Is the problem with capitalism that there are too few capitalists? Is the solution to encourage every American to get into the stock market? Before the tech bubble burst at the beginning of this century, I thought this was an interesting notion that deserved careful consideration. Mea culpa. Today, after two disastrous stock market crashes in less than a decade, I think that the idea of “the investor society” or “the ownership society” or “universal capitalism” (defined narrowly as encouraging wider individual ownership of stocks and bonds, as opposed to broadly, to include proposals for sharing profits from public resources or sovereign wealth funds) is a profoundly misguided idea. The proponents of universal shareholding in the 1990s were right that more Americans should share in the gains from economic growth, which have gone disproportionately to the owners of capital and overpaid CEOs. But the method of spreading the gains by encouraging individual working Americans to risk their money in the stock market was ill-conceived.
During periods of rapid asset inflation, whether the assets be stocks and bonds or houses, it is tempting to conclude that the middle class and poor, as well as the rich, should be able to enjoy the benefits of asset appreciation. In such an era, like the 1990s, the warnings of realists are drowned out by the claims of optimists that the rise in stock market or house values is a permanent trend, not an unsustainable bubble. The failure to recognize the stock market bubble for what it was encouraged schemes to increase the ownership of stocks and bonds by America’s high-school educated, working-class majority. The utopian dream was that, in addition to earning income by means of wages, every American could be a capitalist, supplementing wage income with income from capital gains. The fact that, during the bubble, stock market returns outpaced the virtual returns from “investment” in Social Security created converts for the libertarian scheme of partly or wholly replacing Social Security with tax-favored individual retirement accounts invested in the stock market.
That this was madness was argued by a lonely few at the time. By now its lunacy should be apparent to everyone but die-hard libertarians and stock market touts in the financial press. Appealing as it seems, “universal capitalism” — the idea that middle- and low-income Americans can or should rely for a substantial part of their incomes on investments in the stock market — is bad for ordinary Americans and the American and world economies as a whole.
Proponents of universal individual stock ownership often view it as a supplement or replacement for public income maintenance programs, of which the most important are Social Security and unemployment insurance. Likely Republican presidential nominee Mitt Romney recently praised the libertarian idea of private unemployment insurance accounts. Diverting Social Security payroll taxes into the stock market is another right-wing idea which, like Count Dracula, repeatedly rises from the dead.
But public income maintenance programs are far less volatile than stocks and bonds, particularly at the federal level. The federal government has a diverse, continental tax base. And it can borrow more easily than the states to meet its obligations during downturns like the Great Recession. Average Americans can count on Social Security and the federal contribution to unemployment insurance far more than they can expect the stock market to be up at the exact moment when they are fired or have to retire.
This is not liberal propaganda. It is common sense. Any rational person would prefer the security of government-funded retirement and unemployment insurance to the insecurity of private retirement accounts and unemployment accounts. The truth is that Social Security and government unemployment insurance are far better deals than the universal capitalist alternatives.
In addition to being a bad deal for ordinary people, the push to increase stock market participation by the majority of Americans has had bad effects on the economy as a whole. At the root of the volatility of the global economy in the decades leading up to the crash of 2008 was an excess of global savings and too little wage-enabled consumption by ordinary people in developed and developing nations alike. This problem had many causes, including the strategy of Asian mercantilist countries of suppressing the incomes of their workers and the diversion of the gains from economic growth in the U.S. into rewards for shareholders and CEOs rather than higher wages for workers.
One factor in macroeconomic instability was federal tax policies that encouraged employer-based pension funds, in the 1940s and 1950s, and then Roth IRAs and 401K’s, beginning in the 1970s. These tax incentives channeled enormous amounts of money from working Americans into mutual funds. This money—at least what was left, after the brokers had extracted their hidden fees — added to the oceans of money sloshing around in search of unrealistically high returns, producing a pattern of ever more severe booms and busts.
Among other harmful effects, Wall Street management of the retirement money of millions of Americans, whether in the form of employer or union or public pension funds or IRAs and 401K’s, contributed to the culture of short-termism in the American business community. Answerable to flighty investors demanding high short-term returns, CEOs neglected the long-term health of one American company after another, in order to goose quarterly earnings reports by dismantling and offshoring industrial capacity, slashing wages and benefits, or engaging in financial machinations (some of them criminal, as in the case of Enron).
Last but not least, the fantasy of the investor society has had a corrosive effect on the ethics of Americans. The unspoken premise is that it is not enough to work hard in order to get ahead. Average Americans as well as the rich few must gamble in the stock market as well. To their detriment, millions of Americans whose wages failed to keep up with economic growth bought into this Wall Street-peddled fantasy of a nation of day traders and house flippers. They and the rest of us are still paying the price for the corruption of American morals by the get-rich-quick mentality.
It is time to wake up from the daydream of the investor society and face reality. The bubbles were just bubbles. No serious economic expert expects the next few decades to be a golden age of rapid growth capable of enriching janitors with stock market accounts as well as tycoons.
The United States is not a nation of capitalists. It is a nation of wage earners with a minority of capitalists. The only genuine capitalists — individuals who can live entirely from their investments — are a minuscule minority in the U.S. and all other so-called capitalist countries. Having a modest amount of retirement money in a mutual fund does not make anyone a capitalist except in the Wall Street Journal’s Op-Ed pages. For the foreseeable future, few Americans will derive any significant income from capital gains during their working lives, just as few will derive more than a small portion of their retirement income from sources other than Social Security including 401K’s. Right-wing propaganda about an emerging “capitalist majority” to the contrary, America is and will remain a nation of wage earners dependent on pay-checks and public social insurance like Social Security and unemployment insurance.
In the name of dealing with the federal budget, there is a well-funded push in Washington for cutting Social Security and forcing Americans to rely more for retirement on 401K’s and other tax-favored accounts. This conventional wisdom manages to be stupid and crazy at the same time. Given the dangerous volatility of the stock market, the truly prudent course would be to expand risk-free Social Security payments to most Americans, while reducing or phasing out tax breaks for volatile, risky stock market accounts funded by employer pensions or private savings accounts.
Businesslike prudence counsels an effort to shrink the failed, volatile private retirement savings programs and expand the more secure public retirement system. The expansion of the low-risk Social Security program, proposed by Steven Hill among others, can be paid for with higher payroll taxes or a mix of payroll taxes and general revenues, including increases in income tax revenues that follow the capping or eliminating of IRAs, 401K’s and similar poorly performing, tax-favored private retirement programs.
Just as private investments are a poor substitute for Social Security, so the promise of capital gains is a poor substitute for wage increases. Low- and middle-income Americans need higher wages or greater, secure public benefits, or both, not the promise that they can supplement their low wages or inadequate benefits with day trading — a promise that in hindsight looks like a sick joke.
Libertarian ideologues will continue to lobby in favor of replacing public social insurance with private accounts in the stock market; that is what they are paid to do, by the Koch brothers and their other donors. And self-styled “budget hawks” — most of whom are ideological conservatives posing as pragmatic centrists — will continue to claim falsely that the U.S. cannot afford Social Security in its present form, much less in an expanded form that would increase American retirement security while reducing macroeconomic volatility. Finally, fund managers on Wall Street will continue to salivate at the prospect of replacing part or all of Social Security payroll taxes with voluntary or compulsory “individual mandates” pressuring Americans to buy the risky products they peddle and to pay the Wall Street middlemen their fees.
Do not be fooled by this well-funded propaganda. Americans need higher wages and more generous, secure public benefits, not schemes to encourage them to compensate for lousy pay and inadequate benefits by gambling in the risky stock market. Some ideas really do fail the test of history. After two catastrophic stock market crashes in less than 10 years, the once-fashionable idea of the investor society gets a failing grade.
On Monday, we had another example of the Supreme Court’s ideological division: a 5-4 ruling, along partisan lines, giving police the right to conduct strip searches for any offense. This came on the heels of last week’s oral arguments before the Supreme Court about the constitutionality of the individual mandate provision of the Affordable Care Act, which led many observers to predict that the nation’s highest judicial body will strike down part or all of the controversial healthcare reform package. But the hearings were instructive in other ways. They showed once again that political partisanship is closely correlated to a justice’s view of the law. And they proved that the Supreme Court once again is functioning, not as a court, but as a third house of the federal legislature.
The U.S. Constitution, like many state constitutions, really is two constitutions in one. There is the black-letter constitution, which consists of rules about which there is little or no dispute. Most of these have to do with qualifications for representatives, like Article I, Section 3, Clause 1, as amended: “The Senate of the United States shall be composed of two Senators from each State, for six Years; and each Senator shall have one Vote.” Not a whole lot of room for interpretation there.
The other constitution, embedded in the same document, is the Blank Constitution. It is not so much a limit on power as an assignment of the power to fill in blanks left in the text, like the Eighth Amendment’s prohibition of “cruel and unusual punishment.” The need to fill in the blank is admitted even by champions of the “original intent theory,” who must dig up historical evidence of what the drafters and ratifiers might have thought was cruel and unusual punishment at the time of the Constitution’s adoption. The answer is not contained in the text.
Even the basic definitions of powers assigned to different branches of government are blanks that must be filled in. The basic issue in the case of the Affordable Care Act is whether Congress had the power to compel individuals to purchase private health insurance, under the Commerce Clause and the Necessary and Proper Clause of the Constitution. Article I, Section 8, Clause 3 of the Constitution gives Congress the power “to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” Article I, Section 8, Clause 18 gives Congress the power “to make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.”
Is the power to prescribe an individual health insurance purchase mandate included in these powers granted by the Constitution to Congress? The Constitution does not specifically say. If the Constitution were easy to amend, like some state constitutions, then it could be more specific — at the cost of having hundreds of amendments, like an imaginary Amendment Number 873: “Congress shall have power to impose an individual mandate to purchase health insurance.” But the federal constitution, for better or worse, was designed to be difficult to amend.
There is therefore no escaping acts of interpretation that are really acts of legislation: filling in the blanks in the text of the Constitution. The only real question, therefore, is how much latitude the federal judiciary should give Congress when Congress fills in the blanks by passing laws.
The Whig Party between the 1830s and the 1860s thought that the federal judiciary should defer to Congress. The Whigs favored a strong, competent federal government and opposed restrictions on federal power in the name of the states. Opposed to the administration of Andrew Jackson, the Whig Party also wanted the powers of the presidency strictly limited. In the Whig view, the federal judiciary should defend congressional power against encroachments by the states and the executive branch, while deferring to the decisions of Congress on matters of federal legislation.
The Whig theory of the Constitution strikes me as a pretty good one. But it rules out judicial activism, which has been embraced at different times by different factions in American politics. Between the Civil War and the New Deal, a pro-business federal judiciary persecuted unions and struck down federal, state and local restraints on corporations. In the civil rights era, liberal federal judges went beyond striking down racist laws to discovering a “right to privacy” in the Constitution that has been used to eliminate or restrict laws against abortion and homosexuality. Whatever you think about the outcomes of these cases, it is clear that the courts in all of them were just making things up.
In the case of the “right to privacy” they weren’t even filling in a blank in the Constitution, because the term does not exist in the text. In Griswold v. Connecticut, the 1965 case on which all subsequent federal law involving sex and reproductive rights including Roe v. Wade has been built, Justice William O. Douglas wrote that while the Constitution said nothing about contraceptives the “specific guarantees in the Bill of Rights have penumbras, formed by emanations from those guarantees that help give them life and substance.” The right to privacy is a penumbra from an emanation — in other words, it is whatever a majority of the Supreme Court says it is at any given moment.
Liberals applaud the federal judiciary when it pretends to find constitutional restrictions on the ability of states to ban abortion or gay sex, and conservatives and libertarians applaud the federal judiciary when it pretends to find constitutional restrictions on the ability of Congress to regulate the national economy. The left and the right endorse judicial activism when it works in their favor and denounce it when it produces what they think are the wrong results.
For my part, I think the Whigs with their theory of judicial deference to Congress got it right. The states have usually been a greater threat to personal liberty and economic growth than the federal government. Yes, the federal government interned Japanese-Americans during World War II and has abused civil liberties in other ways, and before the Civil War some Northern states were more protective of freedom than the slaveholder-dominated federal government. But throughout American history national majorities, acting through the federal government, have more often checked the illiberalism of local majorities.
Economic policy, too, is best carried out at the federal level in a nation with a continental market. The Balkanization of the U.S. economy into 50 separate state economies by state regulations — even good regulations — is something that should be avoided. And as corrupt and partisan as it is, Congress is better equipped to make public policy than judges.
But wouldn’t judicial deference toward Congress and a broad interpretation of congressional power run the risk of majoritarian tyranny over minorities at the national level? The historical record suggests otherwise. The Supreme Court has almost never been ahead of the political branches when it comes to minority rights or individual freedom. The Court intervened in Brown v. Board only when the civil rights revolution was well underway in the streets and in legislatures, and it intervened in Roe v. Wade and recent gay rights cases only when waves of reform were making progress in federal, state and local legislatures. The federal judiciary has often run out with its surfboard to ride a wave of liberation, but it has never caused the wave. Indeed, in the last half-century the same reforms — anti-racism, the liberalization of abortion laws and the rise of gay rights — have taken place at roughly the same time in all advanced industrial democracies, including Britain, which has no written constitution at all.
When they try to fill in the blanks in the Constitution themselves, instead of letting Congress do the job, federal judges cease to be judges and start acting as legislators — incompetent legislators, like the Supreme Court justices who wrestled with issues like adverse selection in insurance policies in last week’s hearings. A number of state constitutions provide for the direct election of state Supreme Court justices by the people. Perhaps the federal Constitution should be amended along similar lines. Why not? If our laws are to be made by a tricameral federal legislature with three branches of the legislature — the House, the Senate and the Supreme Court — we the people might as well be empowered to elect the lawmakers in all three.
Should American citizenship be for sale? You may not be aware of it, but without any significant public debate, your elected representatives in Washington have already answered the question in the affirmative.
The government does not sell U.S. citizenship directly — yet. But already it sells citizenship indirectly. Rich foreigners who put up a minimal amount of money in “investments” in the U.S. are permitted to buy green cards for themselves and their families, which permit them to apply after five years for the coveted privilege of American citizenship.
Here’s how it works. The EB-5 immigration program allows citizens of foreign countries who do not qualify for admission to the U.S. under any other immigration category (such as relatives of U.S. citizens or guest workers) to buy the right to live and work here by investing at least half a million dollars in the U.S. in a government-approved investment. If the investment lasts for two years, green cards authorizing legal permanent resident status are issued to the investors and their families. Up to 10,000 people a year can be admitted to the U.S. under the EB-5 program.
In a devastating new critique of this program published at the National Interest, David North, a former assistant to the U.S. secretary of labor, argues convincingly that the EB-5 inspector program is a terrible idea.
As North notes, the amount of money is an insignificant fraction of the amount of foreign investment in the U.S: “Another way to look at the scale is through the eyes of a serious venture capitalist, who would laugh at the prospect of seeking capital in tranches of half a million dollars.”
The approved investment is supposed to create at least 10 jobs, but as North observes, there is no plausible methodology for determining whether it does or not. And even if there were, federal immigration bureaucrats lack the skills or resources to determine what is a genuine investment and what is a scam designed to get an otherwise unqualified immigrant a visa.
Already the program has generated enough corruption to merit an expose in the New York Times: According to the Times, “developers and state officials [in New York] are stretching the rules to qualify projects for this foreign financing.”
These developers are often relying on gerrymandering techniques to create development zones that are supposedly in areas of high unemployment — and thus eligible for special concessions — but actually are in prosperous ones, according to federal and state records.
One of the more prominent projects is a 34-story glass tower in Manhattan that is to cost $750 million, one-fifth of which is to come from foreign investors seeking green cards. Called the International Gem Tower, it is rising near Fifth Avenue in the diamond district of Manhattan, one of the wealthiest areas in the country.
Yet through the selective use of census statistics, state officials have classified the area as one plagued by high unemployment, the federal and state records show. As a result, the developer has increased the project’s chances of attracting foreigners who will accept little, if any, return on their investment in the project if it means they can secure American visas for their families.
A cash-for-visas program that serves the interests of New York landlords, the politicians they own and foreign plutocrats who want to buy U.S. citizenship by way of green cards for themselves and their kin — as they might say in Manhattan, what’s not to like?
Allowing these “investors” and their relatives into the country reduces the number of slots for deserving immigrants whose energy and skills could offer a lot to America but don’t have half a million dollars to spare. North writes: “My sense is that the United States needs bright people more than relatively small chunks of short-term investments.”
Nobody would object to a program to encourage the kinds of immigrants who have contributed so much to the American economy in the past, including inventors like Alexander Graham Bell and Andrew Carnegie. But neither Bell nor Carnegie could have come up with the equivalent of half a million dollars when they first came to the U.S. The EB-5 is not a program for people who might make fortunes in America in the future on the basis of their own hard work and creativity. It is for foreign nationals who are already rich.
Where does the half-million dollars apiece of EB-5 investors come from, anyway? Ill-gotten wealth is not unknown in the U.S.; in large parts of the world, it is the norm. Should American visas be for sale to people who obtained their wealth abroad, not by hard individual work, but by inheritance, political connections or bribes? How does our republic benefit from giving first visas and then citizenship to Middle Eastern princelings, Latin American landlords and Russian oligarchs?
It is a sad reflection on the decline of the American republic that this squalid program for indirectly selling citizenship has bipartisan support. The Obama administration is even trying to streamline approval procedures to make it easier for foreign plutocrats to buy visas.
Here’s a project that the government ought to consider approving, as a vehicle for the EB-5 foreign investors program: removing the bronze plaque from the base of the Statue of Liberty that bears Emma Lazarus’ famous poem, “The New Colossus.”
“Keep, ancient lands, your storied pomp!” cries she
With silent lips. “Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!”
The torch held up by Miss Liberty could be replaced by a flashing neon sign, paid for by a Russian oilman, Mexican oligarch or Saudi prince who wants to buy a handful of green cards for himself and his family:
AMERICAN VISAS FOR SALE
$500,000 MINIMUM
The other day at Bergstrom Airport in Austin, Texas, I witnessed a striking manifestation of the new American plutocracy. Along with getting a photo at the Department of Motor Vehicles and sitting in a jury pool, standing in line at airport security with a mob of other people, miserable though it is, remains one of the few examples of civic equality in our increasingly oligarchic republic. Much airport security, of course, is theater, designed to provide alibis for bureaucrats and politicians in the event of a terrorist attack. But while we can debate what a rational airport security system would look like, no rational system would discriminate among passengers on the basis of ability to pay.
That is what makes the policy of Delta Airlines so shockingly un-American. In Austin, Delta had not one but two lines that fed into the Transportation Security Administration checkpoint area. One line was mixed race, mixed class and mixed age. The other line was usually empty. Now and then a white, middle-aged man would appear in the second line and the first line would be halted as he went directly into the TSA checkpoint.
“Who are those guys?” I asked a TSA officer, when I reached the front of the second-class citizen line.
“Delta has total control over the passenger line all the way up to here,” the officer answered. “They’ve decided to let priority passengers as well as pilots and steward staff go through ahead of others.”
“So that’s the rich white guy line?” I asked.
The TSA officer laughed. “On our side of the line, everybody is equal.”
Now I would be the first to concede that what Delta and other airlines do beyond the government security checkpoint at the gates that lead to airplanes is their business. At the moment, the model of America’s pathetic, predatory, deteriorating airline industry seems to be eking out nickels and dimes by playing crudely on the snobbery of their customers, with the use of two separate lines at the terminal gates, one for priority passengers — labelled, by various airlines, Gold, Platinum, Elite and so on.
The priority line, needless to say, goes to exactly the same door and entry ramp and does not get the “elite” to its destination one second earlier. Neither de Toqueville, who commented on the contrast between the status obsessions of Americans and their professed democratic egalitarianism, nor Veblen, who coined the term “conspicuous consumption,” would have been surprised by this method of showing off. Such silliness is a matter for satire, not lawsuits or protest marches.
But going through airline security is different. It is not a choice, like belonging to an airline’s frequent flier points club. Security screening is an onerous civic duty. Like other civic duties, it should be shared equally by rich and poor alike. Remember the motto of Jacksonian populism? “Equal rights for all, special privileges for none.”
Nearly all the airlines now allow well-heeled passengers to pay for the privilege of cutting ahead of the rest of us at the TSA checkpoint. At many airline checkpoints there are two lines. The long line looks like America; the short line is made up mostly of affluent white men.
Is this the future we Americans want: two lines at all airline security checkpoints, one for the privileged 1 percent and the other for the 99 percent, who have to stand aside to let the people with lots of money pass? Alas, it appears that making economic apartheid formal in U.S. civil aviation is a bad idea whose time has come. The TSA is experimenting with a “precheck” program with built-in class discrimination, including the government’s crony-capitalist invitation of frequent fliers from private U.S. airline programs, but not other American citizens, to participate:
If you are a United States citizen and are currently a member of CBP’s eligible Trusted Traveler programs (Global Entry, SENTRI, NEXUS), you are automatically qualified to participate in the TSA Pre ™ pilot as long as you are flying on a participating airline at a participating airport. (If you’re a more frequent flyer with Delta or American, you must opt in to the program by responding to the communication sent to you, which is why it’s important to find that email and follow the directions in it.)
In other words, if you do not fly frequently — and most low-income and middle-income Americans cannot afford to — you would not be allowed to take part in this public government program. In true crony capitalist fashion, the precheck program blurs the line between the government’s security function and the airlines’ purely commercial frequent flier programs.
The precheck program is advertised as an experimental program, holding out the possibility that after a period in which they are subject to more scrutiny than affluent business travelers, low-income grandmothers traveling to visit their grandchildren at last will be able to take part. More likely, the precheck program would never be extended to the masses rather than the classes. It would simply become another permanent perk of the elite, whose members would have no incentive to lobby for democratizing the program — rather the contrary.
But wouldn’t it help an overburdened airport security system to reduce the number of people to be rigorously screened by TSA? Not if it means more screening for low-income grandmothers and less for frequent business travelers. Indeed, as anti-terrorist measures, trusted traveler programs allowing affluent people who are frequent international travelers to be subjected to fewer security procedures might well backfire. Osama bin Laden and Mohamad Atta were members of the affluent social and educational elites in their countries who lived abroad and traveled frequently.
These “trusted traveler” systems will not make America safer. Their unacknowledged purpose is to create yet another area of American society that is privatized and segregated by class, to the benefit of the mostly white economic overclass.
Very well then. Why don’t we just make the new class-based discrimination official? Instead of leaving it to airlines and other corporations to construct the new apartheid piecemeal and informally, let the government issue a Premium Elite Citizen Card, valid for multiple purposes. For the right price, a price carefully calculated to be unaffordable by the majority of Americans, those willing and able to pay would be allowed to cut in line, not only at airports, but everywhere: at taxi stands, movie theaters, restaurants. All they would have to do is flash their Premium Elite Citizen Card to force the rabble to step aside and make way. The degeneration of America’s democracy into a banana republic would be complete, once the Land of the Free became the Land of the Free Points With Membership.
For those interested in American politics, the national media provide all the information they could want, in the form of live reports from the campaign headquarters and campaign buses of candidates, constant updates of polling numbers, interviews with voters alone and in groups, clips of speeches, animated maps of states and counties and congressional districts — everything except the one thing that would make sense of it all: regional political geography.
The importance of geography in American politics could not be clearer. To begin with, there is the red state-blue state map, showing Republican-leaning states in the form of an L uniting the West and South and Democratic-leaning states clustered in the Northeast, around the Great Lakes and on the West Coast. From election to election, states shift from one color category to another, but the pattern remains remarkably stable.
Within parties, geography is just as important. In the Republican primaries, Mitt Romney’s base is the Northeast and parts of the West. Rick Santorum does best in the Midwest, Newt in the South.
Geography was just as important in the Democratic primaries during the contested presidential nomination race of 2008. After John Edwards dropped out of the race, Hillary Clinton did well in Greater Appalachia while Barack Obama racked up votes in the Plains states.
Nor is the centrality of region in American politics new. Regional differences not only date back to the beginning of the nation but almost destroyed it during the Civil War. Unfortunately for politics as an exciting spectator sport, large parts of the country tend to vote for one of the two major parties for decades or generations, a fact that limits the horse races to a few swing states in any given era. (See “Florida, 2000 Recount in.”)
Given the importance of geography in our politics, you’d expect political reporters and other commentators to be explaining why different regions vote in different ways. Unfortunately, you can watch many successive 24-hour cycles of political news coverage without getting any adequate analysis of political regionalism.
It’s not that America’s political commentators lack interest in demographic factors that influence politics. On the contrary, they are obsessed with a small number of demographic characteristics, chiefly race and sex. Viewers or readers are told endlessly about the gender gap and racial/ethnic differences in voting. But you would fall asleep waiting in vain for a political reporter on TV to explain differences between the Highland South and the coastal South or to describe the distinctive political culture of the states in the Midwest settled by New Englanders.
In the world of our political media, there are generic whites, generic Latinos and generic African-Americans from coast to coast. The categories are sometimes refined by class, but this still produces hopelessly vague descriptions — treating Italian-Americans in Rhode Island as though they are part of the same generic “white working class” to which many Scots-Irish Tennesseans and Norwegian-American North Dakotans also belong. These fuzzy definitions all too often harden into cartoonish stereotypes like the “Angry White Male” of a few decades ago or “NASCAR Man” more recently.
A news junkie who follows the American political media could be forgiven for thinking that the American people are divided by race and gender, and perhaps religion, but not by regional culture. And yet the evidence says otherwise. Latinos in Texas vote differently than Latinos in California. Scholars have established that members of the same religions — Protestants, Catholics and Jews — tend to be more socially conservative in the South than in other parts of the country. Regional political culture is a powerful independent force, not a mere reflection of the numbers of particular demographic groups in particular territories.
As many scholars have observed, immigrant groups tend to assimilate, not to a generic American culture, but to particular regional cultures. Michael Dukakis and Ralph Nader are, respectively, cultural Yankees of Greek and Arab descent. Bobby Jindal is a Southerner of Indian ancestry. Where you grow up is often as important, if not more important, than where your family came from.
But cultural regions are absent from most media discussions of politics, other than the most cursory references to Southern conservatism and West Coast liberalism. At their worst, when they cannot ignore regional political culture, media pundits try to explain it in terms of the categories they prefer, like race and gender. For example, during the 2008 race, some commentators explained regional support for Hillary Clinton simply in terms of white racism. It was clear, however, that differences in regional culture had more explanatory power. Obama’s aloof and professorial manner fitted poorly with the populist political culture of Scots-Irish Appalachia, but resonated with, or at least did not repel, the low-key, introverted culture of the heavily Germanic-American northern Plains states.
The exceptions among prominent political analysts like Michael Barone prove the rule. What makes the neglect of region by highly visible political reporters and commentators all the more puzzling is the fact that regionalism in American politics has generated a vast and growing scholarly literature. There are older classics like Daniel J. Elazar’s “American Federalism: A View From the States” (1966) and David Hackett Fischer’s “Albion’s Seed: Four British Folkways in America” (1989).
Joining these are recent books that take political regionalism seriously: Earl and Merle Black’s “Divided America: The Ferocious Power Struggle in American Politics” (2007), Nicole Mellow’s “The State of Disunion: Regional Sources of Modern American Partisanshp” (2008) and Colin Woodard’s “American Nations: A History of the Eleven Rival Regional Cultures of North America” (2011).
These and other scholars disagree on the number and definition of American regions. To name only the most recent studies, the Blacks identify five, Mellow four and Woodard 11. But it is clear that these are slightly different maps of the same reality.
Why not invite scholars like these who actually understand America’s regional cultures onto TV news studio sets? As part of election night coverage, wouldn’t it be useful for journalists to interview political historians and political scientists to put election returns into their historical regional contest? Wouldn’t that be an improvement over turning for commentary to partisan flacks sitting on stools in the studio and reciting pre-packaged talking points?
To be sure, the kind of regional cultural analysis that is necessary to understand American politics requires reporters and commentators themselves to do some homework beyond simply checking Gallup polls and how they break down by race, gender and ethnicity. It might require TV talking heads to read a book or two (or at least delegate the task to a 20-something research assistant).
Clearly traveling with candidates across the country in buses is not enough to educate our journalistic elite about the central fact of American politics: regionalism. By all means, let them spend time on the bus. But they need to spend a few hours in the library.
What I am about to say will offend just about everybody, but it can’t be helped. Each of the major schools of thought about taxation in America — right, left and center — is trapped in its own particular fantasy world.
In its views on taxation, the American right is the most divorced from reality. As the fantasy economic plans of the various Republican presidential candidates prove, the right is still stuck in the Reagan era, calling for more and more tax cuts, with undefined spending cuts to be made at some future date, and with deficits and debt tolerated in the meantime — at least if Republicans control the political branches of the federal government.
The right’s derangement on the subject of taxation is often blamed on the anti-tax activist Grover Norquist, or tax-revolt populists like California’s Howard Jarvis in the 1970s. But it has deeper philosophical roots in the libertarian movement, which dominates the right’s economic policy, though not its foreign policy or social policy.
Back in the 1980s, when I was a young neoconservative (when that meant Cold War liberal, not Middle East-bombing neo-imperialist), my work helping William F. Buckley, Jr. on his book on national service, “Gratitude: Reflections on What We Owe to Our Country” (1990), took me to a conference on the subject of national service at the Hoover Institution. I found myself sitting at an outdoor lunch table with Milton Friedman, the patron saint of the Chicago School of free market economics. Like other neoconservatives of the time, I had no objections to the post-Roosevelt middle class welfare state, and I took the opportunity to ask Friedman, a libertarian (he preferred to call himself a “classical liberal”) how he justified taxation, in his philosophy.
“I don’t! I don’t!” he said, dramatically. “When the government taxes me, it’s the same as a robber pointing a gun at my head and demanding my money!” He pointed a finger at his head to make the point. Reporting this conversation to Buckley, I told him, “Milton Friedman may be a great economist, but if he thinks that taxation is theft, he is a moral and political idiot.” Unfortunately that particular brand of idiocy has become Republican orthodoxy.
To the extent that the radicals of the right (a better term than conservatives) admit the need for taxation, they tend to favor replacing all other taxes, including income and Social Security and Medicare payroll taxes, with a federal flat tax on consumption. There is a case to be made for a national consumption tax like a value-added tax or VAT (more on this below) but as one among several taxes, not as a replacement for all other kinds of taxes.
There is not a single advanced industrial democracy in the world that relies for its revenues on a single, flat national consumption tax. Not one. The absence of foreign examples may not bother right-wing proponents of American “exceptionalism” or uniqueness. But the rest of us must wonder, if funding all government spending from a single flat consumption tax is such a brilliant idea, why hasn’t some nation somewhere, perhaps a small nation, already tried the experiment? Libertarians can point to Chile as an example of a country that has attempted another of their panaceas, the privatization of Social Security. But they cannot point to any country that has adopted anything resembling their flat tax proposal.
Alas for the American left, the popular progressive alternative also fails the same test of international comparison. To judge from center-left journalism, more progressive opinion leaders oppose than support a federal consumption tax like a VAT, on the grounds that it would be regressive (a genuine problem, although one that can be ameliorated in various ways). But the Nordic welfare state, which represents a kind of utopia for much of the American center-left, rests on three revenue streams — not only income and payroll taxes, like those of the U.S., but also VAT revenues. The U.S. is unique among industrial democracies in its over-reliance on income and payroll taxes and its lack of a national consumption tax.
Now if you want to have a Nordic-style public spending without a Nordic-style VAT, you must jack up progressive income taxes, payroll taxes or both to extremely high levels. Much of the American left, it appears, would be comfortable with far higher progressive income taxes, funding much greater redistribution of income. Again, the question of international comparisons comes up: If this is a workable idea, why is that no other countries combine an ultra-progressive income tax with a much larger welfare state and no national consumption tax, not even the Nordic social democracies? Turnabout is fair play. If progressives gloat that no country in the world organizes its tax system along the lines favored by the flat-taxers of the right, conservatives can reply that not even the biggest and most generous European welfare states rely as much as American liberals would like on extremely progressive income taxes.
The political center, in the American tax debate, is represented by fiscally-conservative “deficit hawks” of both parties, who worry more about federal deficits and the national debt than the supply-siders of the right or the Keynesians of the left. Whether they are Republicans or Democrats, these earnest, rather solemn and puritanical folks tirelessly promote a bipartisan compromise: Raise revenues while lowering overall tax rates, by eliminating tax expenditures (“loopholes”) not only for the rich but also for the middle class.
In their own way, these centrists are as unworldly when it comes to the politics of taxation as the flat-taxers of the right or the redistributionists of the left. Bipartisan commissions can publish all the reports they want, but the odds that Congress will eliminate popular tax expenditures like the home mortgage interest deduction and the child tax credit are — as we say in Texas — slim to none, and Slim left town.
The centrist tax alternative, like the other two, fails the Other Country test. Centrist tax experts, not without reason, are afraid that lobbyists for special interests will riddle with any system of taxation with loopholes. They insist that all items should be taxed the same. On pain of losing membership in their professional guild, or so it seems, think-tank tax experts invariably say that the regressive effects of taxes on low-income Americans, including consumption taxes like a VAT, should be dealt with, not by exempting certain necessities like food and clothing from taxation, but by rebates.
For these thoughtful centrist tax experts, I have one question: Where is Rebate Land? Where is the country that taxes baby food at the same rate that it taxes cigarettes and alcohol and compensates by paying rebates to its citizens? In Europe? In Asia? In Latin America? Every democracy that has a VAT exempts certain items or taxes them at a lower rate than others. Exempting some items means VAT rates on others must be higher. So what? This upsets a few full-time tax experts and a few economics professors, but the rest of the human race somehow manages to live with the increased complexity that results in the tax code.
I don’t mean to discourage a vigorous debate about the future of American taxation. On the contrary, as Bruce Bartlett argues in his excellent, bestselling new guide to American tax reform, “The Benefit and the Burden,” the American tax code needs periodic pruning if it is not to be overrun with special-interest weeds.
My point is that the three currently-popular options for tax reform — the conservative flat tax, the liberal ultra-progressive income tax and the centrist formula of lowering rates while slashing loopholes — are all unrealistic, in different ways. Sorry, conservatives — if the U.S. gets a VAT or another national consumption tax, it will be in addition to federal and income taxes, not in place of them. Sorry, progressives — while income taxes on the rich can indeed be raised considerably, there really is a point at which doing so will backfire by encouraging massive tax avoidance or capital flight. The experience of Europe suggests that it makes more sense to add a VAT to the mix of American federal taxes, if you want to fund a European-style middle-class welfare state.
Oh, and tax centrists — if your goal in your career is not just to trim but to completely eliminate tax expenditures for middle class Americans as well as the rich, you are going to have a sad, frustrated life.
A trader on the floor of the New York Stock Exchange. (Credit: Reuters/Brendan McDermid) 
Antonin Scalia, John Roberts and Clarence Thomas 
The Statue of Liberty and a rendering of the International Gem Tower in New York City (Credit: Wikipedia) 
(Credit: Reuters/Salon) 
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