Corporatism – Page 14 – The Wrongologist

Will Take-Home Pay Grow?

One of the big questions that we must force Hillary Clinton and Donald Trump to address is: Where will growth in take-home income come from?

If we look at pay, despite recent improvements, real average hourly earnings have declined since the 1970s:

Real Hourly Earnings 2016

Source: Advisorperspectives.com

At the same time, the average hours per week have trended down from around 39 hours per week in the mid-1960s to a low of 33 hours at the end of the last recession. It is 33.7 hours today. After eight years of economic recovery, it is only up by 42 minutes.

So, take-home pay has stagnated (or worse) for the average American since the Nixon administration. People have coped by having both spouses work, by borrowing under a Bank of America heloc, and by refinancing mortgages when interest rates declined.

But, by 1995, spousal participation in the job market had peaked, at about 60%. Borrowing under home equity lines of credit peaked in 2005 at $364 billion. These loans that were used to pay for remodeling, education costs, or new Ford F-150s were less than half of that amount in 2015, at $150 billion.

After the Great Recession, The only remaining way to boost household cash was mortgage refinance. There were windows to refinance a mortgage in 2009, and again in 2013. The reason was that mortgage interest rates stayed very low. In fact, US 10 year treasuries were at a 60 year low in 2013 at 1.50%, and mortgage rates are tied to the treasury rate. Refinancing mortgages can happen to many people, this is where companies like Polar Mortgage come in to help homeowners out. Homeowners also have the ability to get financial help from the government through the use of federal credit union home loans in order to refinance their homes.

As an example, a 1.5% decline in a mortgage payment on a $250,000 house would save $3750 a year, or a little over $300 a month added to the pockets of the average hourly worker. Taking income tax into consideration, it would take an additional 17.5 hours of work at the $21.45 rate to equal that amount. But that’s not practical. It would require a 52% increase in hours, if you are working the national average number of hours, which isn’t going to happen.

So, if the Federal Reserve raises interest rates, as they seem set to do this month or next, mortgage refinance will no longer be helpful to the vast number of working people. CoreLogic tracks the interest rates on outstanding mortgages, collecting data from mortgage servicers. Their data track the volume of outstanding mortgages by interest rate level for both the number of mortgages, and the unpaid principal balance on those mortgages (UPB).

Their analysis says that few mortgages will be refinanced if rates go up: Most borrowers have mortgages with rates below 4.50%, with 62% of mortgages and 72% of UPB in this range. There are an additional 14% of borrowers and 13% of UPB with mortgage rates between 4.5 and 5.0%.

Since refinancing has costs (legal, title search and insurance, and points), a simple rule of thumb is to add 1% to the current mortgage rate to get a rate at which borrowers would have a financial incentive to refinance. The current Freddie Mac mortgage rate is 3.57%, so the point of indifference for a borrower would be ~4.5%. CoreLogic estimates that only about 28% of the UPB of America’s outstanding mortgage loans are worth refinancing today. And should the Fed live up to their plan, and increase rates by ½% in 2016, an additional 5.5 million borrowers will lose their incentive to refinance.

So, if mortgage rates rise in 2016 as predicted, refinancing won’t improve the financial situation for very many of us.

New Deal Democrat sees all of this and says:

So the bottom line is, we are already in a period…where real gains by average Americans won’t be available from financing gimmicks, but must come from real, actual wage growth. At the moment I see little economic or political impetus to make that happen, even though average Americans understand via their wallets the issue all too well.

We’ve killed our economy.

You’d think after 8 years where most US job growth was in part-time jobs, where hourly income is at the same level as in the Ford administration, where we have the most people ever in poverty, where student debt exceeds credit card debt and automobile debt, people would catch on.

Maybe, but not unless we demand real answers of Hillary Clinton and Donald Trump, and not let the candidates say the plan is to rearrange the deck chairs on the Titanic.

Are Underwater Car Loans Sustainable?

The auto industry has had a spectacular run since we bailed them out in 2009. We saved it because the auto industry is crucial to the US economy and jobs. Auto sales have accounted for 21% of total retail sales so far in 2016.

The trickle-down effect is huge, from transporting new cars via truck and rail to financing and insuring them, and collecting the tax revenue they generate for state and local governments, sales of cars generate lots of jobs and money for our economy.

But the seven-year boom may be near its top.

Take underwater car loans: Bill wants to buy a new car. His current car has a trade-in value of $20,000. But he owes $25,000 on it because when he bought it new a few years ago, he financed it for 84 months to keep the monthly payment low. He also asked the dealer to roll the amount for tag, title, and license fees into the loan, along with the $2,000 he was upside down on his trade. So he buys a new $30,000 car that now costs $35,000. He may consider financing this with car title loans near me, or he may have other options he can take.

The car is financed with a 4% interest rate loan. If Bill took a five year loan, he would start accumulating positive equity-where the car’s market value becomes greater than its loan balance-midway in the fourth year. However, there are loans that might be able to help for example those that are similar to Ikano Bank VISA as well as looking loans before they take them out. If he took an eight year loan instead, he would be $9000 underwater at the same time, and won’t start accumulating any positive equity until the end of the seventh year:

Positive Equity

Source: Money Sense

So just how big is the problem of negative equity? Since 2011, the number of vehicles traded in with negative equity has ballooned by 37%, and underwater auto loans now account for a record 31% of all vehicles traded in:

Underwater Car Loans

(Chart by Chad Champion, at Bonner & Partners):

One reason negative equity is rising is that lenders have extended the duration of car loans to keep monthly payments affordable. If a customer has a lower monthly payment, she/he’s likely to owe more than the vehicle is worth for a longer period. Bloomberg reported that the percentage of car loans that are longer than six years was 29% in 2015, up from just 9.6% in 2010.

Growth in loans to subprime borrowers is also driving growth in auto sales. Experian Automotive reported last month that poor credit consumers (subprime) now make up a record 20.8% of the new auto loan market – more than one in five new auto loans are going to subprime borrowers. We remember subprime from the housing fiasco of 2008. Subprime is back, but not yet causing alarm bells to ring.

Subprime borrowers pay higher rates: Average rates for subprime loans were 10.36% in the fourth quarter of 2015 while the poorest subprime borrowers averaged 13.31%. At the same time, new car buyers with excellent credit paid 2.7% interest.

The Office of the Comptroller of the Currency has noticed the problem. In its most recent Semiannual Risk Perspective, the banking regulator warned: (emphasis by the Wrongologist)

Underwriting practices and weak loan structures in auto lending are most concerning in banks with high concentrations to try Auto Finance Online. Strong auto loan growth alone does not pose systemic risk…Even as banks have increased capital levels, auto loan portfolios represent greater than 25% of capital at about 15% of banks.

The OCC worries that the rapid growth of auto loan balances are not a problem per se, but the “extended durations of loans caused by lengthening maturity schedules” and the rising loan-to-value ratios are a concern. Together, they “create a longer period of time that banks and consumers are in a negative equity position.”

This is what happens when the players in the auto sales game, both the manufacturers and financiers game the system to front-load sales and profits, thus paving the way for an eventual reckoning.

And here is the other issue: When we export manufacturing jobs to places such as Mexico (who now manufactures for Ford, Chrysler, GM, VW, Toyota, Nissan, Mazda, and Honda and exports 70% of the cars it manufactures to the US), we lose the purchasing power of all those people who used to have jobs in the US auto industry. So corporate America’s solution is to make credit cheap and easy so that working stiffs can leverage themselves even more in order to buy a new car. Obviously, some loans are needed at certain times in peoples lives, if you are looking at how to get a loan there are many websites that can give you a guide.

To be sure, the car buyers are culpable, but the system relies on foolish people to go deeper into debt in order to fuel the system.

Impressive boom to possible bust ? this show is brought to you by corporate America, with support from the Federal Reserve.

Will We See a Recession Soon?

With Trump vs. Clinton vs. Sanders sucking all of the oxygen out of the news cycle, it is probable that you missed the release by the Federal Reserve on May 18^th of its delinquency and charge-off data for all commercial banks in the first quarter. It isn’t a pretty picture.

Heres a few nuggets:

Delinquencies of commercial and industrial (C&I) loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have ballooned. C&I loans are classified delinquent when they are 30 or more days past due.
Between Q4 2014 and Q1 2016, delinquencies have increased by 137% to $27.8 billion. Currently, they are halfway to the all-time peak during the Financial Crisis in Q3 2009 of $53.7 billion. And theyre higher than they were in Q3 2008, when Lehman Brothers melted down.

Below is a chart of delinquencies released by the Board of Governors of the Fed. The shaded areas are times of economic recession. Wolf Richter of Wolf Street added the emphasis in red to point out where we stand in relationship to the 2008 Lehman moment:

C&I Deliq Q1 16

As you can see from the chart, business loan delinquencies are usually a leading indicator of economic trouble. They begin rising at the end of the credit cycle since loans made in the good times start to go bad when the economic situation changes. Then, the obligations of interest payments and loan repayments begin to pose a problem for weaker borrowers whose sales, instead of rising as expected when times were good, may be flat or shrinking while expenses can be rising. Suddenly, there is not enough money to service the loan.

It is however important to also consider Economic Injury Disaster Loans (EIDLs). Although no one can accurately predict what might happen in the future to an absolute degree of certainty, economists should always consider the possibility that we might see an increase in businesses seeking SBA eidl status in the event of a recession.

That being said, this all started with the oil and gas sector reacting to lower crude oil prices in 2015, but it has moved beyond the oil patch. Total US commercial bankruptcy filings in April, 2016 rose 3% from March, and are up 32% from a year ago, to 3,482, according to the American Bankruptcy Institute.

This is happening at an interesting time.

First, the health of the economy will be a huge deal in the General Election. Both Trump and Clinton have a stake in saying it isn’t as good as it could be. Yet, it is highly unlikely that we will be in a recession in November 2016, because our current economic momentum will carry us for at least another 6 months.

Second, the Fed is now indicating that it believes the economy is strong enough to raise rates for a second time this year, perhaps as soon as June, according to the Feds recent Open Market Committee minutes. That supports the idea that no recession is imminent.

But we still have this pesky loan delinquency data.

Loan delinquencies must be cured within a specified time. If not, they’re taken from the delinquency bucket and dropped into the default bucket. If defaults are not cured within a specified time, the bank deems a portion (or all) of the loan balance uncollectible and writes it off, therefore moving it out of default and into the write-off bucket. This is a factor in many different loan types, such as the usda business loans on the market.

That’s why the delinquency statistics usually do not get very large loans and don’t stay delinquent for a very long period.

Of course, there are other loans that might be impacted by these trends too. For example, it would be interesting to analyze the trajectory for merchant funding options such as a business cash advance loan for businesses in need of a financial boost. Ultimately, only time will tell what the future holds for loans and the financial sector in general.

Regardless, the Fed has painted itself into a corner. They have to raise rates because low rates are destroying many pension funds and they hurt retirees who rely heavily on interest-bearing investments. Pension funds have been modeled on interest rates of between 6%-8%, which have not been seen for at least 10 years.

But, a Fed rate hike would add more risk of more loans becoming delinquent.

And the largest American corporations are awash with the debt that they used to fund buy-backs of their shares. That debt has to be renewed periodically. If rates rose high enough to help pension funds, it could wound quite a few large companies.

If that wasn’t bad enough, South America, Europe, and the Chinese are looking increasingly fragile. Even if the Fed engineers a domestic miracle of sorts, it may not be enough. The financial world can be a minefield when we are trying to hang on to our hard-earned money.

So, prepare to hear both Trump and Hillary tell you they have the answers.

Since their global corporate benefactors now rule the world, they should be able to figure out what to do with it.

And You Know That It’s Right

Last week Andy Newman died. You need to be as old as Wrongo to know who he was, but it’s likely you have heard the 1969 song “Something in the Air”, or of the group who recorded it, Thunderclap Newman. Back then, if you weren’t on the LBJ/Nixon Establishment team, you wanted change. Wrongo was discharged from the US Army in 1969. 1969 was Woodstock, the first man on the moon, Vietnam, the Manson family, the Black Panthers, and the 500,000 person march on Washington,

The song captured a moment.

The group was the idea of Pete Townshend, and he plays bass on “Something”. The guitarist was Jimmy McCulloch, who went on (in 1974) to be the lead guitarist in Paul McCartney’s band, Wings, and compose the song “Medicine Jar” for the album “Venus and Mars”. McCulloch died at 26 from a morphine and alcohol overdose.

This is a blip in rock and roll history, but the track survives. It was covered by Tom Petty. Wilco has performed it live for years. Steely Dan performs it live on tour as well. The song has been used in many movies, including The Magic Christian (1969), Almost Famous (2000) and The Girl Next Door (2004), and in commercials for Coca-Cola and British Airways.

It was written by Speedy Keen, who had been Townshend’s chauffeur. Andy Newman was the piano player for Thunderclap Newman, the nickname coming in high school from his heavy-handed playing style. He did not have a long career in music. After this one-hit wonder, he became an electrician.

Here is the song:

Some lyrics:

Call out the instigators
Because there’s something in the air
We’ve got to get together sooner or later
Because the revolution’s here, and you know it’s right
And you know that it’s right

1969 and 2016 are similar. It doesn’t matter who wins the presidency this year, there will still be widespread anger and discontent, the populace is no longer willing to accept political lip service instead of solutions. And they want the two Americas that the rich and powerful have foisted on us to be more equal.

Lock up the streets and houses
Because there’s something in the air
We’ve got to get together sooner or later
Because the revolution’s here, and you know it’s right
And you know that it’s right

The difference between then and now is that people today no longer believe in the American dream, they are no longer on the same page. We’ve become a strange brew of very narrow interests, all competing for the ears of our politicians, but they never do anything. Back in 1969, many of us wanted change. Today, despite (or because of?) Bernie and The Donald, and the two Establishment parties, we have no change, just political chaos.

Hand out the arms and ammo
We’re going to blast our way through here
We’ve got to get together sooner or later
Because the revolution’s here, and you know it’s right
And you know that it’s right

Different from 1969, we don’t have to hand out the ammo, it’s already in most homes.

But, sadly, just like in 1969, we have no answers. Bernie isn’t the answer, Trump isn’t the answer. The Establishments of both parties do not have answers.

And you know that it’s right

The Revolution WILL Be Televised

There is a lot of talk that the 2016 election is the start of a political rebellion in the US. We see the large, enthusiastic Sanders/Trump crowds, and the candidates’ relative success with winning primary elections, and have to ask:

Will it remain a political rebellion, one that expresses itself through the electoral process?
Will it continue beyond the 2016 election, assuming an Establishment candidate wins?

It began with the failure of the US economy to add permanent jobs for the middle class, and the lower classes after the Great Recession. Our column outlining that all jobs created since 2005 were temporary or contractor jobs showed that people are living paycheck to paycheck, but fewer have benefits, and all are afraid that they could be out of work with any personal or economic hiccup.

And wages are not rising the way corporate profits are, as this chart shows:

Corp Profits to HH income

So, fewer jobs as an employee, and no change in household income. More risk, no more money. Life for the average person in the US is harder and more frightening for a large group of people. Maybe they are not yet a critical mass of voters, but there are enough angry people that the Establishment political machines may be disrupted.

Since many see the worsening of the life of the middle class to be permanent, there is little reason for hope if you are on the fringe of our society. So, we’re watching that play out in the 2016 electoral race. People are finally getting tired of one or the other of these two campaign pitches:

We are the greatest nation on earth, but only if we elect candidate X, because candidate Y will ruin us
Or, you can’t have a good job with dignity, or good schools, or ask us to address any other of our serious problems, because we can’t afford it and people won’t pay more taxes

And as Gaius Publius says, there’s no other way to see the Sanders and Trump insurgencies except as a popular rebellion, a rebellion of the people against their “leaders.” On the Sanders side, the rebellion is clearer. Sanders has energized voters across the Democratic-Independent spectrum with his call for a “political revolution,” and that message is especially resonant with the young. From The Guardian:

Analyzing social survey data spanning 34 years reveals that only about a third of adults aged 18-35 think they are part of the US middle class. Meanwhile 56.5% of this age group describe themselves as working class.

Fewer Millennials (who number about 80 million in the US) are describing themselves as middle class. The number has fallen from 45.6% in 2002 to a record low of 34.8% in 2014. Ms. Clinton will need to rely on Sanders supporters falling in behind her – and faced with the prospect of a Trump presidency, many may do so. She also intends to try to win over “moderate” Republicans, assuming that the Bernie voters have nowhere to go.

That might work, since as Benjamin Studebaker says, Clinton is arguably closer to the Republican establishment than are Trump or Cruz. In fact, the Democratic and Republican establishments are both closer to each other than either is to its own anti-establishment wing. Consider that Clinton and the Republican Establishment both:

Support the Trans-Pacific Trade Partnership (TPP)
Support immigration reform
Support foreign aid
Oppose Medicare for all
Oppose tuition free college
Oppose a $15 minimum wage

It would not be unreasonable for moderate Republicans to conclude that Clinton is closer to their ideological needs than are Trump or Cruz. Clinton may play for the other team, but at least she’s in their league.

The Establishments of both parties have no vision when it comes to solving income stagnation for the 99%, or solving our crippling health care cost increases, the trade treaty fiasco, and the military establishment’s continued sucking of more and more money from our budget.

These cumulative burdens will break people’s belief in a better, more secure future. Either policy changes are enacted by the next Establishment president and Congress, or things could start to come unglued.

Which means that for almost every one of us, this could be the most consequential electoral year of our lives.

So, the Establishment wings of both parties need a Monday wake-up call. Here to rouse them from slumber is Iris DeMent with “Livin’ in the Waste Land of the Free”:

Those who read the Wrongologist in email can view the video here.

100% of Jobs Created Since 2005 Were For Contractors or Temps

And that’s why so many Americans are scared. Neil Irwin in the NYT’s Upshot brought us the bad news that 9.4 million new jobs created during the period from 2005-2015 were temp jobs or contracting jobs.

What’s worse is that those jobs add up to more than 100% of the jobs created by the US economy during that period. That means there was an overall decline of about 400,000 in people working as employees for an American corporation during those 10 years.

The news is based on a study by labor economists Lawrence F. Katz of Harvard and Alan B. Krueger of Princeton that found that the percentage of workers in “alternative work arrangements” — including working for temporary help agencies, as independent contractors, for contract firms, or on-call — was 15.8% of total employment in 2015, up from 10.1% a decade earlier. More from Irwin:

By contrast, from 1995 to 2005, the proportion had edged up only slightly, to 10.1% from 9.3%. (The data are based on a person’s main job, so someone with a full-time position who does freelance work on the side would count as a conventional employee.)

This raises bigger questions about how employers managed to shift much the burden of providing our social safety net to workers, and about the economic and technological forces driving the shift.

The change has profound implications for social insurance. More so than in many advanced countries, corporations in the US carry a large share of the burden of providing their workers with health insurance and paid medical leave when employees are sick. US corporate employers pay for workers’ compensation insurance, and for unemployment insurance benefits for those who are laid off.

These are part of the government-sponsored safety net in other countries.

In addition, US employers help fund their workers’ retirement, formerly, through pensions, but now more commonly, through 401(k) plans. These are also part of the government safety net elsewhere.

While the Affordable Care Act has made it easier for independent contractors to get insurance, there’s little doubt that these workers are now carrying more of the financial burden of protecting themselves from misfortune than they would have shouldered with a more traditional company-employee relationship.

Perhaps most significant, the implicit contract between an employer and an employee is that there is a relatively high bar for firing employees. If the economy turns down or business slows, a contract worker is far more likely to be out of a job or out of the job faster, than a conventional employee.

This is a large factor in the growing job insecurity we see since the Great Recession.

Moreover, the study shows it was likely that companies caused this shift in terms of employment, not employees who were looking for more freedom and flexibility. If 2005 to 2015 had been a period when workers had a lot of power in the job market that might have been plausible, but it wasn’t. More from Irwin:

The unemployment rate was above 7% for nearly half of the period, from the end of 2008 to late 2013. Employers had the upper hand. That suggests it’s more likely that employers were driving the shift to these alternate arrangements.

So, companies took advantage of the weak job market since the Great Recession. In addition, improvements in technology have enabled the shift. New technology allows remote measurement of how successful each worker is, regardless of their location, and it allows the employer to monitor contractor progress, giving the company the power it needs to move to contracting, or to a temp workforce.

Making employees into contractors benefits only the employers, not the workers, and it may help explain the disconnect between the anger and insecurity we see on the 2016 presidential campaign trail, and the clearly positive employment and economic news we’ve seen each month for the past few years.

Both are true, and that has profound implications, both politically and economically, for the next 10 years. A big question for the next decade is whether the rise in temp employment was a one-time shift, or whether it will continue in the years ahead, even in a tightening labor market.

At risk is whether employer-provided social insurance that has been a backbone of the 20th-century American middle class economy will still be with us in the 21^st century.

And if the shift to contracting continues,and we become more of a 1099 nation, it is a certainty that we will see a growing populist, anti-corporate electorate.

Free Trade’s Double-Edged Sword

The Bernie Sanders win in Michigan is chalked up to his attacks on trade agreements, in particular, the Trans Pacific Partnership that resonated with a broader audience than his attacks on Wall Street. Along the way, Donald Trump has been plowing the same ground, talking about how America is losing jobs to Mexico and Asia.

So the question is, are we seeing a political backlash against trade? Can Sanders or Trump gain sufficient political traction to win with this issue? And can we blame trade for losing jobs to China and elsewhere?

Jared Bernstein in Monday’s New York Times made an excellent point: (emphasis by the Wrongologist)

The economic populism of the presidential campaign has forced the recognition that expanded trade is a double-edged sword. The defense of globalization rests on viewing Americans primarily as consumers, not workers, based on the assumption that we care more about low prices than about low wages.

When you hear politicians speak about free trade, they talk about cheaper products. They sidestep the terrible impact on American jobs, they sidestep the concern that many, many jobs have been lost through free trade agreements. The free trade deals have also exacerbated the loss of union power, which means fewer (and lower paying) jobs, fewer hours, and poorer benefits, including pensions.

The trade topic is obviously a huge driver of Trump’s and Sanders’s appeal. It is a problem for Hillary, since she was for the Trans-Pacific Partnership before she was against it.

Despite being on opposite ends of the political spectrum, the two populists are using the same message: The government, both political parties, and business are working at cross-purposes with the needs of the American people. In a democracy, populism is a warning sign that government has been disconnected from its citizens. Consider that while Americans lost at least 4 million jobs, corporate profits are up, and the 1% has gotten much wealthier.

It’s true that off-shoring is good for the global economy. Chinese people working to make iPads are richer than they were, but it’s not a win-win situation. It’s more of a win-lose, where Chinese workers win relatively big, while American workers lose medium.

Another problem is that workers directly impacted by trade have little power or influence in their firms or the country as a whole. In the US, exports only make up about 13.5% of GDP. But in Sweden, Denmark or Germany, exports are north of 40% percent of GDP. And these countries, with far fewer natural resources, have robust social safety nets in addition to high wages. And as Bernstein says:

The real wage for blue-collar manufacturing workers in the United States is essentially unchanged over the past 35 years, while productivity in the sector is up more than 200%.

Why? Because governments in these other countries stress building high-skill industries that compete based on producing high value-added products, while low-skill industries that compete based on exploiting their employees are discouraged. This is called having an industrial policy, which encourages business to meet government priorities. In America, we are against having industrial policies, because it sounds like socialism.

Bernstein points out that the free trade negotiation process has been captured by investors and corporate interests:

According to the Washington Post, 85% of the members of the outside committees advising the administration on the proposed Trans-Pacific Partnership were from private businesses and trade associations (the rest were from labor unions, NGOs, academics and other levels of government).

And that’s the world we live in. Business is driving most of the decisions that our politicians make, ensuring that whatever is enacted is primarily good for business, and secondarily, if at all, for We, the People.

And in the world we live in, free trade has significantly boosted wages and quality of life for overseas workers and has helped lift millions of Chinese and other Asian citizens out of poverty, while our middle class, a prerequisite for our stable society, has been hollowed out.

Yet, America’s plutocrats and politicians push for even MORE free trade.

The current election cycle may horrify the “political establishment,” of both parties, but it was preordained by their bought-and-paid-for politics.

Americans have a real gripe. They don’t see, or care about the benefits to Chinese and other third world workers that lower or stagnant wages at home help to provide. The Bernie win in Michigan and Trump’s success in the GOP primaries show people are super pissed off.

Our political parties better start coming up with ways to mitigate the trade and wage problem before someone like DonDon actually succeeds in becoming president.

Has The Progressive Moment Returned?

(This is the second and final column on the Progressive Movement)

Few issues in the history of 20th and 21st century America have inspired more disagreement than the value of the Progressive movement to our society. Our high school texts taught that it was a movement by the people to curb the power of the special interests in our government:

COW Bosses

The Bosses of the Senate by Joseph Keppler, 1889

The 1890s Progressive Movement was a response to dislocations in American life. There had been rapid industrialization of the economy, but there had been no corresponding changes in social and political institutions. Economic power had moved to ever larger private businesses, while social and political life remained centered primarily in local communities, even within rapidly growing cities, with great variability in quality of life.

But early Progressives believed that the problems society faced (poverty, violence, greed, racism, class warfare) could best be addressed by providing good education, better working conditions and an efficient workplace. The desire to regulate big business was mostly focused on creating a fair(er) deal for small businesses and workers. Others encouraged Americans to register to vote, fight political corruption, and let the voting public decide how issues should best be addressed (via direct election of senators, the initiative, and the referendum).

Essentially the struggle was a clash between the “public interest” and “corporate privilege.”

Daniel Rodgers’s Atlantic Crossings (1998), shows how European reforms at the time influenced American progressives, suggesting that the movement was not just an American phenomenon, but had roots in a European process of change. He describes the international roots of social reforms such as city planning, workplace regulation, rural cooperatives, municipal transportation, and public housing that traveled across the ocean to our shores.

This is something we see today. Populist movements from the left and the right are roiling Europe, just as they are in America.

In the mid-1930s, the New Deal allowed the country to return to a pent-up agenda of its Progressive past. Once again, we had an economic crisis, once again, the power of business was outsized versus the power of the worker.

Another Roosevelt reformer stepped into the role of Progressive-in-Chief. But where Teddy was a Republican, FDR was a Democrat. Regardless, change again ensued.

We hear Progressivism referred to as synonymous with the American welfare state. But, the original Progressives did not believe that a ‘welfare state’ was an end goal. In fact, the term ‘welfare state’ did not come into currency until the end of the 1940s, as a new label in the Republican Party’s attack on Social Security and other programs of the New Deal.

As we wrote in the review of One Nation Under God (2015) by Kevin Kruse, James Fifield, a minister who worked to bring Corporate America and Christians together said in 1935:

Every Christian should oppose the totalitarian trends of the New Deal…

Overall, Kruse’s book is an excellent analysis of how Christian fundamentalism and capitalism were conflated in the 1950s to erode the divide between church and state, re-casting Progressive political philosophy as both “un-American”, and “anti-Christian” at the same time.

Progressives were called Reds or socialists. It was a charge that would follow Progressives throughout the 20th Century, whenever Progressives returned to the cause of economic equality.

In American Dreamers: How the Left Changed a Nation (2012), Michael Kazin shows that the US is unique among Western nations in that we never developed a viable, left-wing political movement. Unlike Europe, a progressive party has never succeeded in establishing more than a temporary foothold in American politics, despite the hysterical rhetoric of conservatives. We have had a Congressional Progressive Caucus only since 1991. It is comprised of one Senator and 75 Congress people, all Democrats.

Yet, Progressives still have had great success in shaping American society. During presidencies from LBJ to GW Bush, there was far more radical dissent in the US than at any time in the 1950s. Millions of Americans, perhaps a majority, came to reject racial and sexual discrimination, to question the need for and morality of military intervention abroad, and to worry that industrial growth might be destroying the climate.

Since Teddy Roosevelt and the Bull Moose Party in 1912, Progressives have had little historic influence on electoral politics. In the earliest days of Bernie Sanders’s presidential campaign, it was thought that his role was not to win the election, but to slip a few liberal planks into Hillary Clinton’s candidacy. But on the campaign trail, Sanders started drawing crowds of thousands, his ratings surged, and his became a Progressive moment in electoral politics.

Today, Progressivism is a cause in search of a candidate.

Many have called our time a new Gilded Age.

If so, the question then becomes whether Progressivism can once again move back into the halls of government, and be a positive force for change.

1890s Progressivism: When the Movement Worked

Last week, Wrongo read “The Bully Pulpit: Theodore Roosevelt, William Howard Taft, and the Golden Age of Journalism” by Doris Kearns Goodwin (Simon and Schuster, 2013). The book covers the birth of the Progressive Era, a period of social activism and political reform across the US, from the 1890s to 1920.

For context about the times, does any of this sound familiar?

The gap between rich and poor has never been wider…legislative stalemate paralyzes the country…corporations resist federal regulations…spectacular mergers produce giant companies…the influence of money in politics deepens…bombs explode in crowded streets…small wars proliferate far from our shores…a dizzying array of inventions speeds the pace of daily life.

That was the political landscape in the 1890s. This was the time of the Gilded Age, a time of income and wealth inequality. From 1860 to 1900, the wealthiest 2% of American households owned more than a third of the nation’s wealth, while the top 10% owned roughly three-fourths of it. The bottom 40% had no wealth at all.

“The Bully Pulpit” tries to do three things simultaneously: It is a biography of Theodore Roosevelt, and a biography of William Howard Taft; third, it introduces us to McClure’s magazine and the rise of Muckraking journalism. The muckrakers were investigative reporters who exposed corrupt politicians and business leaders at all levels. Goodwin includes mini-bios of Ida Tarbell, Lincoln Steffens, Ray Stannard Baker and William A. White, all of whom were titans of investigative journalism at the time. A key finding by Goodwin is how TR encouraged the Muckrakers. He offered them access and friendship, and received information about the problems they were investigating, a synergy that enabled both to influence policy and politics for 30 years.

Consider the times: Corporations were ascendant. Politicians were reluctant to involve the federal government too heavily in the private sector. In general, they accepted the concept of laissez-faire, opposing government interference in the economy except to maintain law and order. This attitude started to change during the depression of the 1890s when small businesses, farmers, and labor movements began asking the government to intercede on their behalf.

By the start of the 20th century, the middle class was leery of the emerging corporate giants called “Trusts”. The Trusts consolidated businesses, using horizontal (controlling competitors) or vertical integration (controlling supply and distribution), and thus, created monopolies. For example, John D. Rockefeller drove other oil companies out of business and created a giant oil company, Standard Oil.

The Progressives argued the need for government regulation of business practices to ensure competition and free enterprise. Under President Benjamin Harrison, Congress regulated railroads in 1887 (the Interstate Commerce Act), and in 1890, the Sherman Antitrust Act, which prevented large firms from controlling a single industry. But, these laws were not rigorously enforced until Teddy Roosevelt, vice president under McKinley, became president after McKinley’s assassination in 1901.

Roosevelt and William Howard Taft became close friends when both were part of the Harrison administration in 1888. Taft became a key member of President Roosevelt’s cabinet, and later his handpicked successor, in the election of 1908. While TR thought Taft a “genuine Progressive”, Taft was not the politician that TR was, and he was by temperament, more conservative. In 1910, TR broke bitterly with Taft on a series of issues and when in the 1912 nomination process, Roosevelt failed to block Taft’s re-nomination, he launched the Bull Moose Party. This ultimately led to them both losing in 1912 to Democrat Woodrow Wilson, who also ran as a Progressive.

This wave of reforms was continued by Wilson. The legacy of the Progressive Era includes the Pure Food and Drug act, the progressive income tax, direct election of senators and the women’s vote.

All of this makes “Bully Pulpit” a very long book at 928 pages. But, it is a very worthwhile read, particularly since many of the same issues we face today were in full flower back then. And it is remarkable how similar the political and ideological arguments of the time are nearly identical to the arguments today.

The book gives us some hope that, at one time, divided government could morph into a movement that won by embracing progressive values. That happened because interest groups, including farmers, small businesses and unions joined together with local governments, journalists like the Muckrakers, and sympathetic politicians of both parties to energize a movement that was directed at solving specific problems – the consequences of the Gilded Age.

Can it happen again? Can investigative journalism return, or is it dead?

Tomorrow, we will take a look at why Progressivism died and was then reborn under another Roosevelt.

Hillary’s Under-reported Uphill Slough

Wrongo didn’t watch the Democratic debate because it was up against the series finale of “Downton Abbey”. Some think that the effort to bury the Dem debates in popular TV time slots is a conscious decision by DNC Chair, Debbie Wasserman Schultz, designed to make Bernie Sanders less competitive with Hillary Clinton.

Conscious or not, few people are watching these debates.

One thing that is overstated in the Democratic primary process is Bernie’s uphill slough with African Americans. The accepted pundit logic is that he does so badly with AA’s that he has no chance to win.

What is overlooked in that analysis is that the 20 primaries held so far have split 12-8 in favor of Clinton (based on who won the majority of committed state delegates). Clinton does have a big lead in delegates, 1130 to Sanders’s 499.

So, consider what Bernie has been able to accomplish. In winning 8 states, he’s exposed a Clinton weakness: She doesn’t do well among the most committed white Democrats – the kind of folks who turn out for caucuses in states like Iowa, Minnesota, and Colorado.

And then there is the under-reported uphill slough by Hillary Clinton: That the Sanders campaign is out raising Clinton’s funds. He’s raising his money from ordinary citizens (five million individual donations at this point). And, unlike Clinton, WaPo reports that he does it easily:

Sanders outraised Clinton again in February for the second month in a row, bringing in $42.7 million to her $30 million. On the last day of the month alone, he brought in $6 million online as the campaign used social media to egg on his backers to give, give and give again.

The WaPo also reported that Clinton has had to take two days off the campaign trail to raise money in California for use against Sanders in the primaries. And in a one-week stretch later this month, she is scheduled to make seven fundraising stops in six states — Georgia, Tennessee, Connecticut, Virginia, Washington and California.

Bernie’s funds-raising power has triggered concern among some Clinton allies that it will weaken her — not only because she must spend so much money competing against him, but also because he is criticizing her in ways that could dampen enthusiasm for her in the fall. She may risk donor fatigue when the general election gets under way.

Perhaps one reason why Clinton may risk donor fatigue in the late stages of the election is that she has already tapped many large potential investors. From 2013-15, she earned $21.4 million in speaking fees from 91 organizations. Those funds did not go into her campaign, or into one of her Super PACs. The funds went into her own accounts, making her a member of the 1%.

You can see the listing of the organizations that paid her an average of $235k per speech here.

As Scott Lemieux of LGM said, paying people six figures (plus luxury perks) to deliver rote speeches is one of the more egregious mechanisms by which America’s overcompensated elites reward each other.

The Wrongologist

Geopolitics, Power and Political Economy

Category: Corporatism