Fist Of History

January, 2015Archive for

Another History Meme to be Punched

Wednesday, 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)

Wednesday, 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)

Monday, 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.

getimage.exe

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.

Dwight_D._Eisenhower,_official_photo_portrait,_May_29,_1959

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…

Wednesday, January 14th, 2015

Gaspee_Affair

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

The_Bostonians_Paying_the_Excise-man,_or_Tarring_and_Feathering_(1774)

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

Tuesday, January 6th, 2015

Warren_G_Harding-Harris_&_Ewing

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.

AWMellon

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.

Lange-MigrantMother02

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