Why the Rich Keep Getting Richer
By Paul Magnusson
WEALTH AND DEMOCRACY A Political History of the American Rich
WEALTH AND DEMOCRACY
A Political History of the American Rich
By Kevin Phillips
Broadway Books -- 473pp -- $29.95
Kevin Phillips is most often identified in the press as a "Republican strategist" since he once had a consulting and polling firm near Washington. But he's hardly just another GOP spinmeister. In fact, Phillips is a thoughtful analyst and historian. And he gives most card-carrying Republicans severe heartburn by focusing on the "popular resentments" of America's beleaguered middle class and the dangers the party faces by ignoring discontent. To conservative members of the party, Phillips is just fanning the flames of a class warfare which, conventional wisdom holds, will never have much appeal for Americans. Phillips' latest book, his ninth and most ambitious, may finally drive his conservative critics mad, but it can't easily be dismissed.
Wealth and Democracy: A Political History of the American Rich is no polemic. Instead, it convincingly places Phillips' ideas in a broad historical and economic context. It has the same basic argument as his 1990 book, The Politics of Rich and Poor: The wealthy use their money to buy influence and then employ their resulting influence to accumulate more money. But now it's better explained, more gracefully written, and backed up with statistics, tables, and charts. And there's a new wrinkle. The superrich, he says, sometimes get their comeuppance in the form of stock-market crashes that are all part of the cycle he describes.
Phillips is connecting many dots here. For example, he links both the Dutch tulip mania and what he calls today's "Second Gilded Age" to the waxing and waning political influence of the mega-moneyed class. (We're talking here not of the $125,000-a-year lawyer but of the $2 million-a-year investment banker and the $40 million-a-year CEO.) While it's not intended to make readers take to the streets, Wealth and Democracy is enough to make any but the most privileged Americans deeply suspicious about the growing influence of the wealthy on their government.
In the Phillips theory, economic and political forces in the U.S. and other countries have repeatedly generated periods featuring speculative bubbles, political scandals, bursts of inflation and deflation, and voter revolts. The excesses of America's free market and moneybags democracy in particular make the pattern re-occur in intense series of booms and busts. Phillips identifies three distinct U.S. historical cycles--we are at the end of the third--in which the egalitarian policies of moderate GOP Presidents Abraham Lincoln, William McKinley, and Richard M. Nixon get replaced "conclusively by the language of Wall Street, Darwinism, and tax-cut worship." The result each time has been a greater concentration of wealth and power at the top.
The cycles follow a familiar pattern. The Civil War, World War I, and the Vietnam War spurred government spending and price increases and allowed some parts of the economy to accumulate inordinate wealth. A speculative mania followed sooner or later in sectors such as shipping and railroads, and later telecommunications and computer technology. The gathered wealth afforded its beneficiaries greater political influence, which was used to buy economic policies to their liking, such as cuts in taxes on income, estates, and gifts.
So where are we now? In a bad place, says Phillips. Once again, wealth disparity is at a peak. The middle class is working longer hours for stagnating wages and declining health and retirement benefits. The average household cash income has remained flat through the '80s and '90s for all but the top 1%, where it zoomed from an inflation-adjusted $256,000 to more than $644,000. Tax policy is increasingly skewed to the benefit of millionaires, while Social Security and Medicare are facing long-term deficits. Corporate welfare riddles the tax code and the federal budget. Manufacturing companies are moving production and jobs abroad in search of lower wages and taxes.
Nor is America's international position secure. The U.S. presents the "aging visage of the leading world economic power--purple-veined with years of high living, lips curled with the insolence of great wealth, eyes bloodshot with the late vigils of increasingly frequent financial crises," Phillips writes. Most ominously, Phillips compares the U.S., post-September 11, to Holland in the early 1700s and Britain in the 20th century, when each nation, at the peak of its economic power, expended its energy and treasure in a burst of warfare.
If Phillips' book lacks anything, it is a reassuring final chapter neatly wrapping up 10 things that Washington's policymakers might do. On the other hand, this might sound phony coming from such a skeptic. He does say that today's situation can be self-correcting with a new burst of "radicalism seeded by economic and political pessimism." As for specific cures, Phillips suggests only higher taxes on inheritance and income to diminish wealth imbalances and higher import duties to "recapture the U.S. internal market for domestic producers and workers."
Such notions aren't going to be popular on Wall Street. So, if you believe that President Reagan's supply-side tax cuts worked as advertised, if you think the wealthy are rich because they work harder, if you oppose campaign-finance reform, and you feel that American-led globalization is just fine, you had better have an expensive single-malt Scotch by your side as you read this book.
Magnusson covers politics and international trade from Washington.