When the world’s greatest power financed an overseas war with borrowed money, then turned to its elites to approve tax increases that would fall mainly on the rich, they
responded with a resounding “NO!” The debt was not a reasonable result of government needs, the elites cried. It was the result of waste and misguided government expenditures. There was no way that the elites would consent to any increase in taxes without constitutional change; anything else would be a grievous assault on basic liberties.
That was in the spring of 1787. The place was Paris, and after France’s successful intervention in the US Revolutionary War against Britain, it had debts to pay that required a boost in income. Although France was by a goodly margin the largest and richest country in Europe, and the most powerful military force in the world, its tax system was a twisted mess of special exemptions and loopholes. Different regions of France paid different rates of taxes, and most elites were exempt from the basic tax of the country – the taille,
a land tax – on most of their income. The elites did have to pay an income tax of 5% — the vingtiéme – but that was due to expire, and the country could not pay its bills unless the tax was made permanent, and other taxes were made more consistent or increased.
To accomplish this, the French monarchy convened an Assembly of Notables, opened its books, and claimed that tax increases were essential to restore the finances of the nation, and prevent the country from being overwhelmed with debts. The monarchy was absolutely correct in this – France’s population had increased by a third since the start of the century, and the population growth pressing on agriculture had raised the prices of most commodities, including the costs of keeping an army. Interest rates had also gone up, making it more expensive to service the state’s debts. Yet tax revenues had stagnated, because French taxes in those days were largely fixed and did not rise with inflation.
In fact, there should have been no problem paying the debts, because the French economy had grown handsomely, as urbanization, the expansion of manufacturing, and overseas trade had all grown enormously in the 18th century and many among the French elites and bourgeoisie were richer than ever. But these groups had the equivalent of tax exemptions or loopholes, paying relatively low rates compared to the their gains in wealth, as most of the tax burden still fell on the agricultural sector, which had grown more slowly.
It was clear to the King’s ministers that this situation could not go on. Taxes had to shift and fall on those whose income had risen the most in recent decades, both for fairness and to ensure that the country’s debts were brought under control. The King’s finance minister was certain that if he simply made the situation clear, the elites would agree to rationalize the tax system, even if it meant higher taxes for them. After all, the elites were richer than ever and could easily afford to pay the higher taxes; surely patriotism and assuring the future of the country would come before personal interests.
Of course, just as President Obama today, the King and his ministers were wrong in thinking that the elites would be reasonable. Instead, they proclaimed loudly that the debts and the budget problems were entirely created by excessive spending by the King.
They cried out that any increase in taxation was an unconscionable assault on their liberties. In an eerie parallel to today’s refusal by Congressional Republicans to increase state borrowing unless a balanced budget amendment is submitted to the states, the
Assembly of Notables refused to give its assent to any new taxes unless the King submitted plans for constitutional reform to a special meeting of the Estates-General.
The result, of course, was the destruction of the monarchy in the French Revolution, a devastating inflation when the country finally defaulted on its debts, the seizure of Church property to pay state bills, civil and international wars, the rise of radical populism in the French Jacobins, the execution of many of those same elites at the guillotine, and the loss of France’s status as the dominant nation in Europe to Great Britain. All of which could have been avoided if the elites had recognized that a modest and affordable increase in taxes was necessary to restore fiscal stability to the nation, and agreed to them.
Is there a lesson here for today, or is this ancient history? In fact, the parallels are remarkable. Just as today, the elites in the US are confusing their self-interest with principles of freedom from taxation, when in fact the critical principle is that the country must have sufficient revenues to cover its necessary expenses and service its debts. As to
the deficit, conservatives blame it on Obama just as 18th century French elites blamed their deficit on the king. But just as in France, the greater portion of the the long-term deficit
in the US is being driven by population change, which the President cannot affect. The number of Americans over 65 will double over the next forty years, from 50 to 100 million. The increases in medicare and social security costs that this will bring cannot be covered by simply cutting spending unless we decide to toss out these programs altogether. But the increased costs cannot be covered by reasonable tax increases either. The only way to cope with this coming and inevitable surge in the elderly population is with a combination of modestly higher taxes on those who can afford to pay for them, and a reduction in costs via means-testing, later retirement, slower increases in benefits, and efforts to constrain health spending.
And what of the consequences of the elites ‘no new taxes’ mantra? The US is about to move into 2012 with four factors coming into view – an unemployment rate over 9%, a trillion-dollar increase in taxes over ten years on ordinary workers when Obama’s social
security tax cuts expire (see my previous post), the expiration of long-term unemployment insurance for those out of work for two years, and the continuation of a $42 billion per year tax cuts for the rich if the Bush tax cuts are not allowed to lapse. Just as the French elites could not see that their actions would fuel an extreme populist backlash, so today’s Republicans don’t seem to realize that this combination will likely bring a populist backlash against the rich that will make any prior talk of ‘class warfare’ seem like a
weak metaphor.
The US is not facing another recession, even a large one. In the words of Robert Schiller and Carmen Reinhart, it is facing a second Great Contraction, more like the Great Depression. During the Great Depression, popular radicalization reached new heights,
launching the greatest expansion of government and the sharpest assault on corporate privileges since the Progressive era. The Republican policies seem designed to maximize popular suffering and resentment. The result can only be a new wave of populist mobilization that will bring down the very elites who think they are preserving the system, while in fact they are destroying it.
Like the weak but well-meaning Louis XVI, Obama may also be swept away by the crisis. But America is unlikely to recover. The demographic wave of aging is coming. The federal government needs to both cut benefits and raise revenues to avoid an explosion of debt and eventual fiscal collapse. The elites have dug in their heels against even a modest increase in taxes on those who can best afford it, while leaving the working poor to their own devices amidst a crushing economic contraction, assuming the latter are impotent and do not see what is happening. At some point the ordinary working people of this country will realize that the wealthy are simply rolling along and do not care if ordinary Americans get crushed under the wheels. Can the creaking of the tumbrils be far behind?
NewPopulationBomb 
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This blog post is not well considered. The Bush tax cuts on incomes over $250K appear to cost around $40 billion per year. We have budget deficits in the range of $1.5 trillion per year. Suggesting that all would be right in the world (budget deficit wise) if only the “elites” would abandon their claims of privilege (the Bush tax cuts) is ludicrous.
Actually, it is worse than absurd. It is demagoguery. If the Republicans tried to blame the deficit on Food Stamps, you would howl in protest. When you and Obama try to blame the deficit on tax cuts for the rich, oil companies, and hedge funds, we are supposed to take you (or Obama) seriously?
Using your numbers, the Bush “elite” tax cuts cost $42 billion per year. Oil company tax break supposedly cost $4 billion a year. The hedge fund tax breaks are estimated to be in the range of $1.5-$2 billion per year. Oh yes, the corporate jet tax break that Obama mentioned no fewer than six times might cost $0.3 billion per year. What was the budget deficit again? Wasn’t it in the range of $ trillions?
As for your “elites”, you are confusing the core policy making elite of America with the Republican party. The Republican party is obsessed with taxes, and arguably super obsessed with high-end taxation. However, do you have a shred of evidence that the “elite” as a whole shares these views? Let us remember that Wall Street contributed more to Obama than McCain in 2008.
An accurate summary of actual elite opinion can be found over at “Mediscare And Elite Bias” (The New Republic – http://bit.ly/iNlXxt). I quote
“Elite opinion and the biases of the news media, which are generally synonymous, tilt left on social issues, like gay rights, abortion and immigration, reflexively deeming conservative views as bigoted and irrational. On economics, elite opinion tilts slightly right — opposed the the GOP agenda of debt-financed tax cuts, but strongly in favor of free trade. Elite opinion militantly favors deficit reduction and regards the cause of cutting entitlements as sacred writ.”
Stated differently, elite opinion in America amounts to some combination of the editorial pages of the New York Times and the Washington Post (with Thomas Friedman thrown in). None of these leading lights has any sympathy for Republican ideas about taxation.
The Council on Foreign Relations has regularly polled public opinion on a wide range of issues. Elite versus mainstream opinion gaps certainly exist. However, taxes are NOT the subjects with the greatest gaps between ordinary folks and policy elites. By far, the largest gaps are with respect to trade and immigration. Elites are overwhelmingly supportive of “free” trade and Open Borders. Ordinary Americans have negative views of “free” trade and are very opposed to mass immigration (particularly illegal immigration).
See “Elite vs. Public Opinion: An Examination of Divergent Views on Immigration” (http://bit.ly/ooOU7G). I quote
“The results of the survey indicate that the gap between the opinions of the American people on immigration and those of their leaders is enormous. The poll found that 60 percent of the public regards the present level of immigration to be a “critical threat to the vital interests of the United States,” compared to only 14 percent of the nation’s leadership – a 46 percentage point gap.”
If you still doubt this, check out a recent article by center-left pollster Stanley B. Greenberg in the New York Times “Why Voters Tune Out Democrats” (http://nyti.ms/qsuPm4). A few quotes should help.
“That government and the elite appear blithely to promote globalization and economic integration, while the working population loses income, makes the frustration more intense.”
“During this period of economic crisis and uncertainty, voters are generally turning to conservative and right-wing political parties, most notably in Europe and in Canada.”
“My surveys show that voters want comprehensive immigration reform rather than half measures. They would like to see strong enforcement at the border and in the workplace, and the expulsion of troublesome undocumented immigrants.”
Of course, Greenberg thinks liberals can “sell” Amnesty (the current euphemism is “Comprehensive Immigration Reform”) by pretending that the very real Amnesty will be followed by actual border control and tightly enforced employer sanctions. Given the failure of the 1980s Amnesty (the IRCA) and the obvious commitment of the Obama administration to oppose immigration enforcement, good luck with that.
Michael Lind has also written about this. See “The return of a zero-sum world” (Salon – http://bit.ly/prKMIS). I quote
“Less in the spirit of Adam Smith or John Maynard Keynes than of Edgar Allan Poe, self-described “conservatives” and “progressives” will struggle to create an American zombie economy with protected enclaves for the managerial and professional elites. Meanwhile, most ordinary Americans will work in industries that, unlike elite zombie sectors like defense, private healthcare, higher education, the higher civil service and the subsidized green economy, are not rigged and protected from competition. American workers in the dwindling manufacturing sector will continue to face competition from low-wage workers and state capitalist regimes abroad. Many more American workers in the domestic service industry will face competition from immigrants, particularly in low-wage jobs.”
It should be evident, that the schism between elite opinion and the rest of America is centered around globalization, not taxes. If a populist revolt ever comes to America, it is the Open Borders crowd and the corporate outsourcers who face the tumbrils (figuratively, not literally).
It should be obvious that I have little use for “supply side” Republicans. However, I am just as alienated, if not more so, from America’s real elites (see “The new cosmopolitans” by Robert Schiller – http://bit.ly/n6VxJb) and the immense damage they have don’t. Will Americans ever revolt against the elite? I tend to doubt it. However, it is the cosmopolitan elites who govern America, not tax obsessed Republicans who are likely to be the targets.
To be clear, letting the Bush era tax cuts expire would not fix our problems — though some folks think so (like Eugene Robinson in this morning’s Washington Post. But it is an absolutely vital first step. Adjusting to the new reality of the world will require pain for many. They can accept it and move forward, or fight it and bog down our politics and responses. Ordinary folks will almost certainly fight any pain as hard as they can if they see the better off in society not sharing it. On the other hand, if everyone has to readjust expectations a bit, take their losses, and move forward, things will go better.
The schism on open borders, unfortunately, is part of the problem. In a future post, I’ll take on why we NEED immigration and immigration reform to make it easier for hard working, business-creating, and tax paying immigrants to enter the US. Good news on trade, though – the admnistration seems to have cleared the way for movement on the pacts with Columbia, Panama, and South Korea when Congress returns.
On virtually every economic issue the US has faced over the past few years – austerity v. stimulus, does stimulus crowd out private investment and cause inflation, whether the priority right now should be to revive demand while tackling the deficit after growth has revived, Obama’s alleged spending binge as the cause of the deficit, tax cuts paying for themselves thru growth, the respective shares of private and public sectors in health care cost increases – one can go on: the empirical evidence is overwhelmingly against the Republican message. The Tea Party and most of the rest of the Republican Party are impervious to the evidence but their message seems to sell surprisingly well with the American public. I doubt that it is simply the case that the Democrats are poor messengers; there seems to be a predisposition on a large part, perhaps the majority, of the public to listen to the Republicans no matter the facts. This is what makes the whole debate so alarming – the bulk of Republicans have moved to an alternative universe with which communication is impossible. Is this analysis by a foreigner exaggerated and off the mark?
Nick
Excellent blog — I will bookmark it!
I agree with Jared though: the Tea Party is really the petit bourgeoise — small business owners and the like. Unlike the true elites, they truly chafe under the burden of regulations and taxation. They also resent the large banks and corporations, who they see as receiving bail outs and escaping taxes.
The true capitalist elites — the upper middle class, banks and corporations — are in league with the technocracy, and both cross party lines. Both had a true interest in raising the debt ceiling in order to maintain asset values. McConnell and Boehner are corporatists, not Tea Partiers. So is Obama, Geithner, Summers, and most of the establishment Democratic Party. The core corporatist/technocratic belief is that the economy can be “managed” by using financial markets as the guiding light.
The real question is when we get a political re-alignment two the opposite poles of Corporatism and Populism. The last time this happened, we were fortunate in that Teddy Roosevelt was a true populist reformer. This time, the Populist resurgence may look very different.
Diego, you are absolutely right. I too look back to the Teddy Roosevelt’s progressive (and Republican!) days as a model for what we need. See my new post on the Tea Party. You are also right to worry about what form new populist mobilization will take. In the 1930s we saw both pro-labor mobilization and anti-immigrant mobilization in the US, and socialist and fascist mobilization abroad. Let’s hope we can find a way to better outcomes this time around.
While I think you are correct in channeling Alexis de Tocqueville’s assessment that the French elites “spoke as if ordinary people were deaf and blind to what they were saying,” I think you might be underestimating the modern rich. As the Koch Brothers and Rupert Murdoch have demonstrated, one can make pro-rich policies look populist by funding groups like the Tea Party and slanting the news media to one’s cause. As for what the future holds, I am starting to think that Orwell–not Tocqueville–had the best insights.
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I think the comparison is flawed for this reason: the Tea Party, without which we may have had some revenue increases included in the debt deal, is anything but a movement of elites. THEY, not the elites, are the driving force behind the current government attitude of cutting spending and leaving taxes the same. If anything, the elites, or at least the elites with the loudest voices, tend to be democrats. Look at Bill Gates,Warren Buffet, George Soros, virtually all of Hollywood, etc. I agree with lots of what you say, but I always feel suspicious when people start talking about an undefined group of elites, because I am surrounded by people on a daily basis who would fit most definitions constantly and they are overwhelmingly in favor of tax increases on themselves and nothing like the elites you describe.
Jared, You are right to be uneasy. I should be speaking of ‘self-proclaimed conservative elites” and not vague ‘elites’ in general. I will do better in the future. However, the tea-party supporters do tend to be older, whiter, and richer than the American population in general. Of course they think the enemy is the liberal, mainstream and media elites; so you are absolutely right to call for a more precise discourse on who is saying what!
Mr. Goldstone,
Thanks from the reply, but I’m still confused who the self-proclaimed conservative elites are… the Tea Party seems to me to be, if anything, a populist movement… or at least that is how it has been described an overwhelming majority of the time. They tend to be older and whiter, but that alone doesn’t make them elite by any definition I’ve heard. In fact, educationally they very closely mirror the larger population (link at the bottom). I grant you, there are a few elite figures who do fit your description (The Koch family comes to mind) but I still think that elites vs. the rest is a very poor way to frame the argument. What we really have, to my eye, is a new sort of populism based on some libertarian principles, fueled by scary deficit and debt projections and anger about the bailouts. Its power comes not from its wealth or the social standing of its members, but the incredibly effective primary votes that allow it to browbeat huge numbers of Republican politicians into submission. I understand your arguments and agree that a populist backlash against the rich may be in the cards, but I don’t see how it can be blamed on the rich in general or even “self-described conservative elites” because I don’t think they are the driving force behind the anti-tax, anti-government trend.
The French revolution was caused by many factors. The fiscal crisis (taxation, debt) which you so well explain in your post was but one of them, and certainly not the main one. France suffered a horrendous winter in 1788 and agriculture output plummeted which led to inflated food prices and nation wide famine (think bread, or rather cake). The monarchy was unpopular due to its lavish lifestyle and recurring scandals. The church was discredited (in part due to free masons and jansenists attacking it). Free thinking and new ideas swept the nation (the enlightenment). The King was an absolute monarch who disregarded the parliament and any other political institution, and the nobility was completely disconnected from the masses.
Hence I would hesitate to draw parallels between the French Revolution and the current US situation solely on the basis of a fiscal crisis. The more pertinent question should be: Is there a confluence of factors that will provoke the demise of the US as there was one with France in 1788?
Pascal, you are quite right — many causes contributed to the French Revolution and all that followed — demographic, economic, political, agricultural, religious, media (the innovative use of court speeches and pamplets), and ideas. For the latest survey of the diverse causes, I recommend From Deficit to Deluge: The Origins of the French Revolution, edited by Dale van Kley and Thomas Kaiser, from Stanford University Press (2011). [Full disclosure, I have an essay in that book on the social origins of the Revolution, revisted]. I also do not expect a full revolution in the US (and certainly not a peasant revolution!) But I do expect class conflict to sharpen if trends continue unchecked. Remember that Tocqueville stated one reason for the revolution was that the elites spoike as if ordinary people were deaf and blind to what they were saying; the attitude of Republicans, who seem willing to defend bankers and Wall Street while ordinary people are out of work and scared for their jobs strikes me as eerily similar).
Dear Jack,
Good Lord! You’re right! God protect us from Fox News!
Deirdre