The U.S. Government's Program of Welfare for the Wealthy *

The United States prides itself on being governed by the rule of law, as do other liberal democracies. The argument below is that, beginning in the 1970s, the law has been used by the power elite and the rich to regain the incomes and wealth that they had lost between the 1920s and the 1970s as a result of programs and policies enacted during the Democratic administrations of Franklin Delano Roosevelt (1933–1945) and Harry S. Truman (1945–1953).

From the late 1940s to the mid-1970s, ordinary people in the United States enjoyed a tremendous increase in prosperity that produced the great American middle class. That period was followed by four decades during which that great American middle class was destroyed as vast income inequality emerged in the 1970s and continued for the next 40–50 years. The present argument is that the power elite and the rich, working through and using the U.S. Government, instigated that growing income inequality.

Background: The Creation of the Great American Middle Class ¹

Before the Great Depression of the 1930s, the top one percent of the U.S. population claimed about 24 percent of the income earned by everyone in the U.S. The other 99 percent claimed the remaining 76 percent (see Figure 1).

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Figure 1.

Share of the U.S. Income Going to the Top One Percent, 1913 to 2007. (Source: Reich 2011).

Presidents Roosevelt and Truman legitimized labor unions and encouraged workers to form and join them, which they did in great numbers. This resulted in better wages, benefits, and working conditions. As union membership increased, the share of the nation's income of the top one percent declined from the 1930s to the mid-1970s. Because non-unionized businesses had to offer competitive wages and benefits, this prosperity also extended to millions of other workers (see Figure 2).

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Figure 2.

Union Membership and U.S. Income Share of the Top One Percent. (Source: Income Inequality, a Project of the Institute for Policy Studies. (Available at https://inequality.org/facts/income-inequality/) (last accessed February 22, 2023).

The result of that prosperity was that by 1976 the top one percent of the population claimed only nine percent of the nation's earnings, down from 24 percent in the late 1920s, while the remaining 99 percent of the population claimed the other 91 percent of the nation's earnings, up from 76 percent.

Table 1, below, combines these data from the late 1920s and 1976. Compared with the late 1920s, the 1976 numbers clearly indicate that the nation's income was distributed more evenly across the entire working population. The great American middle class had been created!

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Table 1.

Income Distribution, Late 1920s Compared with 1976.

Population Segment	Late 1920s	1976	1920–1976 Difference
Top 1 Percent	23.9 Percent	8.9 Percent	−15.0 Percent
Middle 1 Percent	.77 Percent	.92 Percent	+.15 Percent

The Destruction of the Middle Class

By the 1960s and the 1970s, the business community, the Republican Party, and conservative Democrats fought to regain the incomes and wealth they had lost during the Roosevelt and Truman administrations. Six important actions were taken in the effort to destroy the power of labor unions and regain the wealth they believed rightfully belonged to them.

In 1947, Congress passed the very harsh, anti-union Taft-Hartley Act.

In the late 1950s, President Dwight D. Eisenhower supported the passage of the Landrum-Griffin Act, the harshest law against labor unions since the Taft-Hartley Act.

In 1965, the business community/Republican Party/conservative Democrats prevented an attempt by President Lyndon Johnson and the Democratic Party to reform the Taft-Hartley Act by repealing its most blatantly anti-labor portions.

In the 1970s, the New York-based National Association of Manufacturers moved its headquarters to Washington, D.C., as the relationship between business and government began to dwarf, in importance, the relationships between businesses. The Business Roundtable, formed by executives of America's top 200 corporations, also moved to Washington, as did the National Federation of Independent Businesses. So, too, did the U.S. Chamber of Commerce, the National Association of Wholesalers-Retailers, and the National Restaurant Association.

In the late 1970s and throughout the 1980s, these groups increased their spending on Congressional elections by some five hundred percent. Combined, they hired 130 lobbyists for each of the 535 members of Congress. These lobbyists established a powerful reputation: “When business really tries, when it is fully united and raring to go, it never loses a big battle in Washington” (Noah 2012, p. 108).

In the mid-1970s, Republican President Gerald Ford vetoed two bills that would have benefitted ordinary consumers and labor unions.

In 1978, the Democrats in Congress pushed a bill that would have supported labor unions when confronted by the Taft-Hartley law. The bill would have passed the Senate if it came up for a vote. To ensure this did not happen, two Republican Senators, Orrin Hatch of Utah and Richard Lugar of Indiana, offered amendment after amendment until they totaled nearly one thousand. After five weeks of such delaying tactics, three votes were taken to end the filibuster. ² Both fell short of the required 60 votes. A noted historian called this defeat a Waterloo for labor.

Did these actions weaken labor unions? The following observations indicate that they did.

The effectiveness of labor union activities reached its zenith around 1976 when the bottom 99 percent of workers received 91 percent of the nation's income. After that, the percentage constantly trended downward; by 2010, it was only 75 percent.

The bottom 99 percent of workers achieved the rewards noted above because union membership continued to grow from the late 1930s to the 1960s-1970s until about 33–34 percent of workers in the U.S. were union members. After that, union membership went into a steady decline. By 2010, only 10–12 percent of U.S. workers were union members.

Once the power of labor unions had been weakened, the U.S. Government utilized what we call stealth government actions to create its Program of Welfare for the Wealthy.

Stealth Government Actions in the 1970s

The 1972 student loan program was structured such that it rewarded bankers at the expense of students. Banks borrowed money from the Federal Reserve at low interest rates and lent that money to students at higher interest rates while the government guaranteed those loans. Students paid higher interest rates than they might have had there been a system of direct-to-student government loans.

In 1978, Congress passed a little-noticed bankruptcy law that shifted legal power in bankruptcy cases away from the courts, giving that power to the management of the company declaring bankruptcy. Common practice at the time had been to oust company management and replace it with an outside bankruptcy trustee. The new law left the old management in place, and allowed it to manage the bankruptcy process. This law also permitted the old management to shed old debts and abrogate long-standing labor union contracts that had guaranteed wages, health benefits, and lifetime pensions, depriving rank-and-file employees of hard-won economic gains. In short, the new bankruptcy law favored management over workers.

That same year, 1978, a Supreme Court decision, in Marquette National Bank of Minneapolis v. First of Omaha Service Corp., allowed banks to charge high credit card interest rates for low-income credit card holders by invalidating the state's use of anti-usury laws against nationally chartered banks.

Subsequently, Citicorp moved its credit card operations to South Dakota after the Governor persuaded that state's legislature to formally invite Citicorp to operate there, as required by federal law. The Governor then successfully lobbied the legislature to pass a bill to repeal the state's cap on interest rates. That done, Citicorp moved its entire credit card operation to South Dakota and began to aggressively market their high-interest rate cards to customers who carried large balances but rarely paid more than the monthly minimum. Other banks soon followed the Citicorp–South Dakota model.

Stealth Government Actions in the 1980s

During the presidency of Ronald Reagan corporations were allowed to replace pension plans with 401(k) plans, which reduced the retirement incomes of millions of middle- and lower-class workers. In 1981, the U.S. Treasury Department, without specific legislation passed by Congress and signed by President Reagan, ruled that a tax provision intended for a dozen or so New York state corporations allowing the use of 401(k) plans could be applied across the nation. As a result, the percentage of large and medium-sized American firms that offered traditional lifetime pensions fell from 83 percent in 1980 to 28 percent in 2011. The net result was that employers contributed significantly less while employees contributed substantially more to their retirement.

Then, in 1982, Congress passed the Garn-St. Germain Act, which allowed savings and loan associations to increase the interest rates they offered to attract more savers and more deposits from each saver. The thrifts then used the extra deposits to make speculative investments, which had previously been prohibited. Several thousand thrifts failed between 1986 and 2002 due to poor investments. That created a severe shortage of mortgage lending institutions, a gap quickly filled by newly emerging, unregulated, and unscrupulous mortgage writing companies.

Also in the early 1980s, through the Secondary Mortgage Market Enhancement Act, Congress (a) abolished usury interest rates on mortgages and also abolished the requirement of a down payment when buying a home, (b) allowed banks to offer adjustable-rate mortgages to financially unqualified individuals, and (c) allowed the securitization of those mortgages on the secondary market, even though they were of questionable quality. ³ Thus began the market for subprime mortgages.

Lenders then sold their subprime mortgages to investment banks (e.g., Goldman Sachs), which securitized them and sold them as high-quality securities to people and organizations that expected high rates of return. Lenders used this new income source to continue issuing adjustable-rate mortgages to financially unqualified individuals.

From the beginning, these mortgages were loaded with what Hedrick Smith calls “poisonous features that made them virtually impossible to repay” (Smith 2012, pp. 224–225). As homebuyers began defaulting on their mortgages in the early 2000s, they lost most or all of the investments they had made in their homes. Individuals or pension funds that had purchased securitized mortgages as good investments also lost most or all of their investments. During the 2000s, subprime mortgage foreclosures occurred with increasing frequency, contributing to the financial crisis of 2007–2008.

Stealth Government Actions in the 1990s

In the early 1960s, the National Restaurant Association persuaded Congress to withhold minimum wage protection from waitresses and waiters, thereby requiring them to live on the tips received at work. That changed in 1966 as the minimum wage for tip workers was set at 50 percent of the minimum wage for other workers. From 1966 to 1996, wages for tip workers varied between 50 and 60 percent of the regular minimum wage. In 1996, the Republican-led Congress raised the minimum wage for regular workers; that raise did not apply to waiters and waitresses.

When consumers sign a credit card contract, a cellphone agreement, a cable television contract, and many other contractual agreements, the fine print likely includes a forced arbitration clause. By signing such contracts and agreements, consumers give up the right to join other consumers in a class action lawsuit against the company issuing the contract. Instead, if they believe the company is unfair, dishonest, or doing something illegal, they must hire a lawyer and enter into individual arbitration with the company. The financial reward for any consumer, if they win the arbitration, is likely to be less than the legal fees incurred.

By including such clauses in their contracts, companies reap significant financial benefits by avoiding costly class action lawsuits that arise from their unfair, dishonest, or illegal practices. The use of forced arbitration clauses was well-established in the late 1990s, and the Supreme Court legalized the practice in ATT v. Concepcion.

Stealth Government Actions in the 2000s

In 1993, President Clinton instituted a tax increase on the rich. It was one of the major forces that resulted in the economic prosperity of the mid-to-late 1990s. For the first time in over 30 years, the U.S. Government's budget showed a surplus, sustained from 1998 through 2001. Economists reported that the federal budget would be in surplus for years to come and that the entire national debt would be eliminated around 2010.

George W. Bush became president in January 2001 when the Supreme Court intervened in the controversial state of Florida vote recount. In February 2001, President Bush promised Congress he would eliminate $2 trillion from the national debt over the next decade. Referring to the recent budget surpluses, Bush reportedly said that the people of America were being overcharged and that it was appropriate to give them a tax cut.

The White House highlighted the promise of a quick rebate for the average taxpayer—$300 for individuals and $600 for couples. That pitch won the day, but masked the larger truth that the lion's share of the tax cuts would go to the already rich.

The U.S. Congress and President George W. Bush allowed employers to divert billions of dollars from their employees through legalized wage theft. First passed in 1938, the Fair Labor Standards Act required that certain hourly workers be paid time-and-a-half for hours worked beyond the standard forty-hour work week. The act did not apply to salaried managers and executives.

By changing the law, in 2004, to reclassify many ordinary workers as “executives,” Congress and President George W. Bush denied millions of workers billions of dollars of overtime pay that would have been due to them under the Fair Labor Standards Act of 1938.

During the 2007–2008 financial crisis, the George W. Bush administration bailed out too-big-to-fail banks but prevented distressed homeowners from declaring bankruptcy. Shortly after the financial crisis began, Treasury Secretary Hank Paulson, Federal Reserve Board Chairman Ben Bernanke, and head of the Federal Reserve Bank of New York Timothy Geithner warned of impending economic disaster if $700 million was not made immediately available to the nation's largest banks. President Bush told Congressional leaders that the country's economy would collapse without that funding.

Paulson had previously led Goldman Sachs, and major bankers, including Citigroup, had installed Geithner at the New York Fed. The two of them secretly decided which institutions would get money and how much each would get. Goldman and Citigroup were the largest beneficiaries of the bailout, which was made even more suspect by the fact that no details of the bailout were revealed for months. As a result, the bailout came to look like “a giant insider deal created by Wall Street for Wall Streeters, at everyone else's expense” (Reich 2010, p. 104).

During the financial crisis, there were proposals to allow distressed homeowners to declare bankruptcy rather than forfeit their homes to lenders. By lobbying Congress, the banking community was able to stymie these efforts.

Conclusion

A careful inspection of just these few stealth government actions reveals that each supported a segment at or near the top one percent of the population, while financially penalizing one or more income segment of the middle- or lower-income population.

The Status of Income Inequality

What has been the impact of these stealth government actions? Interpreting the figures that are commonly cited is complicated. There are shortcomings and ambiguities in the data but they do not alter the conclusions about the rise in inequality. The outsized gains are at the top of the income distribution, and they are highly concentrated in the upper half of the top one percent.

Figures commonly cited compare the incomes of the top 10 percent, the top one percent, or the top one-tenth of one percent, with the bottom 90 percent. That reveals the U-shaped curve depicted in Figure 3, below. In 1976–1978, the top one-tenth of one percent of the population earned 30–35 times as much of the nation's total income as the bottom 90 percent of the population. Some 30 years later, the share of the top one-tenth of one percent had exploded to 150–200 times that of the bottom 90 percent's share.

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Figure 3.

Average Income of the top .1% as a Multiple of the Bottom 90%. (Source: Income Inequality, a Project of the Institute for Policy Studies. (Available at https://inequality.org/facts/income-inequality/) (last accessed February 22, 2023).

That U-shaped curve reveals a lot; it also masks a lot. A more revealing approach is to focus on five income segments: 1) the top .01 percent, 2) the rest of the top one percent, 3) the 90th–99th percentile, 4) the middle 40 percent, and 5) the bottom 50 percent. Figure 4 (below) shows how each of these five income segments performed against the per capita GDP performance from 1980 to 2010.

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Figure 4.

Growth of Incomes per Segment Compared with Growth of per Capital GDP, 1980–2015. (Source: Leonhardt 2019).

The incomes of the bottom 50 percent and the middle 40 percent segments have trailed per capita GDP over time. That is, since 1980 their share of the economy's bounty has shrunk. The 90^th – 99^th percentile segment's income, those earning $120,000 to $425,000 per year, has grown at almost the same rate as has the economy. The top .01 percent segment has experienced astronomical growth, receiving well over 150 to 200 times that of the bottom 90 percent's share of the nation's total income. The rest of the top one percent segment has done even better than those in the 90^th – 99^th percentile segment.

The Challenge for Macromarketers

What does the preceding have to do with macromarketing? To answer that, we must remind ourselves of certain aspects of the beginning of marketing and the beginning of macromarketing.

George Fisk, the first editor of the Journal of Macromarketing, described marketing (not macromarketing, but marketing) as society's provisioning technology, the social technology or social system by which society provisions itself (Fisk 1974). He then proposed that the role of macromarketing was to determine both how and how well marketing performs that provisioning task (Fisk 1981, 1982). As Fisk expressed it,

The market mechanism is only one of many instruments for raising standards of living, promoting economic stability, providing sources of income, and improving the “quality of life” (Fisk 1981, p. 3).

A key phrase here is that the market is one of many such social instruments. Others exist: redistribution and obligatory reciprocity (as distinct from voluntary reciprocity) both serve as instruments of provisioning (Benton 2021a). It is toward embracing that multiplicity of provisioning systems that Layton and Domegan (2021) were drifting (although, perhaps, still trapped in the state vs. market dichotomy, as was George Fisk) when they argued that macromarketing must move away from the traditional marketing analysis which sees the state “as an external source of governance and control” (p. 11). Rather, macromarketing must move toward a more inclusive view which brings the state directly into the set as one of the participants in the provisioning system.

That is the first correction needed in traditional marketing and macromarketing analyses if the present paper is to be seen as relevant to macromarketing. We must abandon the neoclassical and neoliberal myth that the state is external to the economic system, that it is external to the marketing system as a provisioning technology.

A second correction needed is to jettison the notion that provisioning systems are solely concerned with the distribution of goods and services. Here, again, Fisk opened the door: “instruments for … providing sources of income” (emphasis added). Provisioning systems distribute not only goods and services but also income and wealth. Here, again, the state is not merely an external source of governance and control, it is not simply an umpire and rule maker (to use Milton Friedman's analogy, see Benton 2021b), but a direct participant in the social system that distributes, among other things, income and wealth.

It is time macromarketing pay attention to both how and how well the provisioning system performs its tasks, including the task of distributing societal income and wealth. That brings the forgoing directly into the macromarketing field of concern. It is fair to say, at this juncture, that macromarketing has not focused much and certainly not enough attention on the distribution of income and wealth, nor on the role government plays as a participant in societal provisioning systems. The focus would be on what Palamountain, 75 years ago, called the politics of distribution (Palamountain 1955), but would include the distribution of income and wealth as well as goods and services. This would usher in a new perspective, a new subdiscipline within macromarketing, something Benton recently rechristened Political Macromarketing (Benton 2022).

We must also resurrect, resuscitate, and remember that early marketing, and the pioneers of marketing, were driven “by questions of ethics, social justice and social betterment” (Jones and Tadajewski 2018, p. 18). The early pioneers of marketing brought issues of axiology, epistemology and—highly unusual for marketing and macromarketing theory today—politics into their discussion of marketing. By doing so, early marketing academics addressed a multitude of social problems caused by industrialization, urbanization, immigration, and political corruption. Early marketers were, by any other name, macromarketers and they served to mediate the extremes, “preemptively defus[ing] the appeal of radical social change movements” (p. 168).

If macromarketers continue to believe that government and the state are external to marketing as a provisioning system, rather than an integral participant, then the foregoing has little to do with macromarketing. If macromarketers continue to ignore and dismiss the politics of distribution, including the distribution of income and wealth, then the foregoing has little to do with macromarketing. If, however, macromarketers embrace the central and integral role of government, consider politics an essential element of the marketing system, and admit that distribution of income and wealth is an important aspect of the marketing system, then the argument made in this commentary has something important to say to macromarketers, and macromarketers can have something important to say about how and how well marketing performs the task of provisioning society in all of its dimensions.

If macromarketers embrace the central role of government, consider politics an essential element of the marketing system, and admit the distribution of income and wealth as an important aspect of the marketing system, as important, perhaps, as the distribution of goods and service, then macromarketers can take aim at both how and how well marketing performs all of the tasks of provisioning the society of which it is apart.