Category: History

Occupy Wall Street: A History Lesson

I don’t usually spend much time perusing Forbes’s billionaire list (it makes me feel poor) but between the current economic meltdown and the Occupy Wall Street protests, I decided to take a look and see just who these rich bastards are.  A couple of things surprised me.  First of all, a third of the Top 100 is still American.  I would have thought the numbers would be a lot less.  Granted, some are repeat offender family members, but that’s to be expected; inheritance laws being what they are.  (The Waltons, for example, have enough money to buy Neptune if they want to, and the Koch brothers aren’t far behind.)  The second thing is most of the names I expected to see aren’t there.  There are no Rockefellers, Astors, Gettys, Duponts or Vanderbilts – just to name a few.  In fact, none of the names I remember as being synonymous with wealth show up on the list at all.  It strains the imagination to believe the Carnegies and the Harrimans are looking around for lunch money, but they’re no longer the super rich I remember from my youth.  Times apparently have changed, and 100 million dollars ain’t what it used to be.  The next thing that struck me is that, of the thirty-two Americans in the Top 100 Billionaires, twenty of them are “self made” according to Forbes, and of those twenty, ten of them “made themselves” with computer technology.  All in all, an interesting haul of useful information from a twenty-minute Google search, but what does it all mean?

First of all, the recent rumours of America’s economic demise are greatly exaggerated.  The US government might be choking itself to death on debt, but it seems American business, if not booming, is bashing along quite nicely.  Secondly, despite what some would tell you, being rich is not a closed shop.  Money in America is not concentrated in the hands of a few permanent players who refuse to share the ladder of success with the poor.  I’m not stupid enough to think that every kid is a potential Horatio Alger character, but I am smart enough to know they exist.  After all, two thirds of the richest people in America made their money in their own lifetimes.  Their offspring might end up ignorant dolts like Conrad Hilton’s, but these folks haven’t been sitting on their assets, reaping the dividends of grandpa’s ingenuity.  Thirdly, wealth is transitory.  JohnD. Rockefeller was once the richest man in the world; today, the Rockefeller family doesn’t even get honourable mention.  To paraphrase Chris Rock (cleaned up for an adult audience) “He might be rich, but he ain’t wealthy.”  Finally, America has moved past the Industrial Age.  Aside from the Walmart children and Michael Dell, the super-money in America is being made out of digital thin air.  The Industrial Revolution is over, and the Post Industrial Revolution is upon us — even though most of us don’t recognize it.

Here’s a quick history lesson.  The wealthy industrialists of the 19th century made massive amounts of money on the backs of cheap, abused immigrant labour and indolent government regulations.  They pillaged their way across America giving most governments the finger and doing as they pleased.  They fixed prices, bought politicians and corrupted both the Stock Market and the money supply.  They centralized supply and demand in their own hands and built a personal infrastructure that exploited the hinterlands to facilitate it.  Their workers were used up, worn out and thrown away, like any other tool of the trade.  They were, at best, laissez-faire capitalists and, at worst, ruthless pirates.  In short, they weren’t called Robber Barons for nothing!

Now here’s the part the Occupy Wall Street crew never learned in high school.  That was over a hundred years ago.  Those people are dead.  The only thing that remains from those times is the names of the guilty, shown off on places like Carnegie Hall, Rockefeller Center and The Ford Foundation — to name just a few.  Laissez-faire capitalism hasn’t been seen in America since FDR learned his ABCs.  Since 1933, there have been enough government regulations written to clearcut every forest in Minnesota, twice over.  Commercial legislation may not be perfect but – folks, get it through your heads — it’s not 1881 anymore.  Labour and industry are not naturally antagonistic.  Arbitrarily resetting the clock to accommodate that lost political philosophy isn’t doing anybody any good.

Not only that but the great smokestack industries of America are dying, and they’re not coming back.  American workers do not toil away in factories and foundries these days, making good money building toasters and televisions.  They don’t have to; Asians are doing it for them.  And because of that, the days of lifetime assembly line employment are fading.  Just take a quick look at Detroit and points south.  Industry in America doesn’t need masses of unskilled labour anymore, and it’s never going to again.  This is a fact that howling at the banks is not going to change.

Here’s another history lesson.  When the Industrial Revolution swept through England and America, every home-based craftsman who didn’t change was wiped out.  For good or evil, they were ruined by the changing economic times.  We live in a similar age.  As the old-fashioned industries fold up shop in America, workers are going to have to change.  They are going to have to get new marketable skills — skills that are in demand.  Work ethic isn’t good enough anymore.   Nor is trying to resurrect dying industries, and screaming for industrial concessions and government bailouts to do that, is madness.

Open your eyes!  Google, Facebook, iTunes, Oracle and on and on are all billion dollar industries with no moving parts.  They’re American — born and raised.  They bestride the world beyond the wildest fantasies of Rockefeller, Vanderbilt, Astor and J.P. Morgan put together.  They’ve turned ordinary people into multi billionaires in less than a decade.  This is the future.

We can be Luddites, metaphorically tossing our shoes into the virtual machinery of our times with Occupy Wall Street nonsense, or we can look beyond our past (and our noses) to see what’s happening around us.   Either way, we need to remember this:  the Luddites may have stopped the machines for an afternoon or even a whole day, but they didn’t stop history for one second.

European Debt: Another Brief History

Standard and Poor’s are at it again.  For the last several months, they’ve been running around the world acting like everybody’s international told-ya-so auntie.  A couple of days ago, they landed in (or on) Italy.  The next thing you know, they’re having a five-star lunch on the Via Veneto and downgrading Italy’s debt rating to extra crispy.  What this basically means is Europe’s third largest economy now has less borrowing power than Slovakia, the agrarian little sister of the Czech Republic.  I’m sure Berlusconi shook himself out of his afternoon nap, give it a WTF and asked somebody (a la Barack Obama) “Who do these people think they are?”  The simple answer is S&P are the canary in the mineshaft and right now they’re gasping for air: pay attention!

Like it or not, the Post World War II European Slumber Party is over.  It was a great time, everybody had fun, but now it’s time to wake up, smell the espresso and go back to work.

In fact, the party’s been over for 20 years.  The alarm clock should have gone off in 1989, when the two different Germanys took turns dancing on the Berlin Wall.  At that time, after more than a decade of relative austerity, the prevailing wisdom was “Wunderbar!  Let’s spend the Peace Dividend.”  So instead of putting a couple of drachmas, liras, pesos or what-have-you aside for the eventual rainy day, Europeans actually started overspending again.  In their zeal to continue creating a second Mediterranean Eden of overlapping social programs, nobody bothered to remember the Peace Dividend was an illusion.  There was no significant amount of extra money available to Europe from cuts in defence spending simply because they’d never paid full price in the first place.  American taxpayers had been footing the bill for European defence ever since the days of Stalin.  Ironically, as Americans forgot about the Cold War and closed up shop on the Iron Curtain, Europeans had even less discretionary cash because they had to start buying their own tanks and helicopters again.  Nor was that the only dividend the Europeans were spending.

From the mid 50s until the Oil Embargo of 1973, there had been an economic miracle in Europe.  Called Wirtschaftswunder in Germany and Trente Glorieuses in France, the western continent from the Brandenburg Gate to the Bay of Biscay was doing business.  Believe it or not, during that time period, Greece’s average annual economic growth rate was 7% and Spain and Italy weren’t far behind.  Western Europe was awash with cash.  Once again, however, nobody bothered to stash a few coins in the cookie jar just in case one day the Saudis might start demanding full price for their oil.  But that’s not the real problem.

With mountains of money and American muscle to keep it safe, the Europeans could indulge every socialist fantasy their intelligentsia had ever imagined — from Karl Marx to Charles Fourier.  Social problems were bottomless pits, education and unemployment were subsidized career choices, government departments were bloated with employees, and wages and benefits everywhere went through the roof.  Money was no object and the Europeans threw it around like rice at a wedding.  This was all fine until King Faisal and his friends decided to cut off the goo that lubricated the wheels of European industry.  As oil prices shot up, European industry began to shrink.  This constricted the tax base and put an even greater strain on the social safety net.  In essence, OPEC outlawed miracles.  Unfortunately, the Europeans didn’t see the writing on the wall — or they chose to ignore it.  When revenues were no longer sufficient to cover their obligations, rather than halt some of their more ostentatious social projects, European governments turned to the banks.  To cover the shortfall they borrowed billions against future revenues.  By 1989 this vicious circle was spinning out of control.  That’s why the illusionary Peace Dividend looked so attractive.

Today, after three generations of entitlement programs, any mention of austerity is met with protests and riots.  The party might be over in Europe, but nobody’s leaving just yet.

So, as they say at the accounting firm of Dewey, Cheatem and Howe, “What’s the bottom line?”  It’s very simple.  If nothing changes, there is no way Greece can ever meet its financial obligations.  They either have to completely revamp their economic structure — or default.  There’s no third option.  Likewise, Portugal and Spain must either drastically curtail their social spending or face the same problem.  The IMF recently said that this is a very volatile time, and if everybody isn’t super careful, European debt could slide the entire world into recession.  That’s like saying Chris Rock and Russell Peters are a couple of funny guys and if you’re not careful you could end up laughing.  Recession is the given right now; the only questions are how deep and how long.  Guys like Berlusconi need to tear themselves away from politicking for a couple of minutes, listen to what the money boys like Standard and Poor’s have to say, and act accordingly.  If they do, the recession will be short, sharp and painful.

If they don’t, it’s going to be long, hard and ruinous.

Obama vs History: Taxing the Rich

If, as Sam Johnson and Bob Dylan maintain, “patriotism is the last refuge to which a scoundrel clings,” then taxing the rich is the first option of a faltering politician.  It doesn’t take a lot of planning; it’s easy to sound byte, and it makes good copy.  Journalist love tax stories because, since nobody likes taxes, they don’t need to waste a lot of time explaining economics to the iGeneration.  It’s either “tax breaks for wealthy friends [cronies in Canada]” or “making the rich pay their fair share.”  All journalists have to do is point to who’s getting screwed and go back to their Blackberries.  They don’t even have to look up.

When a faltering politician pulls the tax-the-rich rabbit out of his hat, he knows his days are numbered and he needs a ballot box bounce at the next election.  So when President Obama cranked up the teleprompter today, he wasn`t offering a bold strategy for economic recovery; he was starting his 2012 election campaign.

Actually, taxing the rich has a long and noble history.  It goes back to the days when Robin Hood and Maid Marian were playing Bonnie and Clyde with King John`s tax money.  In actual fact, though, Robin and his boys were a minor annoyance to King John; it was the rich northern barons who were the real problem.  John had been “making the [Saxon] rich pay their fair share” for years to cover the costs of his stupid wars.  Eventually, they got fed up with it.  In 1215, they raised an army, marched on London and finally cornered the King at a place called Runnymede.  Faced with involuntary abdication, King John signed the Magna Carta, a document that strictly limited the power of the monarchy.  The Divine Right of Kings was dead, western democracy was born and everybody (except John) went home happy,.  The Robin Hood story came centuries later and never really clarified just which rich Robin had been robbing.  Apparently, historically, taxing the rich has its disadvantages.

In the late 18th century, another British King, George III, was busy “making the [American] rich pay their fair share” to cover the cost of his stupid wars — and along the way maybe pay for their own defence.  This did not sit well with the local moneyed class of The Thirteen Colonies.  They got together in Philadelphia and decided to limit the power of the British king and the British Parliament — by getting rid of them.  On July 4th, 1776, they signed the Declaration of Independence, everybody went home to get their muskets, and the United States of America was born.  Meanwhile, George was left wondering if it was better to have taxed and lost than never to have taxed at all.

The modern version of “making the rich pay their fair share” first showed up in Britain, in 1909, when two wily Liberal politicians looked over to the left and saw the new Labour Party capturing the hearts and minds of British voters.  David Lloyd George and Winston Churchill decided it was time to redistribute the wealth of the Empire — and perhaps take a few votes away from the burgeoning socialist movement.  They concocted a People’s Budget which proposed an escalating Income tax, an Inheritance tax and a Land tax.  After a couple of years of political bickering and compromise, the budget passed.  Lloyd George described it thusly:

“This is a war Budget. It is for raising money to wage implacable warfare against poverty and squalidness. I cannot help hoping and believing that before this generation has passed away, we shall have advanced a great step towards that good time, when poverty, and the wretchedness and human degradation which always follows in its camp, will be as remote to the people of this country as the wolves which once infested its forests.”

Unfortunately, their scheme didn’t work.  Despite Lloyd George’s optimistic oratory, taxing the rich didn’t lift the poor out of poverty within that generation or even the next one.  It would take two World Wars and a worldwide Depression to eradicate the worst poverty from the slums of Great Britain, and even then not completely.  The only real result of the Liberal Party’s People’s Budget was within a generation the Liberal Party itself was wiped off the political map and is now “…as remote to the people of [Britain] as the wolves which once infested its
forests.”

Today, President Obama is playing a losing game with history by introducing the Buffett Tax on millionaires.  He might get away with it for a while because most ordinary people truly believe that the rich aren’t really “paying their fair share.”  It’s a common myth that no amount of reasonable arguments have ever been able to dislodge.  Let me bore you with some numbers, though; these are figures from the American Treasury Department.  In 2005, the top 50% of American taxpayers paid approximately 94% of all taxes collected, while the bottom 50% paid the rest – a mere 6%.  Obama knows that politicking with these numbers is not very smart.  However, “making the rich pay their fair share” is a far more palatable catchphrase.  It’s probably the first sound byte of the 2012 presidential campaign.

Luckily, the minute Obama opened his mouth, this morning history was on our side.  Despite its tempting appearance, taxing the rich has never been the best political strategy for staying around the halls of power — especially not in the long term.

It’s starting to look like the White House might get a new tenant next year.