Paul Krugman’s new book The Conscience of a Liberal, reminds us, that we have been here before. The political partisanship and rising economic inequality is at the levels it was in the 1920’s, before the New Deal. Political partisanship and income inequality go hand in hand, Krugman will argue, stating that, “Political change, in the form of rising polarization, has been the major cause of rising inequality.” He puts forth four points of evidence. First, the path from economic inequality of the gilded age to the relative economic equality of the postwar era that resulted in the middle class was created in just a few years by the policies of the Roosevelt administration, primarily through wage controls. Second, the polarizing political change came first, and the rising economic inequality followed. There was not a major rise in income inequality until 1980, long past the right wing take over of the Republican Party that took place in the mid-1970’s. Third, even the most highly educated adults have not seen large income gains; the winners have been the top one percent or less of the population. It is not technology, but an erosion of the social norms and institutions that previously promoted equality that have driven the rightward shift of American politics. This has played a crucial role in the surging inequality. Fourth, if the rise in inequality was the result of impersonal market forces, then we should see this trend in inequality across the advanced world. However, the increase in inequality has no counterpart anywhere else in the advanced world.
Krugman defines the right wing political force that took over the Republican Party as Movement Conservatism. He explains, “Over the course of the 1970’s, radicals of the right, determined to roll back the achievements of the New Deal, took over the Republican Party, opening a partisan gap with the Democrats. Who became the true conservatives, defenders of the long-standing institutions of equality. The empowerment of the hard right emboldened business to launch an all out attack on the union movement, thereby, drastically reducing workers’ bargaining power; it freed business executives from the political and social constraints that had previously placed limits on runaway executive paychecks; it sharply reduced tax rates on high incomes; and in a variety of other ways promoted rising inequality.” He explains that money is the glue of movement conservatism. It is financed by a small handful of extremely wealthy individuals and a number of major corporations--who understood that the route to political power is through elections. Krugman states that, “Movement conservatism has gone from fringe status to a central role in American politics because it has proved it can win elections.”
Krugman asserts that middle class societies don’t arise naturally as economies emerge, but that they are created out of political policies like the New Deal. Krugman cites Economic historian, Bradford DeLong’s statistics that in 1900 there were twenty-two people whose wealth was twenty thousand times the average American worker; by 1925, their were thirty two. The policies of the New Deal reduced that to sixteen by 1957 and thirteen by 1968. Today there are about one hundred and sixty people whose wealth is twenty thousand times the average American worker. One has to ask during the gilded age, why would Americans in a democratic society, where the poorly paid workers out number the wealthy elite, not demand the government do more to redistribute the wealth to those less well off? Krugman identifies three factors for this. First, Many American workers were disenfranchised because they were immigrants or prevented from voting because of Jim Crow laws. Second, campaign finance--Krugman notes that when McKinley ran against the populist candidate William Jennings Bryan, the wealthy buried him “under a mountain of stuff.” As a percentage of gross domestic product, the amount spent on that campaign was five times what the Bush campaign spent in 2004. Third, election fraud--During the gilded age secret ballots were rare; ballots were printed by the parties themselves, so it was easy to see for whom a vote was cast for. The high rate of voter turnout during the gilded age reflected the financial incentives of vote buying. There were three fault lines that prevented the populists from organizing an effective campaign. The first was the divide between city and country. While sixty-four percent of Americans lived in rural areas, this was not enough to win the white house without urban workers. Byron based his campaign on Free Silver, a policy that would have increased inflation to reduce the debts of farmers. This issue would provide no benefit for urban workers. Contributing to the divide, most urban workers were immigrants, and like Mexican immigrants today, they were often denigrated as not being real Americans. Prohibition would also be a dividing issue. As the temperance movement spread across rural areas, it found little support among urban residents, often Catholic immigrants, who saw alcohol as a normal accepted part of life. The most serious division was the divide between poor white and blacks. The cultural and racial divide would prove too strong to bridge the shared economic interests to form an effective political challenge to the extreme economic inequality.
While the United States was not ready for New Deal style policies, Europe was proceeding in that direction. In 1881, Bismarck Germany was indicating that the way to pacify the lower class and solidify the Kaisers role was to instill the belief that the state was not only an institute of necessity, but of welfare; that they should see the state not just as an agency to protect the wealthy, but one that served the needs and interests of propertyless classes. Britain would introduce old age and health insurance. Before World War I, Britain Germany and France would all develop distinct welfare states. The United States would begin to see modest moves in this direction by the states, including old age pensions, worker compensation for injuries and aid for widows and children. Eventually, the economic inequity and the sharp divides of the political landscape of the gilded age would give way to a political unity and economic equality of the 1950’s, when most Americans could afford the necessities of life and the unions were established institutions. Political reform had created a more equitable distribution of income and this resulted in a healthier climate for democracy. Economic historians, Claudia Gordon and Robert Margo defined this sharp reduction in the wage gap among workers as “the Great Compression.” There had been a dramatic shift in the economies center of gravity. The rich had seen in a decline in purchasing power while ordinary workers had seen increase of their purchasing power.
According to Krugman, “By the mid-fifties the real after-tax incomes of the richest 1 percent of Americans were probably 20 or 30 percent lower than they had been a generation earlier. And the incomes of the really rich—say those in the top ten percent—were less than half what they had been in the twenties…Meanwhile the median family income had more or less doubled since 1929.” Krugman states that the sudden decline in the fortunes of the wealthy was explained by taxes, “While the division of pretax income between capital and labor barely changed between the twenties and the fifties, the division of after tax income between those who derived their income from mainly capital and those who mainly relied on wages changed racially. ...The top income tax rate (currently only 35 percent) rose to 63 percent during the first Roosevelt administration, and 79 percent in the second. By the mid-fifties, as the United States faced the expenses of the Cold War, it had risen to 91 percent.” In addition, the federal corporate tax on profits rose from less than 14 percent in 1929, to more than 45 percent in 1955. And the top estate tax rose in increments from 20 percent to 77 percent. While the richest 0.1 percent had owned more than 20 percent in 1929, by the mid-fifties they owned only about 10 percent. Krugman says that the blue-collar worker did better in the fifties than he had in the twenties because of the rise of unions. By the end of WWII more than one-third of non-farm workers were members of a union. The right of unions to organize found great protection under FDR’s Fair Labor Relations Act of 1935, which reflected the government’s shift from protector of the bosses to protector of the workers. The union raised not only the average wage of their members, but indirectly the wages for similar workers. They also narrowed the wage income gap among blue-collar workers by negotiating bigger wage increases for their worst paid members than they did for their best-paid workers. In this same vein, the Roosevelt administration during WWII used wage controls to raise the wages of low paid workers more than high paid workers. Any employer had the freedom to raise anyone’s wage to forty cents an hour without approval. Raises to fifty cents an hour only required local approval, but raises beyond that amount required Washington’s approval.
The unions would help to make the Democrats the dominate party, not just because union members tended to vote Democratic, but because the unions provided the party with an organized structure that could provide a source of campaign finance and an army of workers to engage in grassroots activism. In addition, the typical voter has a higher income than the typical person, so politicians tend to structure policies to benefit the affluent, but unions could bridge the class divide and deliver more typical persons as voters. They discussed politics with members, sent political mailing to the union member’s home and urged union members to vote. This raised political awareness not only among union members but also among their spouses, friends and family. The strong unions and the weakened Republican Party would allow the gains of the New Deal to become standardized programs that made Social Security, unemployment insurance, and Medicare untouchable programs. By the 1960’s economic security was at unprecedented levels. In 1966, eighty percent of Americans had health insurance; unemployment covered a larger fraction of lost wages. But change was in the air, crime was soaring, rioting in cities, young people grew their hair, took drugs and had premarital sex, and war protestors were in the streets. Voters would return Republicans to power, although Richard Nixon was far more liberal than today’s Republicans. He indexed social security for inflation, created Supplemental Social Security, expanded workplace safety regulations, and increased environmental regulation, even tried to introduce universal health insurance. During the sixties, the Republicans learned to harness emerging cultural resentment and fears, including white backlash against civil rights gains. Manufacturing would leave the urban cities, leaving black populations with no way to earn a living and would result in a welfare “explosion.” By 1964, a new kind of Republican would appear on the scene, Ronald Reagan. He would rail against government, implying it was vast useless bureaucracy. He would attack social programs with a remarkable callousness, “We were told four years ago that 17 million people went to bed hungry each night. Well that was probably true. They were all on a diet.” This attack on government social programs enabled him to tap into white backlash without being explicitly racist. Ronald Reagan would also tap into grassroots paranoia over communism, using it much the way the current administration uses terrorism. This would provide a popular base for movement conservatism. At the same time, movement conservatism would build and intellectual base that embraced Milton Friedman’s Chicago economics and the sociologist Irving Kristol. Krugman notes that, “In the late 1960’s and early 1970’s members of the new conservative intelligentsia persuaded both wealthy individuals and some corporate leaders to funnel cash into a conservative intellectual infrastructure. To a large extent this infrastructure consisted of think tanks that are set up to resemble academic institutions, but only publish studies that play into a preconceived point of view.” They would use the dire mood of the 1970’s to discredit liberal policies and dismantle the New Deal achievements. Reagan would do his best to promote the conservative movements agenda, but the House of Representatives was controlled by Democrats, and they checked his power. While on a national level the conservative movement’s message had to present an appearance of moderation, the Texas Republican platform of 2004 called for the elimination of federal agencies, including the bureau of Alcohol, Tobacco, and Firearms, the position of Surgeon General, the Environmental Protection Agency, the Department of Energy, Housing and Development, Health and Human Services, Education, Commerce, and Labor, the privatization of Social Security, and abolition of the minimum wage. Krugman states that, “The ability to turn hard-right positions into a winning strategy, not a futile protest, brought in the large-scale funding that created the movement conservative institutions—the ‘vast right wing conspiracy’ we know today.” Krugman argues that movement conservative have exploited race to get people to vote against their economic interests. It might seem a strange correlation, yet the higher the black fraction of a states population, the lower its social spending per person. During the New Deal, southerners had been part of the Democratic coalition. But during the sixties, the strong position on civil rights of the democratic party, allowed republicans to peel off southern white voters. But today that may be changing, as Krugman observes that, “The politics of white backlash, which have been integral to the success of movement conservatism, are losing their effectiveness for two reasons: America is becoming less white, and many (but not all) whites are becoming less racist.” As Krugman notes that movement conservatism has found political success by appealing to whites who resent blacks, but it is difficult to be anti-black without being anti-immigrant and immigrants are becoming a political force.
Every other industrialized nation provides healthcare to their citizens and doing it while spending less money per person than we do. The majority of Americans support guaranteed healthcare. Most of the world has socialized insurance that is used to pay for care in privately owned hospitals and clinics, only Britain has socialized medicine where the doctors are government employees working in government owned hospitals. Why is it these industrialized nations can provide healthcare for less we do? Krugman maintains that, “Private insurance companies, however, don’t make money by paying for healthcare. They make money by collecting premiums while not paying for health care, to the extent that they can get away with it.” An enormous amount of money is spent denying care, screening candidates, invalidating policies and challenging claims submitted by doctors. As a result, doctors and hospitals spend a large amount of money on denial management, fighting to be paid. When the government is the provider of insurance there is no fight over who pays for the medical procedure. In The current system there is no incentive for private insurance to invest in preventative care, as people often change insurance or will move to Medicare at sixty-five, so delaying care is more profitable, even if actual medical cost are higher in the long run. So why, with public support so strong, has healthcare reform faced such opposition? William Kristol explained in the Wall Street Journal, that passage of a healthcare plan in any form would be disastrous; that its success would signal a rebirth of a centralized welfare-state policy. He was concerned that universal healthcare might work and it would be popular, making the case for government intervention. As Krugman notes, “The most dangerous government programs, from a movement conservative’s point of view, are the ones that work the best and thereby legitimize the welfare state.” From a purely economic point of view, single payer health care is the way to go, but the two major hurdles to healthcare reform are primarily political, not economic: the need to raise taxes and the public’s fear of losing choice. But policy analysts and politicians have been working together to overcome these hurdles. They have identified four elements: community rating—prohibiting insurers from charging different premiums or denying coverage on the perceived customers risk, subsides for low income families—as we already do for Medicare, mandated coverage---requiring everyone to participate and not just take their chances, and public-private competition—allowing people to buy into the Medicare system if they prefer it to private insurance.
Krugman states clearly that, “I believe in a relatively equal society, supported by institutions that limit extremes of wealth and poverty. I believe in democracy, civil liberties, and the rule of law. That makes me a liberal and I’m proud of it…You’re a liberal, whether you know it or not, if you believe that the United States should have universal healthcare. You’re a progressive if you participate in the effort to bring universal healthcare into being.” During the Bush years, we have seen a coalescence of progressive groups into a progressive movement. Krugman contends that, “A progressive agenda, then, would require major changes in public policy, but it would not be anything radical. Its goal would be to complete the work of the New Deal.” But as Krugman notes, “The only way a progressive agenda can be enacted is if Democrats have both the presidency and a large enough majority in Congress to overcome Republican opposition.” But as Krugman shows the benefits in the decreasing inequality pay dividends to a large portion of the population, creating a more equal and fairer society.