Reclaim the American Dream

Another Blog Post By

Hedrick Smith

Enter Trump and The 2nd “Revolt of the Bosses”

Washington – With his cabinet of billionaires and trickle-down CEOs, President-elect Donald Trump has set the stage for the second “Revolt of the Bosses,” ignoring that the first “Revolt of the Bosses” starting in the late 1970s fueled the gaping inequalities of income and wealth that now plague America and that infuriated Trump’s working class voters.

The timing could hardly be worse. One new economic study documents the cost of the first revolt. It reports that that 115 million adults are stuck on the lower half of the income ladder consigned to virtually “zero growth” in real income from 1980 to 2014. Even with fringe benefits, profit-sharing, 401(k)s, and government programs like food stamps, the authors write, America’s lower half has been “completely shut off from economic growth since the 1970s.”

Another new study finds that America’s hyper-concentration of income and wealth  today blocks economic opportunity and upward mobility for the millennial generation. According to this study, only 41% of 30-something males earn as much today as their fathers did at the same age. By contrast, back in the 1970s, 92% of 30-year-old men earned as much or more than their fathers.

Lewis Powell’s Manifesto for Corporate America

Lewis Powell, 1971 Source: Washington & Lee School of Law

The first signs of that dramatic shift in our economic landscape emerged in the late 1970s in the wake of the first “Revolt of the Bosses.” The revolt was triggered, in part, by the highly influential call to arms to the captains of Corporate America by Lewis Powell, then a prestigious corporate attorney and soon to become a Supreme Court Justice.

In a confidential manifesto circulated secretly to business leaders in late 1971 by the U.S. Chamber of Commerce, Powell declared that America’s economic system was under “massive assault” from strong labor unions, a women’s movement pushing for equal pay, consumer and environmental movements demanding protective laws and regulations, a civil rights movement pressing for equal rights for African Americans, and by progressive intellectuals on university campuses.

To Powell, the very “survival…of the free enterprise system” was at stake. To stem the tide, Powell laid out a blueprint for political action in every arena from campus to Congress. American corporate leaders, he insisted, must mobilize their resources, commit to  a long-term political war against consumer and labor foes, and be prepared to use political power “aggressively and with determination” with the aim of capturing federal policy-making.

Business Lobbies Capture Washington

The response was immediate. Within a few months, CEOs of major corporations formed the Business Roundtable, now the most potent lobbying arm of America’s multi-national corporations. Hundreds of businesses rushed to open lobbying offices in the capital. The number shot up from 175 in 1971 to 2,445 a decade later. By 1980, there were 9,000 registered business lobbyists and 50,000 more people working for business trade associations.

By 1978, Powell’s army was ready to deploy its new lobbying power to press Congress to defy President Jimmy Carter, turning his proposed corporate tax increase into a tax cut, helping the wealthy by cutting the personal capital gains tax from 48% to 28%, changing corporate bankruptcy laws to favor management and winning deregulation of trucking and telecommunications.

1980s – Revolt of the Bosses Widens the Income Gap

Source: Economist

Under President Reagan, the  mutiny of the corporate elite achieved its apotheosis. Corporate economic and political power became dominant as labor union power  waned. With the deregulation of more industries, greatly eased rules for banking, the gradual shift from employer-funded pensions to largely employee-funded 401(k) plans on top of the bonanza of Reagan tax cuts in 1981, the new era of wedge economics took hold. America’s income divide became wide as a canyon.

While the Reagan years did see another 16.1 million jobs added, the middle class stagnated. Economists with 20/20 hindsight later calculated that the Reagan tax cuts had added $1 trillion to the wealth of America’s richest 1% in each decade since the 1980s, and the tax cuts of President George W. Bush in 2001 added another $1 trillion – $4 trillion in all, while the bottom half of the U.S. population saw close to zero income growth.

Trump Staffs Up for a New Bosses’ Revolt

Today, the policy nostrums from President-elect Trump echo that earlier Revolt of the Bosses – massive tax cuts for business and the wealthy plus whacking deregulation for American business. Trump claims that combination, plus renegotiating U.S. trade agreements, will generate 25 million new jobs and forge a brighter economic future for the working middle class, whose median household income today is below what it was in 1999.

What’s more, Trump has put some of America’s fiercest corporate down-sizers and cost-cutters in charge of the second “Revolt of the Bosses.” Spearheading this new  corporate takeover of policy-making in Washington will be this powerful trio – Wilbur Ross as Secretary of Commerce, Andrew Puzder as Secretary of Labor, and Steven Mnuchin as Secretary of the Treasury.

Ross: High Profits, FewerJobs, Lower Pay

Ross made his mark and his billionaire’s fortune by pursuing what Wall Street calls “distressed investing” – preying on companies in deep financial trouble, buying them at fire sale prices, shucking off their contract obligations to their workforce and selling off the amputated torso at a huge profit.

Trump appointees Wilbur Ross (left), Andrew Puzder (middle), & Steve Mnuchin (right).

Ten years ago, after Ross bought LTV Steel for $325 million as it fell into bankruptcy with $2.5 billion in assets, I interviewed Ross and asked him about the jobs of LTV’s steel workers. Ross replied that he was ”creating jobs” but only for a portion of LTV’s workforce. And, he indicated, there was a hooker: “We were able to work out with the United Steelworkers of America a radically new labor agreement.”

Translation: The steelworkers union, stripped of bargaining power by the bankruptcy law pushed through Congress by the Revolt of the Bosses in 1978, was forced to accept lower wages and lower benefits just to save a fraction of LTV’s steel jobs, concessions that made the deal profitable for Ross. In addition, Ross was able to walk way from funding the lifetime pension benefits that LTV had promised its retirees by dumping those costs on a federal agency.

Wilbur Ross went on to buy four more steel companies as they went bankrupt, rolled them all together and sold them off for a profit of more than $2 billion, while thousands of employees were laid off or took lower pay and benefits or saw their retirement pay cut in half.

New Labor Secretary Prefers Robots to Humans

Instead of offsetting a pro-business Secretary of Commerce with a pro-worker Secretary of Labor, Trump chose another cost-cutting, trickle down corporate chieftain for the Labor Department – Andrew Puzder, CEO of CKE Restaurants, a privately held corporation that runs two fast-food chains, Hardee’s and Carl’s Jr.

The pay scales for cashiers and short-order cooks at Puzder’s chains fall below competitors such as MacDonald’s, Subway, Wendy’s, and Pizza Hut. And in an interview with Business Insider this year, Puzder preached the advantages of automation over human workers because, he said, machines are “always polite, they always upsell, they never take a vacation, they never show up late, there’s never a slip-and-fall or an age, sex or race discrimination case.”

In terms of labor policies, Puzder has adamantly opposed raising the federal minimum wage and maintaining  new federal overtime rules that make four million more workers eligible for time-and-a-half pay. He also derides social safety net programs for workers being paid poverty-level wages as disincentives to work, saying that some of his own employees “are declining promotions to shift-leader positions because the increase in income would disqualify them for food, housing, medical or other government benefits.”

What Tilt Will Mnuchin Give to Trump’s Tax Cuts?

At Treasury, Trump has tapped Steve Mnuchin, a long-time Wall Street banker from Goldman Sachs, who like Wilbur Ross, saw a chance for a huge financial killing by catching California’s IndyMac bank in its death throes, buying it with a syndicate of wealthy investors for a bargain price of $1.6 billion, reorganizing it, rebuilding it and selling it off for nearly double the cost.


Donald Trump in Reno, Nevada. Source, (CC) Darron Birgenheier

During the Great Recession, one way that the Mnuchin group resuscitated their bank was by driving stiff foreclosure terms with beleaguered middle class homeowners – among them, Politico discovered, a 90-year-old woman who made a 27-cent payment error. In fact, the bank’s treatment of mortage customers was so controversial that at one point, activists marched to Mnuchin’s home in Bel Air area of Los Angeles in protest.

Looking ahead to Trump’s promised tax cuts, Mnuchin told CNBC that there will be “a big tax cut for the middle class, but any tax cuts we have for the upper class will be offset by less deductions that pay for it.” Trump’s website has outlined a whopping cut in corporate taxes from 35% to 15%, a tax rate of only 10% on $2.3 trillion in corporate profits held overseas, which would be a huge giveaway to U.S. multinationals, and a cut in the top rate for the rich from 39.6% to 33%.

Like Trump, Mnuchin says this package will pay off handsomely for the middle class but Trump’s arithmetic has left independent tax experts skeptical. Non-partisan think tanks like the Tax Policy Center and the Tax Foundation have calculated that Trump’s formula will deliver skimpy tax cuts to middle-income taxpayers at best, while the 1% will enjoy tax cuts worth up to $1.1 million apiece. If so, that would inaugurate the onset of the 2nd Revolt of the Bosses and new era of ballooning economic inequalities.