People gather outside of the New York Stock Exchange in New York on "Black Thursday," Oct. 24, 1929. Thousands of investors lost their savings in the worst stock market crash in Wall Street history on Oct. 29, 1929, after a five-day frenzy of heavy trading. The Great Depression followed. (AP)

The notion that America is sharply divided between free market capitalists and big government socialists is complete baloney. This country is lousy with consensus around an economic value system, which is deeply embedded in the DNA of most Americans and based upon generations of experience with capitalism in this country.

For the first third of the 20th century, America was the Wild West. Low taxes. No regulation. No unions. Anything goes. We called it the Roaring ’20s. The rich got filthy rich. Everybody else just got filthy. The Roaring ’20s officially ended on October 29, 1929 when the entire American economy crashed, ushering in a decade of unrelenting misery and despair featuring 25 percent unemployment, widespread bank failures, bankruptcies, foreclosures and food lines. We called that the Great Depression. The closer we looked at capitalism, the more we found it wanting. So we did what Americans always do when we see a problem. We fixed it.

To save capitalism from itself, FDR introduced what turned out to be the crucial missing ingredient: compassion.

In this case, the fixer-in-chief was President Franklin D. Roosevelt. The damage done to the country during the Depression convinced him that unregulated capitalism always favors the rich at the expense of everyone else. So to save capitalism from itself, FDR introduced what turned out to be the crucial missing ingredient: compassion.

Roosevelt understood that compassion did not grow naturally in the harsh climate of an unfettered free market. He knew instinctively that fairness — essential to any functioning democracy — was an alien concept to pure capitalism. So FDR gave us a new, improved version. Call it compassionate capitalism. No senior citizen ends up destitute (Social Security). Banks and Wall Street don’t get to gamble with peoples’ savings (FDIC and SEC). Anybody who serves their country goes to college (GI Bill). Everybody who wants to work gets a job that the country needs to have done (CCC and WPA).

Far from hobbling private sector growth, these programs actually fueled it. Tons of people got very rich. However, the immense wealth created in America during the post-Roosevelt years was much more evenly distributed — with the biggest chunk going to a rapidly expanding middle class. Compassionate capitalism worked for everyone without busting the federal budget.

The numbers speak for themselves. During the ’20s, the top income tax rate in America was slashed from 73 percent to 24 percent. Instead of stimulating economic growth, these huge tax cuts brought us unprecedented budget deficits. When Roosevelt took over from Hoover in 1933 the annual federal deficit had ballooned to more than half the size of the entire U.S. budget. Roosevelt drove that deficit steadily downward until the federal budget was practically balanced in 1938. But government spending on WWII pushed those deficits right back up. By 1943 the size of the deficit had exploded to an unimaginable 69 percent of the budget itself. But once again, Roosevelt’s policies chipped away at that deficit until 1947 when the federal government ran a budget surplus.

The lesson? Massive tax cuts mean massive deficits. Big wars beget big deficits. Yet under Roosevelt’s compassionate capitalism — even with a Great Depression and a Second World War — the federal budget quickly came right back into balance. His successor, Harry Truman, stuck to FDR’s playbook and ran a net surplus during his six years in the White House. By the time Eisenhower was elected, compassionate capitalism was tightly woven into the fabric of American democracy.

Between 1952 and 1980 Democrats and Republicans argued about a lot of stuff: communism, civil rights, Vietnam, marijuana, abortion, nuclear power — you name it. But throughout all those years of political and economic upheavals, no president — of either party — seriously argued that America couldn’t afford Social Security and Medicare.

America’s social safety net was never viewed as the cause of eye-popping deficits until a radical group of political nihilists … decided that the best way to kill the compassion in capitalism was to stubbornly refuse to pay for it…

Then along came Ronald Reagan and things got crazy. Reagan was too smart a politician to advocate shredding the social safety net. Instead, he cut taxes so drastically that there wasn’t enough money to pay for it. Sure enough, during the Reagan/Bush years the deficit skyrocketed to such a frightening level that Reagan’s own budget director, David Stockman, quit the administration to write a scathing book titled “Why the Reagan Revolution Failed.”

Deficit hawks didn’t know it at the time, but the answer to their prayers arrived with the presidency of Bill Clinton who inherited a quarter trillion dollar deficit and left his successor with a quarter trillion dollar surplus. Everybody knows the rest of the story. George W. Bush took that Clinton surplus, proceeded to slash taxes, and launch two major wars and presto: trillion dollar annual deficits as far as the eye can see.

The reason compassionate capitalism is still hugely popular — Tea Party extremists notwithstanding — is because it works. America’s social safety net was never viewed as the cause of eye-popping deficits until a radical group of political nihilists, led by people like Grover Norquist, decided that the best way to kill the compassion in capitalism was to stubbornly refuse to pay for it — and then blame the resulting deficits on the lie that compassion itself is just too damn expensive.

The so-called controversy over “raising taxes vs. cutting entitlements” exists only in Washington. For the rest of America, this issue was settled in 1932 and then again in 2012. History has repeatedly demonstrated that compassionate capitalism leads to balanced budgets, a robust economy, and a piece of the opportunity pie for every citizen seated at America’s table. If we take the compassion out of capitalism, what’s left? 1929.


Tags: History

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  • Tom@home

    This is one of the best articles I’ve seen that explains why we are where we are.

    Why so many of us are unemployed. Why our health care system no longer works.

    The problem isn’t medicare the problem is our health care system, when “non-profit” medical centers are making 27% profits and paying there ceo’s millions of dollars while they are on the boards of drug company’s that charge 45 dollars for a pill that cost them 4 dollars to make, and insurance is no longer a means of spreading risk as it was intended to do but creates enormous dividends for there stock holders and big salaries for there upper management. I wish every American voter would read this. I can’t wait for 2014.

  • MickeyLong

    FDR harnessed free market principles to empower capitalists’ victims. Specifically, he removed obstacles that denied their Constitutional rights to organize into employee associations and enacted the National Labor Relations Act (NLRA) in 1935. For ten years unions tempered the capitalists, as each side negotiated fair bargains. Each side used free market principals and self-interests, i.e., employees’ rights to freely associate and negotiate & employers’ rights to bark back, too. Capitalist didn’t like empowered employees & financed politicians. In 1947 they won Taft-Hartley Act amendments that shredded the NLRA. This, with judicial activists judges on steroids for the rich, removed & inhibited employees’ rights to freely associate and negotiate. Capitalists took advantage -as is their right. But, it cost America its now disappeared middles class. Unplugged capitalists now navigate unchecked the globe in search of even cheaper labor. They won again. Reduced to around 6 percent unionized (private sector), the US is 94% union free. Let’s support free markets and capitalism (unions need capitalists); but freedom works both ways. Employees need their free market, capitalistic rights, too, to organize and negotiate. Then, capitalists and all of us will enjoy the middle class again, with all the consumer purchasing power flowing to our local shops, too. Our Constitution urges it: “In order to form a more perfect union ….”

  • Justin Locke

    Well I am glad someone else mentioned Taft-Hartley. But then, that was just part of a long series of pieces of legislation that have slowly de-constructed the post-crash-of-’29 fixes. The process has not been limited to one party; the repeal of Glass–Steagall happened under Clinton (altho some argue whether it was the true cause of the recent troubles) . . . Then there was the Commodity Futures Modernization Act of 2000 . . . (i.e. credit default swaps).

    Full disclosure, I am just a moderately informed citizen, but I think it is safe to say that cumulatively, the real problem is not this or that politician or party, but the corrupting influence of campaign money. How can anyone get to congress without amassing a mountain of IOU’s to the big money interests that can afford to make large contributions?

    The average American simply does not have the time, resources, or organizational ability to buy the influence in congress needed to bring the system into balance.

    “The free market sometimes needs referees.” – Sen. Byron Dorgan

  • LianeSperoni

    I am not sure how the period of 1952-1980 really represents the golden years of compassionate capitalism. As a former Representative from Massachusetts, surely you remember this time as one of deindustrialization. Although big wars may cause big deficits, the defense industry employed a lot of people in America in the post war period who were formerly employed in less violent industries that had since moved offshore. This is what Dwight Eisenhower warned us about on his way out the White House door.

  • Pointpanic

    I fear that “compssionate capitalism” has its limits. Capitalsism is a system that requires constant growth which means tapping more and more resources> The results of this can be seen in many facets of the environmental crisis and the current high rate of unemployement. yes FDR did what he could and is to be admired but the rights of workers to bargain collectively ,the leagl protections afforede women and non-whites in teh workplace were not bestowed upon us by “enlightened” capitalists. History shows that our ancestors in the labor and civil rights movts had to fight for them. Indeed the struggle continues today. I feel, it’s time to replace capitlaism with some kind of democratic socialism.

    • MJCIV

      I couldn’t agree more. Capitalism must have new markets. Growth is in the DNA of capitalism. We are now reaching planetary limitations re: water, fuel, pollution, etc. Too many people consuming too much energy and creating so much effluvia that we are actually changing our planet’s climate.

      In America specifically, we need to think about a what happens to a once prosperous nation that is no longer producing good jobs that provide enough money for a thriving middle class. The ‘Golden Era’ of post-WWII is long over. We are no longer a manufacturing nation. Companies cannot provide pensions and healthcare while remaining competitive in a global marketplace. Taxes are too low to maintain a level of government services that people claim they want…yet there are near rebellions anytime the specter of tax increases casts its shadow on people other than ‘the rich.’

      If Americans, through our democratic processes, choose a large, centralized government that will provide them with health care, an old age pension, education, a social safety net, a large military, etc. we have to be honest about how much it costs and who is going to pay for it. Currently half of all Americans pay no federal income tax.

      If there is going to be Democratic Socialism, we all have to reckon with the costs and pay our share. EVERYONE, not just ‘the 1%.’ You can’t have a high-service, low-cost government. It just doesn’t work. And we can’t build a new economy with fossil fuels.

      • pointpanic

        YOu said it better than I ever could MJ ,THank you. I was reading last night that there may be other public ownership alternatives to capitalism and to centralized beauracracy from Truth out.

    • Isobel Clinton

      Yes, I was alarmed today to see Whole Foods sporting shelves and shelves of a bright yellow book about “Compassionate Capitalism” throughout the store, though of course that’s what its weird anti-union owner thinks he practices. No one has yet mentioned that no matter how “compassionate” this country might once have been to (some of) its own citizens (not black folks, not women, not immigrants), capitalism cannot be–and we were not then–compassionate to the people it exploits outside the home country of its corporations. Which mostly no longer have home countries any more. Ask the victims of NAFTA how compassionate capitalism was under Clinton, for instance. Etc., etc.

      • Pointpanic

        HI Isobel, Yes, the owner, JOhn Mackey is a fake who employs the rhteotic fo “compassionaye capitalism ” to his own ends. ANd NPR gave this jerk 2 days of uncritical exposure. WOuld NPR ever give that to a socialist? Not a chance. So much for “independent journalism”.

      • EAO

        Mackey’s book, co-authored with Rajendra Sisodia and Bill George, is about the “Conscious Capitalism” movement – a considerable difference from “Compassionate Capitalism”. And note that their organization is also not called “conscientious capitalism”. Mackey was on NPR recently equating Obamacare with fascism. Definitely not compassionate, or conscientious in his views – just consciously capitalistic.

  • Barry A Stein

    Dear Nick;

    Thank you very much. That is a wonderful piece: it is not only accurate on the substance but full of wisdom and highly appropriate anger. I have seen your name often in the Globe and elsewhere, and I have always had a positive sense of you but you may now count me as a fan. Our legislature, through folks like you, has long set a standard for other public entities, includinmg states, and I only hope that the Republicans in the House of Representatives, take heed. Keep up the good work. If you ever need volunteers, please let me know.

    With best wishes for future activities.
    Barry Stein, PhD

    • Nick Paleologos

      Thanks Barry. I very much appreciate your kind comments. —np

  • Mahoney_Woburn

    Great to see that your still an active intelligent voice since you left Mass. politics.

  • nannasin smith

    Currently half of all Americans pay no federal income tax.

    • Nick Paleologos

      I’ve heard this “statistic” tossed around before. But when I checked it out, it turns out not only to be false, but spectacularly false. The federal taxes withheld on American incomes (for social security & medicare) were left out completely from that calculation. When you include those payroll taxes, over 80% of American households end up paying federal income taxes. And that percentage is even higher if you throw in other federal taxes like gas & excise–which take a disproportionate bite out of lower income families.

      While we’re on the subject of Social Security, please explain what public policy interest is served by somebody earning $113,000 paying the exact same amount in Social Security taxes ($7,000) as somebody earning $113,000,000? Before we start a conversation about cutting benefits, shouldn’t we at least fix that?

  • JDonald

    What the ariticle fails to address is that compassionate capitalism is not only workable but the product of Christian ethics upon which this country was built.