DRI-259 for week of 2-2-14: Kristallnacht for the Rich: Not Far-Fetched

An Access Advertising EconBrief:

Kristallnacht for the Rich: Not Far-Fetched

Periodically, the intellectual class aptly termed “the commentariat” by The Wall Street Journal works itself into frenzy. The issue may be a world event, a policy proposal or something somebody wrote or said. The latest cause célèbre is a submission to the Journal’s letters column by a partner in one of the nation’s leading venture-capital firms. The letter ignited a firestorm; the editors subsequently declared that Tom Perkins of Kleiner Perkins Caulfield & Byers “may have written the most-read letter to the editor in the history of The Wall Street Journal.”

What could have inspired the famously reserved editors to break into temporal superlatives? The letter’s rhetoric was both penetrating and provocative. It called up an episode in the 20th century’s most infamous political regime. And the response it triggered was rabid.

“Progressive Kristallnacht Coming?”

“…I would call attention to the parallels of fascist Nazi Germany to its war on its “one percent,” namely its Jews, to the progressive war on the American one percent, namely “the rich.” With this ice breaker, Tom Perkins made himself a rhetorical target for most of the nation’s commentators. Even those who agreed with his thesis felt that Perkins had no business using the Nazis in an analogy. The Wall Street Journal editors said “the comparison was unfortunate, albeit provocative.” They recommended reserving Nazis only for rarefied comparisons to tyrants like Stalin.

On the political Left, the reaction was less measured. The Anti-Defamation League accused Perkins of insensitivity. Bloomberg View characterized his letter as an “unhinged Nazi rant.”

No, this bore no traces of an irrational diatribe. Perkins had a thesis in mind when he drew an analogy between Nazism and Progressivism. “From the Occupy movement to the demonization of the rich, I perceive a rising tide of hatred of the successful one percent.” Perkins cited the abuse heaped on workers traveling Google buses from the cities to the California peninsula. Their high wages allowed them to bid up real-estate prices, thereby earning the resentment of the Left. Perkins’ ex-wife Danielle Steele placed herself in the crosshairs of the class warriors by amassing a fortune writing popular novels. Millions of dollars in charitable contributions did not spare her from criticism for belonging to the one percent.

“This is a very dangerous drift in our American thinking,” Perkins concluded. “Kristallnacht was unthinkable in 1930; is its descendant ‘progressive’ radicalism unthinkable now?” Perkins point is unmistakable; his letter is a cautionary warning, not a comparison of two actual societies. History doesn’t repeat itself, but it does rhyme. Kristallnacht and Nazi Germany belong to history. If we don’t mend our ways, something similar and unpleasant may lie in our future.

A Short Refresher Course in Early Nazi Persecution of the Jews

Since the current debate revolves around the analogy between Nazism and Progressivism, we should refresh our memories about Kristallnacht. The name itself translates loosely into “Night of Broken Glass.” It refers to the shards of broken window glass littering the streets of cities in Germany and Austria on the night and morning of November 9-10, 1938. The windows belonged to houses, hospitals, schools and businesses owned and operated by Jews. These buildings were first looted, then smashed by elements of the German paramilitary SA (the Brownshirts) and SS (security police), led by the Gauleiters (regional leaders).

In 1933, Adolf Hitler was elevated to the German chancellorship after the Nazi Party won a plurality of votes in the national election. Almost immediately, laws placing Jews at a disadvantage were passed and enforced throughout Germany. The laws were the official expression of the philosophy of German anti-Semitism that dated back to the 1870s, the time when German socialism began evolving from the authoritarian roots of Otto von Bismarck’s rule. Nazi officialdom awaited a pretext on which to crack down on Germany’s sizable Jewish population.

The pretext was provided by the assassination of German official Ernst vom Rath on Nov. 7, 1938 by a 17-year-old German boy named Herschel Grynszpan. The boy was apparently upset by German policies expelling his parents from the country. Ironically, vom Rath’s sentiments were anti-Nazi and opposed to the persecution of Jews. Von Rath’s death on Nov. 9 was the signal for release of Nazi paramilitary forces on a reign of terror and abduction against German and Austrian Jews. Police were instructed to stand by and not interfere with the SA and SS as long as only Jews were targeted.

According to official reports, 91 deaths were attributed directly to Kristallnacht. Some 30,000 Jews were spirited off to jails and concentration camps, where they were treated brutally before finally winning release some three months later. In the interim, though, some 2-2,500 Jews died in the camps. Over 7,000 Jewish-owned or operated businesses were damaged. Over 1,000 synagogues in Germany and Austria were burned.

The purpose of Kristallnacht was not only wanton destruction. The assets and property of Jews were seized to enhance the wealth of the paramilitary groups.

Today we regard Kristallnacht as the opening round of Hitler’s Final Solution – the policy that produced the Holocaust. This strategic primacy is doubtless why Tom Perkins invoked it. Yet this furious controversy will just fade away, merely another media preoccupation du jour, unless we retain its enduring significance. Obviously, Tom Perkins was not saying that the Progressive Left’s treatment of the rich is now comparable to Nazi Germany’s treatment of the Jews. The Left is not interning the rich in concentration camps. It is not seizing the assets of the rich outright – at least not on a wholesale basis, anyway. It is not reducing the homes and businesses of the rich to rubble – not here in the U.S., anyway. It is not passing laws to discriminate systematically against the rich – at least, not against the rich as a class.

Tom Perkins was issuing a cautionary warning against the demonization of wealth and success. This is a political strategy closely associated with the philosophy of anti-Semitism; that is why his invocation of Kristallnacht is apropos.

The Rise of Modern Anti-Semitism

Despite the politically correct horror expressed by the Anti-Defamation Society toward Tom Perkins’ letter, reaction to it among Jews has not been uniformly hostile. Ruth Wisse, professor of Yiddish and comparative literature at HarvardUniversity, wrote an op-ed for The Wall Street Journal (02/04/2014) defending Perkins.

Wisse traced the modern philosophy of anti-Semitism to the philosopher Wilhelm Marr, whose heyday was the 1870s. Marr “charged Jews with using their skills ‘to conquer Germany from within.’ Marr was careful to distinguish his philosophy of anti-Semitism from prior philosophies of anti-Judaism. Jews “were taking unfair advantage of the emerging democratic order in Europe with its promise of individual rights and open competition in order to dominate the fields of finance, culture and social ideas.”

Wisse declared that “anti-Semitism channel[ed] grievance and blame against highly visible beneficiaries of freedom and opportunity.” “Are you unemployed? The Jews have your jobs. Is your family mired in poverty? The Rothschilds have your money. Do you feel more secure in the city than you did on the land? The Jews are trapping you in the factories and charging you exorbitant rents.”

The Jews were undermining Christianity. They were subtly perverting the legal system. They were overrunning the arts and monopolizing the press. They spread Communism, yet practiced rapacious capitalism!

This modern German philosophy of anti-Semitism long predated Nazism. It accompanied the growth of the German welfare state and German socialism. The authoritarian political roots of Nazism took hold under Otto von Bismarck’s conservative socialism, and so did Nazism’s anti-Semitic cultural roots as well. The anti-Semitic conspiracy theories ascribing Germany’s every ill to the Jews were not the invention of Hitler, but of Wilhelm Marr over half a century before Hitler took power.

The Link Between the Nazis and the Progressives: the War on Success

As Wisse notes, the key difference between modern anti-Semitism and its ancestor – what Wilhelm Marr called “anti-Judaism” – is that the latter abhorred the religion of the Jews while the former resented the disproportionate success enjoyed by Jews much more than their religious observances. The modern anti-Semitic conspiracy theorist pointed darkly to the predominance of Jews in high finance, in the press, in the arts and running movie studios and asked rhetorically: How do we account for the coincidence of our poverty and their wealth, if not through the medium of conspiracy and malefaction? The case against the Jews is portrayed as prima facie and morphs into per se through repetition.

Today, the Progressive Left operates in exactly the same way. “Corporation” is a pejorative. “Wall Street” is the antonym of “Main Street.” The very presence of wealth and high income is itself damning; “inequality” is the reigning evil and is tacitly assigned a pecuniary connotation. Of course, this tactic runs counter to the longtime left-wing insistence that capitalism is inherently evil because it forces us to adopt a materialistic perspective. Indeed, environmentalism embraces anti-materialism to this day while continuing to bunk in with its progressive bedfellows.

We must interrupt with an ironic correction. Economists – according to conventional thinking the high priests of materialism – know that it is human happiness and not pecuniary gain that is the ultimate desideratum. Yet the constant carping about “inequality” looks no further than money income in its supposed solicitude for our well-being. Thus, the “income-inequality” progressives – seemingly obsessed with economics and materialism – are really anti-economic. Economists, supposedly green-eyeshade devotees of numbers and models, are the ones focusing on human happiness rather than ideological goals.

German socialism metamorphosed into fascism. American Progressivism is morphing from liberalism to socialism and – ever more clearly – honing in on its own version of fascism. Both employed the technique of demonization and conspiracy to transform the mutual benefit of free voluntary exchange into the zero-sum result of plunder and theft. How else could productive effort be made to seem fruitless? How else could success be made over into failure? This is the cautionary warning Perkins was sounding.

The Great Exemplar

The great Cassandra of political economy was F.A. Hayek. Early in 1929, he predicted that Federal Reserve policies earlier in the decade would soon bear poisoned fruit in the form of a reduction in economic activity. (His mentor, Ludwig von Mises, was even more emphatic, foreseeing “a great crash” and refusing a prestigious financial post for fear of association with the coming disaster.) He predicted that the Soviet economy would fail owing to lack of a functional price system; in particular, missing capital markets and interest rates. He predicted that Keynesian policies begun in the 1950s would culminate in accelerating inflation. All these came true, some of them within months and some after a lapse of years.

Hayek’s greatest prediction was really a cautionary warning, in the same vein as Tom Perkins’ letter but much more detailed. The 1945 book The Road to Serfdom made the case that centralized economic planning could operate only at the cost of the free institutions that distinguished democratic capitalism. Socialism was really another form of totalitarianism.

The reaction to Hayek’s book was much the same as reaction to Perkins’ letter. Many commentators who should have known better have accused both of them of fascism. They also accused both men of describing a current state of affairs when both were really trying to avoida dystopia.

The flak Hayek took was especially ironic because his book actually served to prevent the outcome he feared. But instead of winning the acclaim of millions, this earned him the scorn of intellectuals. The intelligentsia insisted that Hayek predicted the inevitable succession of totalitarianism after the imposition of a welfare state. When welfare states in Great Britain, Scandinavia, and South America failed to produce barbed wire, concentration camps and German Shepherd dogs, the Left advertised this as proof of Hayek’s “exaggerations” and “paranoia.”

In actual fact, Great Britain underwent many of the changes Hayek had feared and warned against. The notorious “Rules of Engagements,” for instance, were an attempt by a Labor government to centrally control the English labor market – to specify an individual’s work and wage rather than allowing free choice in an impersonal market to do the job. The attempt failed just a dismally as Hayek and other free-market economists had foreseen it would. In the 1980s, it was Hayek’s arguments, wielded by Prime Minister Margaret Thatcher, which paved the way for the rolling back of British socialism and the taming of inflation. It’s bizarre to charge the prophet of doom with inaccuracy when his prophecy is the savior, but that’s what the Left did to Hayek.

Now they are working the same familiar con on Tom Perkins. They begin by misconstruing the nature of his argument. Later, if his warnings are successful, they will use that against him by claiming that his “predictions” were false.

Enriching Perkins’ Argument

This is not to say that Perkins’ argument is perfect. He has instinctively fingered the source of the threat to our liberties. Perkins himself may be rich, but argument isn’t; it is threadbare and skeletal. It could use some enriching.

The war on the wealthy has been raging for decades. The opening battle is lost to history, but we can recall some early skirmishes and some epic brawls prior to Perkins.

In Europe, the war on wealth used anti-Semitism as its spearhead. In the U.S., however, the popularity of Progressives in academia and government made antitrust policy a more convenient wedge for their populist initiatives against success. Antitrust policy was a crown jewel of the Progressive movement in the early 1900s; Presidents Theodore Roosevelt and William Howard Taft cultivated reputations as “trust busters.”

The history of antitrust policy exhibits two pronounced tendencies: the use of the laws to restrict competition for the benefit of incumbent competitors and the use of the laws by the government to punish successful companies for various political reasons. The sobering research of Dominick Armentano shows that antitrust policy has consistently harmed consumer welfare and economic efficiency. The early antitrust prosecution of Standard Oil, for example, broke up a company that had consistently increased its output and lowered prices to consumers over long time spans. The Orwellian rhetoric accompanying the judgment against ALCOA in the 1940s reinforces the notion that punishment, not efficiency or consumer welfare, was behind the judgment. The famous prosecutions of IBM and AT&T in the 1970s and 80s each spawned book-length investigations showing the perversity of the government’s claims. More recently, Microsoft became the latest successful firm to reap the government’s wrath for having the temerity to revolutionize industry and reward consumers throughout the world.

The rise of the regulatory state in the 1970s gave agencies and federal prosecutors nearly unlimited, unsupervised power to work their will on the public. Progressive ideology combined with self-interest to create a powerful engine for the demonization of success. Prosecutors could not only pursue their personal agenda but also climb the career ladder by making high-profile cases against celebrities. The prosecution of Michael Milken of Drexel Burnham Lambert is a classic case of persecution in the guise of prosecution. Milken virtually created the junk-bonk market, thereby originating an asset class that has enhanced the wealth of investors by untold billions or trillions of dollars. For his pains, Milken was sent to jail.

Martha Stewart is a high-profile celebrity who was, in effect, convicted of the crime of being famous. She was charged and convicted of lying to police about a case in which the only crime could have been the offense of insider-trading. But she was the trader and she was not charged with insider-trading. The utter triviality and absence of any damage to consumers or society at large make it clear that she was targeted because of her celebrity; e.g., her success.

Today, the impetus for pursuing successful individuals and companies today comes primarily from the federal level. Harvey Silverglate (author of Three Felonies Per Day) has shown that virtually nobody is safe from the depredations of prosecutors out to advance their careers by racking up convictions at the expense of justice.

Government is the institution charged with making and enforcing law, yet government has now become the chief threat to law. At the state and local level, governments hand out special favors and tax benefits to favored recipients – typically those unable to attain success on their own efforts – while making up the revenue from the earned income of taxpayers at large. At the federal level, Congress fails in its fundamental duty and ignores the law by refusing to pass budgets. The President appoints czars to make regulatory law, while choosing at discretion to obey the provisions of some laws and disregard others. In this, he fails his fundamental executive duty to execute the laws faithfully. Judges treat the Constitution as a backdrop for the expression of their own views rather than as a subject for textual fidelity. All parties interpret the Constitution to suit their own convenience. The overarching irony here is that the least successful institution in America has united in a common purpose against the successful achievers in society.

The most recent Presidential campaign was conducted largely as a jihad against the rich and successful in business. Mitt Romney was forced to defend himself against the charge of succeeding too well in his chosen profession, as well as the corollary accusation that his success came at the expense of the companies and workers in which his private-equity firm invested. Either his success was undeserved or it was really failure. There was no escape from the double bind against which he struggled.

It is clear, than, that the “progressivism” decried by Tom Perkins dates back over a century and that it has waged a war on wealth and success from the outset. The tide of battle has flowed – during the rampage of the Bull Moose, the Depression and New Deal and the recent Great Recession and financial crisis – and ebbed – under Eisenhower and Reagan. Now the forces of freedom have their backs to the sea.

It is this much-richer context that forms the backdrop for Tom Perkins’ warning. Viewed in this panoramic light, Perkins’ letter looks more and more like the battle cry of a counter-revolution than the crazed rant of an isolated one-percenter.

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