The top 1 percent of Americans own 40 percent of the nation’s wealth. In fact, just 400 Americans own more wealth than 150 million other Americans combined.
Wal-Mart Stores, the world’s largest private employer, personifies this inequality best. It’s a corporation that in 2011 brought in more revenue than any other corporation in America. It raked in $16.4 billion in profits. It pays its employees minimum wage.
And the Wal-Mart heirs, the Walton family, occupy positions 6 through 9 on the Forbes 400 Richest People in America list, own roughly $100 billion in wealth, which is more than the bottom 40 percent of Americans combined. The average Wal-Mart employee would have to work 76 million forty-hour weeks to have as much wealth as one Wal-Mart heir.
Through some interesting historical analysis, historians Walter Schiedel and Steven Friesen calculated that inequality in America today is worse than what was seen during the Roman era.
So the Royalists, just like the Roman emperors, got their Leisure Society.
But there was an extra benefit for the Royalists buried in the politics of the Reagan tax cuts.
The “Debt” Crisis
In his First Inaugural Address in 1981, Ronald Reagan warned of a debt crisis.
“For decades, we have piled deficit upon deficit, mortgaging our future and our children’s future for the temporary convenience of the present,” he said.67
“To continue this long trend is to guarantee tremendous social, cultural, political, and economic upheavals.”
At the time, the national debt was a bit under $1 trillion. As a result primarily of his tax cuts, he tripled the national debt to about $3 trillion. He added more to our national debt than every single president before him, from George Washington to Jimmy Carter, combined.
In his Farewell Address to the nation in 1989, Ronald Reagan said the high deficits throughout his administration were one of his regrets. But no Republican since has regretted adding more and more debt.
Reagan’s successor, President George H. W. Bush, added more than a trillion dollars more. And his son, George W. Bush, added more than $6 trillion.
Since Reagan, Republican presidents have combined to add nearly $10 trillion to our national debt.
And yet, each devoted their inaugural addresses to promising to lower deficits and reduce the national debt. Republican politicians, in the spirit of Reagan, have even resorted to alarmism, talking about a “debt crisis,” while at the same time pushing for budget-busting tax cuts for the rich.
This could be written off as run-of-the-mill political flip-flopping and pandering. But it’s not. There’s a cunning political strategy behind it.
Shooting Santa
Starting with FDR’s big win in 1936, with the lone exception of the two-year “Do-Nothing Congress” elected in 1946, Republicans never held a majority in the House of Representatives until 1995. This period coincided with the banishment of the Economic Royalists as well.
The way the political right was able to finally come out of this political slump was by listening to a Republican strategist/faux economist named Jude Wanniski, who wrote a transformative article for the National Observer in 1976 that laid out the new Republican path to power.
Titling his article “Taxes and a Two-Santa Theory,” Wanniski warned that Republicans “embrace the role of Scrooge, playing into the hands of the Democrats, who know the first rule of successful politics is Never Shoot Santa Claus.”68
He said, “As long as Republicans have insisted on balanced budgets, their influence as a party has shriveled.”
Republicans first learned this lesson in the 1930s and ’40s after the New Deal, when Democratic president Franklin Roosevelt played the role of Santa Claus and gave the American people Social Security and unemployment insurance. At the time, Republicans played Scrooge, arguing that we couldn’t afford it. They played the role of Scrooge in the 1960s, too, as Democratic president Lyndon Johnson played Santa Claus as well, and gave the American people Medicare and other Great Society programs to cut poverty.
And what did Republicans get for playing Scrooge? Electoral defeat after electoral defeat.
Wanniski said Republicans need to play Santa Claus, too. They should be the Santa Claus of tax cuts!
Wanniski wrote, “The only thing wrong… is the failure of the Republican Party to play Santa Claus… The Two–Santa Claus Theory holds that Republicans should concentrate on tax reduction.”
When Democrats give “gifts” like Social Security and Medicare, Republicans can counter with gifts like massive tax cuts, which is exactly what they did when Ronald Reagan was elected in 1980 and picked Wanniski as an adviser.
But there was another dimension to Wanniski’s strategy that he doesn’t explicitly lay out in his article. And that’s this: If Republicans, by playing Santa Claus on their own, successfully pass their tax cuts (as Reagan and Bush 2 did) without cutting spending, then the government will be starved of revenue until eventually it can’t afford the Democratic Party’s social services such as Social Security, unemployment insurance, and Medicare—all things that Republicans have labeled “gifts,” yet are fundamental to the survival of a middle class.
If Republicans scream and yell enough about the deficit they’ve created with their tax cuts, then maybe it will force the Democrats to reverse roles, play Scrooge, and eventually shoot Santa Claus.
I asked Ronald Reagan’s former budget director, David Stockman, about Wanniski’s theory and whether it had motivated the Reagan tax cuts.
Stockman referred to Wanniski as a “raving wildman,” and said the Two-Santa Theory wasn’t the basis of Reagan’s economic program.
But, Stockman admitted, when it became clear that the tax cuts weren’t actually working, and that the deficit was exploding, then the White House noticed.
“The White House became divided between the rational people, who realized that things were out of balance, the numbers weren’t working, the tax cut was too big, and that we needed to take some of it back. On the other side there were the true ideologues, who insisted, ‘Let’s just ride it out and continue to defend this massive tax cut that we couldn’t afford.’”69 In other words, the White House was divided between rational Republicans and the Economic Royalists.
Stockman admitted that the Royalists won the debate within the White House. “Unfortunately there are very few people left in the Republican Party who were on the fiscally conservative side of the debate.”
He went on, “More and more and more, Republicans took on the catechism of tax cuts anytime, anywhere, for any reason. You never have to pay the bills of government… and just blame it on the Democrats anyway.”
Just as Wanniski had laid out. The plan worked.
Republican President Clinton
The irony is that the Economic Royalists in the Reagan administration didn’t do the real harm to the social safety net that had once supported the American middle class.
It was a Democratic president who did it.
Bill Clinton was elected in 1992 after campaigning on a promise to bring a sea change to America similar to the one that Franklin Roosevelt had brought, back in 1932. Clinton’s agenda was called “A New Covenant,” and he summed it up in a 1991 speech at Georgetown University when he said, “To turn America around, we’ve got to have a new approach… we need a new covenant, a solemn agreement between the people and their government to provide opportunity for everybody… a new covenant to take government back from the powerful interests… and give it back to the ordinary people of our country.”70