Monday, October 17, 2011

Who is benefited by the New Deal and its “safety net”?

It has been almost 80 years since the New Deal legislation was first enacted, and conservative advocates speak largely of the New Deal in negative terms. However, these critics frankly misunderstand all whom are protected by these programs. The “safety” provided is not just the middle class and poor. The New Deal provides safety for the elite wealthy because its program deters the masses from physically harming them. Dispute this? Such historical violence occurs all too frequently when there becomes too great a disparity of wealth between the top 1% and the remaining 99%. The safety net further ensures the vitality of the middle class, which is required for any democracy to survive. A functioning democracy, in turn, ensures that the masses believe their complaints have a method of redress outside of physical violence. Whether the elite wealthy will admit it, or not, they need the safety net of the New Deal. It provides social stability. While additional cuts to the safety net may be mandated by our current economic climate, the personal security of the elite wealthy might be undermined by too much austerity. For that reason, the elite wealthy ought to accept fair taxes on themselves, and show that they too stand with the 99%.

How do we define “elite wealthy”? Given the times, we can simply define it as the top 1% (in current times they earn $1 million per year or more, many of whom have increased their wealth since 2008). While some 1% may argue that they have lost more wealth themselves (by citing that their stock worth fell dramatically in the 2008-2009 period – for instance Warren Buffett lost $25 billion in that period), their actual spending power is likely higher than before. Why? – because few people have spending power and there are deals all around for the few that do. For instance, as an extreme example, a billionaire heiress recently bought Aaron Spellings’ mansion [see photo below], which was originally priced at $150 million, for $85 million. While almost no one could afford that price, she could. Plus, when the market returns, she can sell the house and make a nice profit. Generally such elite wealthy can buy fixed or intangible assets, or even services, in a market where few have the cash or financing to buy them, and then sell these assets when the next boom occurs and make a profit on the bust.

This scenario also existed in the Great Depression. Joseph P. Kennedy, Sr. (the father of President John F. Kennedy) pulled out of the stock market before it collapsed, and had significant assets throughout the period. In 1929, Kennedy's fortune was estimated to be $4 million (equivalent to $51.3 million today); by 1935, in the depth of the Depression, Kennedy’s wealth had increased to $180 million (equivalent to $2.88 billion today). While the Kennedy family were “new rich” then, many 1% of the time got their wealth from the “Gilded Age” at end of the 19th Century. Most Gilded Age “Captains of Industry” had opulent lives – helped in large part because there was no income tax prior to the 16th Amendment to the U.S. Constitution, which was ratified in 1913, and the inheritance tax was only established in 1916.

The period of the Gilded Age showed this same paradigm. Although many say the Gilded Age ended with the “Panic of 1893” (a deep depression which lasted until 1897), many were able to ride out that depression, keep their aggregate wealth protected, and continue to grow it. For instance, one of the wealthiest men in 19th Century Ohio was Lake Erie shipper, Captain Alva Bradley (Thomas Alva Edison was named in honor of him). Although his fortune was generated solely in the 19th Century, Captain Bradley left such a large fortune to his heirs that his grandson owned the Cleveland Indians from 1927-1946, and the Bradley family still had enough wealth in the Great Depression to regularly travel to Europe in large numbers (15 people at a time) for several months at a time.

Additionally, many of the greatest “America’s Castles” were built during the Gilded Age, including The Breakers (1893-1895, at the price of $12 million (approximately $310 million in today's dollars adjusted for inflation)), and the Biltmore (1889-1895, which is still the largest privately-owned home in the U.S. at 135,000 square feet) [see photo below].

Much as the current times, if not more so, the 1% from the Gilded Age had dramatic wealth, lived in incredible comfort and luxury, even under current standards (let alone 19th Century and early 20th Century standards). For instance, when the Breakers was completed in 1895, it had electricity off a generator (when the surrounding town had no electricity), hot and cold running fresh and sea water (when most homes had outhouses and no indoor plumbing), in-laid marble, gold, silver and other fine materials (when most homes were shacks by all measures). These houses are still opulent, and could not be built as nicely even now.

The Breakers is a perfect example of why the 1% need the New Deal safety net for their own security. I noticed this when I visited the Breakers many years ago. Cornelius Vanderbilt II, its owner, ensured the Breakers had a 20-30 foot fence around the entire property except for the ocean side. To see the gate and fence, it was not strictly decorative. It was massive, strong, secure. It was defensive in nature, not unlike the walls of European castles of old. This can be clearly seen in the photos of the wall, with people in the distance for perspective of size. [See top three photos below].

In contrast, the Spelling Mansion that just sold has a more modern, smaller gate [See photo immediately above] - that is designed mainly to prevent vehicles and small groups of people from entering the property at will, but is not designed to prevent a mob from storming the house. Unlike current times for the 1% in the U.S., few houses now days would have such a MASSIVE wall. Why? - because now if someone were to attack the 1%, they would call 911 and SWAT can be present within 10 minutes. In the LA riots, LAPD Chief Gates drew criticism because he had all the available officers form a line to protect the wealthy parts of the city, and let East LA rip itself apart. [See photos below].

However, in 1895, Newport, RI provided little security even for the 1%. Few towns had any significant police force, related to the fact that there was no income tax to support such services. It is likely that many would have looked on the shining mansion at the Breakers as something to rob. I have no doubt the 1% knew their danger was on the edge of a cliff, if the “mob” were to riot. There might be little to stop the mob … but a 20 foot stone, concrete and steel fence, that might slow them down long enough for the family to flee into the sea. When Republican House Majority Leader Eric Cantor referred to the Occupy Wall Street crowd as “the growing mob,” at some basic level he probably knows this old danger could ignite at any time. World reports show that in some areas the mob is turning to violence.

The other aspect that the current 1% forget is that the New Deal safety net was equally a response to world events. The lack of any safety net worldwide often led desperate people to follow desperate measures. The 20th Century began with the Russian Revolutions, leading to the ousting and killing of the Russian Czar and his royal family. Although the Roaring Twenties seemed to provide apparent opportunity, much like the last decade, when the Great Depression started, without a safety net, many found hard times too hard to bear.
Take, for instance, the US “Bonus Army,” [see photos above], an assemblage of some 43,000 marchers—17,000 WWI veterans, their families, and affiliated groups—who gathered in Washington, D.C., in the spring and summer of 1932 to demand immediate cash-payment redemption of their service certificates. To quell the effort, President Hoover sent in Army Chief of Staff General Douglas MacArthur with the Army infantry and cavalry, supported by six tanks commanded by then Major George Patton. The Bonus Army marchers with their wives and children were driven out, and their shelters and belongings burned. The fact that U.S. military veterans would turn on Washington D.C. would be disconcerting, to say the least.

At the same time, Nazi Germany was on the rise and Hitler was named Chancellor in 1933. The Spanish Civil War began on July 17, 1936, between the monarchist and the fascists. Italy also fell to the fascists, and much of the world was becoming entangled in the dangers of communists on the left and fascists on the right, or straight out anarchy. A common thread in each danger was the rise of the underclass, against the privileged elite. In all of these conflicts, the mob was either killed or killing others brutally for little reason. Thus enters the New Deal. Some historians wonder how President Franklin D. Roosevelt, a patrician whose ancestors included New England elite, would have lead the effort to establish the New Deal. At least some of those historians postulate that Roosevelt’s effort was not at the expense of the privileged class, but a conservative move to save the 1%.

A corollary to this concept is that the New Deal is essential for a robust middle class, which in turn is needed for a true democracy to flourish. Just look into Latin American history. In many Latin American countries, few democracies have succeeded when the population is made up of the 1-5% landed Patrons, who own the great majority of wealth, but are served by a poor underclass with no individual political power or assets. Such political systems are inherently unstable, with shifts between dictators with backing of the military, the landed wealthy, and populists/communists. If the U.S. political experiment is seeking to model themselves off of these “American democracies,” the best first step is to cut the cords on the safety net and let laissez faire principles run amok. In such environments, the poor and powerless learn that “might is right” and their only available tools (from their perspective – whether the 1% would agree or not) are guns, bombs, and violence.

For instance, former Argentine dictator Jorge Rafael Videla, who ruled from 1976 to 1981, is alleged to have causes mass killings, which are now being investigated by archeologists.
[See photo below].

Finally, let the above statements not overly embolden the left wing, either. This shows why the 1% must understand their need to compromise and find balance. They must come to the table and be an equal partner, showing willingness to increase their taxes so that there is fairness and equity. If the 1% want to call themselves “job creators,” then they better be prepared to show the jobs that they have ACTUALLY created, in this country, and not solely complain about “too much regulation,” given some of that regulation is intended to prevent CDOs and other Ponzi schemes that got us into this mess. However, there is still a need to reduce the national deficit/debt, and contrary to the left wing, things are not free and the costs have to be carefully balanced, too. Some austerity may be required, balanced with some tax increases on the 1%. Everyone needs skin in the game. All things should be on the table, and the 1% need to see that if they are not part of the compromises, then they better wall themselves off … and the walls better be thick, tall and strong, like the ones outside the Breakers, because without the safety net,- someday the “mob” will come to get them, and when that happens, there may be no middle class to stop the revolution from occurring.

This is what history would teach those willing to learn from it.

It should be noted, however, that some of the 1% do get it. Warren Buffett, cited above, is top of them all. Additionally, a website has generated that shows others in the 1% who stand with the 99%.

However, at the current time it seems like too few of the 1% do.

NOTE ON THE AUTHOR: My undergraduate degree from the University of Texas at Austin is in Government (1991), with a minor in political philosophy. In my major, my G.P.A was a perfect 4.0, with an overall G.P.A of 3.97 and the vast majority of the hours were in classes associated either with the era of the Great Depression/WWII, or comparative government with a focus on Latin America. Additionally, many of my electives were on classes relating to American and World history between WWI and WWII.