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September 18, 2014

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The Twinkie manifesto

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The Twinkie, it turns out, was introduced way back in 1930. In our memories, however, the iconic snack will forever be identified with the 1950s, when Hostess popularized the brand by sponsoring “The Howdy Doody Show.” And the apparent demise of Hostess has unleashed a wave of Baby Boomer nostalgia for a seemingly more innocent time.

Needless to say, it wasn’t really innocent. But the ’50s — the Twinkie Era — do offer lessons that remain relevant in the 21st century. Above all, the success of the postwar American economy demonstrates that, contrary to today’s conservative orthodoxy, you can have prosperity without demeaning workers and coddling the rich.

Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with producing a plan to curb deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle.”

Yet in the 1950s, incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960, the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.

Nor were high taxes the only burden wealthy businessmen had to bear. They also faced a labor force with a degree of bargaining power hard to imagine today. In 1955, roughly a third of American workers were union members. In the biggest companies, management and labor bargained as equals, so much so that it was common to talk about corporations serving an array of “stakeholders” as opposed to merely serving stockholders.

Squeezed between high taxes and empowered workers, executives were relatively impoverished by the standards of either earlier or later generations. In 1955, Fortune magazine published an essay, “How top executives live,” which emphasized how modest their lifestyles had become compared with days of yore. The vast mansions, armies of servants and huge yachts of the 1920s were no more; by 1955, the typical executive, Fortune claimed, lived in a smallish suburban house, relied on part-time help and skippered his own relatively small boat.

The data confirm Fortune’s impressions. Between the 1920s and the 1950s, real incomes for the richest Americans fell sharply, not just compared with the middle class but in absolute terms. According to estimates by the economists Thomas Piketty and Emmanuel Saez, the 1955 real incomes of the top 0.01 percent of Americans were less than half what they had been in the late 1920s, and their share of total income was down by three-quarters.

Today, of course, the mansions, armies of servants and yachts are back, bigger than ever — and any hint of policies that might crimp plutocrats’ style is met with cries of “socialism.” Indeed, the whole Romney campaign was based on the premise that President Barack Obama’s threat to modestly raise taxes on top incomes, plus his temerity in suggesting that some bankers had behaved badly, were crippling the economy.

Surely, then, the far less plutocrat-friendly environment of the 1950s must have been an economic disaster, right?

Actually, some people thought so at the time. Paul Ryan and many other modern conservatives are devotees of Ayn Rand. Well, the collapsing, moocher-infested nation she portrayed in “Atlas Shrugged,” published in 1957, was basically Dwight Eisenhower’s America.

Strange to say, however, the oppressed executives Fortune portrayed in 1955 didn’t go Galt and deprive the nation of their talents. On the contrary, if Fortune is to be believed, they were working harder than ever. And the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: Nothing before or since has matched the doubling of median family income between 1947 and 1973.

Which brings us back to the nostalgia thing.

There are, let’s face it, some people in our political life who pine for the days when minorities and women knew their place, gays stayed firmly in the closet and congressmen asked, “Are you now or have you ever been?” The rest of us, however, are very glad those days are gone. We are, morally, a much better nation than we were. Oh, and the food has improved a lot, too.

Along the way, however, we’ve forgotten something important — namely, that economic justice and economic growth aren’t incompatible. America in the 1950s made the rich pay their fair share; it gave workers the power to bargain for decent wages and benefits; yet contrary to right-wing propaganda then and now, it prospered. And we can do that again.

Paul Krugman is a columnist for The New York Times.

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  1. Krugman you should have stuck with the twinkies. You forget the early 50's were hard times for Americans and we experienced a recession during the first term of the Ike years of presidency. Think high taxes had something to do with it?
    CarmineD

  2. I suggest that the key to an environment of stability, harmony and trust, is restoring lost democratic principles. The battle between the workplace and the workforce has always been amongst the world, hence will always be. History reveals even tragic losses for both from such and maintenance of democratic principles is the only recognized tool to stop the warring.

  3. "Hostess To Pay $1.75 Million In Executive Bonuses After Blaming Unions For Bankruptcy"

    CNN Money reports: Hostess Brands will ask a bankruptcy judge on Monday for approval to shut down the company and pay $1.75 million in executive bonuses.

    Under the plan, bonuses ranging from $7,400 to $130,500 will be paid to 19 executives. The company argues the bonuses are below market rates for such payments.

    Hostess already gave its executives pay raises earlier this year. The salary of the company's chief executive tripled from $750,000 to roughly $2.5 million, and at least nine other executives received pay raises ranging from $90,000 to $400,000. Those raises came just months after Hostess originally filed for bankruptcy earlier this year.
    -TP Home

    Under bankruptcy, the near 18,500 Hostess workers will lose their job and pensions with the company. The company said it would terminate its pension and 2,300 Hostess Union employees.

    In Hostess Brands Jan. 2012 bankruptcy filing, the biggest unsecured creditor was The Confectionery Union & Industry International Pension Fund, a unionized employee plan with a near $944 million pension claim. (part from The Street)

    The taxpayer pays this through the Pension Benefit Guaranty Corporation which secures the retirement of roughly 43 million U.S. workers. The PBGC is now a record $34 billion in debt.

    Private Equity companies that buy up the remains of Hostess will not acquire any pension debt.

    The Twinkie manifesto shows that executives can walk away from a company which they took into bankruptcy making several times more cash in the last year than most people can save in a lifetime.

    The taxpayer again gets the bill from "Our Job Creators" who next need step is to find a tax break to further increase the bottom line. Maybe in the Cayman Islands?