Our Financial Mess - Part One

Wednesday, February 27, 2013

Lately in America and elsewhere around the world we have been besieged with pundits and politicians weeping, clawing, and gnashing their teeth as they run around with their hair on fire attacking the social safety nets of various countries as they shriek about the “need” for austerity.  

At a time when 18-25 percent of America’s working people—40 percent of our youth—are un- or under-employed, they call for sacrifice and talk about the need to make “hard choices” to help the nation and the world recover from the devastation they themselves have wrought upon our economy with their own dishonest, irresponsible, and profligate mismanagement.

Any attempt to make them share the sacrifice, to make the 1 percent pay their fair share of the burden, is referred to as “class warfare.”  This, mind you, from the very thieves who have destroyed the tremendous gains for the general welfare of the people achieved by the programs which lifted the U.S.A. and the world out of the Great Depression.

With the Republic of France’s President Nicolas Sarkozy at her side, Reich Chancellor Angela Merkel and her plutocratic allies jammed down the throats of the overwhelming majority of European Union nations a pledge of balanced budgets, consequences be damned.  They are visiting upon their own people the same cruelty which the victors in the First World War inflicted upon the Central Powers, Germany in particular, over reparations for a war all parties had equal culpability in, and by creditors over wartime debts. 

Screw the people; in money we trust.  The financial oligarchy must never be without its daily bread, even if the people are relatively starving.  Let them eat cake.

The New Deal and the Golden Age of Capitalism 

The period from the end of the Second World War in 1945 through the abandonment of the Bretton Woods system of monetary management (established by the “Allies” at the United Nations Monetary and Financial Conference in 1944) is known to economists and historians alike as the Golden Age of Capitalism.  They gave it that moniker because of the nearly unparalleled expansion of the economies of the nations of the West, and certain other countries, and the uplifting of the general welfare of their citizens as a whole.

Here’s what those political and pundit figures who advocate going back to this Golden Age don’t tell you: during the majority of this period, 1946-1964, the income tax rate for the wealthiest Americans was 91 percent, with the threshold for that rate being $200,000.  The rate for the lowest bracket was 20 percent.  President Johnson’s Revenue Act of 1964 changed those highest and lowest rates to 70 percent and 14 percent respectively, and raised the threshold for the top rate to $400,000.  As for the estate tax which Republicans fondly refer to as the “death tax”, during this period of prosperity, once an estate surpassed the $60,000 a tax rate of 77 percent kicked in.

Union membership in America during this Golden Age was the highest it has ever been, with over one-third of all non-farm workers organized.  The farm workers themselves began to organize in 1962 and joined in a nationwide federation in 1966.  Executive salaries were a mere 12-20 times higher than that of the average worker.

The foundation of all this wealth and prosperity was the New Deal.

Prior to 1913, the American government’s chief source of income was booze.  Not its manufacture and sale, but excise taxes upon those activities.  By the late 19th century, the yearly average intake of alcoholic beverages (beer, wine, liquor) for Americans had grown to 86 bottles per person.  By contrast, the current alcohol intake rate (2011) is a 14 bottles per person.  Due in large part to America’s saloon culture, alcohol was America’s fifth largest industry. 

To provide a larger and more reliable source of revenue for the federal government, Congress and the states passed the 16th Amendment to the Constitution and subsequently to the U.S. Code allowing the taxing of income.  The initial rates were 1% for the lowest bracket ($1000 and above), with an additional 6 percent  (total 7 percent) after a threshold of $500,000. By the end of the Great War (First World War), however, these rates had risen to 16 percent and 77 percdent respectively, though with the upper threshold rising to $1,000,000.

At the end of that war came the First Red Scare, which strengthened the counterattack of the right wing advocates of plutocracy, fueled the growing “hooded Americanism,” and secured the demise of the remnants of the Progressive Era of Theodore Roosevelt, William Howard Taft, and Woodrow Wilson.

The 18th Amendment to the Constitution took effect in January 1920 and Prohibition began the Roaring Twenties in which many of the Lost Generation fled to Europe.  Politically, so-called progressivism died before the onslaught of William G. Harding, Calvin Coolidge, and Herbert Hoover, along with Andrew Mellon. 

Hoover, Secretary of Commerce to both Harding and Coolidge before he became President, dominated the decade more than any other person and is chiefly responsible for all of its excesses and failures, including the Great Depression.  Hoover was a strong advocate of what he called trickle-down economics, the idea that enriching the rich even more richly would create an abundance that would inevitably “trickle down” to the lower social classes.

Ronald Reagan’s budget director David Stockman rechristened Hoover’s ideas as “supply side economics”, but pinned down in an interview admitted the two were identical.  During the 1980 Republican presidential primary campaign, later Vice President George H.W. Bush correctly characterized the doctrines as “voodoo economics.” 

Critics of Hoover and Co. during the Roaring Twenties called their ideas and policies nothing more than a retread of the Gay Nineties horse-and-sparrow theory then in vogue among the robber barons and their supporters, which, in fact, it was.  Even more unkindly than by Marie Antoinette Bourbon, this theory stated that, “if you feed the horse enough oats, some will pass through to the road for the sparrows” (John Kenneth Galbraith).  In other words, the non-superwealthy should eat their horse dung with a smile and be grateful for it.

The response of William Jennings Bryan, three-time Democratic presidential candidate and Wilson’s Secretary of State, to this soulless excuse for an ideology of avarice with such abysmal lack of conscience was:  “There are those who believe that if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests up on them.” 

Hoover’s other major ideal was “associationalism,” the idea that, in spite of a mountain range of evidence to the contrary, voluntary organizations are best for citizens taking care of each other and for caring for the less fortunate members of society.  Reagan rehashed it as “volunteerism”, while the PR propaganda of Bill Clinton, John Major, and Tony Blair spun this as “public-private partnership.”

As Secretary of Commerce, Hoover was master of all things economic and had his hands in every federal department and nearly every sector of the American economy.  Before he accepted appointment from either, Hoover demanded this authority from both Harding and from Coolidge.  His right hand, a power in his own right with ideas that paralleled Hoover’s, was Andrew Mellon, a banker and industrialist who served as Secretary of the Treasury for Harding, Coolidge, and Hoover himself. 

Mellon’s chief goal was to slash taxes, which he did for both those in the wealthiest bracket and those in the lowest.  He reduced the top rate from 73 percent to 58 percent in 1922, to 50 percent in 1923, to 46 percent in 1924, 25 percent in 1925, and finally to 24 percent in 1929.  Meanwhile, the rate for the lowest bracket fell from 4 percent to 0.5 percent; however, other changes led to the tax burden on the wealthy not only decreasing but trickling, or rather flooding, down to the less well-off.

After the stock market crashed in October 1929, Hoover continued to spout his theories of low taxes, trickle-down economics, and a laissez-faire market-place up to the day he was replaced by Franklin Delano Roosevelt.  Secretary of the Treasury Mellon was about to be impeached in 1932 and only escaped by accepting his patron’s offer of the ambassadorship to the Court of St. James.  The same Congressmen later sought to impeach Hoover, but saw no need when he was defeated at the polls so ignomiously. 

Just to show how the more things change the more they stay the same, among Hoover’s responses to the Great Depression, by the way, was the forced expulsion of some half a million (500,000) Mexican and Mexican-Americans to the Republic of Mexico.

Before Roosevelt had even been elected, Congress passed the Revenue Act of 1932, which raised the bottom rate from 0.5 percent to 4 percent and the top rate to 63 percent.  Before the beginning of the Second World War, the top rate had risen to 79 percent.

The New Deal of FDR (in office 1933-1945) saved not only the American economy but that of the world, and very probably the Republic itself.  With his leadership, the nation’s of the world began the systems of both temporary relief programs and permanent social welfare agencies along with regulatory agencies that helped bring about the Golden Age of Capitalism. 

Some of the temporary relief was provided by programs such as:  National Recovery Administration (coordinator for the whole system), Federal Emergency Resettlement Agency, Works Progress Administration (infrastructure jobs), Civilian Conservation Corps (parks and rural areas), Public Works Administration (infrastructure), Farm Service Agency (for tenant farmers), and National Youth Administration.  These were phased out soon after America’s entry into the Second World War if not before.

The more long-standing New Deal agencies and programs include: Federal Deposit Insurance Corporation, Federal Savings and Loan Corporation (wiped out by the S&L crisis in the 1980’s), Federal Crop Insurance Corporation, Tennessee Valley Authority, Federal Housing Administration, Social Security Administration, Securities and Exchange Commission, Rural Utilities Service (formerly Rural Electrification Administration), Farm Security Administration, Food Stamp Program, Aid to Families with Dependent Children, Unemployment Insurance program.

In addition, several pieces of legislation were passed that significantly contributed toward the welfare and quality of life for the average American.   

Prohibition was repealed as soon as FDR could manage.   

The Wagner National Labor Relations Act of 1934 supported formation of labor unions, collective bargaining, and the right to strike, while amendments in 1934 and 1936 to the Railway Labor Act of 1925 did the same for railroad and airline employees.  

The Indian Reorganization Act of 1934 provided a means to tribal governments dissolved under the Dawes Act to reorganize.   

The Fair Labor Standards Act of 1938 mandated a national minimum wage, an 8-hour workday, overtime pay for work beyond that, and outlawed child labor.

The G.I. Bill of 1944 and federal support for higher educational institutions enabled millions of people who would not otherwise have been able to do so to obtain a college or university education.   

This is the big, bad New Deal over which Republicans, Libertarians, Tea Partiers, and Blue Dog Democrats are constantly wringing their hands.  Though many of its features are included in the programs of what many socialists advocate, they were all in fact enacted for the rescue and maintenance of the capitalist economic system.

Harry Truman’s (1945-1953) Fair Deal continued and enhanced nearly all the New Deal programs and created the Civil Rights Commission.  He also tried to pass through Congress legislation for universal health care like that in every other country in what was then called the Free World, but lost in the right-wing backlash accompanying the Second Red Scare of the late 1940’s and 1950’s. 

The captains of industry and their Congressional allies also got their revenge with the Taft-Hartley Labor-Management Relations Act of 1947.  It was this legislation which not only authorized but encouraged right-to-work laws such as that which was passed almost immediately in Tennessee and very recently in Indiana.  It also prohibited jurisdictional strikes, wildcat strikes, solidarity strikes, political strikes, secondary boycotts, mass picketing, closed shops, and monetary donations to federal campaigns, as well as restricted union shops.  Furthermore, it authorized the feds to enact strike-breaking in the name of “national security” along with forbidding communists and socialists, who had been some of labor’s most effective organizers, from joining unions.

Dwight D. Eisenhower (1953-1961) continued the New Deal and Fair Deal programs unchanged, and also began building the Interstate Highway System. 

Adding to the above, John Fitzgerald Kennedy’s administration (1961-1963) New Frontier created the Department of Housing and Urban Affairs, the Peace Corps, and the Appalachian Regional Commission, the latter serving primarily the Southern Appalachians but also the whole region.

The biggest additions to the social support apparatus came with Lyndon Baines Johnson’s (1963-1969) Great Society.  Among his most important actions were the passing of the Civil Rights Act of 1964 and the Voting Rights Act of 1965.  His administration also created the Volunteers in Service to America program, Job Corps, Head Start, Community Action Program, Medicare, Medicaid, National Endowment for the Arts, National Endowment for the Humanities, Corporation for Public Broadcasting, National Public Radio, Public Broadcasting System, and Equal Employment Opportunity Commission. 

Unfortunately, LBJ also pushed through the Revenue Act of 1964 just as he was beginning these new programs and at the same time the surge in Viet Nam.  Inexplicably, at a time when even more than ever was being spent, the tax rate for the lowest bracket was cut to 14 percent from 16 percent and slashed from 91 percent to 70 percent for the top bracket, with the threshold doubled to $400,000.  This proved to be the first step on the way to the stagflation which choked the American economy, and the world, in the 1970’s.

Even Richard Nixon (1969-1974) added to the programs benefiting the many rather than just the few.  His New Federalism created both the Occupational Safety and Health Administration and the Environmental Protection Agency.  He also took the United States unilaterally off the Bretton Woods monetary control system, of which the only remaining vestige is the International Monetary Fund.  In reaction to the sudden spiraling upward of prices resulting from the latter, Nixon instituted price controls initially intended to last just 90 days but eventually lasting nearly three years. 

Chuck Hamilton 


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