Golden Rule

The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems

Thomas Ferguson

• Publisher: University of Chicago Press
• Year: 2011
• ISBN:
  9780226162010
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

"To discover who rules, follow the gold." This is the argument of Golden Rule, a provocative, pungent history of modern American politics. Although the role big money plays in defining political outcomes has long been obvious to ordinary Americans, most pundits and scholars have virtually dismissed this assumption. Even in light of skyrocketing campaign costs, the belief that major financial interests primarily determine who parties nominate and where they stand on the issues—that, in effect, Democrats and Republicans are merely the left and right wings of the "Property Party"—has been ignored by most political scientists. Offering evidence ranging from the nineteenth century to the 1994 mid-term elections, Golden Rule shows that voters are "right on the money."Thomas Ferguson breaks completely with traditional voter centered accounts of party politics. In its place he outlines an "investment approach, " in which powerful investors, not unorganized voters, dominate campaigns and elections. Because businesses "invest" in political parties and their candidates, changes in industrial structures—between large firms and sectors—can alter the agenda of party politics and the shape of public policy. Golden Rule presents revised versions of widely read essays in which Ferguson advanced and tested his theory, including his seminal study of the role played by capital intensive multinationals and international financiers in the New Deal. The chapter "Studies in Money Driven Politics" brings this aspect of American politics into better focus, along with other studies of Federal Reserve policy making and campaign finance in the 1936 election. Ferguson analyzes how a changing world economy and other social developments broke up the New Deal system in our own time, through careful studies of the 1988 and 1992 elections. The essay on 1992 contains an extended analysis of the emergence of the Clinton coalition and Ross Perot's dramatic independent insurgency. A postscript on the 1994 elections demonstrates the controlling impact of money on several key campaigns.This controversial work by a theorist of money and politics in the U.S. relates to issues in campaign finance reform, PACs, policymaking, public financing, and how today's elections work.

PART ONE

The Investment Theory of Party Competition

INTRODUCTION

Politics, Social Science, and the Golden Rule: Reading the Handwriting on the Wall

In the same hour came forth fingers of a man’s hand, and wrote over against the candlestick upon the plaister of the wall of the king’s palace. . . . MENE, MENE, TEKEL, UPHARSIN. This is the interpretation of the thing: MENE; God hath numbered thy kingdom, and finished it. TEKEL; thou art weighed in the balances, and art found wanting. PHERES; thy kingdom is divided and given to the Medes and the Persians.

Book of Daniel

A REVERENT and quite nonsectarian nod to the charitable deduction is about as close to religious themes as the Public Broadcasting System’s Nightly Business Report ever comes. One memorable evening in late October 1992, however, the talking heads who normally find inspiration on Wall Street decided suddenly to borrow their evening story line from the famous tale of Belshazzar’s feast in the Book of Daniel.

Just as in the Old Testament original, a ceremonial royal banquet provided the setting—in this instance, the regular fall meeting of the Business Council at Hot Springs, Virginia, where a special camera crew had been dispatched. And, again, as in the older episode, the sumptuous repast was significant less in its own right than as the artistic backdrop for reflections on a mighty empire’s succession crisis—in this case, the 1992 presidential campaign, about which a select group of Business Council leaders had agreed to be interviewed on camera.

First on the air that night was Ford Motor Chair Harold Poling. In contrast to many others in his industry, the auto executive still enjoyed not only honor but profits. Nevertheless, his view of the campaign of incumbent President George Bush was not sanguine. To many, indeed, it sounded like a last judgment on the man whom he had accompanied only a few months before on an ill-fated trip to Tokyo. Poling was, according to the introductory voice-over, “pointedly” maintaining neutrality, pending further clarification of the candidates’ views on trade and other issues. After him came Bethlehem Steel Chair Walter Williams, who offered the evening’s first real revelation: that deep “disillusionment” with one of the most ardently free enterprise–oriented regimes in American history was “pushing [many businesses] to [Democratic nominee Bill] Clinton.”

John Young, chair of Hewlett-Packard and a longtime Republican, followed. Some days before, Young and Apple Computer Chief Executive Officer John Sculley had led a phalanx of Silicon Valley executives in a mass public endorsement of the Arkansas governor. Now, once again on camera, Young sonorously reaffirmed his new convictions. Next in the parade was another onetime Republican stalwart, Southern California Edison Chair Howard Allen. The utility executive came startlingly to the point:

It’s contrary to my basic instincts as a Republican and the way my father reared me, but there are certain things that government should have oversight on and not just sit back and say that competition will solve everything . . . it hurts me to say that and my father would turn over in his grave if he heard me say it.

It fell to Martin-Marietta CEO Norman Augustine to sum up the evening’s discussion. “I think,” the defense industry executive observed, “the Democrats are moving more towards business, and business is moving more toward the Democrats.”¹

In the account in the Book of Daniel, King Belshazzar did not initially get the message. But at least he recognized there was one: as soon as he saw the moving hand, he “cried out loud to bring in the astrologers, the Chaldeans, and the soothsayers.” When they proved unable to decipher the inscription, he had the good sense to heed his queen. He summoned the prophet Daniel.

No such lucidity attended 1992’s high-tech reenactment of the incident. This time, when the handwriting flashed on the electronic walls of some 2 million homes, no one batted an eye (apart from viewers of the program, who dialed up a specially advertised 900 number, seeking more information in disproportionately heavy numbers).

Instead, a few months later, President Clinton—with Apple’s Sculley and Federal Reserve Chair Alan Greenspan ensconced in the audience next to Hillary Rodham Clinton—unveiled his long-awaited economic program in a special address to a joint session of Congress. Although his proposed five-year deficit reduction plan strikingly resembled a scheme put forward by Ross Perot that candidate Clinton had attacked all during the campaign, and was shortly to win a public endorsement from many of America’s largest businesses, the president’s call to raise taxes on the very wealthiest Americans struck a strangely sensitive nerve. Somehow, in a miracle of doublethink, many of the astrologers, Chaldeans, and soothsayers who provide most of what passes for political analysis in America descried ominous signs that the new administration was flirting with the specter of class war.²

If war had in fact been declared, it was certainly of a novel kind. Only one side seemed to be mobilizing. As Japan, with an unemployment rate far below that of the United States, prepared to embark on a much larger fiscal stimulus program, the president scaled back his own promised stimulus initiative to a paltry $16 billion—an amount less than the measurement errors in many parts of his new budget. Then, as some of his own Treasury appointees questioned the need for any action, the president dropped the measure altogether after a single rebuff by the Senate. With members of his economic team putting out word that a key indicator of their success would be the state of the bond market, the president also postponed action on two additional campaign promises: to raise the minimum wage, which had stayed fixed for more than a decade, and to require American employers to invest in training workers. He also withdrew (or declined to send forward) the nominations of several prominent liberal activists whose views piqued conservative critics, and handed the hot potato of labor law reform to a special commission not due to report for a year. In the midst of these switches, the president also struggled to find a compromise that he and the top military brass, if not necessarily gay Americans serving their country in the armed forces, could live comfortably with.

By abandoning plans for a fiscal stimulus as economic growth slowed in the rest of the world and cutbacks in military spending and massive exports of American jobs overseas continued, the president was in effect throwing the entire burden of reviving the economy on the bond market and the Federal Reserve. The hope was that a credible deficit reduction program would induce the Fed to lower short-term interest rates, and reduce investors’ fears of inflation. With the Fed cooperating, investors would then buy quantities of long-term bonds and push down long-term interest rates. Despite its short-run plausibility, however, this strategy carried with it a self-defeating catch-22 that guaranteed that ordinary Americans would feel increasingly beleaguered for a long time to come, regardless of what happened to the deficit: given their virtual paranoia about inflation, both the Fed and financial markets were certain to demand a return to higher rates at the first signs of a recovery.

But that was a problem for the future. In the meantime, the Cheshire-cat economic upturn—now you see it, now you don’t—was fanning widespread anxieties about a “jobless recovery,” and the new round of stridently partisan wrangling on the budget could not fail to stir up additional unease. As consumer confidence plunged, and the White House stumbled from one snafu or scandal to another, the president’s popularity went into free fall.

Once again, a mighty empire was in crisis. Amid savage media attacks, a siege mentality enveloped the White House. With the president ordering air strikes against a successor of the Medes and the Persians, more calls went out to the astrologers, Chaldeans, and soothsayers. Their replies were all but unanimous. As though an invisible hand were directing them, the sages brushed off public concerns about the slow pace of economic recovery. Instead, they chorused, the president was in trouble because he had strayed too far to the left of center. To have any hopes of salvaging his presidency, the chorus continued, the president must repudiate the liberals who had hijacked his programs and recruit experienced, senior “centrist” advisers who could help him get back on track in the middle of the road.³

Bombarded with this advice for many days by newspapers, magazines, television, and many private sources, the White House eventually got the message. On May 29 came a stunning announcement: David Gergen, an intimate of many of the top business figures most opposed to Clinton in 1992 and a premier architect of the Reagan agenda that Clinton was pledged to reverse, was rejoining the White House as a special counselor to the president.

With this much-heralded “return to the middle of the road,” the logjam that had held up the president’s budget in Congress now began to break up. After further trimming to please conservative critics, the new “government of national unity” (as it would be styled in Italy or Latin America) secured passage of a markedly deflationary budget that even many proponents admitted would weigh heavily on the economy for a long time to come. Then it set about scaling down plans for sweeping reform of the health-care system while cranking up a campaign in favor of a particularly rigid and uncompromising version of the controversial North American Free Trade Agreement (NAFTA).⁴ Though many details remained to be ironed out, three points were already evident: First, because from the start the president had ruled out “single-payer” (“Canadian-Style”) health care, whatever health plan finally evolved would be comparatively expensive, and likely in the end either to force curtailment of services or hefty rises in taxes of one sort or another. Second, the best hope the administration could hold out to average Americans anxious about the export of their jobs overseas was its highly publicized campaign to force another country (Japan) to live better. Third, the pillars of Hercules that marked the outermost limits of respectable political discourse in the United States had just relocated—once again, to the right. The debacle of Clinton’s first months in office, all respectable opinion now agreed, proved the bankruptcy of the liberal or “left” alternative.⁵

Now my point in retracing this latest uncanny turn in America’s public life is not that the right-wing media reduced to ashes the good intentions of some backwoods naïfs within months after they entered office. Quite the contrary, a major ingredient in the disaster clearly derived from the new administration’s elephantine attempts to cover its own retreat from its economic promises by highlighting social issues—first by showcasing Robert Reich and Vernon Jordan as heads of a transition team that recruited the cream of Wall Street and Lloyd Bentsen, the Senate’s literal six-million-dollar-man, to run the economy; then by rushing headlong into the gays in the military debacle at the very moment it was completing plans to take over (much of) Perot’s deficit program while turning its back on efforts to stimulate the economy, retrain workers, and raise the minimum wage; and finally by striving so ostentatiously to field the perfect politically correct cabinet that a good idea became a painful and embarrassing joke. As discussed in this volume’s essay on the 1992 election (chapter 6), such playing to stereotypes has a clear, identifiable function (and by now, a long history) in a Democratic party that is supposed to represent ordinary working Americans but is actually run by investment bankers and their allies. But it is also very dangerous—especially when a country faces literally years of slow growth and high unemployment under an administration whose political base strikingly resembles the Seattle Space Needle.

Nor, certainly, would it be wise to suggest that, with or without Gergen around to play high-tech sandman, the president cannot recover, at least to the extent of possibly squeaking through to reelection in 1996. If for reasons spelled out later in this book, the Clinton presidency is always likely to be a strange combination of Kennedy style and Carter substance, it would be rash to jump to the conclusion that our latest Southern president is shortly fated to be gone with the wind. As a graduate student, I sat in on one of the first courses ever offered by an American university on “political business cycles.” That course was team-taught, but one of its leaders was a distinguished economist whom President Clinton appointed to the Council of Economic Advisors. I will, accordingly, be surprised if in 1996, if no other year, the Clinton administration cannot contrive a “national development bank,” the promise of yet another “middle-class tax cut” or, at least, a few well-timed cuts in interest rates to quicken both the economy and the pulse of liberals for a few strategic months. With help from the rest of the world (by no means guaranteed) and vast sums of campaign money, such moves might provide the racer’s edge, particularly in a three-horse race marked, as it surely will be, by massive public cynicism and low voter turnout.

Instead, my point is less complicated—that it is high time both social scientists and voters learned to read the handwriting on the wall. That Clinton strongly resembles a registered Republican and might well go down in history as the most conservative Democratic president since Grover Cleveland was entirely predictable. Anyone should have seen it who had followed what might be termed the “Golden Rule” of political analysis—to discover who rules, follow the gold (i.e., trace the origins and financing of the campaign, along the lines laid down in the first essay in this book). Indeed, some people did see it—though many of those who bothered to look were active participants in financial markets and thus had no incentive to talk.

By contrast, the armies of people who live by words, who report, observe, and comment in public on American politics had virtually nothing of substance to say before, during, or after the 1992 election. Instead, in the manner of a children’s storybook or a morality play, the press and politicians talked incessantly about character, as if the key question facing America were whether it would be better to have a steady navigator, a street bully, a hockey goalie, a cancer survivor, a war hero, or a hillbilly from Oxford as president. When they didn’t descant upon character or “toughness,” they flapped about the horse race, about “spin,” or consultants, or “who was electable.” When they spoke of issues, it was usually to debat...