Category: Economy

McCaskill, Long & FDR

Via Alex Thurston at The Seminal, Missouri Senator Claire McCaskill is putting forward legislation to cap salaries of executives at companies receiving bailout money at $400,000 per year. This stands in stark contrast to David Brooks’ foray into class warfare in today’s NY Times.

McCaskill’s legislation is reminiscent of Huey Long’s Share Our Wealth campaign, which gained steam during 1934 in the heat of the Great Depression. Among the proposals in Long’s platform were a cap on net assets, annual income, and inheritance size. In his “Share Our Wealth” speech, Long proposed:

1. The fortunes of the multimillionaires and billionaires shall be reduced so that no one persons shall own more than a few million dollars to the person. We would do this by a capital levy tax. On the first million that a man was worth, we would not impose any tax. We would say, “All right for your first million dollars, but after you get that rich you will have to start helping the balance of us.” So we would not levy and capital levy tax on the first million one owned. But on the second million a man owns, we would tax that 1 percent, so that every year the man owned the second million dollars he would be taxed $10,000. On the third million we would impose a tax of 2 percent. On the fourth million we would impose a tax of 4 percent. On the fifth million we would impose a tax of 16 percent. On the seventh million we would impose a tax of 32 percent. On the eighth million we would impose a tax of 64 percent ; and on all over the eight million we would impose a tax of 100 percent.

What this would mean is tat the annual tax would bring the biggest fortune down to $3 or $4 million to the person because no one could pay taxes very long in the higher brackets. But $3 or $4 million is enough for any one person and his children and his children’s children. We cannot allow one to have more than that because it would not leave enough for the balance to have something.

2. We propose to limit the amount any one man can earn in one year or inherit to $1 million to the person.

3. Now, by limiting the size of the fortunes and incomes of the big men, we will throw into the government Treasury the money and property from which we will care for the millions of people who have nothing; and with this money we ill provide a home and the comforts of home, with such common conveniences as radio and automobile, for every family in America, free of debt.

Long created the Share Our Wealth Society as a national organizing platform (which would have theoretically been the precursor to a presidential campaign run), gaining over 7 million members in short order. Long’s ideas received huge following and were the source of the strongest pressure from President Franklin Roosevelt’s left.

In 1942, long after the assassination of Huey Long, FDR proposed that no American should take home a net annual income of greater than $25,000. This came just as the US was entering World War II and still in the midst of hard economic times. Sam Pizzigati at TomPaine.com writes:

All Americans were asked to pay more in taxes during World War II, and the wealthy were asked to pay the most of all, more in taxes than any Americans had ever before paid. In 1943, America’s most affluent households faced a 93 percent tax rate on all their income over $200,000. The next year, 1944, the nation’s top tax rate would rise even higher, to 94 percent on income over $200,000—the highest rate in American history.

A 94 percent tax? We scan this figure today with no small measure of disbelief. We who live in an era where politicos routinely equate taxes with tyranny cannot imagine a Congress of the United States ever imposing a tax rate so lofty. But here’s the truly incredible part. Back during World War II, many Americans, including the president of the United States, wanted our nation’s top tax rate to rise even higher.

How high? In 1942, only a few months after Pearl Harbor, President Franklin D. Roosevelt proposed a 100 percent top marginal tax rate. At a time of “grave national danger,” the president advised that April, “no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year. Roosevelt was proposing, in effect, what amounted to a maximum wage—at an income level that would equal, in our contemporary dollars, about $300,000.

McCaskill’s proposal strikes me as more similar to FDR’s annual income cap than Long basic ideas, but both grow from the same place — the hard-nosed progressivism of Huey Long, which enabled FDR’s tax proposal to be palatable years after Long built a national campaign around shared wealth for public good.

Simple Question

Bob Herbert asks a simple question:

The question that I would like answered is why anyone listens to this crowd anymore. G.O.P. policies have been an absolute backbreaker for the middle class. (Forget the poor. Nobody talks about them anymore, not even the Democrats.) The G.O.P. has successfully engineered a wholesale redistribution of wealth to those already at the top of the income ladder and then, in a remarkable display of chutzpah, dared anyone to talk about class warfare.

I would hazard that the reason Republicans are still listened to by the press (presumably the audience Herbert is asking about, as it’s pretty clear the public doesn’t buy their bunk any more) is that the GOP is committed to their busted ideas. They always push tax cuts – they have conviction. Put that up against Democrats who, for example, in the space of 48 hours were arguing vociferously on TV in defense of the inclusion of stimulus spending on birth control to the President “begging” congressional leaders to remove the money from the bill. Between people that re fairly convinced that their ideas are right and a crowd that moves with the political winds, the GOP’s ideas will always sound credible.

If Democrats can’t find courage to stand by their convictions (presuming they have convictions in the first place), they will continue to lose the ideological battle on the economy, taxation, and how government can make peoples’ lives better. The victims in this batttle will not necessarily be Democratic elected official who may be forced into early retirement through elections. Rather the real victims are  poor, working, and middle class Americans.

Something Isn’t Right Here

Via Atrios, Hilzoy gets at the sentiment I was expressing the other day following the announcement of an auto industry bailout with strict concessions required from the United Auto Workers.

Honestly: what sense does it make to stick it to a bunch of auto workers while letting the financial executives off scot-free? How can Richard Shelby get all upset about the fact that some blue-collar workers have, gasp, health care, and not about the fact that financial executives, on whom we have spent a lot more money than the Big Three ever asked for, get financial planners and chauffeurs? Just imagine the furious oratory we might have heard had the UAW succeeded in negotiating benefits like the ones people get at Goldman Sachs. (I’ll bet chauffeurs would help auto workers concentrate more on their jobs…)

For the reasons given above, I think that we should stick it to the bankers and hedge fund managers, and not to the UAW. However, I’d be happy with a single standard uniformly applied.

This is really the point – that there is no uniform standard being applied and the group that is facing the stricter government consequences are union workers and not Wall Street financial tycoons. While I can’t say that I’d be happy in a scenario that involved bankers, stock brokers, and auto workers being judged on a “single standard uniformly applied”– as there is no logical scenario where one can put skilled workers making about $30 an hour in the same box as white collar workers making hundreds per hour (plus huge bonuses) — Hilzoy is right that the government should, at minimum, seek to extract the same measure of concession from each cohort.

But Hilzoy’s point, and mine last week, is clear: the GOP is seeking to use the auto bailout to break the UAW. To screw the American labor movement. They never thought of putting the screws to bankers and hedge fund managers because they never would do anything to let their campaign contributors and country club pals suffer the disquieting burden of having to, say, go work a factory assembly line to make a living.

What’s most shocking is that as far as I can tell Democrats in Congress do not grasp how odious the auto loan requirements on American workers are, particularly in the absence of any similar requirements from the finance industry. Hopefully the Obama administration and a few Democrats on the Hill wake up and realize that they’re sleep walking through an assault on the America’s working families.

Bush Auto Deal to Break Unions

Marcy Wheeler lays it out:

Yet then Bush throws in the demands that Republicans made–without noting that this was basically an ideological ploy to break the union, all the while demanding that employees of American-owned companies make significantly less than the employees of Japanese-owned companies.

Targets: The terms and conditions established by Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:

  • Reduce debts by 2/3 via a debt for equity exchange.
  • Make one-half of VEBA payments in the form of stock.
  • Eliminate the jobs bank. Work rules that are competitive with transplant auto manufacturers by 12/31/09.
  • Wages that are competitive with those of transplant auto manufacturers by 12/31/09.

These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.

In addition, the firm will be required to conclude new agreements with its other major stakeholders, including dealers and suppliers, by March 31, 2009.

Remember, the measure the Republicans were using to measure “wages that are competitive with those of transplant auto manufacturers” was the lizard lie number–the $73/hour, the number that includes legacy costs, the payments to retiree pensions. Otherwise, there would be no reason to make this stipulation–because if you use the real wage number, and not the lizard lie number, American manufacturer wages are already competitive with the transplants!!

So what Bush is demanding is that the UAW lower wages plus pensions to the level of Japanese wages plus pension (though since they have very few retirees, their pension number is basically zero). Alternately, they could lower this number by basically picking the pocket of a bunch of seniors, by taking away pension money those seniors already earned while they were still working. But one or the other will have to happen.

Now, Bush did give the Obama Administration an escape hatch: the ability to deviate from the quantitative targets provided that the companies report why they did so.

But as written, Bush’s last major act as President is to demand that workers for American-owned companies work less than workers for foreign owned companies. American capitalism, at its finest.

The Republicans have consistently sought to use a Detroit bailout to break the UAW. Blue collar factory workers have always been held to a different (read: lower) standard for bailouts than the white collar compatriots of the GOP on Wall Street. The parts of the bill that explicitly require workers at American companies make less than workers at foreign companies should be enough for Congress to oppose it.

The GOP has spent much of the last eight years preaching about the existence of people who hate America as a political attack on Democrats. While those narratives were always bunk, it is apparent that there are people in our government and ruling political class who hate most of America and want American workers to fail. Clearly now we see that it’s Bush and the Republican Party. This is sickening.

What Dean Said

Dean Baker is spot-on in his analysis of the connection to the lack of national health care to the current troubles the Big Three auto companies are experiencing.

The Big Three are also not responsible for the broken U.S. health care system. If we paid the same amount for health care as Canada, G.M. would have accumulated an additional $22 billion in profits over the last decade.
That would be the savings if we assumed that General Motor’s health care expenditures were reduced by roughly 48 percent to be in line with expenses in Canada. Of course, not all the savings in this counterfactual would have gone to profits. Some of it would have gone to workers in the form of higher wages or to consumers in the form of lower car prices.

On the other hand, G.M. is also picking up the tab for many spouses and dependent children. It would not have to pay these health care expenses in a Canadian type system. So the $22 billion figure is probably not a bad first approximation of the additional money that G.M. might have today if the United States had a more efficient health care system.

The economic crisis we’re currently in, as well as the threat it poses to the short-term survival of a vital US industry should force Congress and the White House to move quickly towards universal, single payer healthcare. Sadly I don’t think our political elites of either party are so intellectually nimble as to grasp the necessity of real universal healthcare in the time needed to ensure a return to economic strength.

Wankers of the Day

Senators Dianne Feinstein (D-CA) and Bob Bennett (R-UT).

…Adding, the inauguration is not the place for neo-Prohibitionism. Nor should senators be concerning themselves with temporary ordinances that help local business in the District of Columbia. The DC inauguration bar and restaurant ordinance passed with overwhelming bipartisan support in the city council. Feinstein and Bennett should stop grandstanding and back off.

Lehman vs UAW

In a diary at Daily Kos, 4workers makes a great point on the differences between how union and white collar financial jobs are being talked about during the economic crisis:

When Lehman Brothers failed, I didn’t hear talk about how the employees (not the execs, but the employees)there made too much, needed to accept less, didn’t need these “legacy benefits” like health care. And I’ll bet a lot of them made more than the average auto worker.

But now that it’s blue collar auto workers in trouble, all we hear is that they need lower expectations, to be more competitive with foreign workers—-and that unions, especially, are in the way of that competitiveness. This despite the concessions the UAW made and is continuing to make in the spirit of “we’re all in this together-ness.”

This is a great point. There is clearly a double standard in terms of how most politicians and the press are willing to talk about affected workers in various industries. It’s frustrating and sickening — and this sort of commentary ensures that the financial industry will get bailout after bailout, while a sector that connects to millions of jobs in America gets run through the ringer for a comparatively tiny sum.

Conservativism with a Socialist Twist

Or is it socialism with a conservative twist?

Most of the terms are relatively good for Citigroup and its existing shareholders. While the bank had to reduce its dividend to a penny, it is getting money from the government relatively cheaply. The preferred shares that the government is buying, for example, carry a relatively small 8 percent dividend payment and only slightly erode the value of shares held by existing investors.

Even though the American government can secure a nearly 8 percent stake, overtaking an Abu Dhabi investment fund and a Saudi prince as Citigroup’s largest shareholder, it will not have any seats on the board.

Other strings that the government attached are not onerous.

New limits on executive pay still leave Citigroup with room to maneuver, even though regulators must approve compensation. A required program to modify home mortgages is similar to an effort that Citigroup voluntarily announced earlier this month. [Emphasis added]

It’s hard to read this about the Citigroup bailout (Version 2.0) and not think the Bush-Paulson team has come up with a new brand of socialism, unique to American corporatist conservatism. The US Government now owns more of Citigroup than any other individual or entity in the world. But while the American taxpayer is watching their money rescue one of the biggest white collar corporations in America, they must also watch the government decline any control of the company they are seeking billion after billion into.

What a uniquely corporatist conservative position: Government will prop up major corporations and hold larger portions of these corporations than anyone else, but exert no control over how the company is run. Private benefit with no public accountability.

If anyone in the Bush cabinet or Obama transition team can look the American taxpayer straight in the eye and assure us that having no control in our stake in Citigroup is in America’s best interest, I’d be shocked. I’d also probably be lied to.

Making It Up

Atrios:

Shorter Hank Paulson:
We are making this up as we go along.

Seriously folks, this is not inspiring confidence. But it strikes me that part of the reason that Paulson et alia are forced to make it up as they go along is that they’re clinging desperately to outmoded ways of solving problems. Funneling massive amounts of taxpayer dollars to big corporations to keep their stock values high and their executives compensated is not a way to solve the financial crisis. Had the bailout included meaningful oversight and taxpayers getting something in return – ie ownership of these banks and insurance companies – then we would have greater reins on what is happening now. We would have been able to force the money to be used in a way that actually helped homeowners and small businesses from the pending crisis. But that would have undermined the kleptocracy built over many long years, with the help of the GOP and corporatist Democrats. So it was a non-starter. Instead we went with something that we could easily see would either fail or leave the American taxpayer on the short end of the stick. Now Paulson has to keep making this up as he goes along, which in turn undermines our chances for financial stability.

An Obama Economy

Ian Welsh has a must-read post for anyone following the economic crisis and wondering how Barack Obama might respond as President. Welsh is concerned that Obama will deploy neo-liberal and not liberal policies on the economy. I think that while Obama may not be pushing for liberal policies now, the economy would be one area where an evolution to the left is most likely. If Ian’s pessimism bears out, then the economy will get worse, necessitating a shift in economic policy towards a liberal agenda. Obama might not be there right off the bat, but I find it hard to believe he’d be incapable of shifting in the face of the evidence.