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Transcript of Inequality and the Regilding of the American Economy 2.0
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Inequality and the Regilding of the American Economy
Seventyfive years after Franklin D. Roosevelt decried the effects of concentrated wealth on
political equality,1 his words again ring true as a small fraction of Americans continue to receive an
evergrowing share of the national income. The reasons behind this renewed inequality are
inherently political, yet they go deeper than simple elections. Conscious policy choices and
ideological movements have both shaped political developments as well as modern American
inequality. Richard Nixon built his New Majority after the implosion of the Democratic Party in
1968; Nixons fall in the aftermath of Watergate delivered this coalitionand the Republican
Partyinto the hands of its archconservative wing. With the backing of a radicalized business
lobby, the academic trappings of supply side economics, and a growing historical
fundamentalism,2 this conservatism profoundly altered the American political spectrum and with
it the distribution of wealth in the American economy.
Tension within the Democratic Party exploded during 1968 beginning the long term decline
of traditional Democratic power. The Johnson administration, which began in the shadow of an
assassination, also ended in the dark. Though the election of 1964 was a landslide, four years later
the Vietnam War divided the party and the nation.3 President Johnson withdrew from the race and
the assassination of Robert F. Kennedy in June ended hopes of bridging that divide.4 Leaderless, the
Democratic base split between two candidates: one bloc, including establishment liberals and those
who exemplified the New Deal Coalition, stood behind Vice President Hubert Humphrey; the
other, the student left and the peace movementwary of Humphreys position in the Johnson
administrationrallied around Minnesota Senator Eugene McCarthy.
The political ramifications of the split were moreover exacerbated when complications from
a communication workers strike caused footage of the strident repression of protests by Mayor
Daleys policewhich occurred hours before Humphreys eventual nomination at the Chicago
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Conventionto be broadcast interspersed with footage of the convention itself.5 This was not,
however, the most serious problem of the Humphrey campaign. Foreshadowing elections to come,
a lack of money hamstrung the campaigns media efforts. Memory of this issue, according to veteran
campaign journalist Theodore White, haunts veterans of the Humphrey campaign.6 The
importance of media in managing a presidential race, directly linked to the availability of money, has
made whistlestop comebacks like Harry Trumans in 1948 increasingly more difficult.
Humphreys redemption, however, came from the core of the New Deal Democratsunion
members. The coordinated efforts of the AFLCIO and its political arm, COPE, highlighted the
growing importance of organized money in political campaigns. Unions contributed over $10
million and thousands of volunteers to the campaign, significantly narrowing the election.7
Humphrey only lost the race by .68 percent.8 Though parties have remained inherently important,
the election of 1968 made clear the clear the value of what may be termed a grassroots
organization outside of the official party structure. Indeed, the efforts of special interests have
become almost as important as the actions of parties themselves in the success of a campaign. The
lack of such support for the Democratic Party would be very noticeable in elections to come
especially after the presidency of Richard Nixon
When evaluating Nixon, one must be careful to draw a distinction between him and
conservatives as they exist today. Nixon was the last Republican president whose economic policy
choices did not feed the politics of inequality. Nixon once called Barry Goldwaters candidacy a
tragedy and fought him until the 1964 Republican Convention;9 his conservatism focused less on
destroying his opponents and their accomplishments than coopting their support. As William
Safire explained, his heart was on the right and his head was, with FDR, slightly left of center.10
Nixons goal was to create a New Majority which would replace the Democrats New Deal
coalition.11 The biggest prize in this fight was the vote of rank and file union members. Peter
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Brennan, head of the New York building trades, helped immensely in securing these votes: he
sanctioned New Yorks HardHat riots in which construction workers attacked antiwar
protestors and carried signs with slogans like GOD BLESS THE ESTABLISHMENT and WE
SUPPORT NIXONAGNEW.12
The result of Nixons coalition building was devastating for the Democratic Party. George
McGovern, the 1972 Democratic presidential nominee, was the most prolabor candidate ever
produced by the twoparty system.13 These credentials were for naught, however, as Richard Nixon
won 54 percent of the union vote.14 The Democratic Party now not only had to deal with the split
between the New Left and the establishment liberals, but a split within the establishment itself. This
is not to say that labor abandoned the Democrats, but their support was significantly weakened just
as it was needed most. When Nixon resigned in the wake of the Watergate scandal, this split left
many who depended on the consensus policies of the New Deal supporting a party now dominated
by its conservative wingGerald Ford only barely fought off Ronald Reagan, who began his
political career as a Goldwater stumpman, for the Republican nomination in 1976.15 This
movements goal was not to temper, but to remove the New Deals protections.
If Nixons New Majority gave the conservative movement the party machine to gain power,
the ultimate failure of Jimmy Carter to revive the liberal coalition gave it the chance. One cannot
pretend that Carter, or his congressional allies, were liberals in the mold of Roosevelt, Truman, or
Johnson.16 They did not, however, outright reject what was left of the liberal establishment either.
Carters problem stemmed from the rise of organized capital in the political process. In 1968, there
were 100 major corporations with public affairs offices in Washington D.C.;17 these operations
mostly revolved around lobbying for specific, industry based concerns, such as tariffs on imported
steel or airline deregulation.18 Ten years later, however, the number of corporate office in
Washington D.C. was over 500; they now combined with umbrella organizations like the Chamber
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of Commerce and the National Federation of Independent Businesses in a concerted lobbying effort
for a probusiness government.19
These newly organized and well funded groups were the origin of the policies of inequality.
While the presidents and CEOs of the private sector sat on Carters LaborManagement Groupin
theory to provide advice on resolving industrial conflicttheir lobbyists made it their task to quash
any meaningful labor law reform.20 A bill which had passed the House by ninety four was killed by a
filibuster in a Senate with Democratic supermajority.21 UAW president Douglas Fraser, also a
member of the LaborManagement Group, was aghast. In a letter of resignation, Fraser called the
business campaign against reform the most vicious, unfair attack up on the labor movement in
more than 30 years.22 The bill, in Frasers words, was something only corporate outlaws would
have need[ed] to fear.23 Unlike many in the rank and file, and even some labor leaders, Fraser
condemned the leaders the business community who, have chosen to wage a onesided class
wara war against working people, the unemployed, the poor, the minorities, the very young and
the very old, and even many in the middle class.24
Unfortunately for Fraser, the opposition to labor law reform was only the beginning of
conservative, business revanchism. The persistent inflationary effects of Nixonera oil shocks and
military spending produced academic arguments, notably the theory of supply side economics, that
justified attacks on the framework of economic protections that the New Deal had established.
Arthur Laffers taxation curve, for example justified cutting taxes that supported social spending on
the basis that they restricted growth;25 moreover, supplyside acolytes claimed cutting taxes would
actually increase tax revenue as the economy grew.26 These economic ideas were brought to the
White House when Ronald Reagan was elected in 1980. His presidency marked the transition from
the political precursors of inequality to the actual policies of a new American Gilded Age; after all, as
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David Stockman, Reagans Director of the Office of Management and Budget, told theAtlantic,
supplyside was less a theory than a faith.27
The allusion to the Gilded Age of the 19th century is apt in discussing the consequences of
Ronald Reagans policies; multiple authors have indeed before made the same comparison.28 Reagan
began his administration with a request asking the Treasury to create a new tax code so all
taxpayers, big and small, are treated more fairly.29 In the policies signed into law, however, the
wealthy were treated more fairly than others. The tax cuts of 1981, for example, cut income taxes
more than 25 percent over three years but distributed most of those gains to the top marginal
brackets.30 The wealthy, moreover, enjoyed a 40 percent cut in capital gains taxes and a 28 percent
cut in taxes on investment income.31 At the same time, the Omnibus Budget Reconciliation Act cut
food stamps, school lunches, and job training programs.32 Even the Tax Reform Act of 1986, which
did ensure that six million of the poorest Americans would pay no taxes, furthered the policy of
inequality. The top marginal rates were cut again from 50 percent to 28 percent and the top
corporate rate was cut fourteen points to 34 percent;33 meanwhile, rates for the lowest taxed
incomes were raised four points to 15 percent.34
The drive to continuously cut taxes has had serious repercussions on the distribution of
wealth in the United States. Smaller percentages of the American public are receiving much greater
shares of national aftertax income than they have in the past. The top .1 percent of income earners,
for example, received 1.2 percent of the total aftertax income in 1970in 2000 they received 7.3
percent.35 Had tax rates had remained the same as they had been in 1970, during the middle of the
Nixon administration, the .1 percent would have received only about 4.5 percent of all aftertax
income.36 This process was only exacerbated after the election of 2000 and George W. Bushs tax
cutting initiatives. The top 1 percent of income earners saw a 256 percent rise in aftertax income
between 1979 and 2006middle quartile incomes rose 21 percent.37
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Similarities between the Reagan administration and the Gilded Age, however, do not end
with tax policy; Reagans labor policy inaugurated an era of strikebreaking and unionbusting
unseen since the strike wave of 1919. When the Professional Air Traffic Controllers Organization
walked out over poor conditions and antiquated equipment in 1981, Reagan crushed the strike by
summarily firing all those who did not return to work.38 The stance taken by the administration set
an example for the private sector across the nation. AFLCIO president Lane Kirkland described
the administrations stance as having the massive, vindictive, brutal quality of [a] carpet bombing.39
Having just beaten back labor law reform in Washington D.C., many companies were also
beginning to implement union avoidance tactics or attempting to get rid of existing unions. A 1984
article in the Wall Street Journalconfirmed Douglas Frasers fears. It stated that the current
government and business climate presents a unique opportunity for companiesto develop and
implement longterm plans for conducting business in a unionfree environment.40 Private sector
union density fell from 20.4 percent in 1981 to 13.5 percent in 1989.41
Yet the policy of antiunionism did not stop at breaking strikes. The Reagan administration
also did its best to destroy the most significant avenue for recourse in industrial relations: the
National Labor Relations Board. The Board itself was stacked with administration officials who were
deeply hostile to unions and organizing efforts.42 Cases were narrowly interpreted and, even as
claims of unfair labor practices increased, the Board effectively undermined organizing drives and
the process of collective bargaining itself.43 The precipitous decline in American unionism cannot,
however, be completely blamed on the Reagan administration. Indeed, the simple failure to reform
labor law in recent yearsdespite the House having passed the Employee Free Choice Act in
2007has led to even further decline in private sector union density: 6.9 percent in 2010.44
Like tax policy, however, anti-unionism has its backing outside government as well.
Organized labor has fallen very far since the days of Hubert Humphreys campaign, but as far as
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organized labor has fallen, organized capital has also grown. In 1974, there were 201 prolabor
Political Action Committees and only 81 corporate PACs in Washington D.C.; by 1978, there were
784 corporate PACs plus 500 trade association PACs with only 217 PACs advocating for labor.45
Moreover, by 1982, just under 2,500 firms had registered lobbyists in the capital, up from only 175
eleven years earlier.46 Corporations were able to consistently outspend labor. Already by 1980, labor
spending composed under a quarter of all PAC contributions.47 As labor unions lost more members
each year, their ability to compete with the business lobby progressively diminished. Many
Democrats, labors traditional allies, had to turn to corporate money to fund their campaigns.48
Tax and labor policy were not the only factors driving the increase in inequality either.
Business deregulation, which began under Carter, was expanded by the Reagan administration to
include the financial sector. Deregulation caused various aftershocks in the American economy; it
allowed the growth of large fortunes and bonuses while also facilitating massive financial crises,
which cost taxpayers money, such as the Savings and Loan Crisis. In 2007, the top twentyfive
hedge fund managers all earned over $370 million;49only a year later, the TARP bailout initially cost
taxpayers billions.
Reagan again, however, cannot shoulder the entire blame for the problems of deregulation.
The GlassSteagall Act, a New Deal era law which restricted the merging of commercial and
investment banks, was repealed in a bipartisan effort during the Clinton administration. The repeal
of this act made possible some of the more devastating decisions that helped cause the financial
crisis in 2008. For example, the Union Bank of Switzerland was able to acquire the American
investment bank Paine Webber. Mixing the needs of average depositors with the gambling of
investors caused substantial problems when the markets crashed. UBS needed a massive bailout
from the Swiss government.50
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Much of the backing for financial deregulation came from the same supplyside economists
and corporate backers who advocated tax cuts and antiunionism. Outside of congress, Alan
Greenspan, Chairman of the Federal Reserve, and Sanford Weill, then chairman of Citigroup, were
both influential opponents of GlassSteagall.51 There is, however, also another base of support for
policies of deregulation: historical fundamentalism. Historical fundamentalism combines
constitutional originalism, an assumption that the Founding Fathers could make sense of modern
politics, and ideologysometimes religion, sometimes libertarianism.52
When applied to the policy of deregulation, historical fundamentalists see business
regulations as analogous to the Tea and Stamp Acts of the American revolutionary period;
coincidentally, the same arguments are used against new taxes. This aspect of support for the politics
of inequality threatens to reinforce the others as well. The idea that liberalism has somehow
corrupted the teaching of history has been spread through private colleges like Pat Robertsons
Regent University.53 The idea spread further still into the public sphere when the Texas School
Board adopted a new history curriculum complete with defense of McCarthyism.54
The politics of inequality took decades to complete. The policies of inequality took decades
to take effect. The movements and ideas behind them, however, organized capital, supplyside and
laissezfaire economics, as well as historical fundamentalism, have all been present throughout
American history in some form or another. They have been defeated in the past; even with current
setbacks, however, the fight against inequality is once more making headway. Budget battles in the
months to come and the election of 2012 will determine the degree of impact that these efforts
make.
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1 Speech before the 1936 Democratic National Convention, University of Virginia Miller Center of PublicAffairs, accessed May 1, 2011, http://millercenter.org/scripps/archive/speeches/detail/3305.2 Jill Lepore, The Whites of Their Eyes: The Tea Partys Revolution and the Battle over American History,(Princeton: Princeton University Press, 2010), 15-16.3 Theodore H. White, The Making of the President 1968, (New York: HarperCollins Publishers, 2010), 111.
4 Ibid, 206.5 Ibid, 350.6 Ibid, 417.7 Ibid, 426-27.8 Ibid, 463.9 Rick Perlstein , Before the Storm: Barry Goldwater and the Unmaking of the American Consensus, (New
York: Nation Books, 2001), 390.10 Jefferson Cowie, Stayin Alive: the 1970s and the Last Days of the Working Class, (New York: The NewPress, 2010), 138.11 Ibid, 138-39.12 Ibid, 135-37.13 Ibid, 7.14
Ibid, 161.15 Ibid, 265.16 Ibid, 123.17 Jacob S. Hacker and Paul Pierson, WinnerTakeAll Politics: How Washington Made the Rich RicherAnd
Turned Its Back on the Middle Class, (New York: Simon & Schuster, 2010), 118.18 Ibid, 118-19.19 Ibid.20 Ibid, 58; Cowie, Stayin Alive, 293.21 Cowie, Stayin Alive, 292-94.22 Douglas A. Fraser, Letter of Resignation, 2.23 Ibid24 Ibid, 1.25 Sean Wilentz, The Age of Reagan: A History 1974-2008, (New York: HarperCollins Publishers, 2008), 141.26 Ibid.27 Ibid, 145.28 Ibid, 275; Cowie, Stayin Alive, 225; Hacker and Pierson, WinnerTakeAll Politics, 293.29 Wilentz, The Age of Reagan, 205.30 Ibid, 144.31 Ibid, 143.32 Ibid.33 Ibid, 20534 Ibid.35 Hacker and Pierson, WinnerTakeAll Politics, 49.36 Ibid.37 Ibid, 23.
38 Cowie, Stayin Alive, 36339 Ibid.40 Hacker and Pierson, WinnerTakeAll Politics, 59.41 Union Membership, Coverage, Density, and Employment Among Private Sector Workers, 1973-2010,
The Union Membership and Coverage Database, accessed May 5, 2011, www.unionstats.com.42 Wilentz, The Age of Reagan, 277.43 Ibid.44 Union Membership Among Private Sector Workers www.unionstats.com.45 Cowie, Stayin Alive, 233.
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Cowie, Jefferson. Stayin Alive: the 1970s and the Last Days of the Working Class. New York: TheNew Press, 2010.
Fraser, Douglas A. Letter of Resignation. Detroit: Solidarity House, 1978.
Hacker, Jacob S. and Paul Pierson. WinnerTakeAll Politics: How Washington Made the RichRicherAnd Turned Its Back on the Middle Class. New York: Simon & Schuster, 2010
Lepore, Jill. The Whites of Their Eyes: The Tea Partys Revolution and the Battle over AmericanHistory, Princeton: Princeton University Press, 2010.
Perlstein, Rick. Before the Storm: Barry Goldwater and the Unmaking of the American Consensus,New York: Nation Books, 2001.
The Union Membership and Coverage Database. Union Membership, Coverage, Density, andEmployment Among Private Sector Workers, 1973-2010. Accessed March 16, 2011.
www.unionstats.com.
University of Virginia Miller Center of Public Affairs. Speech before the 1936 Democratic NationalConvention. Accessed May 1, 2011,http://millercenter.org/scripps/archive/speeches/detail/3305.
White, Theodore H. The Making of the President 1968. New York: HarperCollins Publishers, 2010.
Wilentz, Sean, The Age of Reagan: A History 1974-2008, New York: HarperCollins Publishers,2008.