The Gilded Ages…Then and Now

My wife and I visited Newport, Rhode Island, in early October to see the famous mansions of the Gilded Age. We were amazed by these enormous buildings, which rival royal palaces in their scale and grandeur. As we absorbed the history of that Gilded Age, however, we were also surprised to learn that our own Gilded Age has lasted longer (and shows no signs of ending).

The Vanderbilts and others made their fortunes in the 1870s and 1880s, after the Civil War triggered an expansion in railroads and manufacturing. Most historians date the Gilded Age from the early 1870s to the early 1900s, or about thirty years. However, the height of the Gilded Age was a relatively brief period.

The ultra-wealthy families did not build their imposing edifices in Newport, such as “The Breakers” (70 rooms) and “Marble House,” until the early 1890s. They lived there like princes, throwing lavish parties for 400 people or more and marrying their daughters off to British aristocrats who needed an infusion of Yankee cash.

A leading socialite such as Alva Vanderbilt, who reigned at the Marble House, would budget $2 million in today’s dollars for a just one summer “season”. But the “season” was short: the super-rich only stayed in Newport for five to six weeks during the summer. Then they moved on to other venues, such as Europe or Long Island.

Alva Vanderbilt might spend $500,000 on new dresses, which she would wear for one summer season. She would change clothes six times a day to attend various parties. Alva would dispense $1,500,000 on the six to seven massive dinner parties and balls that she had to give to maintain her family’s social position. Thanks to these extravagant soirees, the term “conspicuous consumption” became popular.

The Breakers: Cozy, Great Ocean Views

The $2 million was chump change for the Vanderbilts, who had a fortune of close to $200 billion in today’s dollars, based on their control of major railroads and steamship lines. They did not have to pay any federal income or estates taxes, which enhanced their cash flow, and servants’ wages were low. So the elite could indulge themselves in an endless round of parties, sailing, and other sports (for the men).

But the public eventually became revolted by over the-top excesses of the super-rich, and the political reaction came relatively swiftly. The United States adopted a federal income tax in 1913 and an estate tax in 1916. As the super-rich’s cash flow declined, they had to cut back their lifestyles.

The party started to wane by 1915 and it was over by 1920, just 28 years after The Breakers was constructed. The enormous mansions rapidly became white elephants. One sold for a mere $24,000 in the late 1920s (which was not much money for a mini-palace even then). The zenith of the Gilded Age was a brilliant display of wealth and power, but short-lived.

America also took a huge step to expand the franchise, granting women the power to vote in federal elections in 1920. The suffragettes had waged their campaign for about 60 years, but they finally triumphed partly because of the progressive movement that also curtailed the elite’s power and wealth.

Our own Gilded Age has lasted almost 40 years, and the top 1% of Americans’ share of income and wealth has continued to increase. In my opinion, the latest Gilded Age began in the early 1980s, as the stock market boomed and investment banks morphed from partnerships into giant institutions. The tech boom and the explosion of hedge funds created successive waves of extraordinarily wealthy people. They quickly started building huge summer houses to flaunt their wealth.

Meanwhile, President Ronald Regan ushered in a new political era, attacking big government as “the problem, not the solution”. Since then, the Republican Party has consistently demonized the federal government, as it seeks to unravel the New Deal framework of progressive tax rates and generous social programs.

This Time Is Different

In the original Gilded Age, politicians eventually had to bow to the popular will and pass an income tax and other progressive laws, within a relatively short time. In our era, a small group of ultra-rich donors, along with gerrymandering and voter-suppression, has allowed the Republican Party to defy the wishes of the majority.

This time, there hasn’t been a sustained political reaction to the conspicuous consumption that has gone on for decades. The U.S. has the biggest income equality gap among developed nations in the West. Social mobility is higher in several European countries than in America.

Hedge fund titans, private equity managers and tech stars have become accustomed to earning hundreds of millions or even billions of dollars a year. Our President and his son-in-law pay no federal income taxes...and apparently many voters don’t care.

These are boom times in the Hamptons, one of the modern-day Newports, with enormous new houses sprouting up everywhere. This summer people in East Hampton complained about the traffic congestion caused by construction crews’ trucks. Steve Cohen, a hedge fund star, is building a complex so gigantic that a 100-foot-high crane loomed over the dunes this summer.

The ultra-elite is more powerful politically than ever, thanks to a Republican party that depends on it for financial support. The Supreme Court has also helped wealthy donors gain even more influence, through the Citizens United decision.

In the twilight of the first Gilded Age, American democracy expanded as women won the right to vote. In our time, the Supreme Court has gutted the Voting Rights Act of 1965, giving Southern states a green light to enact laws intended to suppress minority voters. A rash of voter ID laws followed.

The Court does not seem willing to curtail the excessive use of gerrymandering, primarily by Republican-dominated states. This trend has also allowed many politicians to cater to a narrow base and ignore large groups of moderate voters. (That’s true for both parties but particularly so for Republicans).

Death May Be Inevitable, But Not Taxes

The Republicans recently pushed through yet another massive tax cut for individuals, despite widespread opposition. The new law is deeply unpopular with voters because it mostly benefits the top 1% (and especially the top 0.5%) but provides little or no benefit to most taxpayers. The Republican Party’s other Holy Grail is repealing the Affordable Care Act, which provides about 20 million Americans with medical insurance. Why? To eliminate the 3.4% tax on investment income that helps to fund the program.

Many Republicans, such as Paul Ryan and Mitch McConnell, are talking, very seriously, about slashing Social Security, Medicare and other social programs…. at a time when many working-class and middle-class Americans are struggling. Why? To reduce the deficits that their enormous tax cuts are causing.

Even more ominously, the terms of debate on the estate tax have shifted. The original, explicit purpose of the estate tax was to break up large family fortunes, so that a small number of rich Americans could not dictate the government’s policies. Our political class used to heed the warning from Justice Louis Brandeis:

“We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.”

Now, we have moved in the other direction, reducing the “death tax” …with all too predictable results. Our policy is geared to protect wealthy families from taxes on their inheritances as well as their income. For mega-donors such as the Kochs and the Mercers of the world, their “investment” in Republican candidates is paying huge dividends. In our current political construct, death may be inevitable, even for the ultra-rich, but taxes aren’t.

No doubt the old Vanderbilts would have been impressed…and jealous.

The Wall Street Democrat