Forward by J. David Patterson, SMA SVP for Strategic Business Opportunities:
As part of SMA’s initiative to reflect on political, social, defense and cultural issues of our times, we thought it would be useful to publish opinion articles to address these issues. Many of the issues that we will raise have constituents with decidedly different points of view; often polar opposite perspectives. Consequently, Dr. Gregory Treverton and I have been asked to write point-counterpoint articles where one of us will take a position on a subject and the other takes an opposing view. Greg is up first with his article “What Will Follow the First American Republic?” which you can read here. My response is below.
NOTE: The views expressed here are those of the authors and do not necessarily represent or reflect the views of SMA, Inc.
The Second Republic – Really?
By J. David Patterson
I’d like to explore Greg’s article by addressing what I believe are his major themes. First, that the last third of the 19th century was emblematic of what we are experiencing today as the “First Republic”; that the Trump administration is the champion of a disturbing and harmful self-serving direction being taken by the U.S.; and lastly that the changes in economics and outlook for the American workforce because of the disruptive nature of advancing technology should be of concern.
In Greg’s opening paragraph he gives what those of us who have taken courses in public speaking or debate known as the “attention getting step.” The reader is assaulted with the assertion that our political and societal circumstances we face today compare favorably with the economic uncertainty, corruption and government dysfunction of the “last third of the nineteenth century.” This statement suggests that the period between 1867 and 1900 was a bellwether period for public corruption when compared to similar periods in American history. Referring to Walter Russell Mead’s article The Big Shift, as does Greg, I believe a fairer characterization of that period would be “unremarkable.” As Mead points out, “The years between the assassination of President Abraham Lincoln, in 1865 and that of President William McKinley, in 1901, were among the least inspiring in the history of U.S. politics.” There were scandals, of course. Two of the more celebrated scandals of that period were the Credit Mobilier and Belknap scandals.
The Credit Mobilier scandal of 1867 was bad involving Credit Mobilier of America a construction company building the eastern portion of the Transcontinental Railroad gouged the government (the government paid $94.6M on costs of $50.7M generating profits of $44M) with significantly higher rates than its commercial customers along with cash and nine million dollars in discounted stock as bribes which came to light for the public until five years later in 1872 on the eve of election season. (Such coincidental timing by the media has not been seen since, well 2016) The five years between 1867 and 1872 can be explained by social media (Telegraph Chat and Pony Express Messaging) were slower then. But, the scandal scooped up the Vice President, the Secretary of the Treasury and four senators as well as members of the house, with both Democrats and Republicans represented—a true demonstration of bipartisanship.
Then there was the Belknap scandal of 1870, where William Belknap (a Democrat before 1865 and a Republican after—you don’t get more bipartisan than that) who, as Secretary of War, lobbied Congress to give him sole power to license traders selling to the military installations in the Western frontier. Such, exclusivity was perfect for kickbacks and bribes and there were plenty. Licenses, or “Traderships” as they were called were sold by the War Department with much of the money going to Belknap. The total payment to Belknap apparently was $20,000. The breathtaking magnitude of such incredible raping of the public coffers could not go on forever and after an extensive congressional investigation, Belknap was identified as the culprit. Belknap resigned hours before the Senate voted to impeach him. He was put on trial as a private citizen in the Senate and in true Clintonesque fashion he was acquitted.
To identify government epochs in U.S. history based on the magnitude of economic uncertainty, corruptions and government dysfunction, is a little tricky as a standard. Freeman Stevenson, in his 2013 article Top scandals and controversies of each United States president, argues persuasively that, “…scandal and controversy are nothing new to Washington—as long as there have been presidents, there has been controversy.” Even our first President, George Washington, the father of our country was accused of treason by Thomas Jefferson over the Jay Treaty giving the British favored-nation trade status. Politicians threw the “T-word” around, even then. The Jeffersonian Party (yes, he apparently had a party all his own) favored the French over the British, since many were still smarting over the Revolutionary War and believed that the British should not be given any preference.
Not all presidents experienced scandal or controversy while in office. President Harrison avoided any hint of unpleasantness by dying of a fever following a nearly two-hour long inauguration speech, riding his horse in a frigid rain storm and being host for three inauguration balls. (He was a party animal.) Coolidge ran a pretty clean administration, without dying in office.
The second part of the two-part attention-getting step, was very effective. It got my attention. Greg claims that, “We haven’t, for instance, seen kleptocracy on Trump’s scale for a long time, with the President governing as though his main aim is enriching himself, his family and his cronies.” First, I think we need to understand what Greg means by a “long time.” If a long time is nine years, we’re going all the way back to 2009 when the Obama Administration approved loans to a favored green energy company called Solyndra and that company’s ultimate default in 2011 left the American taxpayer on the hook for an amount the Department of Energy’s Inspector General estimated of over $500M. In comparison, Belknap was clearly an underachiever. But, while Solyndra was losing money hand over fist, the executives and employees at Solyndra were doing well enough to make the Obama campaign their number one recipient for campaign donations. Therefore, it seems that the Obama folks certainly qualify under the definition kleptocracy at endnote .
Yet, one has to wonder, if the Trump Administration qualifies as a kleptocracy, then it would seem that we could point to individuals getting wealthy as a consequence, especially the leader of the kleptocracy. But, a quick look at the facts reveals that the president, rather than enriching himself has in fact had his net wealth reduced in the short 20 months in office. Forbes reports President Trump’s net worth dropped $400M after one year in office. Now, where I live down here in Tennessee, this precipitous reduction in wealth does not equate to enriching oneself in office.
Trump, unlike most men of wealth, appears to be willing to put his fortune where his mouth is. Again, according to Forbes, the Trump brand has taken a significant beating because President Trump has taken foreign policy and domestic economic positions that have proven to be beneficial to all Americans, not himself. Whether foreign countries benefit it is incidental, not central, to Trump’s priorities. No other President in modern history has been willing to put their treasures on the line for their vision of a more prosperous, safer future for the citizens.
Moreover, I can’t find any member of the Trump Administration who has become conspicuously wealthier because they are part of Trump’s Executive Branch. In many cases the personal grief experienced by leaders in the administration has been extremely taxing on their families and their personal stature and interests. If this is what a kleptocracy looks like, I think it safe to say, the Trump administration has some very stalwart, patriotic Americans serving and willing to put up with it. Has the stock market gone up? Have Americans’ 401K investments in that stock market gone up? You bet.
It is more than reasonable to conclude that the Trump administration, in its twenty-first century in its approach to governing, is unique. Again, in the words of Walter Russell Mead, from his article How Trump Plans to Change the World, “Mr. Trump is hard to understand not because he is deep but because he is different. American presidents since the 1940s have primarily sought to conserve the post-World War II order. Mr. Trump, on the other hand, is a revisionist who wants to alter the terms of the world system in America’s favor.” What Trump’s detractors want us to believe is that he not just different, but that Trump is the genesis of the divisions in the country along racial, economic, political and every other polarizing phenomenon that exists. That somehow this division and the political environment that is the beginning of a new American epoch, in Greg’s words, a new—and evidently, to Greg at least, far lesser—American republic.
What President Trump’s critics do not want to come to grips with is that the divisions were more pronounced along economic and racial lines during the Obama Administration. Throughout that time blue-collar and middle-class families were repeatedly told that they were victimized, disadvantaged, helpless and without a say in their future. Trump gave them a voice to which he listened, and they believe he is acting on their behalf. He does not care about what current or former government and think-tank dandies, the professional inside-the-beltway crowd, think of his style or his grasp of policy issues. Many of these Washington insiders’ only claim to fame is that they’ve moved in and out of government as a career; never made payroll, never had a job where people, other than their own families, depended on their success. Consequently, they have become further and further removed from the people for whom government is supposed to be working.
Without really ever establishing that there was a definitive “first American republic,” with a beginning and an end, Greg assumes it and presses right on to ask, “What might follow the end of the first American republic?” In reading Greg’s piece, I believe that he puts forth a compelling argument that technology and the innovation that keeps the workforce in America employed has changed. I would argue that Greg is right. The U.S. is no longer an agrarian country depending on small farms to provide subsistence. It is true that in 1850, over sixty percent of Americans were farmers and today that number is only two percent. But, I think it is a good thing that modern, technology-based farming allows only two percent of the population in American to feed the other 98 percent and a good portion of the rest of the world. When comparing manufacturing in the 1980s with the number of manufacturing and clerical jobs in 2016, the percentages are 50 percent and 15 percent respective.
Despite the reduction in the number of manufacturing jobs between 2008 and 2010, this phenomenon is not a reflection of total loss of jobs, but rather a replacement of manufacturing jobs with service jobs. But, keep in mind the GDP of the U.S. has progressively trended upward, even with some of the hiccup years of the previous administration. We have to remember that unemployment is very low, workforce participation is very high and after the 2017 tax cuts—and Trump’s major success in lifting regulatory burdens from the shoulders of business—our economy is booming. Even in the manufacturing sector, according to Bloomberg, following two years of virtually no growth, starting in January 2017 in the last 19 months 220,000 manufacturing jobs have been added. And, as Bloomberg points out, “The manufacturing sector is adding jobs at a faster pace than the rest of the economy, which hasn’t happened much over the past half century…they [jobs] also tend to have multiplier effects that most service jobs don’t, creating other jobs and income in their wake.”
Where I part company with Greg, regards his contention that the evolution of the job market is somehow the specter of doom. He draws the parallel between the earlier agriculture-based economy giving way to an industrial, manufacturing economy with the technology-based, information age. As Greg points out, “the dislocations were, and will be enormous. Then, too, job losses were visible and jarring, while those that would be created were invisible.” The workers in the Ford company in the early 1900s and Google employees might take issue with that. Greg goes on to explain that America’s workforce, “is hardly prepared for the disruptions that Artificial intelligence (AI) will set loose, all in the context of growing inequality in income.” My position would be that there has never been a point in man’s history where progress has not been disruptive, but ingenuity has always prevailed.
Innovation and advances in technology create more, often higher paying, jobs than they displace. First, what was clearly a technology boom during the 1990s saw a fairly low unemployment rate. In fact, at the height of the technology bubble, unemployment was at its lowest during the decade, 4.0 percent. Throughout the history of the United States from the industrial age of the early 1800s, there is no evidence that would draw the observer to the conclusion that technological advances increased the number of people permanently displaced from the labor force.
The important evidence often ignored is that while technology does make some jobs extinct—Pony Express riders, Morse code telegraphers—it also creates new jobs requiring different skills. With each new invention, innovation, or industrial discovery, more jobs were created. Where there isn’t numerical equality between the old and new jobs, some people will be forced to rely on government aid (which already exists) during the time it takes to retrain into a new job.
In Jeremy Pollard’s article in Control Design for Machine Builders, “Is technology replacing jobs?” Pollard refers to Mark Bertolini, CEO of Aetna, a $60 billion Fortune 50 health-care benefits company, who argues, “Now, consider that the banking industry has expanded the number of tellers at their branches because they have built more branches. They embraced automation such as ATMs, which meant lost jobs in the short term, but they also realized they had much more money to provide better customer service, so they put that money back into their businesses by providing construction jobs, management positions and teller employment to the tune of 100,000 teller jobs since 2000.” This story is fairly typical of the results of prudent use of technology and innovative thinking focused on creating jobs.
I find great comity with Greg’s point of view that in the future, “The role of the government will be less—and different. America is an outlier: we spend about 27 percent of our GDP on local, state, and federal government, while most of our fellow industrial democracies spend 7 to 10 points more. And America is an outlier in another way as well: most countries spend more on their government as they get richer, with citizens demanding more and better public services. Yet our number has hardly changed in fifty years, while, again, our fellow democracies have expanded government by about ten percentage points over that period.”
The reason that America eschews larger and growing government, in the socialist and quasi-socialist forms we see in Europe is that such government’s as Margaret Thatcher so famously and accurately put it, eventually run out of other people’s money to spend.
There is another important concept that separates the U.S. from our “fellow” democracies and that is that our founding fathers developed the framework for our democracy based on the premise that the U.S. offers equality of opportunity, not outcome. History is replete with economically-failed democracies based on the premise that government must provide equality of outcome, whether in terms of income or station.
Over the past 231 years since our Constitution was ratified in 1787 the U.S. has undergone immense and continuous evolution to accommodate changing economic, political, cultural changes that have, based on most standards, made our nation stronger. If I were to point to inflection points in the history of America, they would have to be those milestones in our history where the very foundations of what we are as a nation changed; the Revolutionary War, the Civil War, World War I, and World War II. The last third of the 19th century, in my view doesn’t challenge those events.
||Dave Patterson is an SMA Executive Advisor, former Executive Director at the National Defense Business Institute at the University of Tennessee, and former Principal Deputy Under Secretary of Defense, Comptroller in the Bush ’43 Administration.
 Walter Russell Mead is a Distinguished Fellow at the Hudson Institute
 James Ford Rhodes, History of the United States from the Compromise of 1850 to the Final Restoration of Home Rule of the South in 1877: 1872-1877. Vol. 7, 1916, pp. 1-19.
 A government or state in which those in power exploit national resources and steal; rule by a thief or thieves.