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All content © 2002-2005 Anne Zook

January 15, 2004
The Great Gilded Depression Age Pendulum Who Knows Thing

(Or: Back on the diet and in a bad mood)

Only twice before in the history of this country has so much wealth been held in so few hands.

The first was the famous "Gilded Age" characterized at the beginning by industrial depression, unemployment, and large-scale strikes, not to mention a fast-growing gulf between the agrarian West and the industrial East. Beginning with the election of the "progressive" Roosevelt, voters began seeing results for their demands that they not be sacrificed or subordinated to the interests of business. The latter part of the Age brought Administrations to fight secret trusts (essentially monopolies), and to work for conservation of natural resources, regulation of industries, and labor rights.

The second era was the 1920's. Short version: The unequal distribution of wealth concentrated power into the hands of a (greedy) few who took to speculating and brought the country down with them. The problem was exacerbated by Coolidge's pro-industry Administration which passed legislation favoring industries and benefiting those with the wealth to invest in them, further consolidating wealth.

Such an extreme unbalance in the distribution of wealth makes the economy unstable, okay? In case it's not obvious, let me point out that Rickie Rich can only eat so many meals a day. If you take the money from 1000 people and give it to Rickie, then instead of the economy seeing 3,000 meals 'sold' a day, with the accompanying economic activity, the economy sees only three meals sold a day.

Because the "meals" industry isn't selling enough to make a profit, they triple the price of a "meal" and the 4,000 people "above" the thousand, Rickie-deprived in the economic chain have to cut, let's say, from three meals a day to one meal each (12,000 "meals" a day down to 4,000), and then the "meals" industry has to raise prices yet again and now of those 4,000 people, a thousand of them can't afford a "meal" at all and the next 5,000 up the economic rung, who were barely eating after the price tripled the first time can no longer afford more than a meal a day so now you've lost the economic activity for about 25,000 "meals" every, single, day and the grocery stores and restaurants go out of business, leaving yet more people who can't afford the price of a "meal" and then the farms start to go under because they're not making enough money to cover their costs so suddenly there's no food for Rickie or anyone else, even though Rickie only wanted three meals a day and he has enough money to pay any price the "meals" industry cares to charge.

Rickie only had the "share" of money of 1,001 people, but in the end, he's eliminated the food supply for all 10,001* of the people in this example.

(* None of those numbers are warranted. Doing math in my head is not something I excel at.)

Wealth concentrated in the hands of a few carries an impact on the economy that's disproportionate to the actual amount of wealth involved.

Another example (stolen largely from a book I read) involves shoes.

Rickie Rich buys a pair of shoes and he can afford to buy the best, so he buys a pair of expensive, top-of-the-line shoes. Because these shoes are so well made, they last him for ten years. He doesn't, in short, do anything else to support the shoe industry for ten years and provides no further employment or economic benefit.

Adam Average buys what he can afford, the cheap, mass-produced shoes available in his local store. They last about a six months, so over the course of ten years, he has to buy nineteen more pairs of shoes. He provides a consistent, economic benefit to the shoe industry over the entire decade.

It doesn't matter that Rickie Rich paid $300 for his shoes and Adam Average paid $25 for his. Over the ten-year time-span, Adam Average provides $500 worth of stable, economic purchasing to the shoe industry. Rickie Rich provided a "spike" - a one-time purchase. Even if Rickie Rich paid $3,000 for his shoes, his purchasing pattern is an unstable one and doesn't create the consistent, long-term demand that provides the five people working in the shoe factory with jobs.

(Also note that Adam Average spends a lot more money over the course of his life on shoes than Rickie Rich does, so it really does cost more to live when you're poor, unless, of course, your can't afford health care and die young, taking your prospective purchasing power with you and doing corresponding damage to the futures market of the shoe industry. Looked at from an entirely pro-business point of view, health care is good business.)

Anyhow. Excessively pro-business government encourages the concentration of wealth into the hands of a few people who refuse to eat enough to keep the country going and at the moment, it doesn't seem feasible to sit them down and force-feed them until the economy stabilizes.

On the other hand.

If Rickie Rich doesn't have the money and resources he needs to keep his factory, Rickie Rich, LLC., open, then Adam Average isn't going to have a job anyhow and whatever amount of money he might have otherwise spent on shoes is also lost, not to mention all of those meals he isn't going to eat.

Taxing the Rickie Rich, LLC.'s profits at 60% (all tax numbers imaginary) has the net result of eliminating the money that Rickie Rich, LLC. could have used for exploration of new markets or products, expansion of the business, and increased corporate economic stability. When his job isn't secure, Adam Average is going to make those shoes last an extra month or two and he might just cut down to two meals a day a couple of days a week in an attempt to build up a little savings against possible lean times ahead and then the price of shoes and meals goes up and people can't afford to eat and some of them need public assistance and Rickie Rich, LLC. gets its taxes raised again, creating yet more financial insecurity for the corporation and making CEO Rickie decide he'd better save a little money against possible lean times ahead and so he lays off Adam Average and the four guys next to him.

(I'm pretty sure Adam is the part of the equation that is called, "consumer confidence" when economists talk. Not positive, but pretty sure. If Adam hadn't gotten freaked out, he'd never have started the saving plan and lowered his spending, creating the climate that led to Rickie Rich, LLC., thinking it needed to cut back, but then if Rickie Rich, LLC., hadn't been overtaxed, the buzz around the company wouldn't have been that they were in trouble and Adam wouldn't have been spooked into putting cardboard in his shoes instead of just buying a new pair.)

Anyhow. Demonizing business in general isn't a solution to the problem of economic stability sustained by a reasonable amount of growth.

(But you can feel free to demonize specific businesses. Rickie Rich, LLC. is a responsible corporation that supports some local charities and pays its taxes (even when it hurts) and doesn't commit accounting misconduct, but down the road there's Paul Plutocract, Inc. and they're not so conscientious. They've got a mail-drop in the Caymans that they use as their address for tax purposes and the management pays itself generously for being so clever, including a private jet so they can visit that mail box, so they don't care what the real or effective tax rates on corporations are, they give only as much to charity as will garner them positive PR, and they don't employ "people" they employ "units" so that when they have to "cut 50 units" from the payroll, it doesn't sound bad in the press release. Paul Plutocrat, Inc., is not paying taxes to help the 50 "units" that got cut from their payroll, so Rickie Rich LLC's taxes go up again to help take up the slack that Paul Plutocrat, Inc. left and before you know it, Rickie Rich, LLC. has to decide between a post office box in the Caymans and bankruptcy.)

Business are like people. Some of them are good, some of them aren't.

The best outcome for the people* is arrived at when there's a reasonable balance between the needs of people and the needs of business. One of the primary functions of government should be to monitor that balance and regulate it when necessary.

(* People are the only ones who count, okay? Business matters only as it affects people.)

A large part of the difference between Democrats and Republicans used to be the percentage to which each party thought business should be regulated. In the recent past, Republicans had a sort of, "only at loaded gunpoint" mentality while Democrats favored the, "hey, one person got an owie, so let's regulate ten thousand businesses to make sure it doesn't happen again" approach.

Anyhow. It used to be that as power shifted from party to party over different election cycles, the whole "regulation" process adopted a sort of wave pattern. Sometimes more, sometimes less, but no one party was ever in complete power and neither side was in control for too long, so the actual interval (is that the right word? Hooray for a college education?) between peaks (or valleys) was never too long. Also because power was most often split between parties, the valleys were almost never too low, or the peaks too high. There was...balance. Not stasis, but balance.

The country grew more "liberal" (not "Democrat") and the point of balance gradually shifted toward favoring the people. A reaction set in, pendulum-like, and now we're seeing a swing toward favoring business.

My point, if I had a point when I started this which I did but which I think was entirely different than the point at which we have now arrived, my point is that when the cycle stabilizes again, I think we're going to be hovering over a new balance spot and that I regret that my intelligence, education, and interest in abstruse, economic factors prevents me from knowing or even guessing whether we're moving Right or Left. At a guess, I'd say Left.

Because there's no doubt that the country is much more "liberal" than it was forty years ago, when it comes to the rights of people to live their lives their way, but there's also no doubt that it's a mistake to grant that same "liberality" to a corporation. Which is, in the end, why I think there are so many people who describe themselves as, "socially liberal but fiscally conservative."

It's worth mentioning that the "Left" we move to probably isn't going to look like you expect.

The Democratic and Republican parties have changed dramatically over the years as the country's primary "issues" moved from individuals to business to individuals and back, and as our focus moved from entirely internal to being a major player in the international world.

Where do gay rights, women's rights, and minority rights fit today? Are all three of these still even major issues? Where do the 'voting blocs' fit in? Lawyers, doctors, insurance plans, pharmaceutical companies, small businesses, big businesses, technology businesses, 'organized' labor, unorganized labor, seniors, the transportation industry, farmers, ranchers, and the fifty other 'blocs' that get discussed on the evening news. What do they need and which party is going to provide it?

What about the IRS? Traditionally both parties scooped in votes during hard times by demonizing this federal organization, probably the one with the least control over its own destiny. Will there be a reform or simplification of the tax code? From which side?

What about "free trade"? What does that mean today and for which side is it going to be a rallying point?

And what about the military-industrial complex? Traditionally the Republican Party was all about small government, but the military sucks down an ever-growing amount of the federal budget each year. Will the Republicans continue to insist they're, "strong on defense" after they realize the one place they can cut down the size of government and win popularity is by cutting military spending? (Can we even make significant cuts in this industry these days without damaging the economy? The military is huge. Entire industries were created to support their efforts. Do we keep a large military because of such economic concerns or at some point do we say, "enough is enough" and refuse to give the world's terrorists aid and comfort by not only conceiving of and publicly discussing the kinds of new weapons we can create, but by developing such weapons, thereby proving how feasible they are At what point does death stop being one of our #1 exports?)

Neither party today has a lock on its own identity or really understands what "issues" belong to them. I'm not sure the leadership of each party even understands where the next hot issues are going to be. Are they going to be social or economic? Domestic or international?

The Democrats are having some rather public growing pains at the moment as the party scrounges around in the seat cushions and under the couch, trying to find its identity.

While the Republicans weren't looking, some rather unusual elements (who do possess the virtue of having a vision of what they believe) have grabbed the Party steering wheel and are headed for their own destination, ignoring the rather feeble protests of a few back-seat drivers who really would have preferred it if they'd stayed on the old road instead of heading off down this uncharted lane.

They may be wrong, you know. I mean, let's face it. If you remove Bush's unconvincing religious posturing, really, if you remove Bush from the equation and take a look at what the powerful men in his Administration stand for, then you see a big, pro-business "spike," a determination not to let the country sink in a sea of anarchic individualism (or, to use words we're all more familiar with, "to protect the economy by protecting the means of production"), and a willingness to trade diplomacy for guns in order to achieve the ends they feel we should achieve on the international scene. (That sort of "muscular democracy" is very, very appealing to a lot of people.) They're pro-business, which isn't inherently evil, and they don't want to sit on the sidelines for years while tinpot dictators run amuck and stick their tongues out at us. They honestly believe wealth can be created from the top down, which makes them misguided, but not tools of Satan, and they believe democracy is a commodity that can be exported like movies or television shows, which makes them ridiculously na´ve, but not evil.

If nothing else, watching to see what happens with each party, and where the new lines get drawn, is going to be very interesting.

And now I'm going to go read about Low-Wage America.

Posted by AnneZook at 08:41 AM


Comments

*applause*

Great essay, Anne.

Posted by: Elayne Riggs at January 15, 2004 09:07 AM

I second Elayne - excellent post. Of course I like long, rambling posts that actually "arrive" somewhere at the end. Unlike plenty of other blogs that ramble right off to nowhere.

I will however say that I do believe the Republicans are on a continuum between naive and evil. And, much like your pendulum analogy, they swing from pole to pole depending on the subject, the day of the week, the phase of the moon and how much my old football injuries hurt. And very often, of course, they take on a somewhat quasi-quantum state and are both naive and evil.

Anyway, I'm glad I found your blog. Great reading!!

Posted by: Charles2 at January 15, 2004 11:52 AM

Thank you, thank you. For our next trick, we're going to...well, I really don't know.

Charles? If you understand that calm, rational Republicans might see Democrats as swinging between evil and hopelessly naive as well, you'll be able to understand both sides of the arguments.

Posted by: Anne at January 15, 2004 12:45 PM

An excellent summation of the reality of the economy.

In the same vein, if you look at the Consumer Price Index the most volatile categories, gas & food, are pulled out to produce the "core" index.

Poor people spend an inordinate amount of their money on these volatile categories. The middle class and above may be able to exist based on the core index, but the life of poor people is dominated by being able to get to work and putting food on the table.

Winter is the cruelest time for the poor. The prices of food and fuel always rise in the winter at the same time the utility bills bloom.

Posted by: Bryan at January 15, 2004 03:40 PM

Here's my thinking on where we end up - we go way right before we get better. The whole world starts to look like America in the late 18th century - cheap labor conservatives are running the joint through multi-nationals, which are to fascism as Al Queda is to Islamic extremist terrorism - stateless agents of death. The workers are pushed to a certain point, the system snaps and we move left. World-wide unionization, happier times.

All the social issues you mentioned don't matter and, in fact, never really mattered. They're a cynical diversion that the right uses to gain power by playing on people's worst emotions. They get them absolutely nowhere when the struggle goes worldwide and so they're ditched.
Free trade? Trade mystifies me for the most part because it's so mired in politics. It's obvious to all that fair trade is the way to go and what will probably shake out after the big snap, but what I don't know about that could fill a small African country.

Or, you know, not.

Posted by: eRobin at January 15, 2004 07:42 PM

I know how you feel, eRobin. Things will either go to h*ll or they won't.

Certainly the way the media makes it sound today, we're heading toward a resurgence of conservatism, but the media can fool you.

Posted by: Anne at January 16, 2004 03:02 PM

Should have been 19th century in my last post.

Posted by: eRobin at January 18, 2004 03:41 PM

I figured it was a typo, eRobin.

Posted by: Anne at January 19, 2004 10:19 AM