(Part one of a two-part series)
Democrats have long practiced the politics of envy. They preach that their policies help the working man (or woman) whereas the Republicans are the party of the rich.
They like to try and pit the poor against the rich. They promote the notion that if someone earns more than whatever Democrats consider a “living wage” (a despicable term) then that person is somehow evil. And many Americans have fallen for it.
Well, truth be told, both parties have done much more to benefit the rich than the poor. Some of the reasons for that are outlined here.
But how Democrats have managed to maintain the myth that their policies are beneficial to Average Working-class Joe (or Jane) is one of the great mysteries of all time—ranking up there with quasars and how Joe Besser ever became one of the Three Stooges. For Democrat big-government policies have been devastating to the “working” man.
Consider the actions of the 28th President of the United States, Woodrow Wilson. With the help of a Democrat-controlled Congress, Wilson established the Federal Reserve in 1913 and instituted an income tax which necessitated the establishment of the Bureau of Internal Revenue—the precursor to the Internal Revenue Service (IRS).
These agencies began the stealth system of “legal” theft from the American people and put us on a fiat paper money dollar system. This means that all who earn dollars and save dollars have depreciating currency with depreciating assets.
This system hurts the poor more than it does the rich. How? As the Federal Reserve prints more and more money, the currency depreciates. Depreciating currency (inflation of prices) slowly reduces the value of their savings and their standard of living. The poor—and the middle class—who often find themselves living hand-to-mouth see a rise in the prices of the things they buy. Since a greater portion of their wealth is spent on living expenses, inflation affects the poor and middle class far more than the rich.
The purpose of fiat paper money is a tax on the population which doesn’t have to be collected or enforced. The state simply has to inflate the currency by printing more paper money. The people are slow to realize the sinister purpose of inflating the currency.
Inflation or depreciation of the currency is a monetary plague that attacks the spenders and the savers. Your wealth is taken without a gun to your head.
Writing in his book, End the Fed, Ron Paul quotes from data from the Federal Reserve of St. Louis that shows how money has depreciated:
“One only needs to reflect on the dramatic decline in the value of the dollar that has taken place since the Fed was established in 1913. The goods and services you could buy for $1.00 in 1913 now cost nearly $21.00. Another way to look at this is from the perspective of the purchasing power of the dollar itself. It has fallen to less than $0.05 of its 1913 value. We might say that the government and its banking cartel have together stolen $0.95 of every dollar as they have pursued a relentlessly inflationary policy.”
That’s the tax that doesn’t have to be collected. The one that is collected is just as insidious.
According to U.S. Census data, the average annual income in 1915 was $687. That year—as in 1913 when the income tax was enacted—there were just seven income tax brackets. The marginal tax rate was 1 percent for people making up to $20,000. The highest rate was 7 percent on income above $500,000.
In 2008, according to Leslie Carbone in her book, Slaying Leviathan, The Moral Case for Tax Reform, a married couple filing jointly paid 10 percent on the first $16,050 of their taxable income, 15 percent on the remainder up to $65,100, 25 percent on the remainder up to $131,450, 28 percent on the remainder up to $200,300, 33 percent on the remainder up to $357,700, and 35 percent on the rest.
That means that if you work and you are one of the 53 percent of Americans who actually pay income taxes, you spend somewhere between one to three hours each day working to pay your tax burden.
The Great Depression And The New Deal
The Roaring ‘20s were arguably the most prosperous decade in American history, writes Robert P. Murphy, Ph.D., in his book, The Politically Incorrect Guide™ to The Great Depression and The New Deal. It wasn’t just that people grew richer. Their lives changed with the growth in the automobile and the spread of electricity and invention of gadgets and appliances that ran off it.
Meanwhile, the Fed was flooding the credit markets with cheap money which led to a speculative bubble that burst in 1929, according to Murphy. On Oct. 28, 1929, the stock market lost almost 13 percent of its value. The next day saw a drop of almost 12 percent. The Great Depression was on.
Unemployment soared, surpassing 28 percent in March 1933. Annual production dropped 27 percent. Republican President Herbert Hoover’s policies didn’t help. Murphy writes:
“The shocking unemployment rates of the Hoover years were a direct, if unintended consequence of his high-wage policy. Hoover urged businesses to maintain wage rates, even though profits were plummeting and prices in general were dropping. With firms desperately trying to cut costs to stay afloat during the Depression, Hoover insisted that the relative price of labor increase. It is no wonder then that this period witnessed the sharpest pullback in demand for workers in American history. FDR continued these policies.” [Emphasis in original text]
Democrat Franklin Delano Roosevelt, like Hoover before him, thought the Depression was caused by underconsumption, according to Murphy. So he sought to raise wage rates (rather than put a floor under them) and he pushed industrial and labor policies through Congress that limited competition and raised labor bargaining power.
“One of these policies was the National Industrial Recovery Act (NIRA) (1933-35). This act created the National Recovery Administration (NRA), which provided a vehicle for the major players in each industry to create a so-called ‘Code of Fair Competition.’ In reality, these codes were anti-competitive rules that forbade industries from lowering prices. In short, the NRA worked by fostering giant cartels, which made products artificially expensive and punished small businesses trying to compete against big businesses. As a condition for being allowed to form such a cartel, Roosevelt insisted that each participating ‘industry [raise] wages and [accept] collective bargaining with an independent union.’ By 1934, over 500 industries had adopted such codes, covering almost 80 percent of private, nonfarm employment. With these ‘voluntary’ codes in place, big producers could raise prices without fear of losing market share, because the federal government itself would punish any ‘unpatriotic’ upstarts who dared try to undersell large firms.” [Emphasis in original text]
With small businesses unable to set their own prices lower, not only were they unable to compete with larger business, but poor and middle-class citizens were unable to shop around for a good price or purchase as much as they needed.
In 1935 the Supreme Court threw out the NIRA as unconstitutional so Roosevelt used the National Labor Relations Act (NLRA) to achieve his goals, according to Murphy. The NLRA granted unions incredible bargaining power by forcing businesses to accept collective bargaining. As a result, union membership more than doubled and the number of “strike days” doubled in one year—from 14 million in 1936 to 28 million in 1937. This surge in union strength—and the high wages it brought—was an important factor in the persistently high unemployment rates of the 1930s. In other words, FDR’s pro-union policies helped prevent people from finding jobs.
Other “highlights” of FDR’s policies that hurt the poor and middle class*:
- The four-day banking holiday closed all banks—even those that were sound—denying depositors access to their own money. It was mostly small regional banks that failed and they did so mostly because of government intervention in the banking system. The “solution” did not correct the fundamental problems with the banks, but instead took away bank clients’ incentives to monitor bank solvency by saddling taxpayers with losses.
- The executive order requiring American citizens to surrender all gold certificates and gold, except for rare gold coins, in exchange for Federal Reserve Notes was outright theft. The government compounded the problem when it tied the dollar back to gold—changing the exchange rate from $20.67 per ounce to $35 per ounce (a 40 percent depreciation).
- Under government coercion, sellers destroyed food in order to raise prices (as depicted in scenes from John Steinbeck’s Grapes of Wrath). While hundreds of thousands of poor and unemployed people went hungry, farmers were plowing their crops under, or leaving them to rot in the field, and slaughtering livestock to comply with the Agriculture Adjustment Act. “[While Agriculture Secretary Henry A.] Wallace was paying out hundreds of millions to kill hogs, burn oats, plow under cotton, the Department of Agriculture issued a bulletin telling the nation that the great problems of our time was our failure to produce enough food.”
- The Works Process Administration (WPA) hampered the economic recovery. By giving the unemployed an option that paid well enough, the WPA siphoned workers away from truly productive tasks that would have restored the economy to a long-run sustainable condition. In other words, the government paid them not to find a job.
There are many New Deal programs that still exist to this day, though few of them really help the “working man.” One of the worst is Social Security. In Slaying Leviathan, Carbone writes:
“Former Social Security Commissioner Stanford Ross criticized the founders of Social Security for generating public support by advancing the fictitious belief that a worker ‘pays for’ benefits with ‘contributions’ rather than taxes, and has an ‘earned right’ to particular benefits. Ross advised Americans to reject the ‘myth’ that Social Security is a pension plan and accept it as a tax on workers to provide for the ‘vulnerable in our society’.
“Senator Patrick Moynihan went further, calling Social Security taxes ‘outright thievery’ from young working people.”
All in all, Democrat policies during the first half of the 20th Century did much more to hurt the working poor or middle class than to help. This is not to absolve Republicans of responsibility. They were complicit in that they didn’t do enough to try and stop the practices before they were implemented, nor have they done much to try and repeal them. Republicans like big government as much as the Democrats.
The fallacy is that either party, the Democrats in particular, have been able to position themselves as the party of the “working” man.
* From The Politically Incorrect Guide™ to The Great Depression and the New Deal, by Robert P. Murphy, Ph.D.
(Editor’s Note: This is the first of a two-part series on Democrat big government policies and how they hurt the people they are supposed to help. Next week will focus on Lyndon Baines Johnson’s Great Society and the policies of Barack Hussein Obama, including Obamacare and the coming value-added tax.)