American History Revised (48 page)

Instead of greeting this liquidity as a blessing, government planners fretted about the inflationary consequences. In fact, they were terrified about an avalanche of disposable cash crashing down on a tight consumer economy—enormous inflation would ensue. It would take many months, possibly years, for industry to convert to making washing machines, autos, radios, and other consumer items to soak up the surplus purchasing power.

Needless to say, it did not happen.

1981
In a single word: inheritance.

Americans have always had an obsession about the self-made man and how he pulled himself up by his own bootstraps to make a success of himself. The favorite stories in nineteenth-century America were the tales of Horatio Alger: work hard, and thou shalt succeed. Yet Horatio Alger—though he always downplayed it—was himself a Harvard graduate with a nice inheritance to carry him along.

The American yearning for a rich daddy is a long and consistent one. “Thrift,” said Mark Twain, “is a wonderful virtue, especially
in an ancestor.” Indeed. Asked why his son gave more money to charity than he did, John Jacob Astor replied, “My son can afford it. He has a rich father.” A similar story is told about JFK. In the early 1960s, when John Kennedy was president of the United States, his father, Joseph P. Kennedy, the man who made all the money, held a meeting of his eight children and berated them for their high style of living. “Every one of you, with the exception of young Teddy here [Edward Kennedy, future Senator from Massachusetts], is spending far more than the income from your trust funds. Now what do you propose to do about it?” All the younger Kennedys looked crestfallen—including the attorney general and the president of the United States. Then JFK spoke up and offered a cheerful solution. “Dad,” he chirped, “I guess the only solution is you got to work harder and make more money!” One of the richest men in America in the 1930s was Adolph Lewisohn. “Father, you’re spending your capital!” his son cried. “Who made it?” he replied.

More successful at increasing their inheritance were the heirs of Collis Huntington, one of the California tycoons who built the transcontinental railroad. When he died, Huntington left half of his $75-million estate to his young wife, Arabella, and the other half to his nephew Henry. Thirteen years later Henry doubled his inheritance by marrying Arabella.

Kids always know where the money is. The teenage Alice, daughter of President Theodore Roosevelt and his deceased first wife, had a big inheritance coming her way, an amount so large that the president joked to his second wife, the first lady, that they “should be good to Alice because they might have to borrow money from her.” Now, most readers of this book may not know the difference between
per stirpes
and
per capita
, but young Alice certainly did. Under a per capita inheritance, all grandchildren inherit equally. Under per stirpes, the grandchildren inherit all of whatever their mother or father gets. Because Alice was her mother’s only child, she would inherit her mother’s entire estate and not have to share it with her half sister and half brothers. As Alice recalled, “I constantly reminded my grandfather of it. ‘Remember, Grandpa,’ I would say, ‘per stirpes, not per capita.’ I must really have been an odious child … Anyway it worked.”

Now let us look at the hard numbers. All household wealth in America comes from two sources: lifetime earnings and savings, and inheritance.

Larry Summers, national economic adviser under Obama and former secretary of the treasury under Clinton, coauthored a study on this topic in 1981. He and Laurence Kotlikoff analyzed these two sources of wealth and figured out the percentage that came from each. What percentage would you ascribe to each?

Only 19 percent comes from earnings and savings; the rest—81 percent—comes from inheritance. Using the year 1974 as an example, they calculated the total net worth of the U.S. economy to be $4.154 trillion. After subtracting $270 billion consumed by institutions, the non-institutional household-sector economy became $3.884 trillion. Life-cycle wealth (i.e., accumulated savings) was only $733 billion, or 19 percent. By subtraction, then, the 81-percent balance of $3.151 trillion had to be transfer wealth.

The reason for this is simple: for most of their lifetimes, Americans consume more than they earn. “Growth rates of real earnings slightly exceed growth rates of real consumption over the lifetime.” More specifically, from ages eighteen to forty-eight, average per capita consumption exceeds earnings; during the ages forty-eight to sixty-two, earnings exceed consumption; during the ages sixty-two to seventy-five, earnings plummet.

Conclusion? “The pure life-cycle component of aggregate U.S. savings is very small. American capital accumulation results primarily from intergenerational transfers.”

E
very four years we get treated to the great American carnival: a presidential election. Said Theodore Roosevelt, long before he became a candidate himself, “I am now recuperating from the Presidential campaign—our quadrennial Presidential riot being an interesting and exciting, but somewhat exhausting, pastime. I always enjoy it and act as target and marksman alternately with immense zest; but it is a trifle wearing.”

Today, despite the massive publicity and the best efforts of newscasters and political parties to build up voter excitement, voting has become largely a spectator sport. In the forty years since 1960, when voter turnout was 61 percent, voter turnout has remained well below 60 percent (53.2, to be exact). Only in 2008 did the turnout rise to more than 60 percent.

Early elections were a far cry from today’s carnivals. Take, for example, our first presidential election, in which the “godlike” George Washington won by a unanimous electoral vote: hard to believe, but the popular-vote turnout was a mere 5 percent. In terms of voter mandate, George Washington was our weakest president. Of course, in reality he
was our strongest president: for the previous thirteen years he had been the most powerful man in America, and during his presidency he didn’t have a troublesome Congress or Supreme Court to worry about. By the way, were you to meet George Washington and try to shake hands with him, you would get an icy stare. Washington did not shake hands with anybody, not even with Hamilton or Jefferson. He bowed.

Prior to 1880, candidates didn’t “run” for elective office; they “stood.” Compare that to today’s marathons in which candidates travel millions of miles, at enormous expense, eating countless chicken dinners and shaking millions of hands, kissing babies and giving pep talks just to convey some sense of urgency and excitement to the voters. We once had an election race, in 1911, where a candidate seeking reelection as president found time to write and publish a one-hundred-page essay that is still regarded to this day as an outstanding treatise. It was Theodore Roosevelt’s “Revealing and Concealing Coloration in Birds and Mammals.” (TR lost to Woodrow Wilson.)

Winning was not “the only thing” in those days; fair play and integrity also counted. When a man approached Grover Cleveland with documents containing “dirt” on his Republican opponent, James G. Blaine, Cleveland paid the man on the condition that there were no copies—and then promptly burned the documents. In 1940, FDR’s campaign advisers brought him evidence that his opponent, Wendell Willkie, had been carrying on a lengthy affair with a well-known woman columnist in New York; FDR told his advisers to drop it. Eight years later, running far behind Thomas E. Dewey, and desperately in need of campaign funds, President Harry Truman got a call from a wealthy businessman offering a substantial infusion of money in return for Truman’s carrying out certain policies; Truman told him to go take a hike.

It is common today to lament the quality of our presidential leadership—where are the Jeffersons, the Lincolns, the FDRs?—but we forget that FDR probably could not be elected today: the press would have mercilessly photographed him in his wheelchair, looking helpless. Fortunately for America, the leading media at the time was radio, and nobody had a voice like FDR’s. Jefferson’s alleged relations with one or more of his “employees” (slaves) would have doomed his candidacy today, and Lincoln would never have been elected in today’s rigid two-party format. Even John Kennedy, burdened with Addison’s disease and other massive health problems requiring daily doses of cortisone, could not be elected today.
*

Whenever we confuse presidential “popularity” with “greatness,” we should remember that the only twentieth-century president as popular as Ronald Reagan was not TR, Wilson, FDR, or JFK—but Calvin Coolidge. Over the past two hundred years, says the historian John Lukacs, the presidential election has declined from a character contest to a popularity contest to a publicity contest. Whoever hires the best campaign manager and the best “spin doctor” to craft his press releases and policy positions is obviously someone—as Andrew Jackson would say—of presidential timber. Just look at our TV-led presidential debates: candidates have to limit their answers to journalists’ questions to less than three minutes. Such debates, complained candidate Senator Paul Simon in 1988, are “as different from the Lincoln-Douglas debates as a Beethoven symphony is from a radio jingle.”

Anyone seeking the presidency, as in any top job in business or government, would be advised to have clear-cut career goals and objectives. At the tender age of five, he was ushered into the Oval Office by his parents to meet the president of the United States, Grover Cleveland. This enormous man towered over the little boy and told him: “My little man, I am making a strange wish for you. It is that you will never be a president of the United States.”

The little boy, mesmerized no doubt—who would not be?—eventually had other ideas. From the time he was in law school, he laid out his career path to the White House. First he would be elected state senator, then he would become assistant secretary of the navy, then governor of New York, then president. His model was Theodore Roosevelt. Despite a bout with polio that put him out of action for several years, Franklin D. Roosevelt followed his cousin’s career path perfectly.

Certainly nobody put more effort into winning the presidency than the master kingmaker, Joe Kennedy. The year: 1955. Joe Kennedy wanted his son to become president in 1960, but how to position John for the limelight? Very simple: have John run as vice president behind Lyndon Johnson, who would almost surely lose to Eisenhower; this would finish off LBJ and clear the coast for Kennedy in 1960. To get Johnson to run, Joe had one of his political aides go to Texas and offer to bankroll the full $10–12 million needed to launch a presidential campaign. But Johnson was not fooled. He knew a trap when he saw one, and declined, putting his hopes on beating Kennedy in 1960.