The Crash of 2016

by Thom Hartmann

But in 1949, he enrolled in the GI Bill to get a free education, and began going to college in Grand Rapids, Michigan. His goal was to work his way up to a PhD—he certainly had the intellect for it—and to become a college history professor. But the next year, he met my mom, they fell in love and got married, and thirteen months later I was born as Dad was finishing up his second year of college.

  The expense of having a new son meant that Dad could no longer go to school full time, so he dropped out and got a job at the Alcoa steel plant in Grand Rapids, along with a part-time job selling cameras in a local department store. Working fourteen hours a day—eight of them in a cloud of asbestos (which is what ultimately killed him)—he was able to just barely get by, although for a while my mom had to move in with his parents when I was an infant. Two years after I was born, my brother Steve was born, and the load on both Dad and Mom increased even more.

  They moved to Lansing to stay with my uncle Stan and aunt Doris, and Dad got two jobs, one selling Rexair vacuum cleaners and the other selling World Book Encyclopedias, both door-to-door. But America was still recovering from the war, and the door-to-door-salesman business was tough. One of my earliest memories is going to the “cheese store”—a government-surplus warehouse where my parents could get free (or nearly free) surplus blocks of American cheese and giant bags of macaroni, as well as powdered milk by the bucket.

  I still have a love-hate relationship with macaroni and cheese, as it was my main meal for months, and to this day I hate the taste of powdered milk. Mom got pregnant again when I was four, and when I was five years old, my brother Stan was born. And Dad had to find a real job.

  Fortunately, Lansing was an epicenter for the booming auto industry. General Motors and Fisher Body had major factories in town, and Dad got a job first at Lansing Die Sinking and then at Metal Machining Company. While he’d learned to be a competent machinist, he was no journeyman, but he was very, very good with details and bookkeeping. For the next forty years, he and a friend pretty much ran the office of that little fourteen-man business on behalf of the largely absentee owners, keeping the books, buying materials, making sales of finished products, and pitching in with the huge machines when necessary.

  The machinists union was good to Dad—the company was a union shop. From the time I was around six, when he got that job, until the day he died in 2006, he, Mom, and their four sons all had full medical and dental insurance (I remember the doctor making house calls!); he had a pension when he retired; and we took two weeks of vacation every year, usually up to Newaygo to visit his sisters and my cousins. Dad made enough to buy a house in 1957 for about $15,000, with a government-guaranteed 3 percent thirty-year mortgage, which was fully paid off by the time he retired. He bought a new car—and paid cash—every three or four years.

  He and Mom were obsessive antique and book collectors—they owned more than twenty thousand books, and my bedroom was carved out among the library-like rows of bookshelves in the basement. Dad was proud that he had read nearly every one—every night instead of watching TV, Dad and Mom would read for hours before we all went to bed (when Mom would read to us boys to put us to sleep).

  This was all for a guy who had dropped out of college.

  Had he been born a half century earlier, or in a nation that didn’t have specific government policies, he would have been working twelve-hour days, six or seven days a week, and never been able to afford the house, the car, or the vacations, much less all those antique books that we went searching for every weekend at the Salvation Army.

  And my dad’s story wasn’t unique—the era of the fifties, sixties, and seventies saw the American Dream being realized all across the nation.

  My dad lived the American Dream and had a good and happy middle-class life because FDR changed the laws of American commerce. Instead of a “free market,” we had a “middle-class market,” which is actually pretty rare in human history.

  The Elusive Middle Class

  In her writings, which have become foundational for libertarian theology, author Ayn Rand suggested that the only purpose of government should be to prevent oppression by force. What she neglected to consider was all the force inherent in nature.

  If you are hungry, there is the “force” of biology. If you’re homeless, you confront the “force” of wind and storms, ice and snow. If you’re sick, you confront the ravages and “force” of disease.

  These were the forces that provoked the first governments. The first communities, clans, and tribes. The first nation-states.

  It’s easy for libertarian elitists, such as multimillionaire TV talking heads or college kids reading Atlas Shrugged, to talk about how there should be “no government beyond police, the army, and courts.” They all have enough resources that they don’t need to deal with the forces of raw nature. And that explains why billionaires would bankroll libertarian-leaning think tanks that will, when the crash comes with its full force, tell us it was “caused” by “big government.”

  However, in the real world, humans must confront both nature and other humans. Which is why we create governments, and why we create economies.

  But it wasn’t until 1776, when Thomas Jefferson replaced John Locke’s right to “life, liberty, and property” with “life, liberty, and the pursuit of happiness,” that the idea of a large class of working people having the ability to “pursue happiness”—the middle class—was even seriously considered as a cornerstone obligation of government.

  (That was also the first time in history that the word “happiness” had ever appeared in any nation’s formative documents. As Jefferson wrote in 1817 to Dr. John Manners, “The evidence of this natural right, like that of our right to life, liberty, the use of our faculties, the pursuit of happiness is not left to the feeble and sophistical investigations of reason, but is impressed on the sense of every man.”)50

  As Jefferson realized, with no government “interference” by setting the rules of the game of business and fair taxation, there could be no broad middle class—maybe a sliver of small businesses and artisans, but the vast majority of us would be the working poor under the yolk of elites.

  The Economic Royalists know this, which gets to the root of why they set out to destroy government’s involvement in the economy.

  After all, in a middle-class economy, they may have to give up some of their power, and some of the higher end of their wealth may even be “redistributed”—horror of horrors—for schools, parks, libraries, and other things that support a healthy middle-class society but are not needed by the rich, who live in a parallel, but separate, world among us.

  As Jefferson laid out in an 1816 letter to Samuel Kercheval, a totally “free” market, where corporations reign supreme just like the oppressive governments of old, could transform America “until the bulk of the society is reduced to be mere automatons of misery, to have no sensibilities left but for sinning and suffering. Then begins, indeed, the bellum omnium in omnia, which some philosophers observing to be so general in this world, have mistaken it for the natural, instead of the abusive state of man.”51

  Although this may come as a sudden realization to many, we’ve really known it all our lives.

  In fact, in the six-thousand-year history of the “civilized” world, a middle class emerging in any nation has been such a rarity as to be historically invisible.

  The United States has had two great periods of what we today call a middle class. The first was from the 1700s to the mid-1800s, and was fueled by virtually free land for settlers (stolen from the Indians) and free labor (slavery in the South and indentured immigrants in the North).

  The result was (as de Tocqueville pointed out) the most well-educated, politically active, middle-class “nonaristocrats” in the world.

  The second period didn’t take hold until after World War II, during my dad’s lifetime. Unlike the first, which was fueled by free land and slaves, the second had to be carefully constructed with specific (and what some might define as “socialist�
��) policies put in place during the New Deal, which asserted more democratic control over the economy and workplace in order to hold the Royalists in check.

  Step One: Progressive Taxation

  To both stimulate and balance that domestic economy, FDR reinstituted progressive taxation, which gave workers more to spend and gave the rich an incentive to pay their workers better to maintain a stable workplace (since if they took the money themselves, it would just mostly go to taxes), thus stimulating demand for more goods and services.

  Progressive taxation has a long history: As Jefferson said in a 1785 letter to James Madison, “Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.”52

  FDR eventually hiked the top income tax rate paid by the superrich in America to 90 percent. This had a twofold effect.

  First, it held income inequality in check and ushered in an era of equal income growth among all classes. Unlike the Gilded Age, when the economy grew at a blistering pace but the gains were afforded only to the Robber Barons, the period between 1947 and 1979 saw unparalleled equitable growth.

  During these thirty-plus years, the poorest fifth of Americans saw a 116 percent increase in their incomes. The middle fifth, a 111 percent increase. And the top 5 percent saw an 85 percent increase. All income classes shared in the prosperity of the times when the top marginal income tax rate was above 70 percent.53

  The second effect of a high top income tax rate is to bring stability to the economy.

  Writer and political/economic commentator Larry Beinhart figured out the truth about taxes, which is that they can be very destructive if kept too low.

  He looked at the history of tax cuts and the history of economic bubbles and busts and found a relationship between the two. Whenever top marginal tax rates were relatively high—above 60 percent usually—the economy was at its most stable. Economic bubbles were kept in check since the superwealthy didn’t have enormous amounts of hot money to go speculate in the market; debt and deficits were lower, giving the government enough resources to sew a strong social safety net; and working people’s wages grew steadily. As a result, the economy as a whole saw sustained growth.

  But when those top marginal tax rates dropped, the opposite happened. The very wealthy had a lot of extra money with which to go play in the markets and to place enormous bets on everything from start-up tech companies, to oil and food commodities, to real estate, setting up boom-bust cycles that made some people mind-bogglingly rich during the boom, but left most Americans holding an empty bag when the bust happened.

  This was the lesson we thought we learned after Treasury Secretary Andrew Mellon cut the top rate from 73 percent to 25 percent in the 1920s, setting up a frenzy of market speculation and the eventual Great Crash of 1929.

  And, as studies from the Center for American Progress show, when the top marginal income tax rate is above 50 percent, economies perform better as a whole. During the past fifty years, average annual GDP growth and employment growth was the highest when the top marginal income tax rate was between 75 and 80 percent. The lowest was when the top marginal income tax rate was 35 percent.54

  But progressive taxation provides another benefit to the middle class.

  Step Two: A Social Safety Net

  With more revenue coming in to the government thanks to progressive taxation, the middle class can be protected by a strong social safety net.

  In announcing his third run for the White House in 1912, President Teddy Roosevelt laid out the basis for what would become the New Deal a generation later. He named it the “Square Deal,” and said:

  We stand for a living wage… [which] must include:

  Enough to secure the elements of a normal standard of living;

  A standard high enough to make morality possible;

  To provide for education and recreation;

  To care for immature members of the family;

  To maintain the family during periods of sickness;

  And to permit of reasonable saving for old age.

  With the Social Security Act of 1935, FDR created Social Security and laid the groundwork for states to implement unemployment insurance programs, borrowing some of the policies in his cousin Teddy’s Square Deal. For the first time, our nation’s elderly population could enjoy a decent quality of life after retirement and be reassured that those who fell on hard times and lost their jobs wouldn’t be swept into destitution.

  In his 1936 Democratic National Convention speech—the same speech in which he first called out the Economic Royalists—Franklin Roosevelt quoted an old English judge who once said, “Necessitous men are not free men.”

  What Roosevelt was touching on was that if you have necessities that are not met—if you’re in need—then you’re not free. If you’re hungry and don’t have food, you’re not free. If you’re homeless, you’re not free. If you don’t have health care, you’re not free. If you don’t have a job, you’re not free.

  Roosevelt went on to say, “Liberty requires opportunity to make a living—a living decent according to the standards of the time, a living which gives man not only enough to live by, but something to live for.”55

  For a middle class to take hold, basic necessities must be met. And so, in 1944, FDR went a step further and proposed a Second Bill of Rights. He explained the need for it by saying, “It is our duty now to begin to lay the plans and determine the strategy for the winning of a lasting peace and the establishment of an American standard of living higher than ever before known.”56

  He noted, “We cannot be content, no matter how high that general standard of living may be, if some fraction of our people—whether it be one-third or one-fifth or one-tenth—is ill-fed, ill-clothed, ill-housed, and insecure.”

  And thus he proposed his Second Bill of Rights, which included the following:

  The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;

  The right to earn enough to provide adequate food and clothing and recreation;

  The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;

  The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

  The right of every family to a decent home;

  The right to adequate medical care and the opportunity to achieve and enjoy good health;

  The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;

  The right to a good education.

  FDR’s Second Bill of Rights never came to fruition. But in 1965, President Lyndon Johnson’s “Great Society” built upon FDR’s “New Deal” Social Security Act and created Medicare—a single-payer health care system for Americans sixty-five and older. And LBJ’s Great Society cut poverty in half in a decade.

  After World War II, our nation spread freedom to more and more Americans by caring for one another and by everyone—even the rich, who paid an income tax rate over 70 percent after their first million or so and sometimes above 90 percent—pitching in to create a social safety net.

  Then there was the GI Bill, which sent millions of young men like my dad to college and technical schools in the late 1940s and early 1950s.

  What happened was that more and more Americans were free to chase down their dreams—to be artists and inventors, to find that perfect job, to teach and to build. They were free to spend more time with their families and to take vacations. The explosion of innovation and opportunity, and the rise of the American middle class, was the result of that freedom.

  Step Three: Protections for Working People

  When George Washington took office, remembering how difficult it was for him to find an American-made suit to wear to his inauguration, he tasked his treasury secr
etary, Alexander Hamilton, to come up with a plan to make America more self-sufficient—to produce its own goods and services and not have to rely on Britain anymore.

  The full title of Hamilton’s plan was “Alexander Hamilton’s Report on the Subject of Manufactures: Made in His Capacity of Secretary of the Treasury.” In it, Hamilton proposed an eleven-point plan to foster American manufacturing. Once enacted, that plan transformed our nation from an infantile dependent into a world superpower.

  The premise of the plan is so simple that I can sum it up in four words: “Put American manufacturing first.” This is done by giving American industries subsidies—or what Hamilton called “bounties”—to be globally competitive, and then protecting those industries by putting high tariffs—or taxes—on any new imports from foreign countries. The key to a good trade policy, just as in any business model, is to sell more stuff than you buy. So protect your sellers, and restrict the buying of things elsewhere if you can instead make them yourself. That was the basis of Hamilton’s plan.

  This plan wasn’t anything new. Hamilton borrowed it from King Henry VII’s “Tudor Plan,” enacted in the fifteenth century to turn England into an economic powerhouse. And King Henry borrowed it from the Dutch, who borrowed it from the Romans, who borrowed it from the Greeks thousands of years ago. It’s a tried-and-true method for economic prosperity that has existed for thousands of years.

  By the 1900s, the United States was emerging as an economic powerhouse in the global market, realizing Hamilton’s plan for producing and exporting more goods than we buy abroad.

  A trade surplus of roughly $500 million in 1900 ballooned to $10 billion through the 1940s and ’50s. Thanks to Hamilton’s plan, the United States had built up an enormous manufacturing base that was able to sustain tens of millions of high-paying blue-collar jobs to produce the world’s goods—from refrigerators to clothes to cars.