Roots of the Current Fiscal Crisis of the State: New Class Wars: 1980-1992. Ralph Larkin, from his blog

The overthrow of the Eastern Establishment by capitalists from the Southern rim was called by my friend Danny Foss, "The Revolt of the Needy Rich." As I noted in my previous blog, this particular sector of capital became wealthy through the largess of the federal government. Take, for example, Southern California; on the surface, we think of Hollywood, real estate, and all those wonderful prepared environments that tourists like to visit, such as the San Diego Zoo and Safari Preserve, Disneyland, Universal Studios, Knotts Berry Farm, and so forth.

In actuality, these economic activities sit upon an infrastructure of oil and natural gas exploration and military expenditures. There are several large oil companies based in California including Union Oil, Standard Oil of California (Chevron), and Occidental Petroleum. Los Angeles is ringed with military installations, from Vandenberg Air Force Base, Point Arguello Naval Base, Point Hueneme Naval Base, and Edwards Air Force Base to the north, the Marine Air Force combat Center in 29 Palms and March Air Force Base in Riverside to the east, the Naval Air Facility in El Centro to the southeast, and San Diego is the home port of the Pacific Fleet. Moving north along the coastline, we see the Marine Corps Air Station at Miramar, El Toro Marine Base (now decommissioned), and Camp Pendleton. And these are only the larger ones.

There are literally thousands of military-related industries in Southern California, from small arms and ammunition manufacturers to producers of major weapons systems. Major Southern California military-based industries are or have been Boeing Aircraft, Lockheed-Martin Marietta Aircraft, McDonnell Douglas Corporation, Northrop Aviation, and TRW. Those used-car salesman who fly giant American flags on their car lots next to Interstate 405 could not have become rich if there had never been a California oil boom or the Defense Department hadn't set up shop in Southern California.

The other key state in the southern rim is Texas, another state with an oil and Defense Department infrastructure. The Reagan-Bush ticket was one that was made in accumulating class heaven. Not only did Ronald Reagan represent his California right wing/oil magnate/leisure industry/military constituency, but George HW Bush was the perfect vice presidential candidate with a foot in both the Eastern establishment and the Southern Rim. The scion of a wealthy Connecticut family whose wealth originally came from steel, he decided to strike out on his own as a Texas oilman. His presence on the national ticket provided a semblance of unity between both sectors of the accumulating class.

Once in power, Ronald Reagan pursued four policies that enhanced the power of the accumulating class overall and his personal constituency in particular. Practically his first act as president was the decertification of the striking air traffic controllers union, PATCO. This was a signal to corporate America that the social contract established between big labor and the Eastern establishment would no longer be enforced.

Second, he ramped up the Cold War by falsely claiming that the Soviet Union was expanding its military when in actuality it was experiencing its own fiscal crisis. This was an excuse to funnel more federal dollars to the military contractors who backed his candidacy. Third, Paul Volcker pulled the plug on the economy by dramatically raising interest rates to 21%! This was an absolute boon to big capital, that could shut down marginally profitable industries that had unionized workers and move productive enterprises to the antiunion South, or better yet, to countries that had little or no labor protection whatsoever and who paid their workers a fraction of what American workers cost. Fourth, the Reagan Administration passed the Kemp Roth tax cuts, which benefited high income earners over low and generated a shift of wealth up the system.

Not only did it decrease marginal rates by 23%, it cut corporate taxes by $150 billion, and reduced estate taxes. In 1986, the top tax rate was reduced again from 50% to 28% and the bottom tax rates were raised from 11% to 15%. This is an incredible transfer of wealth up the system. The current top tax rate is 35%, exactly half of what it was in 1980.

Historical Top Tax Rates

Simultaneously, the Reagan Administration was tearing away the social safety net and removing support for poor people. All people on Social Security disability were thrown off the rolls and had to reapply, confirming their disability. Federal-aid to welfare was cut, the war on drugs was ramped up, and federal support public housing was ended.
So, how could this newly emerging elite that it taken over the state so successfully implement its program of enriching the rich to the detriment of the rest of society? We have all heard of the term "Reagan Democrats" which refers to an older white working-class predominantly male constituency that shared Ronald Reagan's antipathy toward privileged youth in the counterculture and black Americans.

Richard Nixon, in an earlier phase, referred to them as the "silent majority." By using cultural appeals to this constituency, the Republican Party found that it could appeal to culturally conservative white males on wedge issues of drugs, women's rights, abortion, and "family values." As Thomas Frank pointed out in his enlightening book, What's the Matter with Kansas?, that cultural appeals could actually get white working-class males to vote for candidates who would work against their own material interests.

The tax cuts can be viewed as a sacking of the public treasury by the rich. The tax cuts plus the increase in the military budget in peace time in the war on drugs created a deficit that lasted through the Bush I Administration. Tax breaks for the rich, welfare for corporations in the form of military expenditures, and shoving it to the poor. During the 1970s, the Gini coefficient, and index of economic inequality averaged around 36. In the 1980s, it jumped to around 40. Wages stagnated and the rich got richer. Hmm, sounds like a strategy. And Reagan is one of the most popular of recent presidents!

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