The Curse of the Dispensation

How in politics pride goeth before the fall

Musa al-Gharbi argues that after their 1968 defeat “Democratic Party insiders decided to aggressively rebrand the party — to form a new coalition that centered women, college students, young professionals, and racial and ethnic minorities….Indeed, white rural and blue-collar workers increasingly came to be viewed as a liability rather than an asset”

He makes it sound like this was a choice to abandon the working class in favor of other constituencies. That is, to abandon the bread of butter politics of the New Deal era for a new kind of cultural identity politics. This is the sort of story al Gharbi’s symbolic capitalists (or mandarins as I call them) like to tell themselves. It’s a comforting myth that lets them off the hook. What happened was the Democratic elite had already broken faith with the working class by prosecuting a pointless war of choice that also destroyed the postwar economy that had led to decades of working class prosperity. By the beginning of 1968, 19,800 Americans had been killed in Johnson’s war, more than total US military and US contractor deaths in 20 years of war after 911. Republicans got hammered in 2008, so it stands to reason Democrats would lose in 1968.

How did Democrats get into the position where they “pulled a Dubya” before that was even a thing? The cause is easy to see. They ran a candidate in 1960 who proclaimed in his inaugural address “we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe to assure the survival and the success of liberty.” I note than in 1960, 49% of Federal spending (9% of GDP) went to the military, and this was in peacetime. At the time the government was running deficits that were causing outflows from the US gold reserves at Fort Knox. Republican candidate Nixon saw the gold outflows as a problem and correctly related them to deficit spending saying he would raise taxes, if necessary, to end the deficits. Kennedy ignored the issue.

Kennedy was elected and followed through on his promise by to oppose the further spread of Communism by getting more deeply involved in Vietnam (US casualties in Vietnam in 1963 were 24 times those in 1960). Kennedy also proposed a tax cut at a time of deficits when the US was committing more military resources to address a deteriorating situation in Vietnam (sounds like Dubya to me). After Kennedy was assassinated, the new president, seeing a need for continuity, continued his predecessor’s program. He enacted both the proposed tax cut and continued to scale up US involvement in Vietnam (US casualties in 1966 were 52 times those in 1963). US casualty rates would more than double again in the next two years, with the US no closer to achieving Kennedy’s aim than in 1961. By this time, the country was tired of a war that had gone for longer than WW II. Ever more American boys were being expended in the war effort with no apparent progress to show for it. Inflation had broken out and American campuses were enflamed in protest (it was a CPP like now). A course correction in 1968 seemed prudent (the same thing happened in 2008).

And in their 1972 campaign, what did Democrats do? They turned on a dime and promised to slash the size of the military in war time. So, let’s get this straight. Democrats in 1960, when 9% of GDP was going to the peacetime military, wanted to pay any price and bear any burden to prevent the spread of Communism. They then paid the price, depleting US gold reserves, which resulted in the emergence of inflation and price controls. And with college deferments, they made working class Americans bear more of the burden. Nixon became president and began a phase out of the Democratic war he inherited, reducing US deaths by 95% from their 1968 peak. By this time, military spending had been reduced from 49% of the budget in 1960 to 36% in 1972 (8.9% to 6.3% of GDP). While Democrats had called for more war spending during peacetime, when spending was already at 9% of GDP, they now were calling for less spending during wartime with spending at 6.3%. It did not seem like the Democrats knew what they were doing. Nixon won a second term in a landslide, ended the war, and by the end of the term military spending had fallen to 5% of GDP (for comparison, the average under Obama was 4.8%).

Democrats had shown themselves to be incompetent at foreign policy. The Watergate scandal returned control to the Democrats in 1977, giving them opportunity to show they still had that New Deal economic magic. Had Democrats emulated Clinton’s first term by cutting spending by 1.8% of GDP and raised taxes by 1.2% of GDP, perhaps by repealing the Kennedy tax cut or restoring the 1968 surtax, they could transform the deficit into a surplus. A similar decline in deficit occurred over 1947-48, during which the postwar inflation dissipated. President Carter did make an effort to balance the budget, but the Democratic Congress would not play along. The result was a second round of runaway inflation, the election of Reagan, and the end of the New Deal Order.

As a result of Democratic fiscal irresponsibility, the pro-worker economy New Deal policy had created was destroyed. Creating this had been the work of 15 years of effort, from the NRA program in the depths of the Depression that gave Democrats the dispensation that was used restructure the economy during WW II. Requirements for a pro-worker economy are high top tax rates and illegal stock buybacks to maintain stakeholder business culture, low inflation, and low interest rates to encourage investment. The latter two require fiscal balance in the absence of stock buybacks. This is tough political task. New spending is popular, while tax increases are not. But Democrats in 1961 were given a great gift. The Eisenhower administration had left them an intact New Deal economy. They had not done this out of the goodness of their hearts, but because they had felt politically constrained by the Roosevelt dispensation and the fact that their immediate Republican predecessor was Herbert Hoover. Nixon, as the sitting vice president was similarly constrained to continue on the course Eisenhower had set.

Kennedy, as an Articulative president from the party holding the dispensation, felt he had the opportunity to articulate new directions/roles for the Democratic dispensation. As a dispensation ages, times change, and it requires renewal. Liberal Democrats complained that “with a growing urban and racial crisis, the President's sole domestic concern was achieving a balanced budget (while) the Atlantic alliance had been weakened, and Communism appeared to be making dangerous inroads in Asia, Africa, and Latin America. In the areas of education, scientific achievement, and economic growth, America was lagging behind the Soviet Union.” Democrats wanted to get the country moving again.

Kennedy made an error in choosing to run to Nixon’s right on foreign policy. Given Republican isolationist opposition to American involvement in WW II and to the Marshall Plan, it is understandable that Democrats felt foreign policy was their turf. But Eisenhower had carved out a new role for Republicans as the Hawk party by creating the military industrial complex. Republicans could now “out-hawk” Democrats by calling for more military spending (at the expense of social spending) than Democrats could, given their support for social spending. Trying to out-hawk a hawk was a fool’s errand and it led to the unraveling of the postwar economy on which working class support for Democrats was based.

Prior to the New Deal, members of the Northern working class who were recent immigrants (so-called white ethnics) tended to vote Democratic while those whose working-class families had been here for generations (white working class) voted Republican. This same pattern is seen today, with recent immigrants from Latin America, South Asia and Islamic countries (so-called people of color) voting more Democratic, and established lineages (including the descendants of the ethnics) voting Republican. In addition to these groups, then and now, there were the racial categories, African, Native and “Oriental” (East Asian) Americans, who had faced racial discrimination of varying intensity throughout American history. These ethnic and racial categories meant the working class before and after the New Deal Order was politically divided, making the sort of class-based politics prevalent in Europe difficult to pursue.

Before the New Deal, the Republicans were the dominant party outside the South, having the support of farmers, the middle and affluent classes and the wealthy in addition to the white working class. Democrats had the allegiance of the South and northern working-class ethnics. Northern blacks tended to vote Republican because they were the party of Lincoln. The New Deal created a form of American class politics by enacting policy that created an economy that benefitted both native and foreign-born working-class Americans. allowing them to move up to the middle class in what was called the American Dream. This helped Democrats gain the votes of white working-class voters (and briefly, Midwest farmers) who had previously voted Republican, as well as keep a new generation of assimilated white ethnics voting Democratic. The New Deal also brought black working-class voters into the Democratic fold. The broad support Democrats had from working-class Americans (what was called the New Deal coalition) created the electoral majority that backed the Democratic dispensation established by Franklin Roosevelt.

Democrats in the early 1970’s did not choose to pursue educated voters and women in lieu of the working class. After Democratic policy hubris ended the Bretton Woods system, on which the postwar economy rested, the electorate reverted back to the pre-New Deal norm, with white working-class Americans returning to the Republicans, whose numbers were enlarged by former “white ethnics’ who were now fully white. In the wake of the Civil Rights laws came the loss of white working- and middle-class Southerners who had previously voted Democratic out of bitterness over their defeat in the Civil War. Blacks, women and educated Americans were the only groups moving in the Democratic direction, with whom Democrats could hope to replace the votes their hubris had cost them.

The Democratic abandonment of the working class is consistent with the typical progress for the ruling party as a dispensation ages. As time goes on the perceived quality of the dominant party’s candidates declines. The example of the 1960’s Democrats illustrates this perfectly. An earlier generation of Democrats had created an economy that worked equally well for all economic classes. This success gave them a political coalition granting Democrats unified control of the government for 30 of the 48 years after 1932, compared to just 2 for the Republicans. Democrats, chafing under a Republican administration in the 1950’s, wanted bolder policy. President Kennedy wanted an active foreign policy, while Johnson wished to extend the promise of the New Deal with his Great Society. Doing both guns and butter was too much, the gold reserve was depleted, leading to the stagflation catastrophe that established the Reagan Republican dispensation.

Forty years after Kennedy-Johnson gutted the Roosevelt dispensation, Bush-Cheney did the same for the Reagan dispensation. The gross mismanagement of the war on terror and economic malfeasance leading to the 2008 financial crisis toppled the Reagan dispensation. An important element of the Reagan dispensation was that taxes can be cut because deficits don’t matter, as Dick Cheney had noted in 2002. Trump doubled down on this belief by cutting taxes and then engaging in massive deficit spending, which Democrats emulated. The resulting burst of inflation and interest rate hikes have made inflation a political issue after being moribund for forty years. In the coming years, I believe the idea that the low taxes that create billionaires can be continued without the economy derailing will be tested. If this happens, then it provides a confirmation of the curse of the dispensation that holding the dispensation encourages a dominant party to get cocky and fuck things up, leading to their downfall.