Peter Dale Scott: “Saving American Politics from the Present Two-Party System”
(2519 words, 3057 with footnotes)
What I want to talk about tonight is “Saving American Politics from the Present Two-Party System” as it has been working for years, and threatens to go on working. What is that system? Gore Vidal put it very memorably: there is now “only one political party, the Property Party, with two right wings, Republican and Democrat.”
But I’m not here to despair of the American
process, but to express my qualified hopes for it. I want
to argue tonight that the root problem in this country is
increasing disparity of wealth and income – I’ll give some figures
on. In my opinion the Paulson bailout passed last year, pushed by a
White House and a Democratic majority in Congress, was a scandal,
nakedly increased this disparity. It
was a raid on the wealth of the res
publica, the republic, to salvage the status of its wealthiest
was just the last and worst example of government assisted predatory
behavior dating back to the Savings and Loan scandals of the 1980s, or
criminal gaming of
Some of the strongest opposition to this bailout was voiced by Republicans. I’m hoping that the Republican Party can introduce a criterion for all future bailout laws (and there will be more than one). The criterion is that any contemplated bailout should work to reduce disparity of income and wealth, not increase it. The criterion is that any contemplated bailout should work to reduce disparity of income and wealth, not increase it. This is a very simple principle, and I’m hoping people in this room will endorse it, perhaps even help launch a movement to endorse it.
In the auto industry, for example, workers will clearly have to accept cuts in remuneration, but so should management. As Kevin Phillips and others have suggested, a limit should be established by law to the maximum ratio of the highest remuneration to the lowest or average in any industry – perhaps a ratio of twenty to one. I once heard that principle suggested to me by a Republican former vice-president of –of all places—the Bank of America. I’m hoping that at least some Republicans in this room can agree.
Let me say right now that much of what I have to
inspired by Kevin Phillips’ great book, Wealth
and Democracy. It is hopeful that Phillips, who began as a
wrote The Emerging Republican Majority,
and I, who began as a left Social Democrat in
Both Kevin Phillips and I invoke the example of the Founding Fathers as a corrective to our present crisis; and so, hopefully, did President Obama in his inaugural address.
What Was Wrong with the Paulson Bailout
As for the Paulson bailout of last fall, we clearly needed a bailout. What we did not need was a bailout altered in the last minute by leaders of both parties to guarantee that the bailed out companies could go on paying huge salaries, dividends and bonuses. This change to the bailout legislation was made after the first immediate crisis had passed.
We have seen Merrill Lynch's controversial decision to pay $4 billion in bonuses prematurely in December, after the firm lost $15 billion for the quarter, $27 billion for the year. (This was after officers in Citigroup and UBS declined bonuses.)
Even more reprehensible is the fact that after the bailouts, Paulson and the Treasury Department refused to provide details of the Troubled Assets Relief Program spending of hundreds of billions of dollars, while the New York Federal Reserve refused to provide information about its own bail-out (using government-backed loans) that amounts to trillions. This lack of transparency has been challenged by Fox TV in an FOIA suit against the Treasury Department, and a suit by Bloomberg News against the Fed. I never thought that I would live to applaud Fox TV, but outsiders are uniting to demand a new direction in our crisis.
(Hopefully the new Obama administration may move in this direction. Just today TARP Special Inspector General Neil Barofsky has said, "Oversight of the executive compensation restrictions imposed on TARP recipients is a vital component of ensuring that tax dollars are not squandered by corporate executives seeking to profit illicitly from the Government's unprecedented and historic bailout of the financial industry.")
What Is the Crisis?
What exactly is the crisis? In my view, it is decades of first weakening and then raiding the common treasure, the res publica, for the enrichment of the rich. For three decades this unprincipled deregulation and market fundamentalism has gone on under both parties.
There is something old here, but also something new.
What is familiar, and quite old, is the dominance of both parties by the very rich financial elements of the country: Here are three quotes in my book The Road to 9/11, which I took from Kevin Phillips:
I hope we shall crush in its birth the aristocracy of our monied
corporations which dare already to challenge our government
to a trial of strength, and bid defiance to the laws of our
Thomas Jefferson, 1816
We hold it a prime duty of the people to free our government
from the control of money.
Theodore Roosevelt, 1912
The real truth . . . is, as you and I know, that a financial element
in the larger centers has owned the Government ever since the
days of Andrew Jackson.
Letter from Franklin D. Roosevelt to Colonel E. M. House, 1933
The election of 2001 recalled election of Rutherford Hayes in 1876, won by one vote in a special Congressional Committee. Hayes went on to inaugurate the Gilded Age of robber barons, and used the US Army to break a railroad strike by shooting and killing 70 striking railwaymen.
Bush in 2001 also won by one vote – in this case it was the black vote – Clarence Thomas. His presidency became the climax of a new Gilded Age. In my book I show that this Gilded Age began in 1975, when Donald Rumsfeld and Dick Cheney made some crucial changes from their position in Gerald Ford’s White House. I will oversimplify in a phrase: faced with tough decisions after the failure of the Vietnam War Rumsfeld and Cheney prepared for Rockefeller Republicanism (a regulated economy in cooperation with trade unions) to be replaced by Reagan Republicanism (a free market economy crushing trade unions).
Listen to Prof. Edward Wolff (2003):
We have had a fairly sharp increase in wealth inequality dating back to 1975 or 1976. Prior to that, there was a protracted period when wealth inequality fell in this country, going back almost to 1929. So you have this fairly continuous downward trend from 1929, which of course was the peak of the stock market before it crashed, until just about the mid-1970s. Since then, things have really turned around, and the level of wealth inequality today is almost double what it was in the mid-1970s….
Let me interject that when I first came to
Up until the early
Past excesses of American wealth, as in the Gilded Age and the 1920s, have been followed by political reforms, such as the income tax, to reduce wealth and income disparity. The Gilded Age was followed by Theodore Roosevelt and the Progressive Era. The Wall Street bubble of the 1920s (so much like what we have just seen) was followed by Franklin Rooevelt and the New Deal. This zig and zag of incipient plutocracy, followed by reform, has been a fundamental rhythm of American politics since Andrew Jackson.
The question is whether we can see it again. As Kevin Phillips has warned, this type of reform must happen again soon, or it may not happen at all:
As the twenty-first
underway, the imbalance of wealth and democracy in the
This warning by Phillips was published in 2002. Despite all the talk of change in the last election, I do not see that any electoral challenge has yet appeared to this imbalance of wealth and democracy. I’m hoping that there are a few good Kevin Phillips Republicans in this room to make it happen. That is my message to you tonight, and if I was smart I might just stop there. But I want to add a little more sense of urgency to my remarks, and offer my personal prescription for an urgent change.
Just how pathological the disparity of wealth and
Between 1972 and 2001, the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent
per year. . . . But income at the 99th percentile rose 87 percent; income at
the 99.9th percentile rose 181 percent; and income at the 99.99th percentile
rose 497 percent.”
Many of these increases are marked by the transfer
than the creation of wealth and derive from what Phillips has called
and political role in a national economy.” 
But I am not attacking one class in particular, but an entire culture that has encouraged the glorification of greed. As a former academic, I am upset at the role played by the best universities and business schools. Gordon Gekko’s famous slogan in a movie, “Greed is good”, is based on Ivan Boesky’s words at the University of California Haas Business School, “Greed is healthy.” for which Boesky was cheered.
Then there is the problem of the mainstream media. I hope you know about New York Governor Eliot Spitzer’s Washington Post Op-Ed last February. Spitzer
wrote that several years earlier, state attorneys general noticed a spike in predatory lending that the federal government was doing nothing about. When the states tried to rein in abusive mortgage lenders, the Bush administration finally did something. The Office of the Comptroller of the Currency issued rules nullifying state predatory lending laws over the objection of all 50 state banking superintendents.
The clampdown, which paved the way for the subprime mortgage crisis, was done by “pre-emption,” a little-understood doctrine that allows the federal government to wipe away state laws.
Spitzer’s Op-Ed went up on the Washington
Post website on
February 13. If it had an impact, it was not the one Spitzer had hoped
March 10 the New York Times broke the
story of Spitzer’s encounter with a prostitute, and Spitzer became a
story. According to a later Times
story, it was on Feb. 13 that federal agents staked out his hotel in
It is remarkable that the Mainstream Media found Spitzer’s private life to be big news, but not his charges that Paulson’s Treasury was prolonging the financial crisis, or the relation of these charges to Spitzer’s exposure.
What We Can Learn from Abroad about Our Present Crisis
Both the universities and the mainstream media
celebrated the ideology of free market fundamentalism, or
was the doctrine forced on
Meanwhile the country in 1994 with the fourth-largest number of
There is of course no way to keep this state of
In the case of
As a former diplomat with experience at the UN, I personally believe that in due time we will see that movements of international capital need to be regulated internationally, even if this prevents American billionaires like George Soros from speculating against other nations’ currencies. (Soros by the way agrees with this proposal.)
But I have not come here as an academic to promote my own economic theories. Rather I am hoping to encourage a movement aimed at reducing income wealth and disparity in this country, by applying this criterion to future bailout legislation. And I’m hoping that there are a few good Kevin Phillips Republicans in this room to make it happen.
 Robert Frank notes the popular proposal to cap the chief executive’s pay at each company at 20 times its average worker’s salary; and suggests that it would be appropriate for Congress to cap executive pay in financial institutions receiving bailout money (New York Times, January 3, 2009).
Hirst, “Fox joins battle cry for details of
 Scott, The Road to 9/11, 1.
Wolff, “The Wealth Divide: The Growing Gap in the United States Between
Rich and the Rest,” Multinational Monitor,
Wolff, Top Heavy: The Increasing
Inequality of Wealth in
Kevin Phillips, Wealth and
Democracy: A Political History of the American Rich (
 Quoted in Scott, The Road to 9/11, 3.
 Quoted in Scott, The Road to 9/11, 3.
 Adam Cohen, New York Times, May 23, 2008.
Johnston and Philip Shenon, “
 Sunday Business Post, May 16, 2004, http://archives.tcm.ie/businesspost/2004/05/16/story593333026.asp
Castañeda, The Mexican Shock, 215; New
York Times, July 20, 1996. The
ensuing part of my talk forms part of my essay on
Prestowitz, Rogue Nation: American
Unilateralism and the Failure of Good Intentions (
 Castañeda, The Mexican Shock, 37.
DePalma, "Gap Between Mexico's Rich and Poor Is Widening," New
York Times, July 20, 1996: “Today
the richest 10 percent of Mexicans control 41 percent of the country's
while the bottom half of the population receives only 16 percent of all
national income. The government admits that the number of Mexicans
extreme poverty has grown to 22 million, an increase over just the last
months of 5 million people, roughly equal to the population of
 Castañeda, The Mexican Shock, 239.
See for example Pedro-Pablo
Kuczynski and John Williamson, After the
John Williamson originally coined the phrase
Chua, World on Fire: How Exporting Free
Market Democracy Breeds Ethnic Hatred and Global Instability (
 Chua, World on Fire, 195.
Oppenheimer, Bordering on Chaos,