“This is America. We don’t disparage wealth. We don’t begrudge anybody for achieving success. And we believe that success should be rewarded. But what gets people upset – and rightfully so – are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers.”
Barack Obama, February 4, 2009
Barack Obama is a man of eminent good sense, whose strivings for balance and good measure are made more notable by the absence of similar aspirations among many members of the American political class. So, when it comes to America’s rich, he’s inclined to be benign, so long as they behave themselves and are benevolent in turn toward their fellow citizens. All he asks is for fairness in the marketplace and in the tax return. And the rich can be source of additional revenues, a sort of cash cow for the revised welfare state. As he told Joe “the Plumber” Wurzelbacher during the campaign: “I think when you spread the wealth around, it’s good for everybody.”
Obama’s moderation appears lost on America’s immoderate rich. Bonuses flow while the streams of jobs, credit, and profits run dry. They have driven the American economy over a cliff, but having clawed back their astonishing share of America’s income and wealth beginning with Reagan, they are not about to give it up. Instead, America’s rich are ginning up the corporate lobbies, right-wing think tanks, and suck-up foundations and charities to do battle for their privileges. The President during the last days of the campaign took to quoting the old leftist adage that “power is not going to give up without a fight,” while now he is content to rule in the name of simple fairness. Even the standard of fairness is anathema for all but a few of the rich, and they are throwing everything they have at him to drive the budget back from their corpulent comfort zone. Barack Obama, you were right: power won’t give up without a fight.
But to fight simply in the name of fairness is to lose the struggle before even taking the field. The American rich as a class have no intention of going gently into that good night. They are the most powerful upper class on earth, and they have fought very hard to create a global hegemon out of America since the Second World War. Their goal has been to get higher returns on their money, and to escape the bill for the economic decline they had caused by outsourcing capital and labor as well as disinvesting in the American industrial machine. Starting during the Vietnam War, they sent their capital abroad to build great multinationals, conquer markets abroad, and generate higher profits for their investments. They scuttled the American economy a quarter century ago, and commissioned their bankers out to build great financial behemoths capable of turning the world’s churning capital flows into profit opportunities for them.
And so the bankers labored, finding offshore, untaxed caches for the monies of the rich, and finding ways to valorize their dollar-denominated assets in an era of low-interest rate bearing investments. New instruments such as hedge funds and new products such as derivatives became crucial to protecting and increasing the wealth of America’s rich. They added that extra speculative point or two (or five) that kept the capital of America’s rich growing. They attracted capital from abroad that supported what should have been a sagging dollar, increasing demand for American-held wealth and protecting the dollar holdings of the American rich.
Yet, in all, something was going wrong. America’s everyday economy was falling behind. It could not produce the enormous profits of a China. Its multinationals prospered to the extent that they could advantage themselves of the Chinese industrial machine. More than a quarter century after Reagan’s gutting of the tax code, median family income was the same as it had been under the Gipper. Life’s essentials such as food, home, and education had become increasingly costly. America’s consumers needed to borrow, and by loaning them the money, America’s rich and those to whom they sold their bonds pulled profit from the jaws of economic decline. The banks, the hedge funds, and the private wealth handlers, for a time of course, made out. Higher returns meant greater wealth. Keeping the capital in American dollars and flowing through America’s financial firms meant that local equity stakes were protected, and American owners of capital were rewarded handsomely.
Now the rich are taking big hits, and thanks to them, so are we. They are bending every effort to get their money back, or rather currently replaced by the U.S. government. They are seeking to preserve their banks as private enterprises and resist regulation that would stop them from playing all of the off-book games that garnered so much money this past quarter century.
They will fight to keep their tax exemptions and low rates. The progressive tax rates passed by Herbert Hoover and Franklin Roosevelt, coupled with the wage and price policies forced upon the country during the Second World War, caused a significant decline in the amount of personal income the rich commanded of the American economy. The proportion of income they received dropped to 30% of the U.S. total in 1941 (it was hovering in the low forties between 1917 and 1940), and there it remained until the mid-seventies. After the Reagan tax cuts dropped the capital gains tax below that of regular income, the proportion of the American personal income going to the rich rose to 40% by the mid-eighties, and remained there through the late nineties.
It took decades and pitched battles to lower the economic gains, and hence the economic powers, of the rich. It is the long march that is necessary in American politics. Roosevelt fought these battles against the “economic royalists” openly. His program for fairness was under girded by a strategy to take away the powers of the rich – I am using the plural because economic power is transformed into political power when groups fight over their well-being – so that the gap between the rich and the rest of America was narrowed not only through expanded opportunities but was also accomplished by leveling the political and social playing field.
Moreover, leaving the rich powerful invites new economic disasters down the road. After all, their endless pursuit of profit and power got us into this mess. They turned the country inside out for their ends, and the breakdown has already cost us up to one quarter of our national wealth.
In another column, I will talk about how ordinary Americans’ chances of achieving economic security and political power are simply no match, unaided by the state, for the resourceful rich. They are a runaway train. Unless you stop the train, the rich will carry the American Dream off with them.
Winners of the American Dream contest like the Obamas too easily become victims of the belief that if they won, so can countless others. They may privately share their inner doubts about a system more closed than open, but they take their personal success as a form of witness to the truth about America. They found opportunity and made a success. The key then is more opportunity. For them, it is not necessary propaganda, but an inner belief for which their lives provide testimony.
At the same time, their new access to society’s top once again suggests that our class system is more open than the class systems of other societies, and that status mobility built on achievement is real. There is no greater believer in the American Dream than Barack Obama. He believes he is its embodiment. What he seeks is access to it for all.
Sociology trumps mythology. We have one of the lowest rates of inter-generational social mobility of any industrial country. Income and wealth have become more not less concentrated in the hands of the American rich – all this at a time when some like the Obamas have achieved a good measure of their dreams in ways that are not only undeniable but laudable.
Thus, it still needs to be said to President Obama:
Only in Frank Capra movies are the rich like everyone else. They have money and power that in comparison the rest of us don’t.
Economic opportunity cannot bring about the American Dream. It can only secure a few new places among the rich for new arrivals.
A politics of fairness invites failure, both immediately as in the defeat of your programs, and long term defeat in transforming America into the land of fairness you seek.
Power, as you say, won’t give up without a fight. They win by default if you don’t take them on.
So, let’s get busy.