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This Isn't What Marx Meant by Das Kapital

Wall St. Journal
3-19-99 Paul Gigot 

Sometimes the biggest news in politics is what's no longer news.

Consider what it means that even when the Dow flirts with 10000 the
capital-gains tax has all but vanished as a partisan issue.

In the 1980s, Democrats used it as a class-war club to beat on George Bush. But
in the 1990s, a Democratic president signed a capital-gains rate cut with
barely a soak-the-rich murmur. One explanation for this reversal can be found
in a new study that illuminates a trend remaking American politics: We are
becoming a nation of stockholders.

Economist Larry Kudlow was one of the first to notice the clout of a "broad
middle-income investor class." But now journalist Richard Nadler has gathered
facts and polling for a forthcoming Cato Institute paper that shows how
sweeping its impact on our politics is likely to be. The workers of the world
are uniting, but not the way Karl Marx imagined.

The trend is, well, revolutionary. In 1952, just 4% of Americans owned
stock--the consequence of depression and war. And even as recently as 1981, the
dawn of the Reagan era, only 16% of American adults owned shares. A decade
later 24% did. But by 1997, more than four in every 10 adults had an ownership
stake of one kind or another in corporate America.

[Which probably accounts for the public's attitude toward impeachment.  What an
irony, the stock market saving Clinton's sorry butt.]

The stock-market boom deserves part of the credit, as everyone and his mother
go long on eBay. But more significant is the proliferation of 401(k) plans,
IRAs and mutual funds.

These capitalist tools are democratizing share ownership to include many in the
working class. According to a 1997 Federal Reserve study, the percentage of
stock-owning families with incomes between $25,000 and $49,000 jumped by almost
50% from 1989 to 1995 (to nearly one in every two). The increase was even
greater for families making less than $25,000. This isn't your grandfather's
proletariat.

Once upon a time stock holding was also dominated by the old, who saved over a
lifetime. But Mr. Nadler shows that younger workers are getting hip to stocks
earlier, thanks to retirement plans that give them some control over investment
choices.

[Probably true.  Last year my 25 year old niece called me to ask my advice on
how to apportion her money in the 401K her new job offered.  She mentioned that
she would like to have as much money when she retired as her grandfather (who
had passed away that year--his 6 figure estate was something of an eye-opener)
who was a high-school graduate who worked all his life behind an auto parts
counter]

Demographic trends like this tend to be tidal waves unseen until they crash
over some issue or election. Mr. Nadler draws on a January 1999 survey of 6,400
voters by Rasmussen Research to show the potential impact of these new
"worker-capitalists."

As you might expect, investors as a class break down the old socialist
dichotomy between labor and capital. Two-thirds of investors favor a cut in the
capital-gains tax, for example, compared with only 46% of non-investors.
(Rasmussen defined investor as anyone with at least $5,000 worth of stocks,
bonds or mutual funds.)

More striking, support for cutting the cap-gains levy rises among investors in
just about every demographic group--blacks and whites, women and men, young and
old, affluent and not, married and single. Even among more liberal voting
groups--African-Americans, unmarried women and Democrats--support for soaking
`"the rich" falls with stock ownership.

The implications of this could put a lot of liberals on valium. As Democratic
pollster Peter Hart noted in a study for Nasdaq, the trend has produced "a new
ethic of self-reliance." Class-war appeals may lose what little clout they
still have left.

[You might need to work up a new song and dance, Robert]

A long market slump could slow this trend. But "overall," says pollster Scott
Rasmussen, "it is hard to see how a growing investor class will do anything
other than increase support for market-oriented economic policies."

At first glance, all of this would seem to help Republicans, who claim to be
the party of free markets. And Mr. Nadler's study shows that stock owners are
more likely to be Republican. Some 21% of African-Americans who own stocks
identify themselves as Republicans, for example, compared with just 6% of
blacks who own none. The swing among women is 10-percentage-points.

But as the 1998 election showed, even affluent voters will leave a GOP that
gives them no reason to vote. Democrats can also read polls.

The lesson for either party is that there's a new populist opportunity in
trying to enlarge the investor class--by expanding IRAs (especially the Roth
IRA that allows tax-free withdrawal), cutting capital-gains taxes, and
crusading for at least the start of individual Social Security accounts.

***

Most liberals understand this, which explains their fanatical resistance to
such accounts. They fear workers will come to judge politicians more on the
wealth their policies create than on the wealth they redistribute. The Dow
could matter as much politically as the jobless rate. Workers with a stake in
IBM or Merck may not admire politicians whose regulations damage corporate
America.

President Clinton has so far tried to finesse this investor trend without
offending his liberal base. But his proposal for new investment accounts apart
from Social Security is just one more entitlement that depends on politicians
dispensing annual cash favors. Republicans can describe this as another Clinton
conjob and insist on the real thing.

A few liberal sages, Mr. Clinton among them, keep predicting the coming of a
new progressive era of activist government. While they're waiting, they can at
least console themselves by joining the proletariat in becoming capitalists. >>

"They fear workers will come to judge politicians more on the wealth their
policies create than on the wealth they redistribute.".  Now who could be
opposed to that?

Patrick