Economic Discontent and Conservatives’ Secret Weapon to Win the Class War

Paul Crist

August 13, 2010

Framing the Issue: Class War

The white-hot anger on the “Tea Party” political right and the frustration on the political left largely spring from the same fundamental problem: A generation of increasing economic inequality, job insecurity, loss of privilege, and a once optimistic middle class that is under attack and demoralized. Political and mainstream corporate news media leaders avoid the term, but what we are confronting is class warfare in America. 

The conflict is essentially between the owners of capital, and the owners of labor.  The battle lines are less clear than in the past, but this is not the first time in our national history that we’ve been here.  In the late 19^th and early 20^th century, there was only a small middle class relative to the population.  The period from 1940 to the 1960’s saw a tremendous growth of a middle class that, while their principal asset remains labor, also holds some capital assets (home equity, stock ownership, and retirement funds) that they fiercely desire to protect.  That has helped society’s true economic elites to enlist a substantial subset of the middle class to espouse a capitalist ideology that is largely in opposition to their real economic interests. 

Asset price bubbles during the past several decades helped to strengthen the ideology of wealth acquisition through capital ownership among middle and working classes, but the bursting of the housing price bubble and consequent financial crisis has been a major blow to the middle class psyche.  The current crisis has brought longstanding economic anxieties to a boil, and is largely behind the intense fear, anger, and frustration we are now experiencing as a society.  

Conservative middle class voters have long voted based on their aspirations, rather than their reality.  They have internalized an ideology that wealth and financial success equates to being “good people.” Like most of the working and middle class, those on the right aspire to the “American dream.”  But for conservatives, the wealthy “deserve” what they have, because they have worked hard, overcome obstacles, and demonstrate independence and self-reliance. Of course, they see those qualities in themselves and so have an ingrained expectation of achieving the wealth and success that they are “entitled to” as “good people.”

These myths about wealth, success, and the American dream are woven into the fabric of American culture and taught to successive generations. In this worldview, taxes “unjustly” take away wealth legitimately and “independently” earned, to give to the society’s “undeserving” and dependent.  Government regulation is an unreasonable obstacle to an individual’s “right” to acquire wealth and achieve the American dream.  There are myriad fallacies inherent in these American myths, of course.  Not least, the notion that wealth is acquired “independently” is absurd on its face.  Without the social order imposed by government, without the security, national infrastructure, education, and public health supported by government, acquisition of wealth would be impossible. Increasingly limited government hindered by successive rounds of tax cutting leads to an inability to maintain the building blocks of a social order where wealth can be created. 

A conservative economic philosophy that demands ever lower taxes and ever smaller, less potent government, focused narrowly on national security, the administration of justice (essentially punishment), and promotion of the “unfettered” conduct of business makes it much less likely that Tea Party conservatives will achieve the wealth and self reliance to which they aspire.

There is incontrovertible evidence that it was the strength of government that created the middle class between 1940 and 1960.  It was during this period that the middle class expanded rapidly, thanks to the introduction of a social safety net, and government regulation of business practices, and protections for workers, the environment, and consumers.  It was during this period that educational opportunity expanded; progress was made on civil liberties and equal treatment; public service was considered to be honorable and a privilege.  Government support for workers’ right to organize and bargain collectively with the owners of capital significantly promoted an economy that benefited a large proportion of the population.  In other words, the middle class was built thanks to traditional progressive values dominating American politics and policy.  And it is government’s growing impotence that has allowed the middle class, the bedrock of American prosperity, to be nearly destroyed in recent decades. 

Tea Party conservatives believe they are overtaxed, because they’ve been told they are by economic elites. But the US government budget, at 15% of GDP, is lower than it has been since the early 1940’s, at the beginning of the period when the middle class was created.  The government budget as a percent of GDP is the lowest of any wealthy country.  While we could debate the fairness of the tax system, whether it ought to be more or less progressive, etc., the gross numbers hardly indicate an overtaxed American populace.

The right thinks government is corrupt and does nothing well.  In fact, it is corrupt. But it is corrupt because we’ve allowed the owners of capital, conservative corporate interests, to have an outsize influence.  Those interests are not aligned with the interests of middle class workers whose principal asset is their labor. Government doesn’t do a lot of things well because we’ve gutted it, privatized it, and turned it over to particular interests over the last three decades.  Agency and regulatory budgets have been steadily slashed; and functions that ought not to be subject to the profit-making motive (e.g., environmental protection and regulatory oversight, worker protection oversight, even national defense and security) have been shifted to profit-focused private contractors.  The effect of outsize influence for the owners of capital has skewed US trade and industrial policies in ways that have devastated working families who grew up believing in the American dream.

That dream can be revived, but until we reverse the course of the past thirty years, it will not be.  Unfortunately, the right remains wedded to the ideology of supply-side, capital-dominated economics that is essentially the same as that which prevailed just prior to the Great Depression.  To change that allegiance, the left must make some fundamental changes in the way we communicate our ideas, beliefs, and strategies.

The Secret Weapon of Conservatives: How ordinary working Americans become devoted to an ideology that is opposed to their own economic interests.

The owners of capital have done a remarkable job of framing their messages in such a way that they are perceived as “ordinary people,” when in fact, they are anything but.  They used language brilliantly to frame the debate, taking advantage of widespread discontent following the Vietnam War and the economic stagnation of the 1970’s.  The left, conversely, has done a very poor job of framing the debate and developing winning language and messaging based on conceptual mental frameworks.

There are many examples.  George Lakoff, a linguistics professor at UC Berkeley, uses the example of the word “revolt” which implies or assumes a population that is being ruled unfairly. The word “revolt” creates mental images of people throwing off that unfair rule, which is perceived as a good thing.  

We hear the term “revolt” paired with “voter,” and ordinary Americans, who identify as “voters” see themselves as the oppressed people and the government as the oppressor.  If the voters revolt against government, then, everything will be good again.  This is the language that is behind the anti-incumbency mood in the current election cycle. If we “throw all the bums out,” and elect new leaders who are “not Washington insiders,” then things will get better.  Of course, it simply never turns out that way, and so every election, we hear new calls to again “throw the bums out.”

But what has the right done differently from the left?  Why have they done such a superior job of framing the political discourse?  In a word, the answer is money.  The right, the owners of capital, has invested billions of dollars researching language and idea messaging.  They have established conservative think tanks, and encouraged wealthy individuals to set up professorships.  They have invested in media outlets dedicated to disseminating conservative ideas.  Today there is an overwhelmingly conservative message dominating talk radio, cable news, print publications, and online information sources.

The investments of economic conservatives have created an “army of the right” that is constantly updating and honing the messages, reinforcing the conceptual frameworks, and ensuring that conservative ideas dominate the national political discourse, crowding out opposing ideas that are less well articulated.  As businessmen, the right understands the long-term value of investing and they have done an outstanding job of building the infrastructure necessary to preserve and defend their interests.

The left has a very different conceptual view of human nature and the human condition.  The left gives money to grassroots organizations and demand that it all go “to the cause.”  Those causes are about helping people in need, nurturing, and taking responsibility for others.  Money spent on administration, communications infrastructure, and career development for progressive leaders is a diversion of money that is intended to “help.”  This is a fundamentally different worldview from that of the right, who see “good” people as those who have already become wealthy, or at least self reliant.  The conservative worldview says that “helping” spoils people, gives them things they have not earned, and keeps them undisciplined and dependent.  This difference explains why conservatives have done better at dominating our political discourse and direction.

When one projects these divergent worldviews onto the nation, it is easy to see that taxes “take away” resources that have been earned by “good, disciplined, self reliant” people and give those resources to the “undisciplined and dependent” people who have not earned it.  Tax “relief” is how the right frames the debate about taxes, implying that taxes are an affliction that must be overcome.  To oppose tax “relief,” therefore, is to be the villain. To escape the demonization inherent in opposing well-articulated right-wing taxation and governance policies, Democrats have been forced to adopt the language of the right.  Because they are perceived as grudging followers of those policies, they have failed to avoid being called the villains.

In order to move the debate in ways that benefit workers, the owners of labor in our economy, we need to find a fundamentally different linguistic framework to talk about taxes and the role of government.  We need language that defines taxes as the price of being an American.  Taxes paid by previous generations are what made possible the infrastructure on which we rely now…the highways, the education system, the electric power grid, and the justice system…all of it.  Tea Party conservatives seem to view themselves as self reliant, but they are failing to recognize the enormous public and social infrastructure on which they rely and that makes their way of life possible.  We need to convince ordinary working Americans on the right that the infrastructure on which they depend must be maintained and enhanced in order for our way of life to be sustained or improved.

In fact, by not paying the taxes needed to maintain our national infrastructure, by not paying the dues for being an American, we are borrowing from the past and robbing from the future of our country.  Paying taxes should become an issue of patriotism, but instead, those who oppose taxes are now able to portray taxation as somehow unpatriotic.

Reframing the public discourse is a long-term project.  The right began investing in the infrastructure needed to frame public debate in the 1970’s.  By 1980, they had Ronald Reagan, who was able to use the infrastructure the right had developed and win the presidency.  The left needs to begin to invest in the same sorts of infrastructure that the right has been building for decades.  That won’t be an easy transition, based on the worldview of the left, but it must be done.

Progressives need to focus on identity and ideas, and move away from marketing issues and policies they think will resonate with voters. And above all, they need to learn how to talk about identity and ideas in ways that ordinary Americans can understand.  It seems that when Democrats do talk about ideas and identity, they open themselves up to charges of elitism, East- and West-Coast intellectualism that is removed from the realities of working Americans.  That represents a failure of conceptual framing of our public discussion.  We live in a sound bite era, and Progressives have yet to figure out how to talk about ideas and identity in sound bites.  The right does this very well.  And that is why they win at the ballot box.

Are Bailouts for the Super-Rich Inevitable? Ask Paul Krugman

Are Bailouts for the Super-Rich Inevitable? Ask Paul Krugman

“There’s every reason to believe that this will be the rule from now on: when push comes to shove, no matter who is in power, the financial sector will be bailed out.” Paul Krugman, 3/29/10

“The recovery of big banks not only benefited bankers. It also created huge paydays for hedge fund managers, with the top 25 taking home an average of $1 billion in 2009.” New York Times, 4/1/10

Paul Krugman, the Nobel Prize-winning economist and influential New York Times columnist, says Wall Street institutions have become so big and powerful that they will never be allowed to fail. The only hope he sees is to regulate them thoroughly. He greatly prefers the stricter rules now being offered by Barney Frank in the House to the softer ones coming from Chris Dodd in the Senate. (Neither bill truly tackles the derivatives casino.)

Krugman criticizes Senate Republican leaders who portray proposed bank regulations as just another Wall Street bailout. In fact these hypocritical leaders are doing all they can to thwart the Obama administration’s modest reforms and befriend Wall Street, hoping to net some cold, hard political cash from the bankers.

Unfortunately, when Krugman says bailouts are inevitable, he’s handing the government haters another round of ammunition. “See, the liberal/pinkos are going to just keep on bailing out Wall Street,” they piously intone.

But, why isn’t Krugman calling for an end to all financial bailouts for the wealthy, instead of announcing that they will go on forever?

One reason is that he doesn’t think breaking up the big banks will work: “I don’t have any love for financial giants,” he writes, but I just don’t believe that breaking them up solves the key problem.” He argues that a run on thousands of little banks, as in the 1930s, would also require bailouts to avoid another Great Depression.

Krugman’s sad fatalism is particularly worrisome to those of us who usually welcome his insightful commentaries. We expect thinkers like Krugman to imagine a better financial system — even if it’s not politically attainable right now. And that vision shouldn’t involve bailing out the richest, most reckless financiers, no matter what. Why should we ever accept or justify plutocracy?

Just think about the implications of Krugman’s stance. Wall Street remains in firm control of our nation’s economy since they know they’ll always get bailed out of trouble. The inevitability of bailouts encourages bankers to find yet more ways to gamble with investor and taxpayer money. How long do you think it will take our ingenious financial engineers and tax lawyers to “innovate” around Congress’s new rules (especially the Senate’s extra-weak ones)?

With everyone going so easy on the bankers who just sank our economy, Wall Street is using our bailout funds to reward its executives with bonuses that have no relationship to any real value they create for our economy. Just look at what is going on in the world of shadow banking. In 2009, the worst economic year for working people since the Great Depression (29 million Americans unemployed or forced into part-time jobs — with the BLS March 2010 jobless rate at 17.5 percent), the top 25 hedge fund managers “earned” on average $1 billion each! And that money is taxed only at 15 percent since it’s counted as capital gains. I defy anyone to show how those “earnings” can be justified in terms of job creation, contribution to our economy or social utility.

And where did all that money come from? From us! If we hadn’t bailed out the big banks, these hedge fund managers would have earned nothing at all. Because the financial pay scales are so outlandish and unconnected to the production of real value, it makes effective regulation even more difficult. Can we really expect government regulators with civil service salaries not to cast their eyes on the sweet sinecures they might snag in the financial sector after they’ve finished their grubby tour of duty in the government? How hard are they really going to press their future employers? (Any bets on where Chris Dodd will end up?)

Krugman has focused some much needed attention on the deregulation of finance since the 1980s and the rise of the shadow banking system, which evolved into a crazy unregulated casino of finance. But that’s only half the story. Why isn’t he — and why aren’t we all — talking about the gutting of progressive taxation, which also started in the 1980s? We didn’t just deregulate Wall Street back in the disco era. We threw out the whole idea of significantly taxing the super-rich. The marginal tax rate on those who earned more than $3 million (in today’s dollars) dropped from 91 percent during the Eisenhower years to 28 percent by 1990. Now the richest 400 people in the US are effectively taxed at only 16 percent, according to the latest IRS report. And that doesn’t even include the money these stupendously wealthy people didn’t declare and the resulting taxes they didn’t pay. In fact, we are losing $100 billion in taxes from the super-rich each year because they are hiding their money in overseas accounts. They’ve stashed it there for one purpose only — to avoid taxes that they are legally required to pay. (We lose another $30 billion a year in corporate profits taxes hidden in the same ways.).

If we forced those tax cheats to pay what they owe, we could fund free tuition for every student in America who was admitted to a public college or university. And if we had even more nerve and reinstituted progressive taxation, we could put America back to work, rebuild our infrastructure and build a new green economy — without going further into debt.

Let’s also talk about how deregulated finance and tax cuts for the super-rich destabilized our economy. We created the perfect conditions for big-time financial gambling. The super-rich had amassed so much money that they literally ran out of decent investments in the real economy of goods and services. And so shadow banking was born. Investors started chasing after fantasy finance securities like synthetic CDOs. Those were the casino chips that financed the savings and loan fiasco, the dot.com bubble and the housing explosion. Too much money in the hands of the few is the root cause of financial speculation and crashes — same as it ever was.

Along the way much of our economy was financialized. By the 1990s, a lot of people thought the future was in hybrid financial securities, not hybrid cars. Shortly before the crash nearly 40 percent of all corporate profits came from financial corporations producing little of real value. Wall Street wasn’t serving Main Street. Rather, Main Street — and all of us — were serving the Wall Street bankers. The result: a financial crash and an obscene distribution of wealth.

Allow me to share again with you the one factoid that says it all: It 1970 the ratio of compensation between the top 100 CEOs and the average worker in the US was 45 to 1. By 2008 it was 1,071 to one. No one can justify that gap on the basis of talent, knowledge or effort.

So here we are in our new billionaire bailout society. Its features include a collapsing infrastructure, chronic high unemployment, a gutted public sector, a hollowed out middle class and a depleted environment. It’s a place where the super-rich keep on getting richer, not because they are creating new jobs for Americans, but because they are gambling yet again, knowing we will bail them out.

Yes, regulation is critically important. But it’s not enough. If financial institutions truly are too big and too interconnected too fail, then we have only two choices: Bust them up so that they are small enough to fail, or turn all the major banks and their large shadows into public utilities.

It’s just not right or sane to let private bankers and investors walk off again and again with billions of taxpayer dollars for what amounts to wrecking our way of life. But alas, this is the nightmare we’re going to keep having until our best thinkers put forth a compelling vision to end the insanity.

Come on, Mr. Krugman — let ‘er rip! We know you’re not ready to make peace with our pampered and grossly overpaid financial elites. Americans are looking for a way out of our billionaire bailout society. Lead the way!

Les Leopold is the author of The Looting of America: How Wall Street’s Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009.

After graduating from Oberlin College and Princeton University’s Woodrow Wilson School of Public and International Affairs (MPA 1975), Les co-founded and currently directs two non-profit educational organizations: The Labor Institute (1976) and the Public Health Institute (1986). He designs research and educational programs on occupational safety and health, the environment and economics. He is now helping to form an alliance between the United Steel Workers Union and the Sierra Club. Leopold is the author of The Looting of America: How Wall Street’s Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009.