Exclusive: New studies show that America’s corporate chieftains are living like kings while the middle class stagnates and shrivels. Yet, the Tea Party and other anti-tax forces remain determined to protect the historically low tax rates of the rich and push the burden of reducing the federal debt onto the rest of society, a curious approach explored by Robert Parry.
By Robert Parry
June 28, 2011
If the “free-market” theories of Ayn Rand and Milton Friedman were correct, the United States of the last three decades should have experienced a golden age in which the lavish rewards flowing to the titans of industry would have transformed the society into a vibrant force for beneficial progress.
After all, it has been faith in “free-market economics” as a kind of secular religion that has driven U.S. government policies – from the emergence of Ronald Reagan through the neo-liberalism of Bill Clinton into the brave new world of House Republican budget chairman Paul Ryan.
By slashing income tax rates to historically low levels – and only slightly boosting them under President Clinton before dropping them again under George W. Bush – the U.S. government essentially incentivized greed or what Ayn Rand liked to call “the virtue of selfishness.”
Further, by encouraging global “free trade” and removing regulations like the New Deal’s Glass-Steagall separation of commercial and investment banks, the government also got out of the way of “progress,” even if that “progress” has had crushing results for many middle-class Americans.
True, not all the extreme concepts of author/philosopher Ayn Rand and economist Milton Friedman have been implemented – there are still programs like Social Security and Medicare to get rid of – but their “magic of the market” should be glowing by now.
We should be able to assess whether laissez-faire capitalism is superior to the mixed public-private economy that dominated much of the 20th Century.
The old notion was that a relatively affluent middle class would contribute to the creation of profitable businesses because average people could afford to buy consumer goods, own their own homes and take an annual vacation with the kids. That “middle-class system,” however, required intervention by the government as the representative of the everyman.
Beyond building a strong infrastructure for growth – highways, airports, schools, research programs, a safe banking system, a common defense, etc. – the government imposed a progressive tax structure that helped pay for these priorities and also discouraged the accumulation of massive wealth.
After all, the threat to a healthy democracy from concentrated wealth had been known to American leaders for generations.
A century ago, it was Republican President Theodore Roosevelt who advocated for a progressive income tax and an estate tax. In the 1930s, it was Democratic President Franklin Roosevelt, who dealt with the economic and societal carnage that under-regulated financial markets inflicted on the nation during the Great Depression.
With those hard lessons learned, the federal government acted on behalf of the common citizen to limit Wall Street’s freewheeling ways and to impose high tax rates on excessive wealth.
So, during Dwight Eisenhower’s presidency of the 1950s, the marginal tax rate on the top tranche of earnings for the richest Americans was about 90 percent. When Ronald Reagan took office in 1981, the top rate was still around 70 percent.
Greed was not simply frowned upon; it was discouraged.
Put differently, government policy was to maintain some degree of egalitarianism within the U.S. political-economic system. And to a remarkable degree, the strategy worked.
The American middle class became the envy of the world, with otherwise average folk earning enough money to support their families comfortably and enjoy some pleasures of life that historically had been reserved only for the rich.
Without doubt, there were serious flaws in the U.S. system, especially due to the legacies of racism and sexism. And it was when the federal government responded to powerful social movements that demanded those injustices be addressed in the 1960s and 1970s, that an opening was created for right-wing politicians to exploit resentments among white men, particularly in the South.
By posing as populists hostile to “government social engineering,” the Right succeeded in duping large numbers of middle-class Americans into seeing their own interests – and their “freedom” – as in line with corporate titans who also decried federal regulations, including those meant to protect average citizens, like requiring seat belts in cars and discouraging cigarette smoking.
Amid the sluggish economy of the 1970s, the door swung open wider for the transformation of American society that had been favored by the likes of Ayn Rand and Milton Friedman, putting the supermen of industry over the everyman of democracy.
Friedman tested out his “free-market” theories in the socio-economic laboratories of brutal military dictatorships in Latin America, most famously collaborating with Chile’s Gen. Augusto Pinochet who crushed political opponents with torture and assassinations.
Ayn Rand became the darling of the American Right with her books, such as Atlas Shrugged, promoting the elitist notion that brilliant individuals represented the engine of society and that government efforts to lessen social inequality or help the average citizen were unjust and unwise.
The Pied Piper
Yet, while Rand and Friedman gave some intellectual heft to “free-market” theories, Ronald Reagan proved to be the perfect pied piper for guiding millions of working Americans in a happy dance toward their own serfdom.
In his first inaugural address, Reagan declared that “government is the problem” – and many middle-class whites cheered.
However, what Reagan’s policies meant in practice was a sustained assault on the middle class: the busting of unions, the export of millions of decent-paying jobs, and the transfer of enormous wealth to the already rich. The tax rates for the wealthiest were slashed about in half. Greed was incentivized.
Ironically, the Reagan era came just as technology – much of it created by government-funded research – was on the cusp of creating extraordinary wealth that could have been shared with average Americans. Those benefits instead accrued to the top one or two percent.
The rich also benefited from the off-shoring of jobs, exploiting cheap foreign labor and maximizing profits. The only viable way for the super-profits of “free trade” to be shared with the broader U.S. population was through taxes on the rich. However, Reagan and his anti-government true-believers made sure that those taxes were kept at historically low levels.
The Ayn Rand/Milton Friedman theories may have purported to believe that the “free market” would somehow generate benefits for the society as a whole, but their ideas really represented a moralistic frame which held that it was somehow right that the wealth of the society should go to its “most productive” members and that the rest of us were essentially “parasites.”
Apparently, special people like Rand also didn’t need to be encumbered by philosophical consistency. Though a fierce opponent of the welfare state, Rand secretly accepted the benefits of Medicare after she was diagnosed with lung cancer, according to one of her assistants.
She connived to have Evva Pryor, an employee of Rand’s law firm, arrange Social Security and Medicare benefits for Ann O’Connor, Ayn Rand using an altered spelling of her first name and her husband’s last name.
In 100 Voices: An Oral History of Ayn Rand, Scott McConnell, founder of the Ayn Rand Institute’s media department, quoted Pryor as justifying Rand’s move by saying: “Doctors cost a lot more money than books earn and she could be totally wiped out.” Yet, it didn’t seem to matter much if “average” Americans were wiped out.
Essentially, the Right was promoting the Social Darwinism of the 19th Century, albeit in chic new clothes. The Gilded Age from a century ago was being recreated behind Reagan’s crooked smile, Clinton’s good-ole-boy charm and George W. Bush’s Texas twang.
Whenever the political descendants of Theodore and Franklin Roosevelt tried to steer the nation back toward programs that would benefit the middle class and demand greater sacrifice from the super-rich, the wheel was grabbed again by politicians and pundits shouting the epithets, “tax-and-spend” and “class warfare.”
Many average Americans were pacified by reminders of how Reagan made them feel good with his rhetoric about “the shining city on the hill.”
The Rand/Friedman elitism also remains alive with today’s arguments from Republicans who protest the idea of raising taxes on businessmen and entrepreneurs because they are the ones who “create the jobs,” even if there is little evidence that they are actually creating American jobs.
Rep. Paul Ryan, R-Wisconsin, who is leading the fight to replace Medicare with a voucher system that envisions senior citizens buying health insurance from profit-making companies, cites Ayn Rand as his political inspiration.
A Land for Billionaires
The consequences of several decades of Reaganism and its related ideas are now apparent. Wealth has been concentrated at the top with billionaires living extravagant lives that not even monarchs could have envisioned, while the middle class shrinks and struggles, with one everyman after another being shoved down into the lower classes and into poverty.
Millions of Americans forego needed medical care because they can’t afford health insurance; millions of young people, burdened by college loans, crowd back in with their parents; millions of trained workers settle for low-paying jobs; millions of families skip vacations and other simple pleasures of life.
Beyond the unfairness, there is the macro-economic problem which comes from massive income disparity. A healthy economy is one where the vast majority people can buy products, which can then be manufactured more cheaply, creating a positive cycle of profits and prosperity.
With Americans unable to afford the new car or the new refrigerator, American corporations see their domestic profit margins squeezed. So they are compensating for the struggling U.S. economy by expanding their businesses abroad in developing markets, but they also keep their profits there.
There are now economic studies that confirm what Americans have been sensing in their own lives, though the mainstream U.S. news media tends to attribute these trends to cultural changes, rather than political choices.
For instance, the Washington Post published a lengthy front-page article on June 19, describing the findings of researchers who gained access to economic data from the Internal Revenue Service which revealed which categories of taxpayers were making the high incomes.
To the surprise of some observers, the big bucks were not flowing primarily to athletes or actors or even stock market speculators. America’s new super-rich were mostly corporate chieftains.
As the Post’s Peter Whoriskey framed the story, U.S. business underwent a cultural transformation from the 1970s when chief executives believed more in sharing the wealth than they do today.
The article cites a U.S. dairy company CEO from the 1970s, Kenneth J. Douglas, who earned the equivalent of about $1 million a year. He lived comfortably but not ostentatiously. Douglas had an office on the second floor of a milk distribution center, and he turned down raises because he felt it would hurt morale at the plant, Whoriskey reported.
However, just a few decades later, Gregg L. Engles, the current CEO of the same company, Dean Foods, averages about 10 times what Douglas made. Engles works in a glittering high-rise office building in Dallas; owns a vacation estate in Vail, Colorado; belongs to four golf clubs; and travels in a $10 million corporate jet. He apparently has little concern about what his workers think.
“The evolution of executive grandeur – from very comfortable to jet-setting – reflects one of the primary reasons that the gap between those with the highest incomes and everyone else is widening,” Whoriskey reported.
“For years, statistics have depicted growing income disparity in the United States, and it has reached levels not seen since the Great Depression. In 2008, the last year for which data are available, for example, the top 0.1 percent of earners took in more than 10 percent of the personal income in the United States, including capital gains, and the top 1 percent took in more than 20 percent.
“But economists had little idea who these people were. How many were Wall Street financiers? Sports stars? Entrepreneurs? Economists could only speculate, and debates over what is fair stalled. Now a mounting body of economic research indicates that the rise in pay for company executives is a critical feature in the widening income gap.”
The Post article continued: “The largest single chunk of the highest-income earners, it turns out, are executives and other managers in firms, according to a landmark analysis of tax returns by economists Jon Bakija, Adam Cole and Bradley T. Heim. These are not just executives from Wall Street, either, but from companies in even relatively mundane fields such as the milk business.
“The top 0.1 percent of earners make about $1.7 million or more, including capital gains. Of those, 41 percent were executives, managers and supervisors at non-financial companies, according to the analysis, with nearly half of them deriving most of their income from their ownership in privately-held firms.
“An additional 18 percent were managers at financial firms or financial professionals at any sort of firm. In all, nearly 60 percent fell into one of those two categories. Other recent research, moreover, indicates that executive compensation at the nation’s largest firms has roughly quadrupled in real terms since the 1970s, even as pay for 90 percent of America has stalled.”
While these new statistics are striking – suggesting a broader problem with high-level greed than might have been believed – the Post ducked any political analysis that would have laid blame on Ronald Reagan and various right-wing economic theories.
In a follow-up editorial on June 26, the Post lamented the nation’s growing income inequality but shied away from proposing higher marginal tax rates on the rich or faulting the past several decades of low tax rates. Instead, the Post suggested perhaps going after deductions on employer-provided health insurance and mortgage interest, tax breaks that also help middle-class families.
It appears that in Official Washington and inside the major U.S. news media the idea of learning from past presidents, including the Roosevelts and Dwight Eisenhower, is a non-starter. Instead there’s an unapologetic embrace of the theories of Ayn Rand and Milton Friedman, an affection that can pop out at unusual moments.
Addressing a CNBC “Fast Money” panel last year, movie director Oliver Stone was taken aback when one CNBC talking head gushed how Stone’s “Wall Street” character Gordon Gecko had been an inspiration, known for his famous comment, “Greed is good.” A perplexed Stone responded that Gecko, who made money by breaking up companies and eliminating jobs, was meant to be a villain.
However, the smug attitude of the CNBC stock picker represented a typical tribute to Ronald Reagan’s legacy. After all, greed did not simply evolve from some vague shift in societal attitudes, as the Post suggests. Rather, it was stimulated – and rewarded – by Reagan’s tax policies.
Reagan’s continued popularity also makes it easier for today’s “no-tax-increase” crowd to demand only spending cuts as a route to reducing the federal debt, an ocean of red ink largely created by the tax cuts of Ronald Reagan and George W. Bush.
Tea Partiers, in demanding even more cuts in government help for average citizens and even more tax cuts for the rich, represent only the most deluded part of middle-class America. A recent poll of Americans rated Reagan the greatest U.S. president ever, further enshrining his anti-government message in the minds of many Americans, even those in the battered middle class.
When a majority of Americans voted for Republicans in Election 2010 – and with early polls pointing toward a likely GOP victory in the presidential race of 2012 – it’s obvious that large swaths of the population have no sense of what’s in store for them as they position their own necks under the boots of corporate masters.
The only answer to this American crisis would seem to be a reenergized and democratized federal government fighting for average citizens and against the greedy elites. But – after several decades of Reaganism, with the “free market” religion the new gospel of the political/media classes – that seems a difficult outcome to achieve.
[For more on these topics, see Robert Parry’s Secrecy & Privilege and Neck Deep, now available in a two-book set for the discount price of only $19. For details, click here.]
Robert Parry broke many of the Iran-Contra stories in the 1980s for the Associated Press and Newsweek. His latest book, Neck Deep: The Disastrous Presidency of George W. Bush, was written with two of his sons, Sam and Nat, and can be ordered at neckdeepbook.com. His two previous books, Secrecy & Privilege: The Rise of the Bush Dynasty from Watergate to Iraq and Lost History: Contras, Cocaine, the Press & ‘Project Truth’ are also available there.