Fist Of History

Howard Hughes and Las Vegas – Weirdness

March 3rd, 2015

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In honor of my recent trip I thought I would write about one of the more unusual moments in Las Vegas, NV history – the short period from 1966 to 1970 when Howard Hughes became Las Vegas.  Hughes prior to his 1966 interest in Las Vegas had developed a reputation as something of an eccentric billionaire, with a penchant for investing in strange projects and cutting edge ideas.  Hughes had made his fortune in the tool and die business, aircraft, and movies as well as investing in efforts to promote medical research.  But by the 1960s Hughes had gone from being often in the public eye to being a near total recluse.

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His concerns about germs and degenerating mental state combined to push him towards trusting a small cadre of advisers to run his business empire.  (The car above was fitted with an airline grade air filtration system to protect against germs.)  Hughes though also had a pathological hatred of taxes, income tax, corporate income tax, sales tax, it didn’t matter, Hughes hated them all.  He had gotten into a lifestyle of shifting between hotel suites, in part to keep away from the press and also to avoid any state being able to claim him as a resident and demand taxes from him.  This trend in 1966 led him to Las Vegas, for a ten day stay at the Desert Inn near New Years Eve.

desert_inn_poolside

When the ten day reservation was up, Hughes simply refused to leave, the hotel casino owners planned to force him to depart but Hughes aid pushed to get them to leave him be.  Eventually when things became too difficult for the hotel owners Hughes negotiated to simply buy the hotel, turning the Desert Inn into the new center of his business empire.  Hughes kept the top floor for himself and the floor below that for his business operations.  Hughes also went on a buying binge in Las Vegas, purchasing a total of four additional casinos and a local television station.  In doing so Hughes also indirectly ended the era of mob-rule in Las Vegas and gave the city a needed infusion of capital which helped push it through an economic rough patch in the late-1960s and early-1970s, due to its rising Mob image and regular federal investigations into Las Vegas operations.

Landmark_Casino

Hughes didn’t build anything, or remodel his holdings, with one exception, the purchase, conversion, and operation of the Landmark hotel and casino, an odd mushroom hotel built on the strip.  It never made much money and eventually closed after Hughes fled Las Vegas.  Now there are many stories about why Hughes got into Las Vegas as an investment, but the reason I find most compelling based on Hughes long-standing personality is the report it was, again, for tax evasion purposes.

Hughes had recently sold Transworld Airlines in 1966 for around $540 million – a sale taxed at a higher rate by the IRS because it was considered “passive income” rather than “active income.”  When Hughes learned that the gross proceeds from casinos however were taxed as “active income” he become very enthusiastic about suddenly owning and operating casinos.  Hughes also made a point of buying large amounts of undeveloped land in Las Vegas, land his corporate holdings contained after his death in 1976.

Hughes himself fled Las Vegas in 1970 to move on to new projects, having been a player in state politics in Nevada but finding the changing landscape of the city, and the politics of the state, no longer to his liking.  Rumor says that his suite in the Desert Inn was only opened for cleaning after he departed the city – it had remained closed to outsiders for four years.  (Just one sample of the weirdness, many reported finding sealed containers of Hughes waste products stored throughout the suite.)

diamonds_foreverThis story has an additional, odd cultural legacy, the James Bond film Diamonds are Forever.  In this 1971 film Sean Connery ends up investigating a diamond smuggling ring that operates through Las Vegas, where he infiltrates a casino owned by a mysterious and reclusive billionaire named Willard Whyte.  Later it turns out that Whyte is being impersonated by an evil Bond super-villain and Whyte’s corporate empire is being used for evil.  (An empire which includes heavy tech research, airplanes, and resource extraction.)  Oddly the film chose not to depict Whyte/Hughes in his classic attire of nakedness covering his genitals with only a napkin, which would have made the movie even more interesting I think personally.

Sources:  Wikipedia entries on Howard Hughes in Las Vegas, Desert Inn, article in the Las Vegas Review on Howard Hughes in Las Vegas, University of Las Vegas Digital Library entry on Howard Hughes

Socialism with American Characteristics – World War II and Rationing

February 13th, 2015

ww2ration

For those unfamiliar the formal position of the Chinese Communist Party is that China is currently under a system of economic and political control formally known as “Socialism with Chinese characteristics” and is the inspiration for today’s historical opinion piece.  This piece was inspired by two recent articles run on Communism versus Capitalism with a focus on its potential impact in the United States (here) and some proposed economic reforms the millennial generation should support, which also smacks of Socialism (here).  Although this is an opinion piece I think I can prove solid ground that during World War II, specifically between 1942 to 1945, the United States undertook a series of economic reforms that can be categorized as how the United States might look under its own form of Communist economic management.

bf_gas_ration_envelope_reverse

My first point of proof was the 1942 creation by executive order of the Office of Price Administration (OPA), an organization of the federal government charged with imposing fixed price ceilings on nearly every good on the consumer market, with the exception of raw agricultural produce.  (So finished food products sold in stores were subject to price control, just not the raw ingredients that flowed into them.)  The OPA also imposed a strict rationing system to ensure that all consumers in a time of scarcity were ensured of a certain minimum standard of food no matter demand and, in turn, limiting consumer choice and the ability to freely exercise their own will in relation to the market.

Now some consumer choice remained, how you spent some classes of ration tickets were up to you, you could buy more lard or less butter with the same coupons, but overall that was picking how you spent a fixed allocation of resources.  What you could not do under this system was decide “this week I want to spend all my money on butter and become the BUTTER LORD!”  No matter how much cash you had in hand, that simply was not an option open to you because of the strict ration limitations.

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The War Production Board (WPB) covered the other end of the economy, taking control of raw materials distribution to United States industry, coordinating raw materials and production capacity, and imposing strict limitations on consumer good production.  The two entities combined forces on some consumer goods, including a system of rationing on items like typewriters that required those who wished to purchase one to file for a special permit to allow its acquisition.  The WPB wielded considerable authority over the United States economy, complete with the ability to grant exceptions to allocation allotments (Hershey’s) and starve other industries considered non-essential to the war.

Combine these two factors with high-employment on federally provided war contracts, a combination of restrictions on labor agitation and alliances with unions to prevent work stoppages, and sharp income taxes that compressed income inequality, and I would argue you have the combination of forces that worked together to create a distinctively North American form of Communism.

It even captured the odd balance in the United States between federal, state, and local authority – rationing limitations were handled by local ration boards – filled with state appointed local leaders who could adjust rations limits within broader guidelines and issue exceptions.  Even excess economic capacity in the form of high wages was slurped up by aggressive patriotic bond drives that pulled spare unused economic buying power out of the economy and into low interest paying federal debt.

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So the question that then comes up is – did this experiment in Socialism with American Characteristics work economically?  Well that really depends on how you define “work” – it did succeed in the overall goal of producing a vast array of military hardware that effectively armed many other nations and allowed the United States to successfully conduct a two front war for three years.  But it was undermined by economic waste, specifically caused by black markets and efforts to duck production limitations, price schedules, and supply restrictions.

black_market_image

Even gas rationing was a general failure in the sense of limiting gas allocation to conserve rubber, history shows people defying gas rations on both a local and regional level throughout the war.  As well enforcement of these restrictions was often quasi-legal, heavy-handed, and handled mainly on a local level, leaving the federal government’s metaphorical hands clean.  It was a voluntary effort, for example, not to drive on the weekend for pleasure – failure to comply would often lead to the driver risking being stopped and harassed or beaten by local police for their lack of patriotic fervor.

I would also argue it failed because, although austerity was something the United States public embraced for the war effort, as quickly as possible post-war this was rejected for a consumer binge that rocketed the United States economy upwards, as well as the demand for raw materials, with the 1950s post-war consumer boom.

Could Socialism with American Characteristics work again, as the two articles at the start of this piece seem to think?  I believe it could, history shows it can, but I would argue not in the long term.  Both systems rely to heavily upon humans putting material demands aside for either nobler purpose or more leisure time, forces that history shows do not hold well over a long enough period of time.

Sources:  Article on Rationing in World War II, Wikipedia entries on the Office of Price Administration and the War Production Board

Reichskolonialbund – Nazi Colonies in Africa

February 9th, 2015

German_colonial

With the conclusion of World War I in 1919 Germany, upon signing the Versailles Treaty, forfeited all of its overseas colonies in Africa and Asia to the victorious Triple Entente (Allies) powers as spoils of war.  This loss of pride and symbolic power for Germany was one more complaint that the German nationalist right-wing aimed to correct once Germany regained its former position in world affairs.  Overall for Germany it was felt by many on the right that this loss of colonies denied Germany its rightful position in the world as a “Great Power.”   From 1923 onwards militant right-wing groups, nationalist groups, and pro-monarchist groups in Germany all agitated for the re-establishment of a German colonial empire in Africa.  These came together into several pro-German colonial organizations that were smashed together by the Nazi party in 1933 to create a new organization, the Reichskolonialbund, a.k.a. the Reich Colonial League.

Reichskolonialbund.svg

Operating from 1933 through 1943 this organization was aimed primarily at the goal of reforming Germany’s African colonies and was tasked with producing large amounts of propaganda in both the German press, and international medial outlets, about the value of the former German colonial empire, the need for additional living space for Germany, and the unfairness that Germany was contained by hostile powers with no additional room to grow.  That last component was the key reason why the Nazi party supported the Reich Colonial League and used it as a propaganda tool, one of the major foreign policy goals of Hitler during this period was to build up the military strength of Germany for the conquest of additional land to its east, the “living space” Hitler sought to grab from Poland and the Soviet Union through a broad, but ideally swift, series of wars.

Cameroon Chief Wears German Armor

Despite producing images like this and generally pushing for expanded German African colonies, in reality there is no evidence Hitler or the top Nazi leadership had any real designs, or goals, to gain land in Africa for Germany.  Some historians think that Hitler kept this organization afloat to provide a bargaining point with the British, potentially beneficial if Hitler dramatically renounced German colonial ambitions in exchange for British concessions.  Another possibility is this organization existed as a minor appeasement to German industrialists, who had originally looked to Africa in the late 19th century as a source for new markets and cheap raw materials.

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Germany did have one armed conflict in Africa though, North Africa specifically, with the intervention of German troops between 1941 to 1943 to attempt to assist the Italian military in its collapsing anti-British campaigns in Egypt.  One of the core goals of the German intervention in Africa was the conquest of Egypt, closing the Suez Canal to the British, and then had that been successful plans became more open-ended.  Hitler envisioned a grand sweep of the Germany’s African military forces, along with the Italians, potentially sweeping into the Middle East through Palestine, Iraq, and Iran to end up pushing against the southern Soviet Union and linking up with forces in Stalingrad.

However had events played out differently it is possible Germany could have sent its forces southwards from Egypt, deeper into Africa with the propaganda purpose of re-establishing the lost German empire.  The events of 1943 however proved the end of the Reich Colonial League, between the German defeat at Stalingrad and the loss of the German army in Africa such ambitions were seen as frivolous in a time of war emergency.

Source:  Wikipedia entry on the Reichskolonialbund

 

Male Nipple and Bathing Suits

February 5th, 2015

1910sbathingsuits-4

So a tidbit that is circulating on the Internet these days holds the following gem:

In the 1930s, men’s nipples were just as provocative, shameful, and taboo as women’s are now, and men were protesting in much the same way. In 1930, four men went topless to Coney Island and were arrested. In 1935, a flash mob of topless men descended upon Atlantic City, 42 of whom were arrested. Men fought and they were heard, changing not only laws but social consciousness. And by 1936, men’s bare chests were accepted as the norm.“  (Sourced from here and reappearing on other stories, such as here.)

Now I have no opposition to the cause as specified but I do have a problem with history being twisted to support any cause, and in doing some solid research with Google Books and online I cannot find one reference to either the “flash mob in 1935″ or to the four brave men arrested in 1930 for stomping around Coney Island bare chested.

What I did find though shows that this issue is, like anything, far more complicated than a simple link of “male nipples were bad up to 1930 and then there was mass protest and suddenly male nipples were cool!  Go team woman and freeing nipples!  Our struggle is the same!”

Topless_Male_Bathing

I did find links however to documented sources that indicate males were arrested as early as 1910 for “topless bathing” and that this regulation varied based on municipality and cultural norms of the region.  At least one source commented that in the United States the west coast was very relaxed about men swimming topless on the beach while on the east coast people remained very restrictive on the practice.  Histories of Coney Island show that up through the 1910s and 1920s there was a regular on-going battle between men swimming topless and local authorities arresting and fining them.

The collapse of this prohibition was very gradual, Ocean City, another famous resort, maintained and enforced a law against male topless bathing as late as 1939 and only fully abandoned it officially by 1945.

ItHappenedOneNightSexyGable2

The other argument of the meme, that Clark Gable was the first to appear naked and manly, nipple all ablaze, on screen in 1934′s It Happened One Night is an argument more easily disproved.  Gable, as seen above in all his sexy power, did indeed appear on screen sans a shirt in 1934, his movie was one of the last films released by Hollywood before the enforcement of the Hayes Code, which meant this was one of the last films seen for a while that would comfortably show off male half-nudity on camera.

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This is an image from the film Tarzan the Ape Man which was released in 1932, a full two years before It Happened One Night and I would note for my readers that the male actor above is wearing no top and his man nipples are in full display for the viewing audiences pleasure.  Yes this was an actual scene from the movie, yes it was distributed in the United States widely, and yes it did do well in theaters so quite a few people went to see it.

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This image is also from the same 1932 film and that is a bare chested Tarzan counting Jane’s toes so he can learn the basics of counting.  Yes the scene was included deliberately to be sexually provocative and yes, Hollywood fully intended to signal to the audience “His chest is bare, her feet are bare, and she is thinking Naughty Sexual Thoughts About Him.”  At the end of the film Jane chooses to remain with Tarzan and spend time with him in his jungle kingdom and yes, Hollywood wanted you to realize they were totally going to do it together, often.

So please no one arguing that the above bare chested scene “doesn’t count” because it wasn’t displayed in a sexually provocative manner but instead was some sort of “detached wild man” moment.  It wasn’t.

As I said above I don’t have a problem with women being allowed to go bare-chested if they wish, personally I think public decency laws should be written to be gender-neutral.  However the laws in the 1930s (and before) weren’t written to be gender neutral, they were as sexist as modern laws prohibiting women showing off their nipples and allowing men to do so instead.

From what I’ve found the laws prohibiting male topless bathing were written to prohibit it in mixed company, meaning men just hanging out with men could be topless (and in some municipalities even swim naked if precautions were taken.)  Those precautions, and the law in general, were written to prevent women from seeing bare male nipples as it was thought obscene to expose women to bare male chests.  So these decency laws were written from a sexist perspective that women might be shocked or offended seeing bare-chested males, but had no problems with men seeing each other topless.

Which to my eye is even more sexist than the current laws we have, at least in its intention.

Fight the good cause if you wish, and believe me I support you men and women who want gender nipple equality, just please don’t twist history to bolster your argument.

P.S. – If you do find a source showing the famous 1930 four men arrested for nipple exposure in protest, that links to a reputable primary period source or a reputable secondary source citing that primary source, by all means share!

Sources:  Wikipedia on Tarzan the Ape Man and It Happened One Night, entries in Coney Island by John S. Berman, The 1930s by William H. Young & Nancy K. Young, Life Magazine article on the subject in 1938 (which shows it didn’t all end by 1936), Ocean City: America’s Greatest Family Resort by Fud Miller & Fred Miller, Adam’s Naval: A Natural and Cultural History of the Human Form by Michael Sims, Houdini, Tarzan, and the Perfect Man… by John F. Kasson, and Brooklyn Streetcars by the Branford Electric Railway Association

American Bank Note Corporation

February 3rd, 2015

P-69A, 1944 100 Soles ABNC Trial Proof, GEM(1000)

I love paper currency, it is a personal weakness and any collections of old currency will result in my pausing in whatever I am doing to look at the lovely printed money and reflect on its history.  A recent gift from a family member of some historic paper money was well appreciated and gave me a pause to note a small named stamped at the bottom of each bill, the American Bank Note Company.  Founded in 1795 the American Bank Note Company has been in continuous operation and has printed a wide range of currency products, starting out with producing early American currency and later, once that line of work was absorbed into the United States Bureau of Engraving and Printing, into postage stamps for the U.S. market as well as currency for nations abroad.  What stands out in particular about the American Bank Note Company is that, in some ways, it is the company that produced bank notes for dreams of nationhood, along with meeting the demands for various regional banks.

Hait_ABNC

Used by developing world nations throughout the late 19th through the mid-20th century the American Bank Note Company provided paper currency that could quickly spell out a national mythology or mark a new nation states attempt at entrance into the world.  Looking over various different currencies produced by them is a marker into history.

Today the American Bank Note Company, although still a producer of paper currency on demand, has also expanded into work as a solutions management company for nations looking to overhaul their internal revenue operations.

Sources:  Wikipedia on the American Bank Note Company, the ABNote company website

Another History Meme to be Punched

January 28th, 2015

Greece_Anti_Capitalist_Party_Meme

So this is one of those “history setting” memes that actually requires a careful shifty-eyed reading of history.  It is just like the claim that liberal democracies have never started a war of aggression, you move the goal posts on the argument to exclude anything that doesn’t quite fit until you end up with a data set small enough to prove your point.  This above meme fits the same concept.

To begin with, the Coalition of the Radical Left, otherwise known as SYRIZA, did indeed win a majority of seats in the Greek parliament most recently and is a single party.  It originally started as a coalition of leftist parties however it registered formally in 2012 as a single party, why this is important will come into play in a moment.

Josip_Broz_Tito_uniform_portrait

Above is pictured Joseph Tito, leader of the Yugoslavian Communist party, World War II partisan leader, and post-World War II leader of the new Republic of Yugoslavia, shortly after renamed the Federal People’s Republic of Yugoslavia.  (For those playing our home game the “People’s” marker is a solid indicator of its Communist leanings.  The new ruling party of Yugoslavia did win the majority of seats in the election of November 1945 and the Communist party leading Yugoslavia was, both by definition and policy, anti-capitalist.

Shifty Eye Point #1 - “Well this doesn’t count because the elections in Yugoslavia, although secret, were marred by political maneuvering, intimidation, and using the mechanisms of the state to break opposition parties before the election.  Ergo this doesn’t count, just like all the other Eastern European nations that ‘voted’ for Communism post-World War II.”

I’ll grant Team Shifty Eye the solid essence of this point – because the Greek win in 2015 does appear to be as legitimate as any election in a democracy can get.

Léon_Blum_reading

In 1936 both France and Spain elected “Popular Front” governments (the one in France headed by Leon Blum, pictured above), a coalition victory in both countries that gave political dominance to leftist political parties and both of which undertook radical reforms of their respective governments.  In Spain the new party undertook reforms to improve labor’s position in Spain, and although rejecting land nationalization it did embrace state aid to collective economic ventures, protective laws for tenants, and state aid for agriculture in Spain.  France went further with its own 1936 reform government, including such actions as:

  • Creating a price control board to stabilize agricultural prices in France
  • Nationalizing the arms industries
  • State loans to assist small and medium businesses
  • Major public works programs
  • Shifted labor laws to very strongly pro-union labor

Shifty Eye Point #2  - “Those aren’t single parties in European politics, they are coalitions of political parties working together and therefore do not disprove the core truth of the meme, that Greece elected a single anti-capitalist party to power in 2015.”

Some might also add that the above measures are not “anti-capitalist” enough to count but I’d argue that one – anti-capitalist in Greece of 2015 remains to be defined and the above measures are not exactly capitalist favorites.

But the Shifty Point here is correct as well, these were not single parties but coalitions and in 2012 SYRIZA did indeed re-register as a single party, to gain access to a special seat boost in the elections.

Clement_Attlee

Meet Clement Atlee, leader of the Labor Party in 1945 and the surprise winner of the 1945 general elections when Winston Churchill and the Conservative party were kicked to the curb by British voters who supported Labor as the party to rebuild Great Britain after the ravages and expense of World War II.  Some of his administrations anti-capitalist policies included:

  • Nationalizing a good percentage of the economy including coal, railroads, road transport, the Bank of England, civil aviation, cable and wireless services, electricity and gas, and steel
  • Strong pro-union positions
  • Created the National Health Service Act which nationalized all British hospitals and provided universal healthcare
  • Expanded government supported housing
  • Expanded the government safety system

Put all that together and I think I’m on safe ground stating that the Labor government, and party, of 1945 – 1951 was solidly anti-capitalist, making the above meme sweet, but historically wrong.

Sources:  Wikipedia entries on the Joseph Tito, Popular Front 1936 Spain, the Popular Front 1936 France, the Attlee Ministry, the 1945 United Kingdom election, and the Coalition of the Radical Left

High Income Tax Rates and Economic Good Times (Part II)

January 21st, 2015

Stupid_Economic_History_Graphic

When we last left this topic we had gotten up to the post-World War II boom and the fact that the top income tax rate was locked at 91% until 1964.  However this outlook ignores a few key cultural pieces of information, specifically a minor modification to tax rates in 1944, as shown in the Tax Foundation tables on the subject.  If you look you’ll notice that starting in 1948 the tax rate for an individuals gross income was reduced if they were “Married Filing Jointly” – with reconfigured rates that reduced tax exposure for married couples.  Now in the modern era people think of that in terms of “well both spouses are working and earning” but 1948 did not see a huge surge in women entering the workforce, in fact after World War II the number of women in the workforce fell and remained low through the 1950s.

So if you were an average American working or middle class man who had a married wife at home, from 1947 to 1948 you saw your actual tax rate dip sharply by indirect manipulation of the tax code while keeping the illusion of high tax rates in place.

The stability and economic growth of the 1950s and the 1960s was due to a huge assortment of factors, expanding populations, the Green Revolution and a sudden explosion in global food production, governments in Western Europe and the United States paying down owed debt at low interest rates which caused a surge in consumer spending, and it was all anchored by a new system of tariff free trade combined with stabilized currency through the Bretton Woods system which had been established in 1944.  (In short, it created the World Bank, the IMF, and pegged all currencies to the United States dollar which was in turn pegged to gold.)

It was a golden, magical time, fueled by a series of different economic forces that started to come apart even as the world economy surged.

Lyndon_Johnson_3x4

The Revenue Act of 1964 cut the top tax rates significantly, dropping them from 91% on the highest earning levels down to 70% and cutting corporate income tax rates as well.  The reason for this was stagnating consumer demand from the early 1960s.  Despite this Johnson still had sufficient revenue to undertake his major policy initiatives to challenge poverty in the United States, his Great Society initiatives.  Which I would argue is the fly in the soup of this golden age of capitalism in the United States, mainly that the prosperity of the 1950s and early 1960s rested solidly upon a section of the working class forced by racism into the bottom-most economic rungs.  Urban and rural poverty among African-Americans, as well as other racial groups during this period, vigorously enforced through custom and law, helped bolster the United States competitively, in potentially a similar manner to how maintained colonial empires provided the economic edge to assist Western Europe’s boom.

Income tax rates stayed capped at 70% until it all began to really come apart in the 1970s.

Richard_M._Nixon,_ca._1935_-_1982_-_NARA_-_530679

The mid-1960s onwards saw the Civil Rights movement in the United States, decolonization, new demands for a higher standard of consumer goods which bled into the 1970s and the counter-push against the ideas espoused by the 1960s youth.  Cynically put the hippies of the 1960s grew up and got jobs, more accurately the idealistic twenty-somethings of the mid to late 1960s got into power and changed the laws and culture of the United States, but also approached the economy from a position of demanding more.

The Bretton Woods system collapsed in the mid-1970s as unsustainable, President Nixon ended gold convertibility and the world entered a period of free-currency flow, which both sparked the current boom of global trade and also further eroded United States trade strength.  Combine that with the oil shock under President Carter, rapidly rising inflation and stagnation under both President Ford and President Carter, and you ended up with a United States caught in an odd economic problem of “stagflation.”

Stagflation, in short, combines economic stagnation (minimal growth of the Gross Domestic Product [GDP]) with inflation that erodes increased government spending without adding to the economy.  The causes of stagflation are still up for debate but it appears most likely it was a combination of mandatory contractual pay increases to match cost of living increases in union contracts, combined with supply shocks due to oil shortages absorbing federal spending.

In essence when the government spent money it was simply siphoned up into maintaining the standard of living and paying for increasingly expensive raw materials to meet current demand, not into expanding production or new technologies.

Official_Portrait_of_President_Reagan_1981

But let’s look at the beast at the end, Ronald Reagan, the doom cutter, destroyer of government spending and crusher of the above factoids argument of an era of solid economic prosperity.

Regan did indeed cut the top income tax rate, from 70% to 50% in 1982.  If you examine the adjusted GDP table found here you’ll notice it did grow after the tax cut.  The late 1970s through the 1980s is a tough period to tease out individual economic factors, you have the falling income tax rates, deregulation, loosening of financial laws, the opening of the stock market to private investors with lower income levels, a series of economic booms and busts, and decreased government spending on social services and support.  But if you look at income tax levels you’ll note that under Reagan they feel to an all-time low of 28% from 1988 through 1991, when they then rose to 31% under the first President Bush.  President Clinton got them raised to 39.6% in 1994 and they stayed at that amazing peak level till 2003 when they fell, under the second President Bush, to an all time low of 35%.

In 2013 they rose again to 39.6% under President Obama.

Now, if a 4% dip and rise in the tax rate is the secret to the difference between economic boom times and economic collapse, then either our economy is incredibly sensitive to minor shifts in revenue or vast amounts of wealth are stored in the earned income of the top earners in the United States.  (Pro Tip – it is not.)

As a friend said – macro-economic and micro-economic factors are complicated, interlinked, and often require a deep understanding of a wide array of fields to fully tease out.

So when you see a factoid like this consider, it is probably more about stirring up your blood than about actually explaining real solutions to economic challenges.

Sources:  Tax Foundation information, Wikipedia entries on the economic history of the United States, the Bretton Woods system, post-World War II economic expansion, the Revenue Act of 1964, Richard Nixon’s presidency, Federal Bureau of Labor Statistics article on labor trends

High Income Tax Rates and Economic Good Times (Part I)

January 19th, 2015

Stupid_Economic_History_Graphic

So if you are going to do a “lesson in economic history” the first rule really should be to get the history behind the lesson right, and in this case it is really overly simplistic if not downright deceptive in its presentation.  Lets begin with a brisk measure of facts:

President Warren Harding did not drop the top tax rate in 1922 to 25%, thanks to data from the Tax Foundation in actual fact the tax rate dropped from 73% to 58% on the super rich, a 15% drop, between 1921 and 1922.  By 1924 it dropped to 46% and only by 1925 had it dropped to 25% as the maximum tax rate.  1925, in case you were wondering, is about the middle of the “gambling real estate and stock market bubble” the above factoid cites as the major cause of the 1929 market crash and subsequent major sustained economic downturn known as the Great Depression.

But stating that lowering income tax rates led directly to the speculation boom of the 1920s is extremely overly simplistic, many factors led to the bubble including:  unregulated margin limits which allowed the middle class and the working class as well as the wealthy to speculate on the market.  A vastly overstretched credit market allowed the middle class and the working class access to property and consumer goods at rates of payment that were dangerously optimistic.  Business in the United States entered a cycle of hyper-production, to both feed the growing credit-driven consumer market and also out of a general feeling of post-war euphoria and high economic confidence.  Also lest we forget the, bluntly put, crappy banking laws that allowed financial institutions to put depositor money into the stock market and risky speculation with an open hand.

But all this overlooks the fact that the United States was also feeding off a massive loan/repayment cycle thanks to German reparations, where surplus United States savings were borrowed by Germany, used to buy gold on the world market, that gold was then paid to France and Great Britain as reparations, who in turn paid the gold back to the United States to pay down their respective war loans.  (All of which ended up temporarily transferring wealth from Western Europe to the United States due to the interest charged on both the war loans and the reparation payment loans.)

The market collapse brought all of this house of cards coming down, not just the rich having a low tax rate on their income.

FDR_Inauguration_1933

Roosevelt did not raise the tax rate on the ultra-rich to 90% upon taking office, he raised it to 63% with Congress in 1932, where it stayed until 1936 when it was raised again to 79%.  It remained at that gut busting level until till 1941 when it slightly increased again to 81%.  It wasn’t until 1942 and the beginning of United States involvement in the war in 1942 that the income tax rate skyrocketed, but not just by tweaking the rate, which rose to 88%.  Up to 1941 the highest income tax bracket kicked in for the ultra-rich who made more than $5 million in 1941 dollars per year, in 1942 the top tax rate of 88% percent hit those who made $200,000 or more in 1942 dollars.  (Which were not that different, buying power wise, than 1941 dollars.)

Peak Roosevelt tax rate hit 94% in 1944 and 1945 and then began to ease back slowly from that high to an actual 91% for the post-war period.  It remained at that high level until 1964, but we’ll get back to that in the next entry.

The claim is that this high tax rate of “91%” made the economy boom – which stretches the definition of “boom” considerably.  1932 to 1939 was a period of depressed economic productivity in the United States, according to these statistics, which mirror others I’ve read, United States Gross Domestic Product (GDP) remained below 1929 levels until 1940.  It did rise through massive federal spending from 1933 to 1937 but if you look closely you’ll notice a dip in GDP from 1937 to 1938.  That was the year Roosevelt attempted to move from “special economic policies” – i.e. the federal government spending money like crazy to boost economic activity to lower levels of federal intervention, and the economy went into the toilet again.  You can see that pattern repeated again in spending, 1936 to 1937, federal spending goes down, 1937 to 1938, GDP in response goes down.  But unemployment is the best marker, average in 1936, 16.9% unemployed, average in 1937 14.3%, average in 1938 rises to 19.0%.

This enraged Roosevelt who had to back peddle quickly and restore government intervention.

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Claiming the explosive economic growth for the United States in the 1940s was due to higher income tax rates is also highly inaccurate, the federal government went on a massive spending spree building the material to wage war and also regulated the domestic United States economy to the point it was no longer remotely a free market system.  It was also one of the only times United States debt levels reached a point higher than its yearly GDP.  You spend that much money on top of even limited domestic consumption, combined with federal purchasing policies that paid obscene amounts for war supplies, and the economy couldn’t help but boom.

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As this entry is running long we’ll close with a brief overview of why high income tax rates did not solely power the economic boom of the 1950s.  As Truman left office by 1952 and Dwight Eisenhower took over, the United States enjoyed a period of greatly increased economic strength and productivity.  This was fueled by several factors however:  the maturation of federal World War II bonds, the providing of education to veterans through the GI Bill, the demands of military buildup for the Cold War and the Korean War, and an explosion of pent-up post-war demand in the domestic economy.

Did those high tax rates help?  They certainly did, as also did strong labor unions, but a few other factors helped as well.  Thanks to the twin impact of World War II and the post-war efforts by European colonial powers to maintain control over their former territories, there wasn’t much other place for economic investment to flow in this period besides either Western Europe or the United States.

Think about it for a moment…China in 1948 feel to Communist rule and turned inwards.  The Soviet Union was closed to capitalist investment, as was its Eastern European satellites.  Through the early 1950s Western Europe and Japan were rebuilding from rubble, and most turned to the United States for key manufactured goods and infrastructure support.  Even as Western Europe came back into the world economic system its own strong labor unions and tight taxation laws made it a competitor on par with the United States of the 1950s.  Only Japan didn’t follow suit as neatly and it took longer to come back into world economic prominence and compete with the United States, a factor that didn’t start to show up till the early 1970s.

On Wednesday, we look at the 1950s onwards and learn how Reagan didn’t make the United States into a economic dumpster through lowering income tax rates

Sources:  Tax Foundation pages on historic income tax rates, schmoop site on the Great Depression, Wikipedia entry on United States economic history

Terrorism by any other name…

January 14th, 2015

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The period leading up to the American Revolution was one of extreme emotion and extreme violence, from 1765 through the actual revolutionary period groups of colonists banded together to take direct action against British authorities in protest of what they felt were unjust taxes and brutal British legislation.  The name of this group is one that is steeped in American history, the Sons of Liberty, but the question to be asked is what remakes a series of violent crimes against government into acts of patriotism versus their being remade into terrorism?  The cynical answer is “who wins the fight writes the history books” but I believe a more nuanced consideration has to be made, especially in our own modern times where acts of political violence by some groups are discredited as terrorism while older acts that stem from a similar root are treated as glorious moments of patriotic success.  Such discussions have to begin with terms though, so allow me a moment to outline, in bullet list form, the charges against the Sons of Liberty:

  • Attacks upon British government ships engaging in anti-smuggling patrols, including the capture and burning of some ships
  • Public demonstrations against government authority designed to cause violent confrontation with British military personnel
  • Arson against private homes and public offices of British government officials
  • Threats and intimidation against British government officials including threats of injury and/or death, targeting the official and/or their family

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Although there is no evidence of any actual tarring-and-feathering of British officials that is definitive, the threat of such treatment was real and Sons of Liberty led mobs burned down the offices of at least one Stamp Act official, Andrew Oliver, and burned him in effigy when he refused to resign.  The campaign of personally aimed terror was strong enough that there were no British officials willing to enforce the Stamp Act when it finally came into effect, the Sons of Liberty had blocked the actions of the British government through intimidation and coercion.  Even after the end of the American Revolution the Sons of Liberty remained a political force, in 1784 members of this group, supported by the mass of the population, took over the government of the State of New York and passed laws targeting former Loyalists for expulsion and punishment.

The reason this comes up for a topic today is the current treatment of the Sons of Liberty by the History Channel, an entry on the show covers the problem neatly, from the following text:

“Don’t let the powdered wigs and oil paintings fool you: Samuel Adams, John Hancock and the other eventual Americans who changed the course of history were a ragtag band of secretive and sometimes mischievous young radicals.”

The question to consider is this – is there a future in which actions by other groups today, feeling alienated by their government and unable to get proper voice, who use violence and retaliation to win victories, and are hidden in a broader population might in two hundred become young radicals loved for their patriot success?

Sources:  (unfortunately no links due to technological issues) – Wikipedia on Sons of Liberty, the Gaspee Affair, PBS entry on the Sons of Liberty, Fox News entry on the new show “Sons of Liberty” on the History Channel

1920s Federal Government and Taxation…a quiet revolution

January 6th, 2015

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The period from 1920 through 1929 represents an unusual shift in the operations and nature of the federal government, one that can be best considered a “quiet revolution” in federal government in which both the principles behind taxation, and the principles behind expenditure, were quietly changed to reshape the government into a leaner structure which can still be seen in the foundations of the modern federal government currently operating within the United States.  The core of this change took place under President Warren G. Harding in 1921 with the passage of the Budget and Accounting Act – a new legislation that required that President to submit an annual budget to Congress for approval which would encapsulate all the revenues and expenditures of the federal government.  It also created the Office of Budget Management (OMB, it’s modern name) and the Government Accountability Office (GAO) – all institutions designed to make the federal government operate more like a modern corporation in its handling of income and expenditures.  The immediate result was increased government efficiency in cost-management and the opportunity for the government to reduce some of its expenditures overall.  By 1922 the federal government had reduced its overall spending by nearly half, from roughly six billion to only three billion in total costs.

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Harding also appointed Andrew W. Mellon to the office of Secretary of the Treasury, where he served from 1921 to 1931 under Presidents Harding, Coolidge, and Hoover.  Mellon was responsible for drastic modifications to the United States federal tax code, implementing vast reductions in tax rates on the theory that reduced income tax rates would capture more wealth overall for the federal government by encouraging wealthier individuals to bring their fortunes out of hiding from tax rates and into the productive economy.  During the 1920s his policies worked well overall, calling his efforts “scientific taxation” he oversaw Congress gradually reducing top-tier tax rates from 73% in 1921 to 24% by 1929.  During that same period federal tax receipts went up as well, however Mellon had some unusual ideas that shaped his policy of “scientific taxation” that make it stand out from more modern efforts to reduce tax rates.

  • Mellon believed that lower income tax brackets should be reduced as well, the lowest income tax rate was cut from 4% to 0.5% during the same period
  • Mellon oversaw estate tax rates being cut while also quietly ending policies that encouraged investments into tax shelters to hide wealth from taxation
  • Mellon pushed for the tax rate on “unearned income” – income from investments – to be taxed at a higher rate than that earned by direct labor – arguing that the inherent instability in income earned from wages and salaries needed to be sheltered from the hazards of life

The biggest part of Mellon’s revolutionary idea though was the goal of fine-tuning the income tax rate on the highest earners in society to a point where the government would gain maximum efficiency in returns by getting the most wealth into circulation against revenue generated for federal needs and then locking the tax rate down at that level.  He resisted calls during 1929 to further cut the income tax rate or other tax rates, arguing that peek efficiency had been gained and the wealthy needed no further incentives to get their money into circulation.  Mellon believed in squeezing those who could pay – his major goal was to find just the right squeeze to get the maximum revenue possible for the federal government that it needed, no more, no less.

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This aspect of the “quiet revolution” came to an end in the whirlwind of the 1930s and the global economic downturn now known as the Great Depression.  The population of the United States swept the Republican party from power in 1930 and 1932, putting the Democratic party into power and ending the era of a tight federal government and diminished federal spending.  The citizens demanded a more active role from the federal government in combating the problems of the Great Depression and this lead to the end of Mellon’s influence and an end to the idea of the federal government operating as a “business” rather than as a government.  But legacies from this carry on – in the modern United States tax policy is still guided by the goal of setting tax rates that will encourage money to stay in the system rather than hide and the federal budget is an annual event which Congress wrangles over even in the 21st century.

A final note to those who might argue that Mellon’s model, and the tight federal spending efforts by Harding, Coolidge, and Hoover are a more “proper” path for the federal government need to know a key detail, although the spending and role of the federal government declined in the 1920s the role of state governments expanded, including spending to pick up more social programs.  So the overall level of expenditure during this period on social infrastructure is a more complex topic than presented here.

Sources:  Wikipedia entries on Warren G. Harding, the Budget and Accountability Act of 1921, Calvin Coolidge, and Andrew W. Mellon