15 percent rate” and that the over $370,000 he made in speaker’s fees last year was “not very much” of his income.

Much of the coverage has, I think, been misguided. For example, on NPR’s “The Takeaway” Wednesday morning, the anchor said Romney has been criticized for only paying 15 percent. I can’t speak for others, but I don’t think that’s the problem. No one I've heard has argued that Romney did anything wrong or illegal. No one is suggesting these are ill-gotten gains.

The point is one of economic justice.

The question is not “Is Romney doing something wrong?” but “Is this the right policy?” Romney simply presents a particularly stark example of the policy. And he happens to be running for president.

This is a man who, as he jokingly put it, is “unemployed.” He has been running for president for the last 5 years, but his investment income last year was somewhere between $5.5 and $37.3 million. (Some reports state that he receives $26 million a year from Bain, even though he has not worked there in over a decade.)

As Romney explained, “my income comes overwhelmingly from investments made in the past, rather than ordinary income or rather than earned annual.” In short, Romney’s money is making money, and that gets taxed at the lower, 15 percent rate.

According to our tax laws, such income—that which comes not from work but investment—gets preferred treatment in our tax code. Should it?

The standard defense of that policy is a practical one: if we want to encourage investment, we should tax income on investment at a lower rate, thus producing more investment and (hopefully) more economic activity.

The objection, on the other hand, is moral: is it right for government to give preferential treatment to income that comes not from daily labor but from the inherent advantage that accrues to those who already have money?

This is an old question in American politics. Since the earliest days of the republic, Americans have debated the relative virtues of various means of making a living, and whether government policy should prefer one over another.

Andrew Jackson is perhaps the best example of an American president with a clear, unequivocal preference on that score. Newt Gingrich got boisterous applause from the South Carolina debate audience the other night when he said that Old Hickory’s attitude toward enemies of the US was “Kill them!” Had he cited Jackson’s attitudes toward workers, I suspect he would have gotten a rather different response.

Shortly after leaving office, Jackson wrote that unless “labor prospers, commerce and manufacturers must languish and the country be distressed. This is a government of the people, for their happiness and prosperity, and not for the sake of a few, at the expense of the many.” For Jackson, it was clear: the well-being of workers was paramount.

Jackson had a life-long disdain for people (especially bankers) who made money with money (though he was not above some land speculation himself), and for government policies that rewarded them:

It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes…. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and more powerful, the humble members of society—the farmers, mechanics, and laborers—who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government.

It is this question that we should be discussing: what economic policies produce justice? Newt Gingrich inadvertently began such a discussion with his attacks on Romney’s time at Bain. He has now backed off, due to the nearly unanimous condemnation of the GOP establishment, and switched to the evidently more "respectable" racial dog whistles.

This one form of income, capital gains, disproportionately benefits the wealthiest Americans. Alec MacGillis notes in The New Republic: “Half of all capital gains in the past 30 years have been claimed by the top tenth of a percent of taxpayers. (No, that's not a typo.)” Is this not an example of a law that undertakes to add an artificial distinction that makes the rich richer?

By shutting down any such debate in the primaries, the Republican Party in all likelihood is ceding this ground to President Obama in the fall campaign. They are poised to nominate a man who says, with all sincerity, that over $370,000 a year in speaking fees is “not very much” income, who proposes to lower the tax on that income from 35 percent to 25 percent, all while keeping the tax on his millions in investment income at 15 percent.

As I wrote last August, during the kerfuffle over Mitt’s new house: “the problem is not that Romney is rich. It is that he is rich and advocates policies that primarily advance the interests of the rich.”

Not only does Romney not have a good answer to the question of whether it is right to treat capital gains differently from earned income, he does not even understand the question. In his world, no one would even ask it. It is just as perplexing to him as the questions about Bain’s business tactics. Both seem self-evidently good to him, and people who challenge his views are merely envious.

Such an opponent might tempt Obama, who has already tried to claim the memory of the Republican Progressive Theodore Roosevelt, to channel Andrew Jackson, too.

As the first Democratic president, Jackson praised the “labouring classes” for taking “a noble stand against the corrupt money power.” In that, Jackson saw “ample proof that the peoples [sic] eyes are opening to the corruption of the times—the danger of their liberties from the mony [sic] power, and their determination to resist it…. Fear not, the people may be deluded for a moment, but cannot be corrupted.”

Romney, in his words, in his business record, and in his policy proposals, is emerging as the modern-day embodiment of the money power, leaving the "humble members of society" ripe for the electoral picking.

Coxey's Bonus Army Sit-ins Occupy Wall Street

The conditions which surround us best justify our co-operation; we meet in the midst of a nation brought to the verge of moral, political and material ruin. Corruption dominates the ballot-box.... The people are demoralized;... public opinion silenced.... homes covered with mortgages, labor impoverished, and the land concentrating in the hands of capitalists. The urban workmen are denied the right to organize for self-protection, imported pauperized labor beats down their wages... The fruits of the toils of millions are boldly stolen to build up colossal fortunes for a few, unprecedented in the history of mankind.... From the same prolific womb of governmental injustice we breed the two great classes: ­ tramps and millionaires. 

I've been trying to make sense of the Occupy Wall Street movement for awhile now, wondering where it fits historically.

The quotation above helped place it for me. It's an American political platform, but not from today's protests. It's from 1892.

Given that we've now had several years of relatively high unemployment, something like the Occupy protests is not at all surprising. When people feel this kind of frustration, when they feel their votes don't matter because the political system seems totally dysfunctional, they take to the streets.

It's happened here before.

During the depression of the 1890s, there was Coxey's Army, a group of unemployed Americans led by Ohio businessman Jacob Coxey. People came to Washington from all over the country (many of them marching on foot) demanding a jobs program. They called it a "petition with boots." Estimates are that at various points many thousands were headed for DC, but only about 500 reached the Capitol. Before the protest could even get under way, Coxey was arrested for trespassing and not allowed to give his planned speech.

Even more relevant would be the 1932 Bonus March. At the depths of the depression, thousands of World War I veterans went to Washington, DC and camped out, demanding that Congress pay out immediately the bonus they were eventually entitled to by law. They spent weeks camped out before they were forcibly removed, first by Washington police and then Army troops under the command of Douglas MacArthur. The spectacle of current soldiers forcibly evicting former soldiers further tarnished President Hoover's reputation only months before the 1932 election.

In both cases, dire economic circumstances prompted demonstrations demanding action by Washington. What strikes me as most interesting about what is happening today is that the focus is not on Washington, but on what the protesters consider to be the true source of our problems: Wall Street. That suggests, I think, a desire to focus not on a specific political solution, but to change the public's perception of the nature of the situation in which we find ourselves. They see the problem as the growing power of an unaccountable economic elite. (Though I also suspect that they doubt the answer is in Washington.)

I find the use of the word "occupy" interesting as well. It invokes the military metaphors of Coxey's Army and the Bonus Army, while also emulating the sit-ins of the Civil Rights movement. Despite efforts by some commentators to dismiss the protests, I suspect there is something rather significant going on today, something that has been building not just over the last three years of hard times, but the last thirty years of growing income disparity.

In the words of the old Buffalo Springfield song, "There's something happening here, what is, ain't exactly clear."

But I think it is becoming clearer.

It was easy, and tempting, to dismiss the initial protest. As the movement in New York has grown, and more importantly, has spread, it has become much harder. Those who wanted to stereotype it as a bunch of lazy hippies have had to deal with the sheer growing diversity of it, exemplified by things such as this past week's stirring impromptu lecture to the police by a Marine Sergeant named Shamar Thomas, a veteran of Iraq whose parents have also served in Iraq and Afghanistan, and the emergence of a group called OccupyMarines.

James Sinclair's diagram from his blog

And then there is the Tea Party. Yes, the agendas are different. But I also agree with this post by James Sinclair, which persuasively makes the case that there is a fair amount of overlap. This venn diagram may not be scientifically accurate, but there is some truth here. There are common sources for the angst each expresses.

The more I think about this historical moment, the more it reminds me of the emergence of the Populists in the late 1880s and early 1890s. They too could be both radically left and radically right. The quotation above is from their 1892 platform, in which they called for nationalizing the railroads (the biggest businesses of the day) and limiting immigration; they wanted a graduated income tax and fiscally conservative government finances; they supported "the efforts of organized workingmen to shorten the hours of labor" and opposed bailouts or "any subsidy or national aid to any private corporation for any purpose."

Perhaps the biggest thing the Populists had going for them was the sense that neither political party was addressing the most pressing issues of the day--the crushing debt of farmers, the pressures of massive immigration, the growth of the corporate trusts. Their 1892 platform stated:

Controlling influences dominating both ... parties have permitted the existing dreadful conditions to develop without serious effort to prevent or restrain them. Neither do they now promise any substantial reform ... They propose to sacrifice our homes, lives, and children on the alter of mammon; to destroy the multitude in order to secure corruption funds from the millionaires.

But then they were co-opted by the Democratic Party in 1896 when William Jennings Bryan stole their signature issue, silver coinage, and the Populist Party went out of existence.

But it did not end there. In many ways, the Populists were the John the Baptist of the Progressive Era. By the early 20th century, there was a bipartisan consensus that the nation needed meaningful reform, many of which the Populists had first called for 10 and 20 years earlier. Under Theodore Roosevelt and William Howard Taft, Republicans instituted their variety of Progressive reform. Then Woodrow Wilson presided over 8 years of Democratic Progressive reform. Together, they created the regulatory state: the idea that the federal government had to play a role in limiting the power of corporations in the economic and political interests of the public.

The Progressives of both parties created the regulatory state because they came to a common, central understanding: that the industrial revolution had created a new form of power--private economic power--that the Founders never anticipated. That power was unchecked. A democracy, to survive, needed to find a way to check that power. For a time, they did.

When the inevitable backlash came and laissez-faire made its return in the 1920s, and the president crowed that "the business of America is business," taxes were cut, regulators became the creatures of the regulated, and the depression came. Then FDR came in, and with the help of progressive Republicans, triumphed over the "economic royalists," and established reforms that prevented another depression for over 60 years--because both Republicans and Democrats supported the regulatory regime.

I would like to think that eventually the Tea Party and Occupy Wall Street could together create a similar bipartisan commitment to reform on the part of both major parties. Maybe they will. But I am bothered by that diagram. Sinclair focuses on the overlap in the center.

I keep seeing the dichotomy.

The Populists of the 1890s saw business (Wall Street) as an enemy, and politics (Washington) as the solution. There is no such unity today. The Tea Party blames Washington, the Occupy movement blames Wall Street.

Ever since Ronald Reagan demonized the federal government in this inaugural address ("Government is not the solution to our problems; government is the problem"), the disaffected in America have had competing targets for their rage: both Wall Street (primarily Democrats) and Washington (primarily Republicans).

For thirty years, Republicans have claimed the federal government can do little well, and when they have controlled it, they have done their best to turn that into a self-fulfilling prophecy. They have diminished not the size of government, but its efficacy. They have reduced taxes to the lowest level in 50 years, all while convincing voters that they are intolerably overtaxed. They have used government to empower and enrich the wealthiest, they have dismantled as much of the regulatory state as they could. And when the lack of regulation led to the economic crash, they of course blamed the very government that their ideology had disarmed. When a Democratic president tried to use government to solve the problem, they obstructed every step of the way and claimed that the continuing poor economy showed government cannot work. For them, government is always the problem, its reduction always the solution.

So it was not surprising last week to hear the new Tea Party favorite, Herman Cain, say both that the poor and jobless have no one but themselves to blame, and that they should blame Washington. We were supposed to have a regulatory system to prevent the financial obscenities Wall Street engaged in, but most Americans probably have no idea that safeguards that worked for decades had been dismantled. So they blame Washington.

And Washington does deserve some blame. For thirty years, both parties have bowed and scraped before the new robber barons, competing with each other to cut their taxes, ease their way, and enhance their riches--Republicans because they believed in it; Democrats because they'd been cowed by Reagan into thinking they had to go along to survive politically. Washington ended the bipartisan consensus that protected the average person. And so some, like members of the Tea Party, therefore see Washington as the problem.

In the current situation, however, the Tea Party has it wrong, and Occupy Wall Street has it right. The Progressives knew that the only way to check organized economic power is through the democratic political process. They knew that more democracy was the answer. The referendum, recall, and primary, were all attempts to break the stranglehold of corporations on the political system. So was the the 17th Amendment, which provided for direct election of Senators. (These were all also first proposed by the Populists.)

The Tea Party today argues for the repeal of the 17th Amendment. It supports the union-busting efforts of Scott Walker in Wisconsin. It supports the disenfranchisement of voters via these so-called "voter ID" laws that have suddenly sprouted nearly everywhere. In a variety of ways, even if sometimes unknowingly, the Tea Party serves the interests of Wall Street, and undermines the only real hope for lasting change: a government truly responsive to the many, not the few.

Occupy Wall Street has succeeded in changing the political conversation. Changing our politics will be a lot harder.

Memo to Mitt: It's Not the House

Liberals have had some fun this week at Mitt Romney's expense after the Washington Post reported that Romney "is planning to nearly quadruple the size of his $12 million California beachfront mansion." Rachel Maddow had a segment on her program Tuesday arguing that Romney was going "full Thurston"--a reference to Thurston Howell III, the millionaire castaway played by Jim Backus on the 1960s sitcom "Gilligan's Island."

David Frum tweeted on Monday: "I hope none of those people criticizing Mitt Romney's house voted for John Kerry." Romney's net worth is somewhere between $190 and $250 million dollars, according to his campaign, and Kerry's was estimated to be at least $167 million in 2009, so the two are certainly comparable.

Frum seems to think this is an argument-ender: if you supported Kerry's candidacy, you can't be critical of Romney. But he misses something essential: the problem is not that Romney is rich. It is that he is rich and advocates policies that primarily advance the interests of the rich.

Americans have never had a problem with having wealthy political leaders. George Washington, according to biographer Joseph Ellis, had an "insatiable hunger for land" (at his death he had land in five states, the District of Columbia, and the Ohio territory) and was when he died "one of the richest men in America."

Andrew Jackson was also a wealthy man who had extensive landholdings and dabbled in a wide variety of business ventures. Robert Remini tells us that by the time he first ran for president in 1824, Jackson "was a fairly rich man." (Like Washington, Jackson also owned more than a hundred human beings held as slaves.) That is not, of course, how Americans remember Jackson: he remains the champion of the "common man." Policies, not personal wealth, are what people care about.

We see the same thing in the 20th century: three of the wealthiest presidents were Theodore Roosevelt, Franklin Roosevelt, and John Kennedy. These are not men who, like Washington and Jackson, made their own fortunes. They were all three born to wealth (as Romney was). By and large, Americans did not hold their inherited wealth against them, precisely because they made themselves into champions of the average person.

TR made his mark as a powerful president by taking on J. P. Morgan's Northern Securities railroad trust (the case that gave him the misleading nickname of "trust-buster"). Most Americans never knew that Morgan made his peace with TR and even contributed to his campaign in 1904. They knew TR intervened in a United Mine Workers strike that resulted in higher wages and lower hours, and that he signed the Meat Inspection Act and the Pure Food and Drug Act to protect consumers.

FDR, it need hardly be pointed out, was considered a "traitor to his class" for his efforts to alleviate the ravages of the Great Depression. He denounced "business and financial monopoly, speculation, reckless banking" and "Government by organized money." In his 1936 speech accepting the Democratic nomination, FDR said:

we will continue to seek to improve working conditions for the workers of America--to reduce hours over-long, to increase wages that spell starvation, to end the labor of children, to wipe out sweatshops. Of course we will continue every effort to end monopoly in business, to support collective bargaining, to stop unfair competition, to abolish dishonorable trade practices.

When political leaders talk (and more importantly, act) in this way, no one cares how much personal wealth they have.

JFK was also born in wealth, but he ran in 1960 as the champion of FDR's New Deal. Like his predecessors, he knew that policies exclusively favoring the wealthy were self-defeating: "If a free society cannot help the many who are poor, it cannot save the few who are rich."

What sorts of policies does Romney advocate?

On extending unemployment benefits, he's against it: "The indisputable fact is that unemployment benefits, despite a web of regulations, actually serve to discourage some individuals from taking jobs, especially when the benefits extend across years." The implication is that there are plenty of jobs available, and people just are not taking them. He should try telling that to the thousands of people who camped out for a job fair in Atlanta last week.

On the payroll tax cut that President Obama insisted on last December: "only the employee's payroll taxes [are] reduced — the portion paid by the employer is to remain the same.... the payroll tax deal will add to the deficit." (Romney did not note that extending the Bush tax cuts for the wealthy, which he supports, also adds to the deficit--evidently only tax cuts for regular folks do that.)

On extending that payroll tax cut: "Former Massachusetts Gov. Mitt Romney did not flatly rule out an extra year for the payroll tax cut, but he 'would prefer to see the payroll tax cut on the employer side' to spur job growth, his campaign said." It's not clear if that means adding an employer tax cut to the worker's cut, or raising the employee's taxes and giving the break instead to the employer, but it sounds like the latter.

This is the context for the reaction to Romney's new California mansion. Americans do not begrudge their leaders their wealth. They do have a problem with people who say tax cuts are only for wealthy "job creators" and who think unemployment insurance makes people lazy. And rightly so. You reap what you sow, Mitt.