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Learning from Roosevelt

by Ulrike Herrmann Wednesday, Dec. 07, 2011 at 3:39 PM

Harry Hopkins, head of WPA under Roosevelt, created 4 million jobs in 2 months. How many jobs in health care, education, bridge repair, community centers and journalism could be created today? Solutions are not lacking, only political will. Viva sharing and redistribution!


Billionaire super-rich want to pay reasonable taxes to save capitalism. Why now? Roosevelt already had the idea in 1933.

By Ulrike Herrmann

[This article published 10/22/2011 is translated from the German on the Internet, http://www.taz.de. Ulrike Herrmann is the political-economic correspondent of tax. Her 2010 book Hurrah, wir durfen zahlen (Hurrah, We Pay) focuses on the self-deception of the middle class who wrongly count themselves in the elite.]

Warren Buffet is not relaxed. The US billionaire wants to pay more taxes. He bombards the New York Times with articles in which he calculates he only pays half in percentage of his income in the millions compared to his normal employees.

This is undoubtedly a scandal but is not new. Five years ago Buffet realized millionaires worldwide pay too little taxes. Why is he speaking out now?


Warren Buffet is clever, so crafty he is called the Oracle of Omaha. Buffet knows the rich of this world can only choose between two evils. Either they pay more taxes which would be a controlled loss of assets or the world economy collapses in a crash which would mean an uncontrolled loss of assets. Given this alternative, Buffet prefers to remain at the command post. That is why he now vigorously pleads for taxes on the rich. He realizes that only a strong state can save capitalism.

It is no wonder that the US billionaire is excited. The uncontrolled crash of assets that Buffett fears has already started. An investment emergency exists worldwide because the yields do not compensate inflation. The wealthy only receive a negative interest which devalues their assets.

Once powerful investment banks like Goldman Sachs now announce losses. The bankers are not the masters of the universe as they pretended since Gordon Gekko. Instead they now recognize the financial world cannot be uncoupled from the real economy that produces the yields that investors seek to pocket. Financial assets cannot explode while the world falls into a recession. As a financial investor, Buffet has to change his investment strategy. Instead of acquiring more financial assets, he now wants to directly force economic growth.

However the economy only grows when demand steps up. The state can best produce demand. The state has an advantage which many do not see as an advantage. It does not put aside any savings but completely spends its resources. One must be really thankful to the state because it saved so much.

The well-to-do act as piggy banks and strangle the growth that their profits should produce. Buffett now wants to end this nonsense by forcing the rich to pay higher taxes.


Buffett did not have to be especially creative to come to this idea. A glance at history is enough. In 1929 there was a very similar economic crisis. The best international solution at that time was called the New Deal which began under US President Franklin D. Roosevelt. At the end, the top tax rate was 79 percent and the inheritance tax was 77 percent. As everybody knows, the result was an immense economic growth that allowed a broad middle class to arise, not the end of capitalism. The rich profited even though they had to pay high taxes.

This time the tax rates did not have to be raised so drastically when a Second World War had to be financed. However the lesson from this historical experiment named The New Deal is still important today. Capitalism can only survive when capitalists invest in a strong state.

The New Deal cannot be separated from the person Roosevelt. Another president could probably never have carried out these drastic tax hikes. The democrat Roosevelt used an argument that immediately convinced republicans. He himself came from the absolute upper class. His father did not work but began as a man of private means. Franklin D. Roosevelt could live comfortably all his life. That this multi-millionaire burdened his own caste convinced many rich in the US that tax increases do not mean the dreaded class struggle but obviously serve their own interest.


With Warren Buffet, a representative of the highest upper class appears for the first time who seeks an alliance with the masses to reform endangered capitalism. But unlike Roosevelt in 1933, Buffett previously did not reach most US citizens.

The republicans and their Tea Party followers are for radical tax cuts. The Occupy Wall Street movement is not attacking the right opponent by concentrating on investment banks.

To prevent any misunderstanding, the investment banks are much too powerful. Their businesses must be partly prohibited and the rest strictly regulated. Nevertheless it is misleading to stylize banks as the symbol of evil in a monomaniacal way. In the final analysis, banks are ultimately only vessels that manage the assets of the wealthy. Thus opening tent cities before the banks in New York and Frankfurt is not enough. The demonstrators must agree on clear demands on how the rich should be burdened. The Wall Street occupiers could orient themselves in the New Deal.

While false prescriptions were attempted for four years during the first worldwide economic crisis, the right answer was finally found with the New Deal in 1933. We are living in the third year of a worldwide financial crisis. If the historical analogy holds, it is still too early to abandon hope that Warren Buffet may prevail with his ideas.


Video: FDRs Inauguration Address, March 4, 1933, CSpan video, 20 min

Chart on Top Income Tax Bracket from 1910 to 2010


Chart on Corporate Profits from 1960 to 2010: Democracy in Distress

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