The Establishment Paradise (Part Three)

(Note:  This is the third and concluding segment in a three part series.  The first segment traced the evolution of elective office from a noble public service calling to more of an establishment paradise for the ruling class, with ease and plenty far removed from the day to day lives of ordinary citizens.  The second segment identified themes common from Boris Yeltsin's Soviet Union just prior to the collapse of its communist system to Ben Franklin in the early days of the United States.  Franklin, in particular, warned of turning elective office from posts of Honour to places of Profit, with potentially disastrous consequences...)

Is the ownership of Property subject to any substantive limitation under the US Constitution?  Is particular expertise required to hold elective office?  Or can an ordinary citizen learn on the job?  How real is the possibility that the American system of capitalism may experience a similar fate to the now extinct communist economic system under the former Soviet Union?

Mr. Franklin then considered the concept of Property rights.  He reminded the Citizens that these are Our creation, that for a seat at the table of the American Dream, what We have conferred as a Right, We also have the Power to take away:

All Property, indeed, except the Savage’s temporary Cabin, his Bow, his Matchcoat, and other little Acquisitions, absolutely necessary for his Subsistence, seems to me to be the Creature of public Convention.  Hence, the Public has the Right of Regulating Descents, and all other Conveyances of Property, and even of limiting the Quantity and the Uses of it.  All the Property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition.  He that does not like civil Society on these Terms, let him retire and live among Savages.  He can have no right to the benefits of Society, who will not pay his Club towards the Support of it.

The iconic and fiery Andrew Jackson, face on the $20 bill and populist president of the common man, ushered in America’s first age of reform.  Instinctively, so it seems, Jackson understood the perils of the establishment paradise, unchecked.  Jacksonian Democracy reminded ordinary citizens that experience was overrated and that even ordinary, common citizens could learn.  Further, lifetime or long-tenured office-holding often led to inefficiency and even corruption.  The fresh, new blood of the ordinary citizen was required to bring strength, grounded, common sense qualities and the ability to renew the contest.

In May 1829, shortly after Mr. Jackson was inaugurated as the 7^th President of the United States, he elaborated thus:

There has been a great noise … (h)ow every man who has been in office a few years, believes he has a life estate in it, a vested right, & if it has been held 20 years or upwards, not only a vested right, but that it ought to descend to his children, and if no children then the next of kin --- This is not the principles of our government.

President Jackson elaborated:

Office is considered as a species of property, and government rather as a means of promoting individual interests than as an instrument created solely for the service of the people.  Corruption in some and in others a perversion of correct feelings and principles divert government from its legislative ends and make it an engine for the support of the few at the expense of the many.  The duties of all public officers are, or at least admit of being made, so plain and simple that men of intelligence may readily qualify themselves for their performance; and I cannot but believe that more is lost by the long continuance of men in office than is generally to be gained by their experience. ...

In a country where offices are created solely for the benefit of the people no one man has any more intrinsic right to official station than another.  Offices were not established to give support to particular men at the public expense.  No individual wrong is, therefore, done by removal, since neither appointment to nor continuance in office is matter of right….  It is the people, and they alone, who have a right to complain when a bad officer is substituted for a good one.  He who is removed has the same means of obtaining a living that are enjoyed by the millions who never held office.  The proposed limitation would destroy the idea of property now so generally connected with official station, and although individual distress may be sometimes produced, it would, by promoting that rotation which constitutes a leading principle in the republican creed, give healthful action to the system.

Yet almost 200 years later, amazingly, here we are, with Congressmen locked in to financially lucrative places of Profit.  They hold their offices seemingly ad infinitum, as if owned and fit to be passed down to their children.  The day is long gone where public service is its own reward – it has become institutionalized as the prize.

How will it end?  Will the Princes be dethroned?  Or the People enslaved?  In the end, it comes to little else.

In closing, we return to Boris Yeltsin.  A cynical question came from the floor during his unlikely yet successful 1989 election campaign, as the Soviet Union and its communist economic system convulsed toward extinction:

Tell us what it felt like to live in the “establishment paradise.”  Is it true that the ease and plenty promised in the historical stage of communism has long been the rule “up there?”

Although the US is a vastly different experiment in democracy, is it inconceivable that a similar fate may await the American economic system of capitalism?

-Michael D’Angelo

The Establishment Paradise (Part Two)

(This is the second segment in a three part series.  The first segment traced the evolution of elective office from a noble public service calling to more of an establishment paradise for the ruling class, with ease and plenty far removed from the day to day lives of ordinary citizens.  Boris Yeltsin spoke of the changes with the collapse of the former Soviet system.)

What tricks do Ambition (the Love of Power) and Avarice (the Love of Money) play on the life of one who aspires toward public service?  What type of men (and women) will these vices tend to attract?

Mr. Yeltsin understood what can happen when ordinary citizens lose faith in their government:

Without faith (in our leadership) even the best and most enlightened changes in our society will be impossible to accomplish.  And when people know about the blatant social inequality that persists, they see that their leader is doing nothing to correct the elite’s shameful appropriation of luxuries paid for from the public purse, then the last droplets of the faith will evaporate.

And when faith evaporates, change follows.  The only point of discussion is one of degree.

Let’s redirect our attention to early America, to the time during which the US Constitution was drafted in 1789.  From the earliest days of the republic, Ben Franklin had warned of the inherent danger of ambition and greed, when combined, having the human tendency to turn posts of honor into places of profit, or an establishment paradise.  Upon returning home after participation in the secret deliberations, Franklin was said to have had an inquisitive exchange with a Philadelphia woman:

“What have you made for us, Dr. Franklin?” the woman had wanted to know.

“A republic, madam, if you can keep it,” Franklin replied.

Franklin understood that democracy was not forever assured in the US, and that active, informed citizenship would be required not only to keep but also to help it evolve.

In a speech at the Constitutional Convention, Ben Franklin discussed the merits of limiting the perks of our elected lawmakers within the laws of human nature:

Sir, there are two Passions which have a powerful influence in the Affairs of Men.  These are Ambition and Avarice; the Love of Power and the Love of Money.  Separately, each of these has great Force in prompting Men to Action; but when united in View of the same Object, they have in many Minds the most violent Effects.  Place before the Eyes of such Men a Post of Honour, that shall at the same time be a Place of Profit, and they will move Heaven and Earth to obtain it.  The vast Number of such Places it is that renders the British Government so tempestuous.  The Struggles for them are the true Source of all those Factions which are perpetually dividing the Nation, distracting its Councils, hurrying it sometimes into fruitless and mischievous Wars, and often compelling a Submission to dishonourable Terms of Peace.

He turned to the type of men which such personal incentives would attract:

And of what kind are the men that will strive for this profitable Preeminence, thro’ all the Bustle of Cabal, the Heat of Contention, the infinite mutual Abuse of Parties, tearing to Pieces the best of Characters?  It will not be the wise and moderate, the Lovers of Peace and good Order, the men fittest for the Trust.  It will be the Bold and the Violent, the men of strong Passions and indefatigable Activity in their selfish Pursuits.  These will thrust themselves into your Government, and be your Rulers.  And these, too, will be mistaken in the expected Happiness of their Situation; for their vanquish’d competitors, of the same Spirit, and from the same Motives, will perpetually be endeavoring to distress their Administration, thwart their Measures, and render them odious to the People.

Those personal gains would be smeared into the fabric of our bedrock institutions, where they would leave an impressionable and lasting stain.  And before long, augmentations would be sought, leading to a tipping point pitting the governing against the governed:

Besides these Evils, Sir, tho’ we may set out in the Beginning with Moderate Salaries, we shall find, that such will not be of long Continuance.  Reasons will never be wanting for propos’d Augmentations; and there will always be a Party for giving more to the Rulers, that the Rulers may be able in Return to give more to them.  Hence, as all History informs us, there has been in every State and Kingdom a constant kind of Warfare between the Governing and the Governed; the one striving to obtain more for its Support, and the other to pay less.  And this has alone occasion’d great Convulsions, actual civil Wars, ending either in dethroning the Princes or enslaving the People.  Generally, indeed, the Ruling Power carries its Point, and we see the Revenues of Princes constantly increasing, and we see that they are never satisfied, but always in want of more.  The more the People are discontented with the Oppression of Taxes, the greater Need the Prince has of Money to distribute among his Partisans, and pay the Troops that are to suppress all Resistance, and enable him to plunder at Pleasure.  There is scarce a King in a hundred, who would not, if he could, follow the Example of Pharaoh, --- get first all the People’s Money, then all their Lands, and then make them and their Children Servants for ever.  ...  But this Catastrophe, I think, may be long delay’d, if in our propos’d System we do not sow the Seeds of Contention, Faction, and Tumult, by making our Posts of Honour Places of Profit. …

(The third and final segment in our three part series turns to a discussion of property rights, a man-made proposition, shifting to Andrew Jackson, the President of the Common Man, before concluding in the present.)

-Michael D'Angelo

The Establishment Paradise (Part One)

(Note: This is the first segment in a three part series.)

Is elective office still the noble calling to public service it was once intended to be?  Or has it evolved to more of an establishment paradise for the ruling class, with ease and plenty far removed from the day to day lives of ordinary citizens?

As the summer of 2012 begins to wind down, the November US presidential election beckons on the near horizon.  It’s an excellent time to take the long view on the state of our American democracy.

At last look the latest public opinion polls indicate that members of US Congress experience an approval rating hovering at or near 9% among likely American voters.  The statistic is startling, the lowest rating in fact since statisticians began to record figures.  Long in the making, the phenomenon has been the subject of ominous warning bells ringing out for more than two centuries.

But let’s begin with the present.  What began as a call to selfless public duty for the good of the nation has evolved through the course of US history.  Today, unfortunately, public service is no longer seen as a selfless commitment to the welfare of others.  It is more like a self-centered establishment paradise.  The reasons are apparent.

Ordinary citizens may wonder what it’s like to live in an establishment paradise.  Candidates for public office in quest of so called public service make lofty promises to their courted constituents.  But are these promises real?  Or are they merely illusions, or expectations?   Or are they kept only “up there” in the establishment paradise?

During the 2008 presidential campaign, then-candidate Barack Obama lamented the high personal cost of aspiring toward a life of public service.  Red lights, traffic jams, slow, methodical passages through airport security, missed flights.  Worst of all, there would be little to no time for family.

Of course, after the election things would be much different.  Traveling in a limousine is really much more convenient.  Nobody steps on your toes, pushes you from behind, pokes you in the ribs.  Every light is green.  You travel fast without stopping.  Traffic police and security salute you.  And there is Air Force One.

For US Congressmen, the change is perhaps more subtle but equally sweeping.  Through the generosity of prior legislators, sort of as a present to themselves, upon election, members receive Cadillac-type health insurance coverage that is not the privilege of all citizens.  They also receive a federal pension which sets them up financially, for life.  Despite an obvious conflict of interest, nor are they prohibited from investing in industries and businesses they are called upon to govern.  They are wined and dined by paid lobbyists, special interests and political action committee interests whose funding sources need not be disclosed under the present law.

And they use the power of the incumbency to retain and cement their vaunted status in public service.  While the selfless George Washington created the precedent in the executive branch to limit the presidency to two successive terms totaling eight years, US Congressmen face no such limitation.  Many “run” for office seemingly forever, transforming public service into an exclusive property right with hereditary status.

In the third branch of US government, the federal judiciary, members at the highest levels are appointed for life.  And so it is not inconceivable that still-in-his-early-50s John Roberts, new Chief Justice of the Supreme Court and author of the landmark 2012 decision upholding the 2010 Affordable Care Act, can retain his position on the high court for 40 years or longer.

Over time, this is how elected representatives in a nation of laws become alienated from the nation and themselves.  Laws are passed to serve the special interests, the ones pouring money into the personal comforts of public servants, at the expense of the general welfare and public interest.

They give well-worn speeches on the yet elusive progress toward paradise for all citizens.  But that paradise is but a fiction for the masses of ordinary citizens.  The establishment paradise has been constructed and evolved in such a fashion that it is to remain that way in the name of the established order, conservatism and preservation of the powerful status quo.  As a result, the ordinary citizen's faith in the democratic process is tested.

Boris Yeltsin may not be a familiar name to ordinary American citizens.  But his name is very familiar to ordinary Russians.  Mr. Yeltsin had a unique vantage point in Russian politics.  In 1981 he was “elected” to serve on the Central Committee of the Communist Party of the Soviet Union, which was the highest party authority between governing congresses.  Then, after the fall of the communist government in 1989, Mr. Yeltsin was elected by popular vote as the first president of the new Russian Federation, an experiment in democratic and market reform, in which position he served from 1991 to 1999.  He spoke of the changes he foresaw with the imminent collapse of the former Soviet system:

Of course, our establishment cannot run away and hide.  The moment will come when they will have to give up their private dachas (government owned vacation homes) and answer to the people for having hung on to their privileges tooth and nail.  Even now some of them are starting to pay the price for their former “establishment” status.  The massive defeat at the polls suffered by party and government officials who stood for elections is the first warning bell for them.  They are now being forced to take steps to satisfy the demands of the voters.  But they make concessions reluctantly and grudgingly; they are so wedded to their privileges that every possible contrivance, including bald lies and sheer deception, is employed by them.  They will, in fact, do anything to slow down the process of reform.

(The second segment in this three part series turns to a discussion of what can happen when ordinary citizens lose faith in their government...)

-Michael D'Angelo 

Privatized Gains, Socialized Losses (Part Two)

(Note: This is the second and concluding segment in a two part series.  The first segment documented how the forces of Wall Street appeared to “outsmart” the US government once again.  Finding a creative way to promote and package financial derivatives, Wall Street escaped protective federal regulation.  As a consequence, a financial bubble ensued, followed by the Great Recession of 2008 from which the masses of ordinary citizens are now attempting to recover.)

Are the stewards of the law capable of keeping up with the powerful forces of Wall Street this time around?  When the financial crisis has abated and things return to a state of normalcy, do we conveniently forget the lessons of history?  What, if anything, keeps us on a forward course, refusing just to ride the cycles of boom and bust, ascent and decline?

In the aftermath of the Great Recession of 2008 the US Congress with President Obama’s strong backing has passed what we are advised is the most sweeping expansion of financial regulatory reforms since the Great Depression.

But, but within minutes of the bill’s passage, several Wall Street groups were leveling criticism at the new regulations, as was The Business Roundtable, the US Chamber of Commerce and other business organizations.

The substance of the law is said to subject more financial companies to federal oversight and regulates many derivatives contracts, while creating a consumer protection regulator and a panel to detect risks to the financial system.  However, a number of the details have been left for regulators to work out, “inevitably setting off complicated tangles down the road that could last for years.”

Before signing the legislation, President Obama remarked that “because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes.”  Mr. Obama said that “There will be no more taxpayer-funded bailouts.  Period.”  Ordinary citizens, however, are expressing frustration and doubt in attempting to take Mr. Obama at his word.  This stems from a working knowledge of the history and underpinnings of the US financial industry, dating back to Alexander Hamilton and his plan for US capitalism based on the British model.

But does anyone doubt the profit-induced mindset of Wall Street to creatively devise new ways to bypass Federal legislation again, no matter how well conceived that legislation appears to have been?  And does anyone also doubt the human element that federal regulators will once again be asleep at the switch, when the time comes for decisive action?  Last time, it took about 75 years for Wall Street to circumvent the Feds, a tribute in and of itself to the staying power of the New Deal.  This time, surely it is again not a question of if, but when.  Where profit is concerned, Wall Street has also proven to be very patient in biding its time.

While ordinary citizens may rightfully give Mr. Bernanke a pass, presently, they are also angry.  The federal government has bushels of money for Wall Street, the large banks, insurance companies and the auto industry, to name but a few, while Main Street is left to fend for itself.  The results and the present economic malaise are apparent.

Frustration and anger are rooted in the reality that the rules of the game are neither particularly fair nor the playing field level.  Raw emotions are heightened by the fact that financial gain from success is privatized, while loss from failure is socialized.

That is, if Wall Street takes a financial risk which succeeds, Wall Street doles out the reward to individuals privately.  On the other hand, if Wall Street’s gamble should fail, the loss is spread out socially among the masses of ordinary citizens.  As a consequence, it is said that there is no accountability on Wall Street.  It is also of little consequence that the risk taken is seemingly reckless, great enough in fact to take down the entire national economy.

Frustrations and anger are further magnified by the fact that ordinary citizens must live within their means.  That is to say, ordinary citizens cannot spend what they do not have.  If the money is not there, spending must be reduced and consequently brought back into balance with income or revenue.  Ordinary citizens wonder, if these are the rules of the road, then why do they not also apply equally to their state and federal governments, which are awash in a sea of financial debt and borrowing?  Of course, it is not always that simple.

Are we ordinary humans capable of not only aiming higher but also achieving real, meaningful progress?  Then-US Senator, Barack Obama, has expressed similar sentiments:

I wonder, sometimes, whether men and women in fact are capable of learning from history --- whether we progress from one stage to the next in an upward course or whether we just ride the cycles of boom and bust, war and peace, ascent and decline.

Given the predictability of our imperfect human nature, one can only wonder.

-Michael D’Angelo

Privatized Gains, Socialized Losses (Part One)

(Note: This is the first segment in a two part series.)

Is the ordinary citizen capable of learning from history?  If so, how did the powerful forces of Wall Street “outsmart” the US government once again?  Do we progress from stage to stage on an upward course?  Or do we just ride the cycles of boom and bust, ascent and decline?

Change is an interesting concept, the need for change a provocative one.  Is “change” but a subtle deviation from the existing order, yet sufficient for the ordinary citizen to recognize some difference from what was seen before?  The reasons for change are sometimes not all that different than those articulated even in long bygone eras, dating back to the time of the Revolutionary War.

Take, for example, the Great Recession of 2008.  Innovative thinkers on Wall Street created new financial instruments, like private mortgage backed securities, which the ordinary citizen was told somehow fell outside the scope of federal regulation.  Through these financial derivatives, the phenomenon of sub-prime residential mortgage lending was born and proliferated.

The impact of these derivatives was also exaggerated by a new type of financial investment vehicle called a hedge fund, which used leveraged, long, short and derivative positions with the goal of generating high returns.  It was said that, unlike mutual funds, hedge funds were for the most part unregulated, because they cater to “sophisticated investors.”

The problem was compounded when federal regulators were found asleep at the switch.  The forces of Wall Street capitalism had finally figured a way to circumvent the protections which F.D.R.’s New Deal administration had painstakingly put in place.  Central protective measures, designed not only to counteract and consequently help pull us out of the Great Depression but also to ensure that it would never be able to occur again, were simply bypassed.

In simple terms, over the past 25 years the discipline of regulating financial companies had undergone a significant change.  A phenomenon which was politically bipartisan in nature, the culture permitted a gradual yet alarming relaxation of the safeguards from F.D.R.’s New Deal.  Seemingly, it had been the policy of the federal government that all citizens should be entitled to “own” a home, whether they could afford one, or not.

The phenomenon culminated with the policy of the Bush/“43” administration to let the financial industry do pretty much what it wanted.  When the bubble burst, the US was thrust into and we are told now emerging from what is being referred to as the Great Recession of 2008.  Statistically, it was the worst economic contraction since the time of the Great Depression of the 1930s.

Main Street is and remains hurting - in a big way, its businesses, or those that remain standing, largely depressed.  Belts are squeezed perilously tight.  The nation’s banks are not lending in abundance, although they appear to have an abundance of money to lend.  Demand is simply lacking.

Unemployment also is and remains high, inordinately high by historical standards, stubbornly around 8% of the available work force through May 2012.  Among certain groups, African Americans and the young in particular, the unemployment figures are significantly worse.  Generally, economists define “full” employment at an unemployment rate of 3% for persons 20 and older, 4% for person age 16 and over, of the available work force.  That puts the number of unemployed who are seeking work at somewhere between 15.5 million and 18.6 million.

The federal government’s solution was, in simplistic terms, to bail out and prop up the banks, insurance companies and the auto industry.  The rationales articulated were many.  It was said that these large institutions had become “too big to fail,” that if they failed, collectively, the economic fallout from refusing to act to “save” them would have produced a devastating ripple effect.  A financial bailout would produce less pain than allowing the natural market forces to otherwise work.  The chairman of the Federal Reserve, Ben Bernanke, an expert on the causes of the Great Depression, had stated so with great authority and urgency.

Mr. Bernanke is a very smart man, the bipartisan respect that he enjoys a testament to the wisdom of his policies.  Mr. Bernanke also seems to have a gift of plain speak, such that he relates and communicates well with ordinary citizens.  Consequently, Mr. Bernanke has earned the trust of ordinary citizens, who acquiesce to his policies, which do seem to be working.  Some progress is apparent but remains excruciatingly slow, especially for the millions of ordinary citizens who continue to be unemployed.

(Next week’s second and concluding segment in this series highlights the most sweeping financial regulatory reforms which the Obama administration and Congress have enacted since the Great Depression.  But the frustrations of ordinary citizens are seemingly compounded by a system which persists in treating the moneyed class with preferred status.  In addition to a bailout which is not the right of every citizen, why are financial gains said to be privatized while corresponding losses socialized among the American public?)

-Michael D’Angelo

Swimming in a River of Wealth (Part Two)

(Note: This is the second segment in a two part series. The first segment traced wealth disparity to the inevitable forces of US capitalism. Since the end of the Great Depression, the precious few who are swimming in a river of wealth have consolidated and extended their gains smartly through greater and greater control of the various mechanisms of government, seemingly now in perpetuity...)

How and why did we let it happen again? What threats are posed by increased military spending or a fall in union membership? Why are an emphasis on individual initiative in concert with a deregulated business environment, and specifically financial deregulation, particularly hazardous to economic equality?

F.D.R.’s New Deal social safety net polices were embraced by ordinary citizens. The signature twin legislative triumphs included the 1935 National Labor Relations Act (NLRA) and Social Security Act (SSA). NLRA delivered the right of every worker to join a union of his or her own choosing and the corresponding obligation of employers to bargain collectively with that union in good faith. While SSA required the states to set up welfare funds from which money would be disbursed to the elderly, poor, the unemployed, unmarried mothers with dependent children, and the disabled. SSA was labeled a triumph of social legislation.

Following World War II, a Cold War “containment” policy was conceived to check the communist threat. This created fertile conditions for increased military spending on national defense and to discharge American commitments around the world. Perhaps more than any other single factor, federal military spending helped revive the economy of the Old South, which had been dormant for nearly eight decades dating back to the Civil War. The healthy effect on the domestic economy was palpable.

But by 1960 President Eisenhower's Farewell Address warned Americans about possible future problems. In particular, he pointed out the “military-industrial complex,” a new term in the lexicon of ordinary citizens. This complex, an alliance between government and business, had the potential to threaten the democratic process in the country.

Lyndon Johnson’s 1965 Great Society and War on Poverty, which championed government as the great provider, achieved admirable success as a high water mark of 20th century liberalism. But by 1980 the Reagan Revolution swept in. Almost overnight, American positivity and patriotism experienced a resurgence, President Reagan persuading Americans to rethink old attitudes about government as provider.

Popular rights asserted themselves on the federal union shop floor. However, statistics showed that as union membership decreased, wealth disparity between rich and poor increased. And so it came as little surprise to some that income inequality has worsened at a time when union membership has fallen to levels not seen since the 1920s.

Nonetheless a surge of individual spirit flourished, as federal government regulations were scaled back. In fact, in the last 30 years the US experienced a deregulated business environment which many agree is without parallel in US history. This was coupled with a massive military build up in declaration of a moral war against the Soviet Union. To speak against this foreign policy in the name of national defense was to receive the label of “un-American.” The river was healthy and well-stocked, and so the wealthy swimmers experienced an unprecedented level of prosperity. It was only a matter of time before they indulged in the grand feeding.

Wall Street minds are typically a step ahead of the government, innovating, devising new ways to facilitate the age old obsession with moneymaking. The law does its best just to keep up. Finally, with an assist from the US Congress the New Deal’s financial regulations came down and with them the walls to ensure that a Great Depression would not occur again. In theory, federal oversight was still present. But the regulators conveniently fell asleep at the switch.

The ordinary citizen is told that the federal government bail out of Wall Street and the large corporations in 2008 narrowly averted the phenomenon of another Great Depression. However, what phenomenon, if any, will provide the impetus to reverse and level the disparity of wealth between the very rich few and the mass of ordinary citizens this time around? Aren’t those in charge now the very same people who were in charge before the crisis? Perhaps this disparity in wealth as sanctioned by the federal government is but the essence of the Occupy Wall Street protest movement currently spreading to major US cities across the continent.

In an August 2010 New York Times Magazine article entitled “Income Inequality and Financial Crises,” author Louise Story cites to David A. Moss, an economic and policy historian at the Harvard Business School, who has spent years studying the phenomenon of income inequality. Mr. Moss has hypothesized that growing disparity between the rich and poor is not only harmful to the people on the bottom but also creates serious risks to the world of finance, where many of the richest earn their great fortunes.

In fact, as he studies the financial crisis of 2008, Mr. Moss says that another crisis may be brewing. When he accepted the suggestion of a colleague that he overlay two different graphs --- one plotting financial regulation and bank failures, and the other charting trends in income inequality --- he was surprised that the timelines danced in sync with each other. Specifically, income disparities between rich and poor widened, as government regulations eased and bank failures rose.

“I could hardly believe how tight the fit was --- it was a stunning correlation,” he said. “And it began to raise the question of whether there are causal links between financial deregulation, economic inequality and instability in the financial sector. Are all of these things connected?”

It’s a great question.

-Michael D’Angelo

Swimming in a River of Wealth (Part One)

(Note: This is the first segment in a two part series.)

Does US capitalism have a soft, human face behind its tough exterior shield? In the mad rush to the top of the pile, does it allow for a safety net for those at the bottom, or for the elderly, or the sick? Do its rules of engagement provide the game’s participants with a level playing field in the land of opportunity?

Main Street is convinced that there are some on Wall Street, perhaps but a precious few, who are swimming in a river of wealth. Through the forces of our system of US capitalism, they have mastered the rules of the game, manipulating them both within and outside the bounds of the law where necessary. The consequences are an acute concentration of wealth in the hands of a few. As a result, they control American society.

The disparity in wealth in present day America is presently as great as at any time since the start of the carbon-based Industrial Revolution, more than a century ago. Over successive generations, these wealthy few have continued to devise new, creative ways to use their financial resources discreetly, subtly, even covertly. They exert a degree of influence over lawmakers and politicians to maintain their extremely powerful, yet artificial, status. To quote Yogi Berra, it seems like Hamilton vs. Jefferson, “déjà vu, all over again.”

These wealthy few are strong swimmers, controlling the flow of capital spending upon which the American economic structure is based. They control banking, including interest rates, money flow, equity and bond prices, debt service and derivative financial investment vehicles. They control taxation policies in their various forms, including income, property and estate taxes. They control insurance and financial services companies. They control spending on political candidates and campaigns and thus have a direct effect on the outcome of democratic elections. They control the media, what ordinary Americans see and don’t see on television stations like Fox News and CNN. They control energy use and energy “policy” and are virtually the invisible force behind a lack of a concerted national energy policy. All these factors are in play.

Since these wealthy swimmers control elected representatives, they also control the political appointment process. This includes judicial and law enforcement appointees. They also set the agenda and control both the enactment and enforcement of laws relating to all the institutions of daily life that ordinary Americans more or less take for granted.

Their reach extending to the laws of inheritance, they can even control human behavior from beyond the grave. Their wealth is cemented into the status quo, but only flashed to the masses. They build monuments to themselves. Ordinary citizens pejoratively label them McMansions, in a second Gilded Age that mirrors a familiar pattern from Mark Twain’s Industrial Revolution era. In short, the precious few who are swimming in a river of wealth control the myriad of rules and regulations which were designed to ensure a level playing field for all citizens.  They use their considerable power to prohibit the kind of change that would be their undoing.

Through the influence of “market” forces, the Great Depression itself reversed and leveled the disparity of wealth between the very rich few and the masses of the poor. Both were wiped out simultaneously, finding themselves on the same bread lines. Both sought warmth by the same smoky, trash bin fires and shelter in public common areas. Begun in 1929, the leveling process would take a full 10 years to run its painful course. But by 1939, the US economy had largely recovered, thanks to a sharp increase in the manufacture of munitions for the World War II combatants. Though dry for a decade, the river of wealth was slowly returning to normal, as were the swimmers, who were regaining their general health.

At the same time, the social safety net polices of F.D.R.’s New Deal positioned the government in an active role as the very agent of reform.  Ordinary citizens would come to expect the support of their government, especially in time of need.  With cornerstone examples like the 1935 Social Security Act and National Labor Relations Act, the New Deal restored America’s faith in its system of capitalism by making it seem more humane.  Additionally, it ensured, at least theoretically, that an economic calamity of the Great Depression’s magnitude would never happen again.

(The second segment in this two part series brings us forward from the time of the Great Depression to the current economic upheaval in the aftermath of the Great Recession of 2008. How did we let it happen again?)

-Michael D’Angelo

The Organization of Labor (Part Three)

(Note: This is the final segment in a series introducing readers to the legacy of Theodore Roosevelt. Balancing the need for change against preserving the benefits of the status quo poses an intricate dilemma. T.R. believed under the concept of "noblesse oblige" (Part One) that citizens of wealth, power and privilege were balanced by public responsibilities to help those who lack such privilege or are less fortunate. The great issue was to reform the "unnatural alliance (Part Two) of politics and corporations” to enthrone privilege. "Conduct," not "size," was the overriding consideration. Labor was not only an economic, but also a moral, a human problem...)

Can a true, complex US industrial and political democracy exist, absent the ability for ordinary individuals to combine in a collective capacity to secure their basic human rights? Does the great entrepreneurial risk-taker who reaps large profits have any balancing obligations owed to American society and the law?

Individually, the worker was impotent to negotiate a wage contract with the great companies; they could make fair terms only by uniting into unions to bargain collectively.  Individual workers were thus forced to cooperate to secure their basic human rights, compelled to unite in unions of their industry or trade.  These unions “were bound to grow in size, in strength, and in power for good and evil as the industries in which the men were employed grew larger and larger.”

T.R. continued:

A democracy can be such in fact only if there is some rough approximation in similarity in stature among the men composing it.  One of us can deal in our private lives with the grocer or the butcher or the carpenter or the chicken raiser, or if we are the carpenter or butcher or farmer, we can deal with our customers, because /we are all of about the same size/.  Therefore a simple and poor society can exist as a democracy on a basis of sheer individualism.  But a rich and complex industrial society cannot so exist; for some individuals, and especially those artificial individuals called corporations, become so very big that the ordinary individual is utterly dwarfed beside them, and cannot deal with them on terms of equality.  It therefore becomes necessary for these ordinary individuals to combine in their turn, first in order to act in their collective capacity through that biggest of all combinations called the Government, and second, to act, also in their own self-defense, through private combinations, such as farmers’ associations and trade unions. (emphasis mine) 

A willingness to do equal and exact justice to all citizens did not, according to T.R., “imply a failure to recognize the enormous economic, political and moral possibilities of the trade union.”  T.R. concluded his discussion of the topic thus:

Just as democratic government cannot be condemned because of errors and even crimes committed by men democratically elected, so trade-unionism must not be condemned because of errors or crimes of occasional trade-union leaders.  The problem lies deeper.  While we must repress all illegalities and discourage all immoralities, whether of labor organizations or of corporations, we must recognize the fact that to-day the organization of labor into trade unions and federations is necessary, is beneficent, and is one of the greatest possible agencies in the attainment of a true industrial, as well as a true political, democracy in the United States. 

Not surprising, a balancing act, a weighing and mature contemplation of competing interests, was necessary.  The individual risk-taker took full advantage of the national security apparatus and the law of contracts, on the one hand, to protect and preserve his capital investment and vast profit potential.  Consequently, that same risk-taker had the resulting obligation, on the other hand, to permit the law to change to a sufficient degree to protect and improve the fundamental human rights of the workers who made those profits possible.

After completing two presidential terms featuring an agenda of activist, progressive reform along these lines, T.R. declined to run for a third term in the election of 1908.  He was maintaining the tradition of George Washington.  Instead, he threw his overwhelming popular support behind his then-Vice President and hand picked successor, William Howard Taft.

T.R. saw Mr. Taft as an able administrator under T.R.’s leadership and an extension of himself.  Essentially, it was understood that Mr. Taft would consolidate and expand T.R.’s activist, progressive agenda with all the necessary machinery of government already in place and smartly operating.

Unfortunately, events did unfold quite as T.R. had envisioned.  The powerful forces of conservatism fought back smartly, setting in motion an epic clash.  When the dust had finally settled, the political landscape had been transformed.  The ordinary citizen’s identification with the more familiar “Republicans vs. Democrats” of today had been born.

-Michael D’Angelo

The "Unnatural Alliance" (Part Two)

(Note: This is the second segment in a three part series introducing readers to the legacy of Theodore Roosevelt.  The first segment acknowledged the intricate dilemma in balancing the need for change against preserving the benefits of the status quo.  T.R. believed under the concept of "noblesse oblige" that citizens of wealth, power and privilege were balanced by public responsibilities to help those who lack such privilege or are less fortunate...)

What was the great issue that motivated Theodore Roosevelt --- which remains unresolved even today?  Why was a business entity's conduct more important than its class or size?  Was labor merely an economic problem, absent a moral component?

As a member of what he called the “governing class” of practical politicians, T.R. frankly admitted that he was engaged in a “campaign against privilege” that was “fundamentally an ethical movement.”  He targeted stock gamblers “making large sales of what men do not possess,” writers who “act as the representatives of predatory wealth” and “men of wealth, who find in the purchased politician the most efficient instrument of corruption.”  He reserved his strongest warnings for these multimillionaires.

T.R.’s early 20^th century policies sought to make ordinary citizens aware of what he considered the most ominous of the great fundamental questions before us.  The great issue was to reform the “unnatural alliance of politics and corporations” to enthrone privilege.

In this manner, he broadened the scope of the offensive conduct to be regulated.  His policies also flatly rejected the idea of “too big to fail,” which we read about all too often in the news today.  What was required was control and regulation in clear and unmistakable terms, drawing the line neither on class nor size, but the conduct and illegal business practices of business monopolies.  It did not matter that the business was large or small, the individual rich or poor, or a factory owner vs. a union leader.  The distinction was to be sharply drawn in moral judgment between those that do well vs. those that do ill.

T.R. understood that capitalists, as a product of human nature, desired free competition.  But, they desired it only insofar as free competition was necessary to wipe out their competitors.  The means employed were often all too questionable.  In the most “successful” situations, capitalists created business monopolies.  The scope and conduct of the entities they controlled were often in restraint of trade and, consequently, not always in the best interests of the public at large.  This, in particular, was where active government oversight and regulation were necessary:

These new conditions make it necessary to shackle cunning as in the past we have shackled force.  The vast individual and corporate fortunes, the vast combinations of capital, which have marked the development of our industrial system, create new conditions, and necessitate a change form the old attitude of the State and Nation toward the rules regulating the acquisition and untrammeled business use of property.

Likewise, T.R. recognized another anomaly which had developed, a crass inequality in the bargaining relation between the employer and the individual employee standing alone.  The great business organizations, which employed tens of thousands, could easily dispense with any single worker.

But what was the recourse of that worker?  He could not dispense with his job.  His wife and children would starve, if he did not have one.  The worker’s value, his labor, was a perishable commodity.  The labor of today, if not sold today, was lost forever.  But the labor was also part of a living, breathing human being.  Those who gave earnest thought to the matter saw that the labor problem was not only an economic, but also a moral, a human problem.

(The third and final segment of our series introducing readers to the legacy of Theodore Roosevelt concludes with a call for a balancing act between the big businesses and the labor of individual workers in the quest for profits.)

-Michael D'Angelo

Theodore Roosevelt and Noblesse Oblige (Part One)

(Note: This is the first segment in a three part series introducing readers to the legacy of Theodore Roosevelt (TR), who commands considerable influence over this awe-inspired ordinary citizen.)

Do the citizens of wealth, power and privilege have any public responsibilities to help those who lack such privilege or are less fortunate? Why is there mistrust for the tendencies of the wealthy to form tight, self-protective social cliques? Why are they the more resentful of outside monitoring?

Preserving the benefits of the status quo, balanced against the need for change, even change which is incremental, as opposed to radical, presents one intricate dilemma. In the Revolutionary War fervor, Thomas Jefferson had stated that “The tree of liberty must be refreshed from time to time with the blood of patriots & tyrants. It is its natural manure.” Jefferson believed that constitutions ought to be changed frequently to keep up with the will of the moment, that “no society can make a perpetual constitution, or even a perpetual law. The earth belongs to the living generation.” Moreover, Jefferson felt that every constitution and every law, naturally, should expire within approximately 20 years.

Later, however, after his presidential term concluded, a more circumspect Thomas Jefferson had refined his views of change with an eloquence that stands the test of time, without rival:

I am not an advocate for frequent changes in laws and Constitutions.  But laws must and institutions must go hand in hand with the progress of the human mind.  As that becomes more developed, more enlightened as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times.  We might as well require a man to wear the coat which fitted him when a boy as civilized society to remain ever under the regimen of their barbarous ancestors.

Previously, we saw that it was Thomas Jefferson, who objected to Hamilton’s banking system as flowing from principles adverse to liberty. This was accomplished by creating an influence of the Treasury over members of Congress, inherently susceptible to corruption, and tending to narrow the government into fewer hands and approximate it to a hereditary form. And it was Andrew Jackson, who swore an oath as an obligation of the government to grant no privilege that aids one class over another. Mr. Jackson vowed to act as honest broker between classes, and to protect the weak and defenseless against the abuses of the rich and powerful.

But it was Theodore Roosevelt, who keyed in on the essence of the Jefferson/Jackson lineage, as part of a concept known as noblesse oblige. The term of art is a French phrase literally meaning "nobility obliges." According to this concept, citizens of wealth, power and privilege were balanced by public responsibilities to help those who lack such privilege or are less fortunate. T.R. had been raised in New York City, in a family where the occupation of his Dutch father was listed as an “altruist,” or a “selfless” individual. An altruist had sufficient means, such that he found ways to give away his money for a living.

Although T.R. had come from wealth, there had always been “foreign” elements in him. He had an independent streak, which had never shown much respect for wealth. This streak manifested itself in disturbing differences of will, rather than mere quirks of character, that belied something vaguely traitorous about him. “I find I can work best with those people in whom the money sense is not too highly developed,” he had said. He mistrusted the tendencies of the wealthy to form tight, self-protective social cliques, which, in business, spilled over to combinations in restraint of trade. The tighter each grouping, the more obsessed it became with its own cohesion, and the more resentful of outside monitoring.

(The second segment in our three part series speaks to the great issue which T.R. had identified: to reform the “unnatural alliance of politics and corporations” to enthrone privilege.)

-Michael D'Angelo