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Crony capitalism, the choice of 1912, and bully for you

[given unnatural long life by Lynn C. Rees]
The United States presidential election of 1912 was fought over one fundamental issue: how to handle the political repercussions of the emergence of large concentrations of economic power between the American Civil War and the turn of the twentieth century.

All power is fungible: one form of power can, with varying degrees of difficulty, be converted into another. Economic power can become political power. Political power can become economic power. This means there is ultimately only one market for all forms of power. Change in the division of economic power within an economic market is always followed by change in the division of political power within a political market. Shifts in the division of political power within a political market always impact the division of power within a political market.

Increases in large concentrations of economic power from 1861-1912 intensified an age-old problem: private wealth often finds that it can generate higher returns on investment by investing in one unit of violence than it can by investing in ten units of product improvement. Buying a congressmen or senator is frequently cheaper than building a factory. This imbalance led to many a cozy arrangement between the new men of capital and the old purveyors of political power on all levels of American government.

The three presidential candidates running in 1912 offered three different approaches to mitigating this crony capitalism within the United States’ political system:

  • The candidate of the Progressive Party, former president Theodore Roosevelt of New York, sought to build the United States federal government into an over-awing Leviathan that could cow large concentrations of wealth by subjecting them to tight scrutiny and regulation. This Leviathan would not necessarily seek to break up these concentrations of economic power: Roosevelt was convinced bigness was the future. Furthermore, such concentrations of economic power were necessary for competing in the increasingly vicious international market for power where empires and nations struggled against other empires and nations. Some hinted that there was a possibility of Roosevelt’s Leviathan itself being bought by dollars from those great concentrations of wealth. However, Roosevelt dismissed this fear because the natural ruling class that would control the Federal government was Old Money of Impeccable Old Blood like himself and Old Money can’t be bought by New Money. Old Money would be supported by professional regulators trained in the latest science of administration, many of whom would be from the ranks of Old Money themselves.
  • The candidate of the Republican Party, incumbent president and former Roosevelt henchman William Howard Taft of Ohio, sought to contain large economic concentrations by using the Federal government to selectively break them down into smaller pieces and regulating them around the edges by controlling their interactions with each other. Taft’s vision was one of checks and balances where Federal-scale concentrations of economic power were checked and balanced by other Federal scale concentrations of power while Federal checks and balances on private wealth were checked by the constitutional checks and balances within the Federal government itself. As president, Taft struck a more moderate rhetorical tone about business than Roosevelt had when Roosevelt was president. But Taft more energetically pursued judicial remedies to break up or impose structural checks on the more vicious concentrations of economic power. Taft favored checks and balances through one-time restructurings of concentrated economic power and its institutional forms over continuous oversight governed by the discretion of a permanent regulatory agency. The former approach put in place firmer checks and balances on the ravages of concentrated economic power without as much possibility of the corruption of business and state by an ongoing regulatory relationship between the two.
  • The candidate of the Democratic Party, New Jersey Governor Thomas Woodrow Wilson, proposed breaking up large concentrations of wealth into so many tiny pieces that each tiny piece could be overawed by just one of the forty-six little leviathans of the several states of the Union. They’d be so small they could be drowned in a bathtub. This was a variation on the tradition of state’s rights and a smaller less activist Federal government that the Democratic Party had advocated with varying degrees of seriousness since Martin van Buren had formed it around the person of General Andrew Jackson after 1824. Federal attention to Federal-scale large concentrations of wealth was only necessary if there were Federal-scale large concentrations of wealth to pay attention to. Breaking them up into state-level concentrations of wealth would return responsibility for policing concentrations of wealth to the states or the people respectively.

Wilson won the election but Roosevelt won the war. Wilson came into office and promptly started building the Federal government into a Roosevelt-style Leviathan to overawe concentrated economic power with ongoing discretionary regulation by scientific bureaucrats. The Wilsonian Leviathan was ultimately given its final form when his Assistant Secretary of the navy, Franklin Delano Roosevelt, a distant cousin of Theodore’s by birth and a nephew of Theodore’s by marriage to Theodore’s niece Eleanor, was elected president in his own right twenty years later in 1932.

Much as FDR’s strategy for World War II and its aftermath was built around avoiding the mistakes of Wilson’s strategy for World War I and its aftermath, FDR’s strategy for countering economic concentrations of power was built around avoiding the mistakes of Wilson’s strategy for countering economic power.

FDR’s United Nations had much of the idealistic veneer of Wilson’s League of Nations. However, its effectiveness was built on the hard power of the Four Policemen of the Republic of China, the British Empire, the Union of Soviet Socialist Republics, and the United States of America and their ability to police their respective spheres of influence. Says Wikipedia:

Each of the Four Policemen was to maintain order in its respective sphere: Britain in its empire and in Western Europe; the Soviet Union in Eastern Europe and the central Eurasian landmass; China in East Asia and the Western Pacific; and the United States in the Western Hemisphere. Given the weakness of the government of Chiang Kai-shek, President Franklin D. Roosevelt foresaw the United States dominating China’s sphere of influence. Thus, in effect, the United States would run two spheres and thereby maintain global supremacy over a declining Britain and a Soviet Union badly damaged by the Second World War.

FDR’s used this same approach within the United States by building up concentrations of economic power to counteract the older yet more concentrated blocs of economic power. Wilson’s regulatory regime had been quickly overrun by savvy crony capitalists from the existing concentrations of wealth. Banks in particular had become large political slush funds in all but name, their donations coming from its fully owned regulators at the infant Federal Reserve.

FDR sought to counter this creeping of cronyism into the nation’s government by creating constituencies whose share of economic power and therefore their share of political power would check and balance the old crony capitalist concentrations of power. Private-sector unions would check the power of the managers of large going concerns from the inside. Empowered voting blocks like the ethnic vote, backed by particular government subsidies, would counter them from the outside.

FDR’s masterstroke was the creation of an entire age group as a voting block with his Social Security program. Recognizing the wisdom of Bismarck’s fundamentally cynical insight that only a small percentage of the population would live long enough to collect it, FDR camouflaged Social Security taxes as contributions to federal insurance benefits. Attempts by financial interests to divert Social Security funds into speculative gambling would be repeatedly foiled by the belief that Social Security was paid out of individual benefit accounts, not a de facto general line item on the Federal budget. You can hear FDR grin when he is reputedly said:

I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.

Repeated attempts on Fortress Social Security have been rebuffed time and time again, as FDR foresaw.

FDR also carried forth cousin Theodore’s belief that these competing power blocs would be overseen by enlightened regulators with the discretionary flexibility to intervene in their internal affairs and their interrelationships from time to time as dictated by the latest principles of scientific management. These regulators would be freed from the taint of crony capitalist corruption because, since FDR, like Theodore, assumed that these regulators would be Old Money like themselves, too wealthy and too imbued with noblesse oblige to be bought by grubby capital.

FDR’s system proved more workable than TR’s original vision of scientific managers who hovered above the fray and Wilson’s flawed implementation of TR’s vision. However, it was eventually gummed up by the very success of FDR’s interest group policemen. FDR’s successors in the Democratic Party hobbled the energy of FDR’s regulator regime by taking two of FDR’s principles of successful politicking, the manufacture of economic and ethnic voting blocs and the encouragement of collective bargaining through unions, and letting it leak into government.

FDR was opposed to government unions because he was not seeking to check and balance government power, only private wealth’s power. Moving unions made up of curated economic and ethic interests groups into government crippled the energy of government. Crippling the energy of government crippled its ability to use discretionary punitive action to maintain FDR’s dispersal of economic and thusly political power among the members of his “New Deal Coalition”.

This opened the door for old style private economic concentrations of power to leech back in and reassert Gilded Age-style crony capitalism with a vengeance. Only now, the United States had to support two parasitic concentrations of economic power: the older Gilded Age form and the newer Great Society public sector union form.

The public sector union form proved far weaker than FDR’s broader alliance of blocs in resisting renewed encroachments of private rent-seeking. It was more concentrated than the original New Deal coalition, its agenda was narrower, its members were less bright than those that could be attracted by the shiny baubles of private rent-seekers, and its supply lines and sources of funds were more visible and more vulnerable to political attack. FDR’s well-oiled machine of checks and balances on private rent-seeking had been reduced to a slush fund for the inefficient distribution of public moneys to public rent-seekers.

And here we stand, 102 years after the choice of 1912.

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