The Book Club
Almost finished with Michael Barone's new book, Hard America, Soft America, Competition vs. Coddling and the Battle for the Nation's Future.
I really love Michael Barone. He's smart and so very interesting. One of my favorite books is The New Americans. I love the fact that on TV he's not a blowhard. I love that he writes about obscure ideas.
The 1978 tax law lowered the maximum capital gains tax rate to 25 percent---a change which did much to invigorate financial markets in the 1980s. But invigorating them even more, at least in the long run, was another provision of the law which attracted little attention, Section 401(k). At the time most workers relied for retirement income on Social Security, personal savings, and defined benefit pensions from their employers---pensions which tied them to one employer for at least 10 years and which obliged the employers to set aside huge funds for future paments, funds which were usually invested conservatively. In the years after passage of 401(k), many employers, to the surpise of experts, started switching from defined benefit plans to 401(k)s and other defined contribution pension plans, in which employers made one-time contributions to investment accounts contolled by individual employees. Internal Revenue Service regulations in the 1980s encouraged many employers to switch to defined contribution plans, and they were accepted by employees. These plans seemed more attractive aftr the highly visible failure of a few large defined benefit plans, including the LTV steel pension fund and the United Mine Workers' hospital fund. By 19898, the number of people covered by defined contribution plans had risen to 50 million, from 19 million in 1980, the number of people covered by defined benefits pensions had fallen to 23 million, from 30 million in 1980.
The result was the infusion of vast sums into the financial markets in a way that helped change them in a force Hardening the private-sector economy. Individuals were now accountable for their own retirement funds, and in investing 401(k) money they could be less conservative and more venturesome than trustees of corporate pension funds. They could put their money into mutual funds whose managers' careers depended on achieving good rates of return. The growth of 401(k)s nurtured in increasing numbers an investor frame of mind, which appears to have motivated many more people to invest in the financial markets. Political pollsters noted that in 1992 only about 20 percent of voters were investors, while in 2002 about 60 percent were.
Reading this made me think of my old friend Ed Zschau, who was instrumental in getting the capital gains tax reduction law passed. Legend had it that he wrote a song, The Capital Gains Tax Blues and wandered the halls of Washington singing the blues.
Zschau can do it if anybody can. After all, he's already built one successful company, System Industries Inc., which he founded in 1968 and grew to $60 million. Along the way, he emerged as a star of the American Electronics Association, leading the fight to reduce the capital-gains tax in 1978. That role helped propel him to a congressional seat in 1982. Four years later, he won the Republican nomination for the Senate in a tough primary and came within 104,000 votes of defeating Cranston.
That made me think of the Zschau campaign in 1986. Again Ed had a song.
Zchau Campaign Song (to a tune he made up)
This is the year, hip, hip, hooray for our Ed
He's our hero, cutting deficits to zero.
He'll teach Californians how, to say and spell Zschau.
A Prof, a businessman, a Dad is he,
Born and Bred in High Technology
And in Washington, he's working so we
Can have peace and prosperity.
Thank you all for everything you've done
Come November when we say we won
We'll have done it in a way that is fun
Good night and God Bless everyone.
P.S. Ed Zschau played rugby at Princeton. I don't think he ever played against George W. Bush because he's a little older.
