So You Want to Buy a President?

Kevin Phillips

Kevin Phillips is the editor and publisher of The American Political Report.  and the author of several books on politics and government.  Most recently he is the author of  Arrogant Capital.

Q: Can you think of any society throughout history where the rich people have not been able to use money to buy favors from the king or the powerful class? Any time, any place?

Phillips: Oh, I think that's pretty much the case down through history. As you say, there are minor interruptions. For example, in the British welfare state after World War II, when the Princess Elizabeth got married, she got a special dispensation of ration coupons so that they could serve better food. So I think at that point, it didn't buy what it usually bought. But even then there was a favor.

Q: So then, are we talking about a rhythm of privilege that is just somehow organically natural? Rich people spend money and get what they want, period.

Phillips: Well, I think you have to think of it as a kind of trajectory. You have periods where the rich are really in trouble politically. I think you could fairly say that in 1793, in the terror in France, they were in trouble. Then you have periods in which it's kind of a normal balance, which is to say, yes, money buys favors. But doesn't buy so much that it perverts the culture or the political system. Then you rise to certain points where it does. And these are usually in the periods of excess, whether it's the Gilded Age or periods of corruptions, and speculative bubbles. And this usually will give way again, because it's an excess, and it's corrected. It's very rare that money doesn't buy most of what you want. But it's also not that commonplace in history, that it totally warps the system.

Q: What was the high point in the last 100 years of American history?

Phillips: Oh, I think there are three high points. The Gilded Age, right at the end of the 19th century, the Roaring Twenties, and then the last 15 years. And the last 15 years, according to a number of surveys, have seen the United States income inequality exceed that of France, which was the bellwether in Europe. We're not up to Brazilian standards yet, but clearly that would be the next target.

Q: But that's not the same thing, to say that richer people have more of the national wealth at a given time does not mean that they get more political favors at the same time, or does it?

Phillips: Well, it doesn't as a matter of course. But I think as a matter of operational reality, it probably has a fair correlation. In these Latin American societies, the favoritism to the top 1% is notorious. For example in Mexico, it basically buys immunity from justice. It corrupts the police. The whole role of Mexican presidents not being prosecuted for anything they did when they were in office, there's a whole family network. The same would be true almost as much in Brazil. In the United States, that's not true. But on the other hand, we don't have a Mexican or Brazilian pattern yet.

Q: The pattern that I'm accustomed to is set sort of by this guy Plunkitt, of Tammany Hall, in this little book. 'I seen my opportunities, and I took 'em,' he says. And it describes a lower middle class, largely Irish immigrant population, in Boston, in New York, and what they do is they load up the political system with favors for their friends and their families and their nephews and their nieces, and that's the law there. I don't see Andrew Carnegie walking in, in the 1890's saying, 'I want this, I want that, give it to me'. I see Boss Plunkitt doing that. So my sense of America is that the corruption and money and politics wash the lower middle, the middle class's hands for a long time, not the top.

Phillips: Well, more or less during that same period, which is the period after the Civil War, was when you did have the Gilded Age. It was when all the great mansions on Fifth Avenue were built, all the yachts off Newport. And J.P. Morgan and Vanderbilt and people like that could with a flick of the finger transfer more money and power and wealth than George Washington Plunket and 50 Irish saloon keepers in a year.

Q: Sure. But there were a lot more Plunkitts than there were Morgans.

Phillips: No, that's not true. There was Boss Tweed. There were a few others like that. But New York City was the only big operational grab bag of machines. Boston was relative chicken feed, comparatively. It was the city here, with its huge expansion, its ties into Wall Street, real estate. The opportunities for the hacks to make money here were much greater than they were elsewhere.

Q: If you say that the period of the last fifteen years represents one of the great grabs of American history, what is your measure? What's your evidence for that?

Phillips: Well, let's look at it simply from the standpoint of where the financial markets were during this period. The records set that way, and also the records set in using public money to bail out finance whenever it got in trouble. And we can start with the extraordinary bull market that commenced in 1982 and had a very minor interruption in 1987, because essentially the Fed flooded the system with liquidity, and then the market was not lost. So you have the Dow going from something like 600 or 700 in 1982, up to virtually 7 or 8 times that now. And you've had enormous profits. But they haven't been profits achieved in the free market. They've been profits achieved in a financial mercantilism system, whereby big banks get bailed out. We can go back with Continental Illinois and the Texas banks in the mid-80's. Then you get Greenspan's bail out of the stock market in 1987, with the sort of liquidity never made available in 1929. Then you get the bail out of junk bonds...

Q: But to characterize the bail out of those banks, of those savings and loans as a cozy arrangement between the privileged white collar guys and their political friends...couldn't you say, 'Look, do you want to have a complete collapse of the financial system of the United States or no?' So we've got to do this, no matter who's there. We've got to do it. Those are both equal interpretations of the same event.

Phillips: Well, I don't think so. First of all, it hadn't been done. Before, the system had been forced to purge itself and grow back again in the 1890's and the 1920's.

Q: But that was horrible. That was a real bank collapse.

Phillips: But it was, the Schumpeterian capitalist process, which was a renewing one, as opposed to a stultifying one, which is what we've had here.

Q: Renewing, but very painful for people.

Phillips: Well, very painful, but that's the way capitalism is supposed to work. And that's why I say we've shifted away from capitalism to a financial mercantilism. A lot of European and Asian hot money that was in these institutions was paid fully, way above the limit. Why? Because of the theory that you couldn't lose these investors. You couldn't lose all these people moving money around. They weren't little guys. They weren't Americans. They were big financial movers. And when we got to the peso bail out, something else that hadn't been done before. If Americans took a bath in a foreign currency in previous situations, they were not bailed out. This time they were. Just part of the same process. Finance can't fail. People with corner hardware stores can fail. That is part of the mercantilism that's kept this whole thing going.

Q: Is that a description of political corruption? Or is that a description of a new world in which capital flows much more easily about the world?

Phillips: Oh, I think it's a description of both. You can fairly say that capital flows more easily, although in the days of the Dutch financiers of the early 18th century, Braudel and others have written about how that flowed almost as easily. And it certainly did in other times, too. But the mass is enormous. But what has made it so effective is that the whole structure of influence in Washington has moved more and more away from things like aluminum companies and labor unions, to people in financial services. And the money that pours in is enormous. And it's terrific to be able to have a fund raiser from Merrill Lynch or Goldman Sachs or Bear Stearns that turns in $400,000 when you've got a rough political situation. Nobody wants to cross them. We now have a Secretary of the Treasury who's the former co-chairman of Goldman Sachs. He was an arbitrator during the 1980's. This element in Wall Street and finance have more political power at this point in the United States than they had in the 20's or in the 1890's.

Q: Really?

Phillips: Absolutely.

Q: You think the guys who ran railroads and who sent ships all over the world in the 1890's, or the guys who were building automobile companies and giant manufacturing operations in the 1920's had less political influence than today's financiers?

Phillips: I said these guys, which is to say the financiers. The people who had influence during the periods of the industrial revolution were essentially the people who owned the big plants and railroads and industries. What's happened now is that the power shifted to finance, and the people in the real economy have less, because the powerful economy is the financial economy.

Q: That's a shift in cast. Is that a shift in magnitude? Are you more suspicious of the relationship between today's financiers and today's politicians than you were in retrospect, or that one would be in retrospect of the arrangements of the 1920's or the 1890's?

Phillips: Absolutely. I think you could fairly say that we'd be more suspicious of the relations between steel company owners and railroad owners, back 50 or 100 years ago. But you should be more suspicious of financiers today.

Q: Why?

Phillips: Well, because the change in finance from electronic finance is staggering. The extent to which you have these computers playing search and destroy in the world economy, figuring out what to short here, what to hedge there, is just absolutely unprecedented.

Q: But they don't need a president or a senator to make that. They're sitting there at those computers that are thinking, buy francs, buy pounds, sell this, sell that. And they never lift a phone and say, 'Senator, can I have your help?' It's too fast. It seems to me that politics is too slow for what they do.

Phillips: Well, they don't have to lift it on the contract, obviously. What they lift the phone for is to say, 'You guys don't want to regulate this, do you? We don't want to have a futures commission. We don't want to do anything to Bankers Trust. Remember that great dinner we had, Charlie, and all the fellowship?' You know, we really don't want anything to interfere with us. And nothing has.

Q: How many of these people, these financial people, are there? In Washington, are they represented by a dozen people? Or 1000 or what?

Phillips: Oh, they're represented by the best minds money can buy. Essentially what you've got here is an extraordinary buildup of power. There are magazines that publish the most successful 50 people or something in the financial community. It used to be that somebody making $6 million a year would be at the top. And then you'd go down to somebody making 1.1, and this is 20 years ago. Now it starts with people making $450 million in that year, because their hedge fund was making a lot of money, and the poor people at the bottom of the list was somebody that cleared like $31 million. So you're looking at staggering sums of money. And the ability to hire every law firm, every public relations firm...Every political consultant in Washington has got a client that is somewhere in this stew pot.

Q: And there's more leverage there than was available to the Carnegies and the Mellons and the Belmonts and Mrs. Astor's crowd 100 years ago.

Phillips: Well, in that period, government didn't do very much, so it wasn't necessary to stop the government from regulating it. It was necessary to have the government give you a sweetheart deal on railroads, or some kind of arrangement for a steamship subsidy, or a tariff on steel. But it wasn't necessary to have the government do all these little things that would change things, because it did not have a large role at that point. Now, the influence of people in the industries of that era, railroads or steel, was enormous. And of course, a whole movement grew up in American politics, the populist and progressive movement, to do something about it. And they did it. And what I'm saying here is that we have at least comparable power. And it's high time that it was recognized, and that politics wrapped around, bringing these people to heel.

Q: Let's talk about that. They used to be called `Goo Goos' I think, good government types. Can reformers say, 'Let's change the rules. I see money. So I'm going to build some kind of fence, and I'll channel it, stop it, prevent it from corrupting the system.' Does that ever work?

Phillips: Well, I don't think it does too often, when you take it as a 'reformer' type approach and issue. I'm not somebody who believes that people who are reformers, who sit around hair splitting and working up schemes to make things abstractly better usually get very far. But what we've got is something that's happened before. You've got a financial political structure that's sort of out of control. People are extremely angry. They see that they've lost control of this part of the country. And you can take somebody like Ross Perot. His great strength is, he's not a reformer. Nobody thinks of Ross Perot as a reformer. He's a mad little guy with $3 billion, and he's going to come in like a national Roto Rooter man. And that's not reform. That's good old American populism. Even from a guy with $3 billion. His words were, 'I can afford to buy the country back for you. So I'm going to do it.'

Q: Sometimes you get the feeling that money is like water. It just inevitably gets to where it's going to go. Has there been a time, or a guy, or a law that has actually channeled and solved the problem for a while?

Phillips: Well, I think the answer to that is yes. Sometimes when there's a drought, water can't get where it usually went. And if you know how to divert rivers, you can obviously change the fertility of land. So there are ways to do this. Politically, Franklin D. Roosevelt figured how to divert a few rivers, and the people who had been calling the shots in the 1920's weren't calling them worth beans in 1934 and `35. So yes, you can do it.

Q: So you are confident that by some means or other, you can affect the day to day arrangement between people of wealth and politicians. It can be changed.

Phillips: Yes, it can be changed. But it's obviously a very tricky thing to do, because we're at a stage now where every possible effort is going to be made to keep the status quo, to do nothing that would interfere with profits or the stock market or all the arrangements of finance in which they have these trillions of paper dollars, electronic dollars spinning around the world. And unfortunately, you have to do something about it at a certain point. And the people will point out the perils of that. And I expect that to be a huge debate.

Q: So when you see two senior politicians, like the President of the United States and the Speaker of the House in New Hampshire, shaking hands and saying, 'Let's fix it, OK.' When you watch that moment, what do you think?

Phillips: Well, frankly what I thought we saw was a used car salesman meeting an ambulance chaser and saying, 'We're going to change everything that we've made so much money out of. And you're suitably empowered to laugh.'

Q: So, if not them, who?

Phillips: Well, somebody elected in their place, which I realize is something you can't think of right at the moment, but one of the great remedies in American history has been politics that gets rid of these people who have been part of a system that doesn't do anything. And then I think the great hope of the system is that at some point those hands will reach out, and they will take people like Bill Clinton and Newt Gingrich and send them back to where they came from.

Q: If you were Al Smith, and you were running for President in 1928, how did you go about raising money, and how much time did it take?

Phillips: Well, one of the things the Democrats faced at that point, one of the reasons they weren't as credible in terms of doing anything about the 1920's is Al Smith's campaign was largely funded by big money. His finance chairman was a fellow connected with the duPonts and General Motors. And Al Smith in the 1930's wound up opposing Franklin D. Roosevelt's economic policy because it was socialist. So the notion that the Democrats were any different in 1928 than the Republicans is exactly part of the problem as to why the whole system went off the track. They were not.

Q: So, widening the circle, if it were Coolidge, or any of the 20's guys, Coolidge, Hoover, Smith, did they sit at the phone Monday mornings and then call rich people and get checks for two hours every day, Monday through Friday?

Phillips: Well, they didn't need to. The Republican and Democratic National Committees were almost unregulated by law at that point, and they could go around and hustle money, and they did it left and right.

Q: You mean that they'd just go to their friends, the man at the bank, the man at the railroad, the man at the steel company, and say, 'I want $10,000?'

Phillips: Well, the party committees didn't amount to too much. So they didn't need enormous funding during a non-election period. You didn't have a staff of 400 or 500 people. What would happen is that in a serious presidential campaign, they would sort of get together, and they'd figure out how much money was necessary, and then it would be raised out of the cabal. Now, the cabal in the Republican Party was almost entirely Northern, and it's possible to name the industries. With the Democratic Party, you'd be looking more at Southern and Western states. I'm sure cotton, oil. Lyndon Johnson got a lot of money from oil. But he got on the phone from time to time.

Q: So what you'd do is you'd look at the industries and the regions that were on your side, and you'd call up Mr. Rich, Mr. Second Rich, Mr. Third Rich, Mr. Fourth Rich, Mr. Fifth Rich, Mr. Sixth Rich, Mr. Seventh Rich and get your 50 grand or whatever you'd need?

Phillips: No, you'd probably call up Mr. Fourteenth Rich, who was the bag man and called the others for you. I mean, if you were talking about the steel industry or coal or railroad.

Q: Is there any limit, by the way? Could I give $100 or $1000 or $1 million? Does it matter?

Phillips: Unless there was a state law, it wasn't regulated federally. But I'm sure there were state laws in some cases. But I can't really answer that with any more detail.

Q: So, in general, at least as far as the federal government was concerned, it was, you know, whatever you got, you got. And whatever you want to give, you give, with some state amendments here and there.

Phillips: Well, basically, the federal government wasn't regulating in that area. The regulation of elections is pretty much a matter for the states, unless there's an override in Washington legislation. And at that point, Washington wasn't overriding. So that I don't think that there would be federal inhibitions. But I'm not an election lawyer, so I can't give you a categorical legal statement on this.

Q: Jack Kennedy and Hubert Humphrey and Kefauver and Stevenson, in their era, were they doing pretty much the same thing?

Phillips: No. In Kennedy's case, he just called his father, and his father sent in a bag of money.

Q: Well, we still have a few of those. But otherwise, if it's Hubert Humphrey, what did he do?

Phillips: He cried about Kennedy's father sending him all the money, which his father didn't have.

Q: How about Dick Nixon?

Phillips: Well, Nixon cried about not having money. And then he figured out ways to get it. Nixon did fund raise. And when we look back on the amounts of money involved in this little fund that he had that was such a big focal point in 1952, it was like $15-- or $16,000 put together, I think generally, to pay the expenses of flying back and forth to California. And something like that is such total chicken feed today, and frankly would have been in the 1890's too, that you have to wonder about it. But one thing I have to say for the New Deal is it created a new context of making money suspect. And Roosevelt and Truman ran against the rich often enough that it was no longer seen as something you just laughed about, that you had this money. Daniel Webster, in the middle of the 19th century complained that the bank that hired him to represent them, while he was a senator, was late in sending his check. In the British Parliament, members of the House of Commons are free to lobby, even now. So we're looking at cultures that can be very permissive on this.

Q: Daniel Webster was a sitting senator?

Phillips: Yes.

Q: And he gets checks from a bank? For what? For lobbying?

Phillips: Well, he didn't have to lobby, because it's people who lobby senators and congressmen who are lobbyists. If a senator is bought directly, I assume there's a better word. But since there was no statute, there was no better word.

Q: So he stands up in a public place and says, 'Hey, I'm bought, but they haven't paid me?'

Phillips: No, I'm sure it was a private comment that his check was late. I don't think he stood up in the Senate and announced, 'I am not going to do something for the Bank of New Hampshire because they're in arrears.'

Q: What changes these moods? You said the New Deal makes big money suspect. Has the mood changed back again?

Phillips: The New Deal made big money suspect because big money made itself suspect. Generally speaking, what happens in these go-go eras is that they go too far. They build up speculative bubbles. They invest in all kinds of flim flam, and somehow it starts coming to crash. And of course, in 1929, it did. The stock market lost 80% of its value between 1929 and 1932. So they were suspect in the eyes of the people when Franklin Roosevelt was inaugurated. And he pursued that, because he basically had the sense that all kinds of arrangements that had made this possible back in the 1920's had to be permanently changed. And it created a psychology that wealth was something to apologize for in some respects, because it had been so abused. And that lasted through the 50's, I think, and then it was lost in the 1960's when everybody had forgotten the Depression enough so that there were all [these] bubbles in Wall Street, and the conglomerate movement and go-go stocks and game playing and tax breaks. So then we started the long cycle back.

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