01 Jun 2008

You Only Thought You Were Republican

Re: Steve Schwarzman (MBA 1972); Joe Perella (MBA 1972)
by Andrew Tobias


So there I am moderating last fall’s 35th Reunion panel, “Two Steves and a Joe,” with classmates Steve Schwarzman (estimated net worth, $15 billion), Joe Perella (estimated net worth, $20 billion), and Steve Gilbert (estimated net worth even higher, in undisclosed currencies) — which are not really their net worths, but that’s how I feel sitting there amongst them, technically “the moderator,” but truly “the rounding error.”

I am doing this partly to learn stuff from them myself — these are three smart, smart guys, whose opinions on the state of the world are noteworthy — but mainly because I am hoping to get each of them, and all those in front of us in Aldrich 112, to give me $28,500 for the Democratic National Committee, by whom I have for the last nine years been paid $1 a year to serve as treasurer.

And I am doing that because — as I will argue on this page — we HBS alums are by now almost all Democrats. (Moderate Dems to be sure, but Democrats.) Some of us (very possibly you, dear reader) just don’t know it.

Your political views are . . . here . . . about where Mike Bloomberg’s are, say, or Nelson Rockefeller’s were. No? And they have stayed here (the sensible, enlightened, capitalist center) in a consistent, principled way.

What’s happened since my classmates and I left HBS in 1972 is that the political landscape has shifted dramatically to the right.

We Democrats have come to you. You were right all along. From being a left-wing-dominated party, we have become a centrist-dominated party.

OK, maybe we remain one or two clicks to the left of you, but still pretty darn close. (And, yes, a lot of us agree the teachers’ unions have too strong a grip.)

Meanwhile, the once-moderate centrist Republican Party has shifted to the right edge of the scale, ten clicks to your right.

You think of yourself as fairly liberal socially — so you can understand why your daughter doesn’t want the government to step into her most private and agonizing medical decisions, or why it might not have been appropriate for Congress to drop everything and come back to interfere in the Terri Schiavo case. Like a wide majority of Americans, you think it’s nuts to be firing Arabic translators and fighter pilots just because they’re gay. You’re perhaps even a little uncomfortable that yours is the party that’s worked so hard to stand up for the tobacco companies; that’s impeded stem cell research; that’s opposed the assault weapons ban (you hunt, but not with a machine gun) and that fights to keep the gun-show loophole open.

No, you don’t oppose the teaching of evolution; you’re a Republican on practical economic grounds. You want a strong economy, a strong country, and, if you’re anything like me, a strong stock market.

Well, note first that stocks do better under Democratic administrations than Republican. (“You can look it up,” as they say.)

But note second that since 1776, we have racked up a cumulative deficit — the national debt — of nearly $10 trillion . . . and fully three-quarters of that was racked up under just 3 of our 43 presidents: Reagan, Bush, and Bush.

We all realize that some level of national debt is fine — if it’s being accumulated to invest in the future, and if it is not growing, on a sustained basis, faster than the economy as a whole. But when Reagan took office, the debt equaled 30 percent of our GDP versus 60 percent today. This despite Clinton/Gore leaving us with (in Bush’s words) “surpluses as far as the eye can see” and despite the Democrats’ imposition of “pay-as-you-go” budgeting in Congress, which the Republicans swept aside and the Dems, now back in control, have reinstated.

Add in all the Republican administrations, not just the last three, and their proportion of the national debt rises to 85 percent.

Which would be fine if they had been borrowing to keep us strong for the next century. But instead, our bridges grow increasingly precarious, we lag much of the world in the speed and penetration of our broadband and in the math and science proficiency of our high schoolers . . . and on and on.

And the annual interest — just the interest — on this mostly Republican $10 trillion debt, up from slightly less than $1 trillion when Reagan took office, is equivalent to about 40 percent of all the personal income taxes Americans pay each year.

Imagine what would happen if the market ever demanded a higher rate to lend us money.

This is some fiscal box we’ve been put in.

You and I, of course, or surely the two Steves and a Joe, are doing just fine. Indeed, much of our mountainous debt was incurred not when Kennedy lowered the top marginal tax rate from 90 percent to (a still crazy) 70 percent, but when Reagan overshot and lowered your rate and mine all the way to 28 percent. (Things began to right themselves when Clinton put it back up to 39.6 percent.) And then again when George W. Bush cut our long-term gains rate by a quarter and the tax rate on our dividends by nearly two-thirds. “By far the vast majority” of the benefits of these cuts would go “to people at the bottom end of the economic ladder,” he assured voters. And yet, of course, CEOs — let alone hedge fund managers — now routinely pay a lower proportion of their income in federal tax than their receptionists do — which is one more reason enlightened capitalists like Warren Buffett, a hero to many of us, support the Democratic Party. (Warren did two fundraisers for Hillary, two for Barack, one for the Democratic Senatorial Campaign Committee, and, I am ever so pleased to say, one for the DNC.)

How are your employees doing? And what sort of health care will they enjoy if you need to downsize and lay some of them off?

I know you. You care about these things. It concerns you that the gap between upper-class Americans and everyone else has grown so gapingly wide. I know none of us considers him- or herself “upper class,” and that most of the gated communities or condos we live in need not yet be protected by armed guards — but whom are we kidding? When CEOs make 500 times what their employees make, there is an upper class.

This isn’t to say all taxation is good. It’s not — and Democrats know that. (But the economy was sure in better balance at the Clinton/Gore rates than at the Reagan/Bush rates.) This isn’t to say all regulation is good. It’s not — and Democrats know that, too. (But the housing bubble, with all the pain it will entail, would surely have been less extreme if sensible regulation had prevented “liars’ loans” and so many other crazy practices.)

What’s needed is a progressive, centrist, market-oriented, solutions-driven politics — much like your own. A politics of “opportunity, responsibility, and community” (as we Democrats like to say). A politics that respects religion but wants to keep church separate from state. A politics that respects inheritance — but that respects merit even more. Which is why we oppose cutting the estate tax rate to zero (though favor a sensible inflation-adjusted, multimillion dollar exemption) and why we fight to increase college scholarships and lower student-loan interest rates (measures routinely opposed by our friends across the aisle).

So here we are, members of an alumni/alumnae community that helped build “the American Century,” wondering whether historians may not say it ended almost eerily on time, with the dawn of the new century . . . and wondering, more to the point, what we might do to have them say that, after a very rocky start to the 21st century, on the heels of a most auspicious end to the 20th, we HBS alums helped to get America back onto a hopeful, progressive track, once again beacon to the world.

Toward which end I say, by the power vested in me as treasurer of the Democratic National Committee (actually, I have zero power, but that’s another story), I hereby pronounce you — at least for a while, until you get your party back — a thoughtful, moderate Democrat.


The post-MBA exploits of Andrew Tobias, author of The Only Investment Guide You’ll Ever Need (among other books), range from placing tort-reform initiatives on the California ballot to following the Parliament cigarette plane and its ad banner (“Parliament: the perfect recess”) over Long Island beaches with a hired plane and banner of his own (“Parliament: the PERMANENT recess”). He comments daily at andrewtobias.com.

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Class of MBA 1972, Section J
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