Wednesday, December 19, 2007

The past is the future. When will we ever learn?

News item:

"The increase in incomes of the top 1 percent of Americans from 2003 to 2005 exceeded the total income of the poorest 20 percent of Americans, data in a new report by the Congressional Budget Office shows . . . Earlier reports, based on tax returns, showed that in 2005 the top 10 percent, top 1 percent and fractions of the top 1 percent enjoyed their biggest share of income since 1928 and 1929." [NYT]

And well all know what happened in 1929 . . .

The more things change the more they stay the same. The regressive tax policies of the Coolidge administration, promoted with a vengeance by his Treasury secretary, Andrew Mellon, led to a very similar economic maldistribution of wealth during the "Roaring Twenties." That was the decade big business bought the United States government out from underneath the American people. The Wall Street Journal cheered in 1925: "Never before, here or anywhere else has a government been so completely fused with business." Calvin Coolidge agreed saying, "This is a business country . . . and it wants a business government." [Leanleft]

Mellon believed that taxes were too high for the rich. A person making $1,000,000 had to pay $300,000 in taxes! Outrageous! Everyone knew, Mellon insisted, of "businesses which have not been started, and of new projects which have been abandoned, all for one reason -- high surtaxes." Mellon said, "A decrease of taxes causes an inspiration to trade and commerce."

Sound like somebody else we all know and love?

W: "We cut the taxes on everybody who pays taxes. I don't think it makes sense for tax-cutters to say, okay, you win, and you lose. My attitude was, if you pay taxes, you ought to get relief. And we cut all taxes."

Mellon: "In attempting to promote or to defeat legislation by arraying one class of taxpayers against another, he shows a complete misconception of those principles of equality on which the country was founded. Any man of energy and initiative in this country can get what he wants out of life. But when that initiative is crippled by legislation or by a tax system which denies him the right to receive a reasonable share of his earnings, then he will no longer exert himself and the country will be deprived of the energy on which its continued greatness depends."

Mellon suggested a tax rate for the higher tax brackets of no more than 25%. Unlike today, Mellon wasn't able to ram through his tax relief program for millionaires, but he found a way around that by using cash refunds, credits, and abatements to de-fund the Treasury of $3.5 billion to family and friends. Arthur Schlesinger Jr. writes in his brilliant "Crisis of the Old Order" Mellon not only diverted some $300 million to his family, but also "other millions went . . . where they promised to do the most good to the Republican Party. Thus each of the seventeen individuals contributing $10,000 to the Republican campaign in 1930 had been beneficiaries of Mr. Mellon's official generosity."

How much did Blackwater USA's Erik Prince give to the GOP and how much has he made off his contract with the Department of State in Iraq? It just goes to show there's nothing new under the sun.

Appointing business to regulate itself:

Another aspect of Coolidge's business friendly government policies was the positioning in control of government regulatory commissions and agencies of the very people who were being regulated.

"To the Tariff commission, for example," writes Schlesinger Jr., "were sent men who acted almost as open representatives of protected industries. When the Commission's minority, led by E. P. Costigan of Colorado, began to object that members were sitting on cases in which they or their relatives were known to have financial states, Coolidge upbraided them for raising prudish scruples." [pg. 64]

At the FTC, the main government regulatory agency, W. E. Humphrey was put in charge. Humphrey had denounced the FTC as "an instrument of oppression and disturbance instead of a help to business." Now he was in charge. Sort of like when W. put Spencer Abraham in charge of the Energy Department, the very person who had made it his personal crusade to see that agency eliminated.

The FTC had been set up to discourage economic concentration, but under Humphreys, along with Herbert Hoover at the Commerce Department, that was all out the window: "Holding companies moved into the utility and transportation fields, chain stores into retail distribution, in all cases big firms swallowed small firms and merged with other big ones. . . By 1930 the two hundred largest nonbanking corporations, after growing during the decade at a rate two to three times as fast as the smaller nonbanking corporations, controlled about half the total corporate wealth of the country. And from the viewpoint of government, private economic power could not have collected in more responsible hands," writes Schlesinger.

A big happy Republican party at the expense of the people of the United States.

[See more about W.'s business friendly appointments at thetruthaboutgeorge]
[More about the current concentration of wealth]

The Holding Companies, the first Enrons:

And the 1920's had their very own "Kenny Boy" Lay; Samuel Insull of the third largest utility group of the era, the Insull Group. He manipulated the value of the stocks of his Holding Companies to such wacky, far out levels that even he didn't know what was going on.

Holding Companies were the 1920's version of the Enron shell game of coming up with phony companies and stacking one on top of another in a never ending pyramid of fraud. And since one knows how the hell these companies are making any money they leave it to the genius running the shell game to sucker them into ever inflating the value of what was basically valueless stock.

Will Rogers explains: "A Holding Company is a thing where you hand an accomplice the goods while the policeman searches you."

Herbert Hoover said of the men behind the Holding Company, "The majority of men who dominate and control electrical utilities themselves belong to a new school of public understanding as to the responsibilities of big business to the people."

Right. When the bottom fell out in 1929 Insull was found hold up in his offices protected by 36 body guards trying to avoid investors who wanted their money back. In 1932 he escaped to Europe avoiding jail time never to return.

The libertarian dream was proved to be a Laissez-faire nightmare:

In the wake of the excesses of the unregulated special interests during the 20's, the perfect example of what would happen if libertarians got their way, came the Great Depression. A third of the nation was out of work. In Chicago the unemployment rate was 1 in 4. To respond to the crisis the Republican administration of Herbert Hoover gave money to the banks and corporations, but nothing to the millions beginning to move into Hoovervilles all over the country.

Hoover believed in the power of local charities to take care of the problem. Pull yourself up by the bootstrapism at its finest. Public works projects or direct government assistance by the federal government to the poor would break the budget. "The primary duty of the government, that is, to hold expenditures within our income," Hoover insisted. After all, what would business say if the government went into the red? And all just too feed, clothe, and house 8,000,000 or so lazy Americans with their hand out?

FDR saves the rich from themselves:

In 1932 FDR was elected and on March 4 1933 the government got to the business of sticking it to business. The men of the new school of public understanding, those business genius' who had convinced everyone the price of stocks could only go up forever based on a complicated get rich keep schemes that only they understood, had been proved to be either fools or crooks, or both, and the country was ready for some pay back.

Roosevelt set out to level the economic playing for all Americans. Make the rich pay their taxes and regulate big business. For this he earned the undying hate of the super rich, people like Prescott Bush, who through their Republican Party have striven for 70 years to get back to the good old days of weak government exclusively in the service of business, at which they've largely succeeded.

Ironically, FDR wanted to preserve the capitalist system that had failed so spectacularly, by reining in its most egregious excesses. FDR said, "I am fighting Communism, Huey Longism, Coughlinism, Townsendism. I want our system, the capitalist system; to save it is to give it some heed to the world thought of today. I want equal distribution of wealth."

Huey Long's share-the-wealth program, which called for a radical redistribution of wealth, something even FDR would have been frightened by, and the overall hatred of the capitalist system running around the world leading to the rise of the likes of Mussolini in Italy, Hitler in Germany, and the agitation of the Communists here in the US based on the "great successes" of Stalin's economic miracle in Russia, made it imperative that something be done here in the US to avoid a complete meltdown.

Roosevelt, citing Huey Long's solution to the maldistribution of wealth, said: "To combat this and similar crackpot ideas it may be necessary to throw the wolves the forty-six who are reported to have incomes in excess of one million dollars a year. This can be accomplished through taxation. The thinking men, the young men, who are disciples of this new world idea of fairer distribution of wealth, they are demanding that something be done to equalize this distribution." [The Politics of Upheaval, Schlesinger, pg. 325-26]

This frightened the rich so much that some actually toyed with the idea of overthrowing the government. Communism wasn't the only threat to American Democracy. One Gerald C. MacGuire offered Marine General Smedley Butler, a Philadelphia Quaker and the most highly decorated Marine General of his age, $18,000 in one thousand dollar bills to lead a fascist overthrow of the government. Butler testified to Congress that MacGurie told him, "We need a fascist government in this country . . . The only men who have the patriotism are the soldiers and Smedley Butler is the ideal leader."

And what about FDR? "We might go along with Roosevelt and then do with him what Mussolini did to the King of Italy," Butler recounted. To this Butler responded: "If you get the 500,000 soldiers advocating anything smelling of fascism, I am going to get 500,000 more and lick the hell out of you, and we will have a war right at home."

People today do not appreciate how bad things got in the 30's and how bad they can get if we keep on the way we're going. Nowadays, the left aren't the ones coming up with the crackpot ideas, though, it's coming from the right with the flat-taxers and Mike Huckabee's national sales-tax nonsense and whatever the hell it is Ron Paul is advocating.

We need to get back to managing capitalism the way it was managed during the 50's and 60's. We need to save capitalism from itself again and the federal government through equal taxation and robust regulation of predatory business has been shown to be the only way to go about it. Once people figure out they've been had and they're losing their jobs, getting thrown out of their houses and being forced to listen to their children crying in hunger every night it won't take long from the whole thing to unravel.

It happened before and it can happen again. The rich are only getting richer and the rest of us are getting poorer. Unless this trend is arrested, and quick, the future begins to look like the past.


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