News at Home

A Great Economy If You're Rich

by Jonathan Rees

Mr. Rees is Associate Professor of History at Colorado State University - Pueblo. He is the author of Managing the Mills: Labor Policy in the American Steel Industry During the Nonunion Era (University Press of America, 2004) and Co-Editor of The Voice of the People: Primary Sources on the History of American Labor, Industrial Relations and Working-Class Culture (Harlan Davidson, 2004).

A few weeks ago, I was watching CNN when a guy who came on explained how I could retire rich. Apparently, if I give up my daily latte and invest those savings in the stock market, I can become a millionaire.

What struck me most about this particular proposal was not its merits (even though I don't drink coffee), but its timelessness. Although this was the first pitch of this kind that I had seen in the post-bubble era, the roots of this argument are at least seventy-five years old.

In a famous article from the Ladies Home Journal in 1929, the Chief Executive of General Motors and the head of the Democratic National Committee, John Jacob Raskob, argued that “Everybody Ought to Be Rich.” All they had to do is save $15 per month, invest that sum and the proceeds from this money in “good common stocks” and after twenty years they would be wealthy.

Unfortunately, just a few months after this article came out, the stock market crashed. I do not pretend to know what will happen to the stock market or the economy in the future, but I find it interesting that such arguments are being made again now. Perhaps the most widely acknowledged explanation of the 1929 crash among historians is the growing inequality of wealth in the United States during the 1920s, and now inequality of wealth is growing again.

The evidence for this inequality is all around us. According to the Center on Budget and Policy Priorities, in 2000, “the income gap between the very wealthy and the rest of the nation . . . was the widest it has been since 1979, and likely was the widest it has been in 70 years.” There is even an organization whose sole purpose is to compile this kind of information, Inequality.org.

But inequality by itself is not necessarily a bad thing. If everybody has an opportunity to travel up the economic ladder, to live the American Dream (so to speak), the lifestyles of the rich and famous could serve as an impetus for people to work harder.

In my research on the American steel industry, I have found that company executives were obsessed with the idea of keeping upward mobility available to deserving employees in large part for this reason. As the Chairman of U.S. Steel, Elbert Gary, put it in 1920, “Any concern, any organization, any government which seeks to promote, demote, or retain a man in position contrary to his just deserts, combats the public interest, [and] the life and growth of the nation.” Gary was directing most of his ire at trade unions, but today the biggest threat to Americans getting their just deserts is not organized labor but the President of the United States .

Writing in the Nation , New York Times columnist Paul Krugman explains how George Bush's policies have the effect of keeping the rich rich and the poor poor. Suppose you wanted to “further entrench the advantages of the haves against the have-nots,” he suggests. “What would you do?”:

“One thing you would definitely do is get rid of the estate tax, so that large fortunes can be passed on to the next generation. More broadly you would seek to reduce tax rates both on corporate profits and on unearned income such as dividends and capital gains, so that those with large accumulated or inherited wealth could more easily accumulate even more. You'd also try to create tax shelters mainly useful for the rich. And more broadly still, you'd try to reduce tax rates on people with high incomes, shifting the burden to the payroll tax and other revenue sources that bear most heavily on people with lower incomes.”

Krugman also mentions cuts in healthcare and aid to higher education, as well as the administration's efforts “to break the power of unions” as evidence of its intentions to slow class mobility.

But Krugman's list predates another important weapon in the Bush administration's war against the American Dream: immigration reform. The economist James K. Galbraith has written eloquently of President Bush's new immigration proposal which will, in his words, “create a rotating underclass of foreign workers, who never assimilate to American ways or adopt American values” because, unlike the immigrants who came through Ellis Island around the turn of the twentieth century, these workers would be denied citizenship and could be expelled from the United States if they ever found themselves unemployed.

These new immigrant workers would also drive down wages for citizens in this country since employers would inevitably prefer cheap laborers without any political or economic rights to those who continued to demand the American standard of living. As Galbraith explains, “Bad bosses drive out the good. Good bosses will turn bad under pressure. The terms of our jobs will get worse and worse.”

With the traditional avenues for economic mobility blocked, what can Americans do if they want to get ahead? “If you work for a living in George W. Bush's America , you're a sap,” argues Harold Meyerson in the Washington Post. By contrast, “Bush tax policy rewards investment and inheritance.” In other words, if you're not rich already, George Bush wants you to invest in the stock market too.

But what if you don't have a trust fund and you can't afford a latte every day to give up? Besides having the bad luck of championing the stock market right before the most traumatic moment in its history, John Jacob Raskob did not recognize that most American workers only made between $17 and $22 per week in 1929. Thanks to George Bush's policies, this same critique may trip up another argument for the viability of anyone making it to the top of the economic ladder.