1 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

2 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

3 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

4 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

5 David Stockman, Reagans Director of the Office of Management and Budget, told the Atlantic, 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

6 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 Journal confirmed 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

7 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

8 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.

Speech before the 1936 Democratic National Convention, University of Virginia Miller Center of Public Affairs, 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 New Press, 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 Ibid 24 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, 205 34 Ibid. 35 Hacker and Pierson, WinnerTakeAll Politics, 49. 36 Ibid. 37 Ibid, 23. 38 Cowie, Stayin Alive, 363 39 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.
1

10

Hacker and Pierson, WinnerTakeAll Politics, 118. Ibid, 121. 48 Ibid. 49 Ibid, 67. 50 Ibid, 198. 51 Ibid 71; ibid, 197. 52 Lepore, The Whites of Their Eyes, 15-16. 53 Ibid, 158. 54 Ibid, 13.
46 47

11

Cowie, Jefferson. Stayin Alive: the 1970s and the Last Days of the Working Class. New York: The New Press, 2010. Fraser, Douglas A. Letter of Resignation. Detroit: Solidarity House, 1978. Hacker, Jacob S. and Paul Pierson. WinnerTakeAll Politics: How Washington Made the Rich RicherAnd 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 American History, 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, and Employment 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 National Convention. 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.