Letter to My Son

Dear Bill,

One of the benefits of age is the experience of having lived through a greater piece of history and, perhaps, learned a little from the view.

Looking at the current market meltdown, I suspect the history books will record it as a 21st century version of 1929 - 1934. In both cases, the crisis was brought on by the natural effect of unrestrained "free market" ideology. After the panics of the late 19th century, Teddy Roosevelt was swept into office on a promise to break the power of the corporations (i.e. restrict their freedom to create monopolies) and introduce some regulations on the financial markets (i.e. more restrictions on freedom). In the 1920s, we backed away from or found a way around these early regulations and the good times rolled - until the excesses became so great that people lost trust and everything began to crash in 1929. FDR laid the foundation for America's 20th century growth and creation of a middle class by severely restricting the freedom of both the financial markets and of corporations, and instituting a highly progressive income tax. During that period of high marginal tax rates (often above 90% in the top bracket)* and highly restrictive business and financial regulation, the American people and American business thrived. Indeed, during that period America passed all its international competitors and became the world's economic powerhouse.

But success engenders greed. People from all walks began to think that they would be even better off if they could get rid of taxes and regulations. So beginning with JFK, America started down the road to economic Libertarianism. "The government wastes my money, gives it to the lazy and indolent, sends it overseas as foreign aid." "I can spend my hard-earned dollars better than the government." "I earned it, what right do they have to tax it away?" "The free market is the most efficient allocator of resources."

And so we undid or sidestepped most of the regulations and tax policies that had been in place. We privatized everything including more and more of the military. We allowed mergers to create firms so large that the public dare not let them fail. We created new financial instruments that were entirely unregulated (i.e. derivatives). We truly built a lightly taxed, lightly regulated, free-market economy.

And what happened? Surprise! 1929 all over again. Same philosophy, same result.

In some important ways we are in worse shape than we were in 1929. Because natural free-market incentives so highly favor the short term, we have lost our long-term culture. Teddy Roosevelt's speeches were all about building and conserving for posterity. Today few politicians talk about posterity. Today's gas prices are more important than what kind of nation we'll hand to our grandchildren. To use a metaphor, the guy who chops down his orchard and sells the wood is much "smarter" than the guy who tends his trees and collects apples each year. So rather than launch an Apollo Project to learn how to live well with less energy, we will drill until we have drained every last drop. Rather than live within our means, we will "chop down our trees," borrow from other nations, borrow from the future, so we can consume more than we produce. It is our children and grandchildren who will pay the price.

Can we return to the selfless policies that made our nation great? Or will it take another Great Depression to wake us out of our selfish stupor? And if the latter, will the Chinese and other nations allow America to stumble yet keep the lead? Will the world still want dollars? Most importantly, will Americans make the hard choices and sacrifices necessary to regain control of our destiny - or will we succumb to the sweet talk of those who tell us not to worry?

The free-market libertarians opened the door to crooks and con-men who, in turn, are depleting America's treasury and gutting its financial system. Those guys rose to power over the last 30 years and for the last decade have had unchallenged control of the government. (For a while there was a potential challenger in the White House but they effectively neutered him.) Republican primary voters served up a nominee that promised to be a challenger. But the powerbrokers got to him and now his "team" is made up almost entirely of the same guys who have been running things the last 8 years. He is their poster boy but they will be running the show.

Sadly, neither candidate is telling us what we should be hearing. The economists tell us that over the next decade the Democrats' tax/spending plan will cost an additional $3.5 trillion, the Republicans' $5 trillion.

Can Americans rise above their immediate self interest and do what needs to be done? Or will we insist that we keep dancing on the deck of the Titanic?

That is what this election should be about.

* Note:

Partial History of U.S. Federal Income Tax Rates Since 1913
Applicable
Year Top Income Bracket

1913-1915 - 7%
1916 - 15%
1917 - 67%
1918 - 73%
1919-1920 - 73%
1921 - 73%
1922 - 56%
1923 - 56%
1924 - 46%
1925-1928 - 25%
1929 - 24%
1930-1931 - 25%
1932-1933 - 63%
1934-1935 - 63%
1936-1939 - 79%
1940 - 81.1%
1941 - 81%
1942-1943 - 88%
1944-1945 - 94%
1946-1947 - 86.45%
1948-1949 - 82.13%
1950 - 84.36%
1951 - 91%
1952-1953 - 92%
1954-1963 - 91%
1964 - 77%
1965-1967 - 70%
1968 - 75.25%
1969 - 77%
1970 - 71.75%
1971-1981 - 70%
1982-1986 - 50%
1987 - 38.5%
1988-1990 - 33%
1991-1992 - 31%
1993-2000 - 39.6%
2001 - 39.1%
2002 - 38.6%
2003-2008 - 35%

Comments

[aslinged]

You remind me of my father: mba, multiple vp and cfo positions over the years and totally devoid of knowledge regarding the important interplay of constitutional intentions and realities on the street. Wall Street. You're right though, something nasty did happen along the way but confusing the issue once again does your son no good.

The best thing you could write to your son: Go check out Ron Paul, look into the Austrian School of economics, look at the fact that the two party system boils down to a one party system. (Which by the way, is probably why you're confusing liberals and conservatives.)

Of course, if you did so it would be rather difficult to leave him with much hope.

Gold Standard. The avoidance of legitimate suffering is the foundation of all mental illness. We need to pay the price, drop superpower status, re-adjust to the Gold Standard and give money some meaning. Period.

[Henry]

In 1980... the top 1% of the population took 8% of the income.
2006........the top 1% of the population took 20% of the income leaving a lot less for the rest.

Also with respect to taxes, in Europe petrol is taxed to the extent that it costs $8 per gallon. This creates a smaller amount of use and more efficient cars. Indeed, I believe I heard Al Gore state that if the U.S. had the same mileage requirements as Europe we would not have to import petrol.

[schatsie]

Something that is not mentioned above is that for the tax collections after WW1, less than10% of the population was subject to income tax and the lowest rate was 4% . As long as you made 1,000 or less, no income tax was paid at all... This would be at least 10,000 today and maybe 20,000.
and if you were married this was doubled.. A family of 2 adults and 3 children would have exemptions of $3,200 which would translate to at least $32,000.... which would totally take income taxes off the bottom 20-30%...

Income tax procedure 1923 Montgomery, page 4, 98,99....

[kaski]

And what happened in 1913? President Woodrow Wilson signed into law the Federal Reserve Act. Giving our central banking system to the Robber Barons, the Rockeffellers, Morgans, Warburgs... A few years later he wrote, "I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefor, and all our activities are in the hands of a few men. We have become one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." Woodrow Wilson
"The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating." Thomas Jefferson
The owners of the Federal Reserve own America and its government thru debt.

[Osprey3]

One measure of a Nation's greatest is how it treats the least among us. I agree with you regarding the abuses, but the most egregious abuses are by the wealthiest among us, not single moms on welfare). There are a lot of Government expenditures that invest in the economic future of the Nation (e.g., the space program, interstate highway system, biomedical research, etc.) and also provide a safety net for its less endowed citizens (e.g., social security, veterans bill of rights). It's all about setting priorities and vigilance in keeping the scoundrels honest!

[dadw5boys]

THIS AUTHOR OF THIS PIECE HAS LIBERIALS AND CONSERVATIVE CONFUSED !

THE SELF PROFESSED CONSERVATIVES DESTROYED THE REGULATIONS WE ENJOYED FOR 80 YEARS.