The Big Con: what is really at stake in this US election
Do you remember, your President Nixon?
Do you remember, the bills you have to pay?
Or even yesterday?
David Bowie, Young Americans
The collective memory of America is short. During the 2010 midterm elections, it seemed like every other house in my north Dallas neighborhood sported a “Had Enough? Vote Republican!” yard sign. As if it had been two hundred years, instead of two, since the US economy was on the brink of collapse, with panicked credit markets, huge banks and insurance companies about to topple into the void, a flatlining auto industry, the Dow Jones plunging toward 6500, and job losses topping 700,000 a month, not to mention the wars that had turned the budget surpluses of the late Bill Clinton years into massive deficits, all courtesy of a two-term Republican president whose party controlled Congress for six of the last eight years. Yes, please! Take us back to the good old days of 2008!
Two years. The perpetual fog of American forgetting-gas had done its work. If two years are all it took to erase the memory of the worst economic meltdown since the Great Depression, then we shouldn’t hope for much awareness of that earlier crisis some 80 years ago, though there are a few old heads still around who lived it, and the experience of those times can be found readily enough in the archives and histories of the era.
The country, to put it mildly, was different back then. Life was harder, and in places like the Texas hinterland – which today forms the big beating heart of the state’s Republican base – it was a close approximation of 14th-century European peasant hell. The vast majority of rural Texans lived without electric power, which meant no refrigeration, no water pumps, no indoor plumbing, no furnaces, no electric stoves, no incandescent lights, no motors to power machines for milking or shearing.
Even for those of us only one or two generations removed from the farm, it’s almost impossible to conceive just how different life was, although the phrase “nasty, brutish, and short” comes to mind. Among the best guides to that time is “The Sad Irons” chapter of The Path to Power, the first volume of Robert Caro’s biography of Lyndon Johnson, which delivers a harrowing portrait of life as a medieval slog plunked down in the middle of 20th-century America. To take just one aspect of the slog: water. “Packing water” from the source – a stream or a well – to the house was a daily beatdown that often fell to the farm wife. As Caro writes:
A federal study of nearly half a million farm families … would show that, on the average, a person living on a farm used 40 gallons of water every day. Since the average farm family was five persons, the family used 200 gallons, or four-fifths of a ton, of water each day – 73,000 gallons, or almost 300 tons, in a year. The study showed that, on the average, the well was located 253 feet from the house – and that to pump by hand and carry to the house 73,000 gallons of water a year would require someone to put in during that year 63 eight-hour days, and walk 1,750 miles.
Laundry was done outside, an all-day, muscle-intensive process that began with a huge vat of boiling water suspended over a roaring fire – imagine that on a July day in Texas – next to which someone – almost always the farm wife – would stand “punching” clothes with a paddle or broomstick, the human equivalent of an automatic washing machine. Cooking was done with wood stoves, which were kept burning most of the day – summer and winter – for meals and baking, which in turn required constant tending – firewood in, ashes out. Because of the lack of refrigeration, most meals had to be prepared from scratch. In order not to starve in winter, a family had to can fruit and vegetables in summer, a hellishly hot process that went on for days and required the utmost precision. The wood stoves were also used to heat irons for pressing clothes, actual six- or seven-pound slabs of iron that had to be scrubbed, sanded, and scraped every few minutes to remove the soot. Farm wives dreaded the tedium of ironing day; hence, “the sad irons”. Caro goes on:
A Hill Country farm wife had to do her chores even if she was ill – no matter how ill. Because Hill Country women were too poor to afford proper medical care they often suffered perineal tears in childbirth. During the 1930s, the federal government sent physicians to examine a sampling of Hill Country women. The doctors found that, out of 275 women, 158 had perineal tears. Many of them, the team of gynecologists reported, were third-degree tears, “tears so bad that it is difficult to see how they stand on their feet.” But they were standing on their feet, and doing all the chores that Hill Country wives had always done – hauling the water, hauling the wood, canning, washing, ironing, helping with the shearing, the plowing and the picking.
Because there was no electricity.
This state of affairs wasn’t limited to Texas. In the early 1930s, more than six million of America’s 6.8m farms were without electricity. From sundown to sunup these farmers and their families practically lived in the dark. Most kerosene lamps provided 25 watts of light at best, barely sufficient for reading, and they were dirty, difficult to use, and dangerous. Many farmers preferred to do their pre-dawn chores in the dark rather than risk having a kerosene lamp in the barn. Radio, of course, was out of the question. The news and entertainment available to urban America were effectively blacked out in rural areas.
Then the Great Depression transformed what was an extremely hard life into an impossible one. With prices for crops, in real terms, falling below what they’d been in colonial times, financial disaster began to overwhelm rural America. By the end of 1931, 20,000 farms a month were being foreclosed, with even greater numbers on the horizon. Farmers’ pleas for relief – among them, a moratorium on foreclosures – were rejected by President Hoover, who in effect told America to quit whining and go chew on its moral fiber. Hoover seemed ignorant of a basic fact of human nature: people tend not to be models of obedience when they’re starving to death. “They had put their faith in government,” as one contemporary reporter said of the farmers, “and government had failed … they reached a point where they could stand the strain no longer and moved toward open rebellion.”
You’re not likely to find this episode of American history in the school books. In Iowa, the Farmers’ Holiday Association organized a strike in which farmers refused to bring food to market for 30 days. The strike soon spread to the Dakotas, Kansas, Minnesota, Missouri, Nebraska and beyond. Roads were picketed, then blockaded to enforce the strike. Telephone operators coordinated with striking farmers to warn them when soldiers or lawmen were headed their way. When 60 strikers were arrested in Council Bluffs, Iowa, a thousand farmers marched on the jail and forced their release. Four thousand men occupied the Lincoln, Nebraska, statehouse, and another 7,000 marched on the statehouse in Columbus, Ohio with the intention of establishing a “workers’ and farmers’ republic”. Across the midwest, farmers began to band together in armed groups to stop foreclosures; lawyers and judges were threatened with hanging, stripped and beaten, and in at least one case, murdered. “Rebellion in the Cornbelt: American Farmers Beat Their Ploughshares Into Swords” was the title of a December 1932 article in Harper’s that described the farmers’ increasing desperation and militancy.
The cities were no calmer. Five thousand men took over the Municipal Building in Seattle. Thousands of unpaid teachers in Chicago mobbed the city’s banks, and in New York, a Communist party rally in Union Square drew 35,000. Twenty-five thousand “Bonus Marchers”– first world war veterans – occupied Washington, setting up camp with their families on the Mall; Hoover had them routed by US soldiers using teargas and fixed bayonets. Campaigning for re-election that fall, the president was greeted by snarling crowds and chants of “Hang Hoover!” A gridlocked Congress dithered and bickered, inspiring one columnist to label it, “The Monkey House”.
To scholars it’s known as “the mixed economy”, the combination of dynamic free markets, effective government, and a strong labor movement that characterizes the world’s most prosperous nations. Strict laissez-faire capitalism created extraordinary wealth in late 19th- and early 20th-century America. It also created extraordinary concentrations of economic and political power that threatened to undermine democracy, along with such virulent side-effects as frequent bank panics, wild vacillations of boom and bust, extreme social and income inequality, and monopoly control of major industries. The Gilded Age robber barons – the Goulds, the Vanderbilts, the Morgans and Rockefellers – did quite well under laissez-faire. Most of the rest of Americans were still stuck in the ditch, with little to no economic security, life expectancy of roughly 45 years and horrific infant mortality rates that claimed 300 babies per 1,000 in the cities.
Recognition was growing that the extraordinary pressures of industrial capitalism required an updating of the social contract. Theodore Roosevelt acknowledged as much when he said in 1910, “The citizens of the United States must effectively control the mighty commercial forces which they have called into being.” But it took the leadership of another Roosevelt, Franklin, along with the existential crisis of the Great Depression, to galvanize the political will that brought about this transition from laissez-faire capitalism to the mixed economy.
Roosevelt gave it a name, the New Deal, and it transformed American life so thoroughly that it’s become invisible to us, as taken for granted as the air we breathe and the ground beneath our feet. Or as, for instance: electricity. As Caro shows in The Path to Power, 30 million farmers and their families lived in the preindustrial dark not because of technological obstacles – many lived within sight of power lines – or prohibitive cost to the utility company – plenty of farmers offered to pay the expense of running a line out to their homes – or that utility companies couldn’t make a profit on rural lines – studies in Minnesota and Alabama showed that rural lines were profitable – but because rural electric service wouldn’t be as profitable for utility companies as the urban market. The companies based their decision, as companies do, on capital risk and rate of return. Considerations of fairness, fellow feeling, or the greater social good simply didn’t factor into the corporate calculus.
This is known among economists as “market failure”. Sam Rayburn, the Texas congressman who led the legislative fight to bring electricity to rural America, stated it plainly during debate on the House floor: “When free enterprise had the opportunity to electrify farm homes – after 50 years, they had electrified 3%.” The Public Utilities Act of 1935 and the Rural Electrification Act of 1936 – crucial New Deal legislation – “brought the lights” to rural America over the strenuous opposition of the utility lobby, which put out fake “spontaneous” mass mailings to members of Congress (one of the first instances of astroturfing in American politics) and pushed a whisper campaign alleging that President Roosevelt was insane. John Carpenter, president of Texas Power & Light – there’s a freeway named after him in Dallas – so loathed Sam Rayburn that he offered to spend any amount of money to defeat him in the next election. Rayburn won. The lights went on.
Another example: banks. When Roosevelt took office, the banking industry was in freefall, a “market failure” that threatened to finish off what was left of the US economy. The system of government support and regulation established by the New Deal over banks – deposit insurance, capital requirements, the Glass-Steagall Act (separating commercial and investment banks) – and over the financial industry in general – such as the Securities Act of 1933, AKA the “Truth-in-Securities Act”, and the Securities Exchange Act of 1934 (if you think Wall Street is a rigged game these days, it’s a seminary compared with the fraud-fest of the Roaring Twenties) – made bank panics and market crashes a thing of the past. From the mid-1930s into the early 1980s, the US financial industry enjoyed remarkable stability. Bank failures were rare, isolated events. The bipolar booms and busts of laissez-faire capitalism became the much more manageable phenomenon of the business cycle. This began to change with deregulation, starting with the bipartisan overhaul of the savings and loan industry in the early 1980s. “All in all, I think we hit the jackpot,” said President Reagan as he signed the Garn-St Germain Act into law. Not quite. Within a few short years, there was no savings and loan industry, thanks to the frenzy of speculation and self-dealing that followed passage of Garn-St Germain. The biggest bank crisis since the Great Depression had erased an entire sector of American finance, leaving the American taxpayer on the hook for $160bn – a huge amount of money at the time, chump change compared with what was coming. The New Deal framework continued to be dismantled through the 1990s – Glass-Steagall bit the dust in 1998 – and, just as importantly, regulation was never extended to new markets in financial exotica like credit default swaps and derivatives. Banking and finance grew increasingly volatile, culminating (so far?) in the Great Recession of 2008, when only massive government intervention saved the economy.
The air we breathe. The ground beneath our feet. New Deal initiatives produced much of the infrastructure that we rely on to this day, the roads, waterways, airports, bridges, sewers and water mains, courthouses, libraries and communications networks. The omnibus Farm Relief Act of 1933 saved and stabilized American agriculture, and began establishing the institutions that would make farming an economically feasible way of life for future generations. The national framework of social insurance – social security, unemployment and disability benefits, work programs and workers’ compensation – protected citizens from the kinds of risks that private markets couldn’t or wouldn’t insure. The final piece of the mixed economy got its due with the Wagner Act (1935), which established the rights of workers to unionize and bargain collectively with employers, helping to ensure that rising productivity would be reflected in rising wages.
The New Deal saved capitalism – saved it from the big-time capitalists, though many of the big-timers didn’t see it that way. Fred Koch, the multimillionaire father of the future multibillionaire brothers Charles and David Koch, had this to say in 1938: “the only sound countries in the world are Germany, Italy, and Japan.” He found Germany to be a heartening counter-example to Roosevelt’s New Deal: “When you contrast the state of mind of Germany today  with what it was in 1925, you begin to think that perhaps this course of idleness, feeding at the public trough, dependence on government, etc, with which we are afflicted is not permanent and can be overcome.”
The comparison is instructive. Adolf Hitler became chancellor of Germany in January 1933. Five weeks later, Franklin Roosevelt was sworn in as US president. Two leaders, both taking office at the same time, both faced with the economic and social chaos of the Great Depression. To say that they took vastly different approaches, with correspondingly divergent outcomes, would be an understatement on the order of a piano falling on your head. History shows that Fred Koch was about as wrong as a human being can be, and Nazi Germany is only the half of it. By every measure – life expectancy, infant mortality, income, education, productivity, corporate profits, scientific and technological innovation – the mixed economy ushered in by the New Deal was a huge success. Within a generation, the United States was enjoying the fastest sustained growth in recorded history, and, moreover, the prosperity was shared broadly, with income rising faster at the bottom and middle of society than at the top.
By the 1950s, there was broad consensus in America that the mixed economy was “an established and useful reality”, to borrow a phrase from a Roosevelt-era president of the US Chamber of Commerce (he was referring to collective bargaining). President Eisenhower, Republican, five-star army general and no big liberal, much less a communist (though he was accused of being one by the John Birch Society, which counted Fred Koch – him again – among its founders) broadened social security, expanded federal support of science and technology, and pushed for major infrastructure programs. Such was the political consensus that his legislation initiating the interstate highway system passed Congress with one dissenting vote in the Senate, and by voice vote in the House. In private, he mocked the arch-conservatives who dreamed of dismantling the New Deal. “There is a tiny splinter group … that believes you can do such things,” he wrote in a letter to his brother Edgar. “Among them are HL Hunt … a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid.”
“You don’t miss your water till your well runs dry,” the late, great Sam Cooke sang in one of his more melancholy songs. Around 2009, 2010, around the time we were crawling out from under the wreckage of 2008 and saw that the Wall Street crowd had come through just fine, thank you, that seems to be when a critical mass of the American population began to realize that, hey, we were missing something; that maybe our well was running dry. People were angry. We had good reason to be. We saw great prosperity at the top, scant trickle-down toward the bottom. In Texas, and especially in rural Texas – where, by the way, electricity and access to electronic media have been settled facts of life for years – the Tea Party rose with a mighty roar to rage against liberals, the government and the newly elected Democratic president.
If that rage seems somewhat misdirected, here’s an explanation: 40 years of well-funded, highly organized laissez-faire proselytizing and government-bashing have done a number on the American mind. The country got conned by a profound ideological shift, starting in the early 1970s as hardcore free-market, anti-government advocates launched a concerted effort to change the political landscape. Jacob Hacker and Paul Pierson’s recent book American Amnesia ably tells the story, from the business elite who funded the movement (Charles and David Koch prominent among them), to the conservative thinktanks that developed the ideology, to the political actors who machined it into policy. The movement’s shock troops included tough-talking ideologues like Grover Norquist, president of Americans for Tax Reform, who said: “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” Ayn Rand, author of romance novels for business moguls, became a movement icon with her depictions of rugged capitalist heroes taking on wimpy liberals and overbearing governments. One of Rand’s inner circle, Alan Greenspan, would serve as chairman of the Federal Reserve Bank from 1988 to 2006, where he presided over the broad deregulation of the financial system. (Later he would profess “shocked disbelief” at the meltdown of 2008, and allow that he’d “found a flaw” in his Randian ideology.)
A very narrow slice of America – the 1% – reaped spectacular wealth from this political sea change. When Forbes magazine published its first annual list of the 400 wealthiest Americans in 1982, there were two billionaires on the roster, and the entire 400 had a combined net worth of $225bn in today’s dollars. By 2014, 113 billionaires were left off the list because they didn’t make they cut ($1.55bn); the combined net worth of the Forbes class of 2014 was $2.3tn. Meanwhile, earnings for working- and middle-class Americans stagnated even as we worked more hours, took fewer vacations and kept increasing our productivity. These days it’s not uncommon for hedge fund managers to make $1bn a year. CEOs routinely pull in annual compensation in the tens of millions of dollars. Even assuming these people are very good at what they do, you have to wonder: is anyone really that good?
According to them, yes. What’s more, they’re liable to tell you they did it all themselves. Sanford Weill, Citigroup’s former chairman who clocked $785m over a five-year period, declared, “We didn’t rely on somebody else to build what we built.” A few years later, Citigroup would be rescued by the government to the tune of $476bn in cash and guarantees. More recently, tech venture capitalist Chamath Palihapitiya asserted, “If companies shut down, the stock market would collapse. If the government shuts down, nothing happens, and we all move on, because it just doesn’t matter.”
Granted, a thriving mixed economy depends on individual initiative, innovation and risk-taking. But it also depends on the institutions and social structures that only well-functioning governance can provide, such as: laws, both civil and criminal. Private property rights. Secure and enforceable contracts, copyrights and patents. Stable banks. Well-regulated international commerce, including treaties, trade agreements, secure borders and customs controls. “I can guarantee that if you don’t have a legal structure you will not have innovation,” said Jim Dempsey, executive director of the Berkeley Center for Law and Technology, in a 2015 article in Wired. “Instead you will have chaos … every innovator survives on the oxygen of multiple regulatory systems.”
The wealth that results from private enterprise is very much a social construct. President Obama famously overstated the case when he said in 2012, “If you’ve got a business – you didn’t build that.” Margaret Thatcher, Great Britain’s ideological twin to Ronald Reagan, equally overstated the case with her famous pronouncement, “There is no such thing as society.” The truth is it takes both, and there’s no readier example than the cellphone most of us are never without. In American Amnesia we find the story of Dr Vannevar Bush, FDR’s science czar during the second world war, and how Bush, at Roosevelt’s urging and with strong bipartisan support from Congress, set the path for America’s huge postwar spending on research and development in science, technology, and medicine. As Hacker and Pierson write:
The fruits of these investments ranged from radar and GPS, to advanced medical technology, to robotics and the computing systems that figure in nearly every modern technology. Far from crowding out private R&D, moreover, these public investments spurred additional private innovation. The computer pioneers who developed better and smaller systems not only relied on publicly fostered breakthroughs in technology; they also would have found little market for their most profitable products if not for the internet, GPS, and other government-sponsored platforms for the digital revolution.
If, as the authors of American Amnesia point out, you crack open that smartphone, you’ll find that every component is the product of research that the US government either funded or carried out directly: lithium-ion batteries, GPS, cellular technology, touch-screen and LCDs, internet connectivity, algorithmic applications. The internet itself is a government creation; the Department of Defense developed its precursor, the Arpanet, in order to connect with computing centers at major universities.
So we can only stand amazed at the Olympian chutzpah of Silicon Valley billionaires when they talk about creating libertarian utopias that will transcend government. Venture capitalist Tim Draper has proposed making Silicon Valley its own semi-autonomous state. Google’s Larry Page wants to construct a “Google Island” where tech research can proceed free of government meddling. PayPal’s Peter Thiel, whose fortune was built not just on the internet but through helpful government regulation (such as the Securities Exchange Commission’s rule limiting losses on identity theft; how many of us would put our credit card information on the internet if the downside was losing everything we own?) is a prime mover of the Seasteading Institute, dedicated to the creation of manmade island nations beyond the reach of government.
When faced with this sort of nonsense, one can’t help but think of the little boy who declares independence from his family, and runs away as far as the tree house in his backyard. The worldview of Thiel and company is about as juvenile as that, a kind of nerdy romanticism that recalls the capitalist fantasies of Ayn Rand. If not for the collective (Randians break out in hives when they encounter that word) efforts of American society, the industry in which tech moguls have so fantastically prospered wouldn’t exist. But it’s even more basic than that. The development and widespread availability of vaccines and antibiotics following the second world war are due in large part to initiatives carried out by the National Institutes of Health, the Department of Agriculture, and other government agencies. Longevity, quality of life – like wealth creation, these are social constructs. But it’s even more basic than modern medicine, and reaches back before the New Deal, to some of the very first initiatives of progressive government. The sharp improvement in mortality that began in the early years of the 20th century was largely the result of many more children surviving into adulthood. The cause was simple, though it took huge investments by government to make happen: cities began to clean up their water supplies. Filtration. Chlorination. Basic stuff we take for granted. If a good many of us are alive today, breathing and walking and talking and in some cases making a career out of raging against the government, it’s because our great-granddaddy didn’t die from cholera or typhoid way back in the day.
The air we breathe. The ground beneath our feet.
The New Deal goal of broadly shared prosperity has taken a beating the past 40 years, and the damage shows. By virtually every measure relative to other rich nations, the US has lost ground since the 1970s. We’re shorter (height is an excellent indicator of social conditions), we don’t live as long, more of our babies die before their first birthdays, wages and educational achievement have stagnated, and inequalities of wealth and opportunity are higher than at any time since the late 19th century. Mortality rates for middle-aged white Americans have actually risen the past 15 years, especially for non-college-educated whites. Maternal mortality rose 27% nationwide between 2000 and 2014. In Texas, the maternal mortality rate doubled between 2010 and 2014.
The very rich, of course, can buy what they need – healthcare, clean water, political clout. They have their walled compounds and private islands to retreat to. As for the rest of us – for instance, all the good citizens out there in rural Texas, Tea Party Texas, the hard country that was transformed by the New Deal – one tries to imagine how it might look in 70 or 80 years if current trends continue. Crumbling roads, jerry-rigged bridges, worn-out farms. A grudging, “market-based” energy grid. Clean water a rarity, and healthcare that’s hit and miss. Perineal tears, perhaps, are once again commonplace. A far-fetched scenario, surely, but no harder for us to imagine in 2016 than the lived reality of rural Texas 80 years ago.