As St. Paul’s politicians prepare to hobble the city’s labor market with a $15 minimum wage without tip credit, D.C.’s are getting rid of it
Written by John Phelan
in Economics, Minimum wages, Employment
on October 18, 2018
PrintDespite economic theory and empirical evidence being against such a move, Saint Paul’s Mayor, Melvin Carter, seems intent on imposing a $15ph minimum wage on the city’s businesses. Not only that, but there will not be a ‘tip credit’, which would allow employers to pay tipped workers a lower wage and count tips toward the $15.
The experience of Washington D.C. shows just how bad this policy is. As the Wall Street Journal reports,
On Oct. 2 the D.C. City Council voted 8-5 to repeal Initiative 77, a ballot measure imposing a $15 minimum wage for all tipped workers by 2026. The wage hike was billed as a way to give workers financial stability and protect them from sexual harassment by restaurant patrons. But tipped workers realized the policy came with serious unintended consequences.
Before the measure passed in June, many restaurant workers wore buttons asking patrons to “save our tips” and “vote no on 77.” When Washingtonians passed the measure anyway, the workers pushed for repeal. Though restaurants pay a $3.89 hourly wage to tipped workers, “we choose these jobs because we make far more than the standard minimum wage” from tips, bartender Valerie Graham told the City Council.
Labor costs typically account for about 40% of a D.C. restaurant’s overall expenses. The Restaurant Association Metropolitan Washington estimates that raising the minimum wage to $15 for tipped workers would cost $600 million a year. Restaurants operate on a thin profit margin, as workers know.
“Increasing the base wage for tipped workers who already make well above minimum wage threatens those who do not make tips,” such as cooks, dishwashers and table bussers, Rose’s Luxury bartender Chelsea Silber told the City Council. Bartender Faith Alice Sleeper explained that “our support staff will lose their jobs first, many of whom are immigrants.”
Allison Kays, a general manager at Justin’s Cafe, said that as payroll expenses rose by more than $100,000 a year, the restaurant would likely save money by buying from “big box national suppliers” instead of local farms.
This echoes what Saint Paul’s tipped workers have said. As one Minneapolis tipped worker wrote in the Pioneer Press recently,
A tip credit guarantees that all workers will earn the full minimum wage at all times while allowing servers to count a portion of their taxable tipped income toward their hourly wage. This pay structure would protect both the income of tipped workers in full-service restaurants and the small businesses that employ us.
We want this tip credit because however you do the math, when the wage goes to $15 an hour, our reliable tipped jobs and incomes are in jeopardy.
Mayor Carter still has a chance to reverse course. It would be better for the city and its workers if he did this before passing the ordinance rather than afterwards.
John Phelan is an economist at the Center of the American Experiment.
Written by John Phelan
in Taxes, Minnesota Economy
on October 25, 2018
The Rochester Post Bulletin carries an op-ed today claiming that our ‘State’s taxes help support high quality of life‘.
If alarm bells aren’t ringing at the end of that, they will be when you read that “the state keeps attracting educated and energetic newcomers” and “keeps producing successful startups”. The authors appear not to have consulted the data before writing this. As we show in our forthcoming report, ‘The State of Minnesota’s Economy: 2018‘, between 2011 and 2016 Minnesota lost residents in every age group but saw the second biggest net loss among those less than 26 years old, according to IRS data, as Figure 1 shows. And, as Figure 2 shows, Census Bureau data show that in 2000, new and young businesses as a share of all businesses were 41% in Minnesota and 43% nationally. By 2014, the most recent year for which we have data, that number had fallen nationally to 34% but in Minnesota to 30%.
Figure 1: Net Flow of Taxpayers and Dependents to Minnesota by Age of Primary Taxpayer, 2011-2016
Source: Internal Revenue Service
Figure 2: New and Young Businesses as a Share of All Businesses, 2000-2014
Source: Census Bureau
The Post Bulletin goes on,
Now let’s look at the other side of the equation: quality of life. Minnesota consistently ranks near the top in “best places to live” surveys. The state was No. 2 in the 2018 U.S. News rankings, and No. 2 in the Politico rankings. CNBC ranked Minnesota No. 3 in “top states to live in,” and graded the state’s quality of life as “A+.”
By the way, CNBC, in a separate survey, also ranked Minnesota as the No. 4 best state in which to do business (sic), based on quality of workforce, technology and innovation, and quality of life.
It is true that Minnesota scores well, overall, on these rankings. But a closer look shows that there is no indication that its taxes are the reason for this.
The U.S. News ranking, for example, ranks Iowa top, Utah third, and North Dakota fourth. Of these, the recent Kiplinger state tax study ranks North Dakota among the ‘Most Tax-Friendly’, Iowa as ‘Mixed’, and Minnesota among ‘Least Tax-Friendly’. Very different tax policies but all in the top four ‘Best States’, according to U.S. News. The fact that Minnesota and two states bordering it score so well suggests that some factor related to geography might be more important.
And, once you dig down into it, U.S. News is actually pretty scathing about Minnesota’s taxes. Indeed, they rank our state 44th on the measure ‘Low Tax Burden’.
It is the same story with the CNBC ranking which the Post Bulletin cites. Minnesota comes 3rd here but North Dakota, with its very different tax policies, comes in 4th. How is it that North Dakota gets a similar quality of life with a much lower tax burden?
This survey is a subset of CNBC’s wider look at Top States for Business. Here, Minnesota came in 6th in 2018, down from third in 2017. And, again, when you drill down into how these rankings are constructed, Minnesota’s taxes get a roasting. The measure ‘Cost of Doing Business’ looks “at the competitiveness of each state’s tax climate, as well as state-sponsored incentives that can lower the cost of doing business”. Our state ranks a lowly 38th.
The Post Bulletin‘s editorial is wishful thinking without recourse to facts. This is a shame because there is ample and growing evidence that Minnesota’s high taxes are, indeed, harming its economy. To have a proper debate about our states economic future, we should always favor facts, however cold or hard, over comforting but inaccurate bromides.
John Phelan is an economist at the Center of the American Experiment
From: Jeff Johnson <Jeff.Johnson@ci.stcloud.mn.us>
Subject: Re: 22 questions asked on Aug 6th St Cloud City Council
Date: October 23, 2018 at 10:01:01 AM CDT
To: William Anderson <William.Anderson@ci.stcloud.mn.us>, Elizabeth <email@example.com>
Cc: Dave Masters <Dave.Masters@ci.stcloud.mn.us>, John Palmer <firstname.lastname@example.org>, Matthew Staehling <Matthew.Staehling@ci.stcloud.mn.us>, Dave Kleis <Dave.Kleis@ci.stcloud.mn.us>, Carol Lewis <Carol.Lewis@ci.stcloud.mn.us>, Jeff Goerger <Jeff.Goerger@ci.stcloud.mn.us>, George Hontos <George.Hontos@ci.stcloud.mn.us>, John Libert <John.Libert@ci.stcloud.mn.us>, Steve Laraway <Steve.Laraway@ci.stcloud.mn.us>
Dear Ms. Baklaich:
Last May, Stearns County Attorney Janelle Kendall and Waite Park police Chief Dave Bentrud gave an eye opening presentation at the Area Cities meeting on sex trafficking in central Minnesota. This is a very serious problem for all of us. This article on sex trafficking in St. Cloud/Central Minnesota came out in 2016 however it’s very timely.
“According to the Stearns County Attorney's Office, St. Cloud is number two in the state behind the Twin Cities in the number of ads for sex. Authorities have also learned St. Cloud is a "training ground" for pimps looking to traffic women for sex. The reasons are numerous.”
“The Central Minnesota Sex Trafficking Task Force has been seeing some success from their efforts. All 100 cases of men looking to buy sex have led to convictions. And, there have been at least three convictions of men who were trafficking women with more awaiting court hearings.”
The task force has been outstanding however I think they need more resources.
From: William Anderson
Sent: Wednesday, October 17, 2018 9:15:22 PM
Cc: Dave Masters; John Palmer; Matthew Staehling; Dave Kleis; Carol Lewis; Jeff Goerger; George Hontos; Jeff Johnson; John Libert; Steve Laraway
Subject: Re: 22 questions asked on Aug 6th St Cloud City Council
My apology for the delay in getting the written response to you. I have just recently finished up a previously scheduled community meeting to discuss our police/community relations agreement. Attached you will find the written answers to your questions. Feel free to contact me directly if you have any further law enforcement related questions.
What happens when your state government gets so big, it tops the charts in terms of individual tax burden?
Craig Eyermann | October 18, 2018
Taxes are the price that regular people pay for government spending. Whether that spending goes to things and services that people want, like road repairs, schools, fire and police protection, trash pickup, public parks, or to things that people don’t really want, like sports stadiums or excessively lavish pension benefits for bureaucrats, the bill for all these things is ultimately paid through taxes.
For most states in the United States, the primary means by which state governments take money from their residents is through income taxes. As part of its 2019 State Business Tax Climate Index, the 81-year-old nonpartisan Tax Foundation has ranked U.S. states according to their individual income tax burden, which is the heaviest-weighted component of their state business tax climate index. The following map shows where each state has ranked according to state income taxes going into 2019.
Katherine Loughead explains what it takes for a state to rank well for their personal income taxes, and also what it takes to rank poorly:
States that score well on the Index’s individual income tax component usually have a flat, low rate with few deductions and exemptions. They also tend to protect married taxpayers from being taxed more heavily if they file jointly than they would be if filing as two single individuals. In addition, states perform better on the Index’s individual income tax component if they index their brackets, deductions, and exemptions for inflation, which improves revenue stability….
States that score poorly on this component are those that tend to have high tax rates and very progressive bracket structures. They generally fail to index their brackets, exemptions, and deductions for inflation, do not allow the deduction of foreign or other state taxes, penalize married couples filing jointly, and do not include LLCs and S corporations under the individual income tax code. The poorest-performing states on this year’s individual income tax component are New Jersey, California, New York, Hawaii, and Minnesota.
She also describes why these taxes are so important in assessing a state’s business tax climate:
The individual income tax is important to businesses because states tax sole proprietorships, partnerships, and in most cases, limited liability companies (LLCs) and S corporations, under the individual income tax code. However, even traditional C corporations are indirectly impacted by the individual income tax, as this tax influences the location decisions of individuals, potentially impacting the state’s labor supply.
That’s no joke. Just consider the case of New Jersey, where the state government has dug itself into a deep fiscal hole because of its excessive spending. In 2016, the departure of just one resident, hedge fund manager David Tepper, who relocated himself and his business to income tax-free Florida, created a fiscal crisis for the state government.
Two years later, New Jersey responded to its worsening fiscal situation by raising its taxes on incomes and corporations in a bid to replace the tax revenues it lost when Tepper moved. Consequently, the state now ranks last overall in both the Tax Foundation’s 2019 individual income tax rankings and its state business tax climate index.
There’s a real lesson to be learned here, but it’s questionable that New Jersey’s elected officials know what it is, because they also increased their spending by 8% in the same budget that imposed higher taxes on the state’s residents.
Please take the time to help any or all of candidates listed below. Get out the vote and change the city council!
Get Out the Vote Opportunities This Week:
Everyone should try to connect with the candidates below and help them get out the vote.
Dr. John Palmer: Literature drop/door knock- 3-5PM Tuesday & Thursday
Tuesday: www.theunitedwest.org/sharia-crime-stoppers - week 5 of 16 week training for police officers, social workers, and judicial officers on Sharia crime.
Wednesday: Christianity & the Competition at 7PM- Faith Lutheran Church, 3000 Cty Rd 8 SE, St Cloud, MN
RED HAT FORUMS ON OCTOBER 24 & 25TH - MARK YOUR CALENDARS AND SEE ATTACHED FLYER TO PASS AROUND
There should be consequences to incumbent city council members for making St Cloud the worst city in Minnesota and on par/capita with Baltimore - ranked the 9th worst city nationwide. In fact, our poverty ratio is worse than Baltimore. Let's get out the votes for John, Liz and Beth!
American Minute with Bill Federer
Plato was a Greek philosopher who lived in the city-state of Athens.
In 380 BC, Plato wrote The Republic, where he described in Books 8 and 9:
"States are as the men are; they grow out of human characters."
"Like State, like man."
The Republic is written as a collection of conversations of Plato's teacher Socrates. It gives insights into human behavior which is amazingly similar to today.
Plato described government going through FIVE STAGES:
"The constitutions of States are five."
The FIVE STAGES are:
"We count as one Royal and Aristocratical..."
Plato's FIRST stage was called "Royal" or "Aristocracy ... whom we rightly call just and good."
This is a government led by hard-working, virtuous LOVERS OF "TRUTH" and "WISDOM."
These are responsible individuals who know how to successfully run businesses, farms, and entrepreneurial enterprises, leaving them ideally equipped with the skills to successfully run a city government.
"A ruler considers ... always what is for the interest of his subject ... and that alone he considers in everything which he says and does."
How Democracies & Republics Rise & Fall: Crash Course on Plato's Republic
Brian Balfour | August 27, 2018
If I wanted to keep poor people poor, there are several government policies I would favor. Let's count them down.
1: An Expanding Welfare StateFor starters, I would advocate for a robust and ever-expanding welfare state—programs like Medicaid, food stamps, unemployment insurance, etc. I would recognize that an effective recipe for keeping poor people poor is to create incentives that push them into decisions that prevent them from climbing out of poverty.
Case in point: A 2012 study by Pennsylvania’s Secretary of Public Welfare analyzed the decisions confronting individuals and families enrolled in various government welfare programs. Specifically, the study concluded that in the case of a single mother with two children ages 1 and 4 earning $29,000 a year through work would be eligible for government benefits (such as Medicaid, housing vouchers, and subsidized daycare) equivalent to roughly an additional $28,000.
Such a scenario puts this woman in a bind. If she finds a better job paying more, or picks up more hours, she risks losing substantial amounts of benefits. She would make her family financially worse off even though her paycheck would be bigger. Just to come out even, once taxes are factored in, she would need to find work paying about $69,000 a year to compensate for the lost welfare benefits. Not many low-skilled workers can make such a leap.
This scenario is commonly referred to as the welfare cliff. Confronted with this situation, many individuals understandably opt to continue receiving the government benefits. Rather than help individuals, the perverse economic incentives created by the “social safety net” trap aid recipients on welfare. And the longer they remain out of the workforce, or at lower levels of employment, the less employable they become. It is a vicious, self-reinforcing cycle that keeps people poor and dependent on the state.
Moreover, there is the impact the welfare state has on the family unit. Welfare programs break up families by replacing a father’s paycheck with a government check and benefits. Nationally, since LBJ’s Great Society ratcheted up government welfare programs in the mid-1960s, the rate of unmarried births has tripled.
In my home state of North Carolina, families are roughly five times as likely to be in poverty when there is no father in the home.
2: Progressive Taxation PolicyIf I wanted to keep poor people poor, I also would finance the welfare state poverty trap through punitive taxes on the job and wealth creators of society.
The key ingredient to economic growth, and thus a higher standard of living for society’s poor, is through productivity gains made possible by capital investment. High marginal taxes on profitable companies and small businesses alike discourage capital investment. As businesses decide to either not expand or take their businesses to more investment-friendly countries, job opportunities dry up.
3: Increase The Minimum WageIf I wanted to keep poor people poor, I would advocate for higher government-enforced minimum wages. The law of supply and demand tells us that the higher the price of a good or service, the less of it will be demanded (other things held equal, of course). The demand for low-skilled labor is no exception. Minimum wage laws are an effective tool to cut off the bottom rung of the career ladder.
Meanwhile, the higher wages will attract more job seekers willing to supply their labor at the higher price. Employers will be able to be more selective in their hiring, and as such the lower-skilled job seekers will be crowded out of these opportunities by higher-skilled, less-needy candidates. Minimum wage laws are an effective tool to cut off the bottom rung of the career ladder for those most in need of establishing work experience.
4: Support Restrictive “Green Energy” PoliciesIf I wanted to keep poor people poor, I would support government “green energy” initiatives that make energy more expensive. State and federal initiatives that mandate more expensive “renewable” energy mean that—in the words of President Obama--utility bills “necessarily skyrocket.” Poor people trying to scrape by just to stay even can scarcely afford higher electricity bills.
5: Increase The Business Regulatory BurdenIf I wanted to keep poor people poor, I would see to it that government imposes many costly regulations on businesses. Such tight restrictions discourage businesses from starting or expanding, Such tight restrictions discourage businesses from starting or expanding, meaning fewer job openings for those most in need of opportunity. And mountains of red tape force business to expend scarce resources on compliance costs rather than investing in their businesses and creating jobs. Higher-skilled compliance officer jobs will consume payroll that could have potentially gone toward opportunities for lower-skilled job seekers.
6: Inflate The Money SupplyIf I wanted to keep poor people poor, I would support “quantitative easing” policies. Under such programs, the Federal Reserve creates money out of thin air. The inflated money supply then erodes the value of the dollars sitting in your wallet or bank account. The poor are hit hardest by this inflation because their limited skill set makes it far more difficult for their incomes to keep up with the rising cost of living.
7: Impose High TariffsIf I wanted to keep poor people poor, I would impose heavy tariffs on foreign goods in order to limit imports. Sure, the domestic industries protected from competition by these tariffs would prosper, but at what cost? For example, tariffs on foreign steel may help the 170,000 American workers employed by the steel industry, but higher steel prices will harm those industries using steel as inputs—and the 6.5 million workers they employ. Ultimately, more jobs are likely to be destroyed than saved.
Furthermore, the price increases passed along to consumers disproportionately harm low-income households. The combination of fewer job opportunities and a higher cost of living certainly makes it harder for the poor to climb out of poverty.
Finally, if I wanted to keep poor people poor, I would most definitely not support a competitive, free market economy. As Milton Friedman once famously schooled Phil Donahue:
So that the record of history is absolutely crystal clear that there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.
You're Invited to an
Security Briefing with
"Connecting the Dots:
Politics and the Opioid
Crisis in America."
Our next ACT Cleveland meeting
is ONLINE, only, on Monday, October 22nd.
Watch from the comfort of your home.
Our next ACT Cleveland meeting will be available online, only, on Monday, October 22nd at 7:30 pm EST. You can watch from your home or wherever on your computer, tablet or smartphone at no charge.
Simply sign up and be ready to watch......It's that simple. Questions? Emailinfo@actcleveland.org.
Here's the Link to Register:
After registering, you will receive a confirmation email from us, via Zoom, (not Eventbrite) containing information about joining the webinar.
Our next National Security briefing will feature Zack Taylor,
Chairman and Border Security Expert for the National Association of Former Border Patrol Officers( NAFBO).
Purpose of NAFBPO is to educate Americans concerning Immigration and advocate for policies beneficial to America and speak against policies that are not beneficial to America.
His specialty as Game Warden and Border Patrol Officer was real time intelligence. Sometimes referred to as connecting the dots but doing it as things are happening.
His presentation is titled "How to Connect the Dots concerning Border Insecurity, Politics and the Opioid Crisis in America."
Zack's Impressive Career
Zack will be our guest, via Zoom, Monday, October 22nd, 7 pm EST.
Here's a quick video message from Zack on what he will talk about on the 22nd.
ACT Cleveland Chapter - Zack Taylor
Zack will be our guest speaker, via Zoom, and will be interviewed by our friend, Jim Simpson, who runs the "Pockets of Resistance."
Hope you can join us.
Dan & Bev
ACT for America-Cleveland Chapter,1300 Pennsylvania Ave NW, Washington, DC 20004
Sent by email@example.com
Burton Folsom | October 2, 2018
Capitalism Worked, But We Were Told It Didn't
We study history to learn from it. If we can discover what worked and what didn’t work, we can use this knowledge wisely to create a better future. Studying the triumph of American industry, for example, is important because it is the story of how the United States became the world’s leading economic power. Free markets worked well; government intervention usually failed.
The years when this happened, from 1865 to the early 1900s, saw the U.S. encourage entrepreneurs indirectly by limiting government. Slavery was abolished and so was the income tax. Federal spending was slashed and federal budgets had surpluses almost every year in the late 1800s. In other words, the federal government created more freedom and a stable marketplace in which entrepreneurs could operate.
To some extent, during the late 1800s—a period historians call the “Gilded Age”—American politicians learned from the past. They had dabbled in federal subsidies from steamships to transcontinental railroads, and those experiments dismally failed. Politicians then turned to free markets as a better strategy for economic development. The world-dominating achievements of Cornelius Vanderbilt, James J. Hill, John D. Rockefeller, and Charles Schwab validated America’s unprecedented limited government. And when politicians sometimes veered off course later with government interventions for tariffs, high income taxes, anti-trust laws, and an effort to run a steel plant to make armor for war—the results again often hindered American economic progress. Free markets worked well; government intervention usually failed.
Why is it, then, that for so many years, most historians have been teaching the opposite lesson? They have made no distinction between political entrepreneurs, who tried to succeed through federal aid, and market entrepreneurs, who avoided subsidies and sought to create better products at lower prices. Instead, most historians have preached that many, if not all, entrepreneurs were “robber barons.” They did not enrich the U.S. with their investments; instead, they bilked the public and corrupted political and economic life in America. Therefore, government intervention in the economy was needed to save the country from these greedy businessmen.
The Profound Influence Of Anti-Capitalists The catalyst for this negative view of American entrepreneurs was historian Matthew Josephson, who wrote a landmark book, The Robber Barons. Josephson, the son of a Jewish banker, grew up in New York and graduated from Columbia University, where he was inspired in the classroom by Charles Beard, America’s foremost progressive historian—and a man sympathetic to socialism. “Beard was nothing less than a spellbinder,” Josephson recalled, and Beard’s lectures helped guide him on a path to radical politics.
During the 1920s, after graduation, Josephson became a journalist, an expatriate to France, and, after his return, a part of New York’s literary elite. He and Beard reconnected in 1930, and the mentor urged his student to write a book denouncing the men who had launched America’s industrial power. “Oh! those respectable ones,” Beard said of America’s capitalists, “oh! their temples of respectability—how I detest them, how I would love to pull them all down!” Happily for Beard, Josephson was handy to do the job for him. Josephson dedicated The Robber Barons to Beard, the historian most responsible for the book’s contents.
Josephson began research for his book in 1932, the nadir of the Great Depression. Businessmen were a handy scapegoat for that crisis, and Josephson embraced a Marxist view that the Great Depression was perhaps the last phase in the fall of capitalism and the triumph of communism. In a written interview for Pravda, the Soviet newspaper, Josephson said he enjoyed watching “the breakdown of our cult of business success and optimism.” He added, “The freedom of the U.S.S.R. from our cycles of insanity is the strongest argument in the world for the reconstruction of our society in a new form that is as highly centralized as Russia’s. . . .”
Extreme Sympathy For The Communist PartyThough not a member of the Communist Party, Josephson co-authored an open letter of support for the Communist Party candidates for President of the United States in 1932. “We believe,” the letter said, “that the only effective way to protest against the chaos, the appalling wastefulness, and the indescribable misery inherent in the present economic system is to vote for the Communist candidates.”
Josephson traced the troubled capitalist system of the 1930s back to the entrepreneurs of the late 1800s. Thus, by explaining what he thought was the wasteful, greedy, and corrupt development of steel, oil, and other industries under capitalism, Josephson was explaining to readers why the Great Depression was occurring. “I am not a complete Marxist,” Josephson insisted, “But what I took to heart for my own project was his theory of the process of industrial concentration, in Vol. 1 of [Marx’s] Capital, which underlay my book.”
Josephson never intended to write an objective view of American economic life in the Gilded Age. He did little research and mainly used secondary sources that supported his Marxist viewpoint. As he had written in the New Republic, “Far from shunning propaganda, we must use it more nobly, more skillfully than our predecessors, and speak through it in the local language and slogans.” Thus he wrote The Robber Barons with dramatic stories, anecdotes, and innuendos that demeaned corporate America and made the case for massive government intervention.
The Lies Of The Robber BarronsWhen propaganda is the goal, accuracy is the victim. The Robber Barons is riddled with factual errors. On page 14 alone, Josephson makes at least a dozen errors in his account of Vanderbilt and the steamships. Here is one sentence with three errors:
At the time of the "shipping subsidy" scandals, aired in the Senate in 1858, it was seen that Vanderbilt and E. K. Collins of the Pacific Mail Steamship Line were the chief plunderers, sometimes conciliating, sometimes blackmailing each other.
First, E. K. Collins was never the head of the Pacific Mail Steamship Line; in fact, he had no connection with it at all. Second, Vanderbilt and William H. Aspinwall, the actual head of the Pacific Mail Steamship Line, were never “blackmailing each other.” Third, the Pacific Mail Steamship Line, not Vanderbilt, was the “chief plunderer.” Vanderbilt had no subsidy, and the Pacific Line did. In fact, Vanderbilt, through his low prices, exposed the federal subsidy as a scandal.
Perhaps more important than all of the errors, Josephson missed the distinction between market entrepreneurs like Vanderbilt, Hill, and Rockefeller and political entrepreneurs like Collins, Villard, and Gould. He lumped them all together. However, Josephson was honest enough to mention the achievements of some market entrepreneurs. James J. Hill, Josephson conceded, was an “able administrator,” and “far more efficient” than his subsidized competitors. Andrew Carnegie had a “well-integrated, technically superior plant”; and John D. Rockefeller was “a great innovator” with superb “marketing methods,” who displayed “unequaled efficiency and power of organization.” Most of Josephson’s ire is directed toward political entrepreneurs. The subsidized Henry Villard of the Northern Pacific Railroad, with his “bad grades and high interest charges” show that he “apparently knew little enough about railroad-building.” The leaders of the Union Pacific and Central Pacific, Josephson notes, “carried on [their actions] with a heedless abandon . . . [which] caused a waste of between 70 and 75 percent of the expenditure as against the normal rate of construction.” But it never occurs to Josephson that the subsidies government gave these railroads created the incentives that led their owners to overpay for materials and to build in unsafe areas. He quotes “one authority” on the railroads as saying, “The Federal government seems . . . to have assumed the major portion of the risk and the Associates seem to have derived the profits”—but Josephson never pursues the implication of that passage.
Swooning For Stalin Josephson “enjoyed writing about my ‘scoundrels’,” and when The Robber Barons came out in March 1934, it became the number one bestselling book of non-fiction in the U.S. for six months. Even more amazing, the author was not in America to promote his book. He left for Russia to explore Stalin’s communist experiment. While there, Josephson was a celebrity and was taken on carefully guided tours of Russian steel mills and shoe factories. He attended official dinners and even talked with select Russian writers and artists. He was ecstatic. The Soviet Union, Josephson said, “seemed like the hope of the world—the only large nation run by men of reason.”
Josephson, under careful Russian supervision, never met any of the hundreds of thousands of Ukrainians who were starving to death at the time under Stalin’s brutal collectivization; nor did Josephson see the Soviet gulags, or prisons, where thousands of dissenters were forced into hard labor and early deaths. Josephson also never realized that the Soviet factories he saw were often directly copied from Western capitalist factories—and were funded by Stalin’s confiscatory taxation. Instead, Josephson thought he had stumbled into a workers’ paradise, the logical result of central planning and superior leaders.
“Before people pass judgment on Comrade Stalin,” Josephson wrote, “they ought to come here and see his Works, his Opus Major, in many volumes with their own eyes. It is very impressive; and few other statesmen in all history have so much to show.” In truth, Stalin had almost nothing to show. His model industries—car factories, railroads, and hydroelectric plants, for example—were borrowed or built by Americans or Europeans, often with grain confiscated from starving Soviet farmers.
The Falsehoods Became The CanonWith his best-selling book out, Josephson came back to America to glowing reviews and massive sales. For example, historian Allan Nevins called The Robber Barons a “tour de force” and the Virginia Quarterly Review proclaimed it to be “required reading.” Even more important to Josephson, his progressive vision of economic history began infiltrating the writing of high school and college texts. The term “robber barons” became the new label for America’s leading entrepreneurs of the late 1800s—and beyond. Historian Thomas Brewer, who in 1970 edited The Robber Barons: Saints or Sinners? observed that the majority of writers “still adhere to the ‘robber baron’ interpretation.” Historian David Shi agrees: “For well over a generation, The Robber Barons remained the standard work in its field.” For many textbook writers, it still is. In the main study guide for the Advanced Placement U.S. history exam for 2015, the writers say, America [1877-1900] looked to have entered a period of prosperity with a handful of families having amassed unprecedented wealth, but the affluence of the few was built on the poverty of many.
Having condemned American entrepreneurs and promoted more government as the solution, Josephson began work on a sequel called The Politicos, which described the politics of the Gilded Age. Like his research for The Robber Barons, Josephson mainly did quick reading of those secondary sources in sympathy with his ideas. His book was hastily written and riddled with errors and distortions. In fact, Josephson confessed to Charles Beard that “in spite of all my precautions there might be a good many historical inaccuracies in my book.” Beard retorted, “All works of history are inaccurate,” and he urged Josephson to publish his book anyway, which he did.
If Josephson’s research was so sloppy, and his interpretation so biased, how did his Robber Baron view come to prevail in the writing of U.S. history? First, Josephson published his book in 1934, in the dark days of the Great Depression. Progressive historians had begun to dominate the writing of history and they were eager to blame a new generation of robber barons for the collapse of the American economy. The Robber Barons was embraced by key Marxist historians, who influenced much of the historical profession after World War II.
In doing so, these historians overlooked the ruinous government interventions under Presidents Hoover and Roosevelt that helped spark the Great Depression and cause it to persist. Those harmful federal policies include the Federal Reserve’s untimely raising of interest rates, making it harder to borrow money; President Hoover’s blundering Farm Board; his signing of the Smoot-Hawley Tariff, the highest in U.S. history; and his disastrous Reconstruction Finance Corporation, which dispensed massive corporate bailouts to political entrepreneurs. Finally, Hoover muzzled investment by repealing the Mellon tax cuts and promoting a huge tax hike. These various interventions stifled market entrepreneurs and emboldened political entrepreneurs. But historians have neglected that part of the story.
A second reason for Josephson’s triumph is that The Robber Barons was embraced by key Marxist historians, who influenced much of the historical profession after World War II. Richard Hofstadter, for example, was a long-time professor at Columbia University. He twice won the Pulitzer Prize, he wrote best-selling history books, and he helped train a generation of prominent historians. Yet Hofstadter had joined the Young Communist League in college and later joined the Communist Party. “My fundamental reason for joining [the Communist Party],” Hofstadter said, “is that I don’t like capitalism and want to get rid of it.” Although Hofstadter soon quit the Communist Party, he maintained his hostility to capitalism and expressed it in Social Darwinism in American Thought, in The Age of Reform, and in a popular co-authored textbook, The United States: The History of a Republic.