In addition, the Wagner Act of 1935 guaranteed Americans the right to form a union and bargain collectively with their corporate employers in these now booming manufacturing plants. Prior to the Wagner Act, unions were practically unheard of. Even attempting to unionize in the workplace would get you fired, at best. At worst, it could get you killed.
But with these new protections in place, union membership grew from single-digit percentages to nearly a third of all American workers. And with the growth in unions, middle-class wages grew, too, and so did the middle class’s share of total national income.
The middle class thrived on a sturdy manufacturing base and strong labor unions negotiating fair wages.
Step Four: Rules in the Marketplace
The final step to securing a middle class is to set rules for the marketplace in order to keep the Royalists in business from getting too powerful and to prevent them from misbehaving.
For example, there was the Sherman Antitrust Act of 1890, which was intended to limit the size of corporations.
In response to the Robber Baron monopolies, Presidents Howard Taft and Woodrow Wilson went trust-busting.
Most notably, Taft would take a hacksaw to John D. Rockefeller’s Standard Oil Trust, cleaving it up into thirty-three separate companies. And the American people loved Taft for doing it.
But being too big wasn’t the only sin. Operating against the best interests of the public as a corporation could get you shut down, too. Our nation has a long history with the “corporate death penalty.” Beginning in the early 1800s, laws were passed in several states to make it easier for legislators to revoke corporate charters if businesses were operating against the public’s interest. And this routinely happened.
In Ohio, Mississippi, and Pennsylvania, banks were shut down for being “financially unsound.” In New York and Massachusetts, the corporations that ran the turnpikes were given a corporate death sentence for not keeping the roads in good repair.
By 1825, twenty states had amended their constitutions to make it easier for the state to “revoke, alter, or annul” corporate charters whenever a corporation “may be injurious to citizens of the community.”
And in just one year, 1832, the state of Pennsylvania sentenced ten corporations to death, revoking their charters for “operating contrary to the public interest.”
This continued into the late 1800s, when whiskey trusts, sugar corporations, and oil corporations were all put to death in several states across the nation. In New York, workers petitioned the state supreme court to slay the beast that is Standard Oil for labor abuses. In 1894, the court obliged and revoked Standard Oil’s corporate charter in that state.
And after the stock market crashed in 1929, FDR turned to the banks. He created the Securities and Exchange Commission (SEC) to regulate, for the first time, the purchasing and selling of shares on the stock market. He also created the Federal Deposit Insurance Corporation (FDIC), which insured people’s bank deposits. And with the Glass-Steagall Act, FDR built a wall between commercial and investment banking to make sure the banksters couldn’t use your checking account deposits to place risky bets on the stock market.
With these new reforms, Wall Street’s delirium was held in check. And for nearly sixty years, America went without a catastrophic economic crash. It was the longest such period of stability in the nation’s history.
But rules in the marketplace needed to be coupled with rules in the political arena. That meant taking Teddy Roosevelt’s advice: “We must drive the special interests out of politics. The citizens of the United States must effectively control the mighty commercial forces which they have themselves called into being. There can be no effective control of corporations while their political activity remains.”57
In 1907 Teddy passed the Tillman Act (still on the books today), which banned corporate contributions in political elections. Violators of the law could face prison time, and corporations violating the law could be shut down.
The effect of all this government involvement in the workplace led to the greatest period of sustained growth in our national history, and gave rise to the golden age of the middle class through the middle of the twentieth century.
But just as the United States has had two great eras of a middle class, it has also had two dark eras of Economic Royalist rule, in which the middle class was mowed down by corporate behemoths. The first was the Gilded Age after the Great Crash of 1857 and Civil War, which put an end to the first era of the American middle class.
Monopoly Endgame
There’s an easy way to understand why a strong middle class with a lot of good-paying jobs and purchasing power is also good for economic stability.
Consider the game Monopoly. If your opponent scoops up Boardwalk, Park Place, North Carolina Avenue, Pacific Avenue, both utilities, the four railroads, and an array of other properties on the board—that’s it, the game’s over.
The other players, who were once middle-class property owners, will go bankrupt as they are forced to pay higher and higher costs for rent and services, utilities, and transportation. Eventually, one player has all the money, and the losers are left standing out in the cold.
But what if the Monopoly game didn’t end there?
What if the once-middle-class-but-now-broke players kept rolling the dice and kept going around the board, using their credit cards and lines of credit to stay in the game?
While they’re running up massive personal or small-business debt, the monopolist who owns everything is finding it harder and harder to collect income from the increasingly impoverished players. They can’t afford to pay rent, they can’t pay utilities, and they can’t ride on the railroads.
Eventually, when the consumers run out of both cash and credit and can no longer spend any money, even the monopolist goes broke. Then not only is the game over, but the game is over in a massive disaster.
This is remarkably similar to how real-world economics works when it’s deprived of a stable middle class.
The board game Monopoly was invented when America’s Gilded Age was in its final death throes. The game’s inventor, Lizzie Magie, named it “The Landlord’s Game.” But as she said, “It might well have been called the ‘Game of Life,’ as it contains all the elements of success and failure in the real world, and the object is… the accumulation of wealth.”58
Lizzie was a Georgist (one who follows the teachings of economist Henry George), and believed that things found in nature, particularly land itself but also things like mineral wealth, are part of the commons and thus should really be owned by “we the people,” not private profiteers.
It was an ideology directly born out of the times—the Gilded Age—when Robber Barons used monopolies in steel, oil, rail, and finance to dominate the American economy. They built vast fortunes by owning all the stops on the Monopoly board of America, while working people’s conditions collapsed to the point where we went into the Great Depression.
Carnegie, Astor, Rockefeller, Morgan, and a few dozen other recognizable names built massive monopolies while ruthlessly destroying any upstart that dared try to compete. There was big money to be made in post–Civil War America, now crisscrossed by the railroads. The nation’s GDP nearly doubled, growing at the fastest rate ever. But that wealth didn’t trickle down; they’d mastered monopoly.
The rest of America was going bankrupt.
In the census of 1900, per capita income was less than $5,000 annually in today’s dollars.59 And more and more Americans who were once self-employed had their lives uprooted and were thrown under the juggernaut of the Robber Barons. In 1850, prior to this so-called Gilded Age, most Americans worked for themselves. But by 1900, the majority of Americans worked for someone else—in many cases the monopolists.
In his 1888 State of the Union Address in which President Grover Cleveland said the “citizen is… trampled to death beneath an iron heel,” he also called out the corruption of Congress by the Robber Barons.
“We discover that the fortunes realized by our manufacturers are no longer solely the reward of sturdy industry and enlightened foresight,” he said, “but that they result from the discriminating favor of the Government and are largely built upon undue exactions from the masses of our people.”60
President Cleveland’s 1888 reality was our most prominent Founding Father’s worst fear. On December 20, 1787, Jefferson wrote to James Madison about his concerns regarding the first draft of our new proposed Constitution, namely that it didn’t include a Bill of Rights and, in particular, include a “restriction of monopolies.”
And this was why Lizzie Magie invented that early version of what we today call the board game Monopoly. It was her hope, and that of many, that the stranglehold of the Economic Royalists of the era could somehow be broken. She said, “Let the children once see clearly the gross injustice of our present… system and when they grow up, if they are allowed to develop naturally, the evil will soon be remedied.”61
Early on, even before Parker Brothers acquired the patent on Monopoly, turning it into the game we know today, well-to-do college students would play the game in fraternity houses at the behest of far-left economic teachers such as Scott Nearing, whose autobiography was titled The Making of a Radical. The game was meant to answer a question about the current economy.
An early instruction manual for the game of Monopoly in 1925 reads, “At the start of the game every player is provided with the same amount of capital and presumably has exactly the same chance of success as every other player. The game ends with one person in possession of all the money. What accounts for the failure of the rest, and what one factor can be singled out to explain the obviously ill-adjusted distributions of the community’s wealth which this situation represents?”62
It was a similar question asked by Henry George, whom Chrystia Freeland refers to in her book Plutocrats as “the most famous American popular economist you’ve never heard of.”63
George was the author of the book Progress and Poverty, in which he sets out to answer a fundamental question of the Gilded Age: Why are so many people living in poverty while others are getting so rich in an expanding economy?
George writes in Progress and Poverty, “The present century has been marked by a prodigious increase in wealth producing power.” Yet, working people were not sharing these gains.64
“We are coming into collision with facts which there can be no mistaking,” George writes. “From all parts of the civilized world come complaints of industrial depression; of labor condemned to involuntary idleness; of capital massed and wasting; of pecuniary distress among businessmen; of want and suffering and anxiety among the working classes.”
He goes on, “Some get an infinitely better and easier living, but others find it hard to get a living at all. The ‘tramp’ comes with the locomotives, and almshouses and prisons are as surely the marks of ‘material progress’ as are costly dwellings, rich warehouses and magnificent churches.”
America was split in two. Not between North and South, but between the Robber Barons and everyone else.
Eventually, the nation learned the lesson that not only is the accumulation of vast amounts of wealth in the hands of an elite aristocracy not good for working people, it’s also not good for economies as a whole, which is exactly what the game Monopoly teaches us.
But first, it took a horrific crash.
The period from the 1870s through the late 1890s, when the Economic Royalists came out of the Great Crash of 1857 and Civil War still in power, were the longest, deepest, and most brutal Great Depression in American history, far worse than what we saw in the 1930s. And at the same time, the rich got richer in a way that wasn’t again seen until today. America in that era more resembled Victorian England than that idealistic, egalitarian society envisioned by our revolutionary Founding Fathers.
The peak of the crisis was the crash of 1893.
A fifth of American workers lost their jobs. And countless lost their savings, too, as more than 150 national banks failed alongside more than 170 state banks and 177 private banks. It was the worst economic depression the nation had ever suffered.
What the Robber Barons failed to understand is that by crushing the middle class, they signed their own suicide pact as well. They destroyed their consumers—or their playing partners on the board game of Monopoly. And when working people hit rock bottom and can no longer afford to buy anything in the economy, then everything shuts down.
Eventually, future generations heeded Lizzie Magie’s advice in the game Monopoly. The Robber Barons were crushed during the Progressive Era of the early 1900s, and FDR rebuilt the middle class with the New Deal.
But as the cycles would again have it, a second dark period of Royalist rule began in the 1980s, when Ronald Reagan moved in to the White House.
Chapter 5
Reagan Kidnapped the Jetsons
MS. MORNIN: That’s good, because I work three jobs and I feel like I contribute.
THE PRESIDENT: You work three jobs?
MS. MORNIN: Three jobs, yes.
THE PRESIDENT: Uniquely American, isn’t it? I mean, that is fantastic that you’re doing that.
—President George W. Bush, Omaha (Neb.) Town Hall,
February 2005
In a 1966 article, TIME magazine looked ahead toward the future and what the rise of automation would mean for average working Americans.
It concluded, “By 2000, the machines will be producing so much that everyone in the U.S. will, in effect, be independently wealthy. With Government benefits, even nonworking families will have, by one estimate, an annual income of $30,000–$40,000. How to use leisure meaningfully will be a major problem.” And that was $30,000–$40,000 in 1966 dollars, which would be roughly $199,000 to $260,000 in 2010 dollars.65
Ask anybody who was teenage or older in the 1960s, this was the big sales pitch for automation and the coming computer age. There was even a cartoon show about it—The Jetsons—and everybody looked forward to the day when increased productivity from robots, computers, and automation would translate into fewer hours worked, or more pay, or both, for every American worker.
And there was good logic behind the idea.
The premise was simple. With better technology, companies would become more efficient. They’d be able to make more things in less time. Revenues would skyrocket, and Americans would bring home higher and higher paychecks, all the while working less and less.
So by the year 2000, we would enter what was then referred to as “The Leisure Society.” Futurists speculated that the biggest problem facing America in that Jetsons future would be just how the heck everyone would use all their extra leisure time!
And, of course, there were also those who were worried about what kind of degeneracy would emerge when a nation has lots of money and lots of free time on its hands.
This didn’t happen. And it didn’t happen because Ronald Reagan stole the Leisure Society from us and he handed it over to the Economic Royalists.
Tax Cuts of Mass Destruction
In 1981, the Royalists went right to work taking down that first pillar on which FDR rebuilt the American middle class: progressive taxation.
Taking advantage of the oil-shock crisis, neoliberal shock troopers immediately ushered through a revolutionary change to the tax code with the Economic Recovery Tax Act of 1981.
The first major piece of legislation signed by Reagan, it slashed the top marginal income tax rate down from 70 to 50 percent, cutting estate taxes for wealthy businesses and slashing capital-gains and corporate-profit taxes.
Reagan succeeded, a few years later, in dropping the top income tax rate even lower, to 28 percent—where it hadn’t been since before the Great Depression. It was the second largest tax cut in history. And it was nearly identical to the largest tax cut ever, Treasury Secretary Andrew Mellon’s in the 1920s, the one that created the bubble known as the Roaring Twenties, which eventually burst in 1929.
The Great For
getting had certainly arrived. The economic mistakes of the 1920s were coming back around. And, again, the influx of all this hot money in the market, coupled with a robust deregulation agenda through the 1980s and 1990s, would trigger a series of painful financial panics.
The reason why the Leisure Society could be imagined by TIME magazine is because, ever since 1900, working people’s wages tracked evenly with working people’s productivity.
PRODUCTIVITY VS. WAGE GROWTH, 1947–201066
Source: Economic Policy Institute analysis of Bureau of Economic Analysis and Bureau of Labor Statistics data.
So, as productivity continued to rise, which was likely, due to increasing automation and better technology, so, too, would everyone’s wages. And the glue holding this logic together was the current top marginal income tax rate.
In 1966, when the TIME article was written, the top marginal income tax rate was 70 percent. And what that effectively did was encourage CEOs to keep more money in their businesses, to invest in new technology, to pay their workers more, to hire new workers and expand.
After all, what’s the point of sucking millions and millions of dollars out of your business if it’s going to be taxed at 70 percent?
According to this line of reasoning, if businesses were to suddenly become way more profitable and efficient thanks to automation, then that money would flow throughout the business—raising everyone’s standard of living, increasing everyone’s leisure time.
But when Reagan dropped that top tax rate down to 28 percent, everything changed. Now as businesses became far more profitable, there was a far greater incentive for CEOs to pull those profits out of the company and pocket them, because they were suddenly paying an incredibly low tax rate.
And that’s exactly what they did.
All those new profits, thanks to automation, that were supposed to go to everyone, giving us all higher paychecks and more time off, went to the top—to the Economic Royalists.
The Crash of 2016 Page 9
