Commentary

New Investor Class In Winner’s Circle

By Stephen Moore
November 18, 2000
Why did Republicans hold Congress despite a huge money blitz by the Democrats and their liberal financing army?

One big reason is that the 2000 election was the first in history in which a majority of those who went to the voting booth were owners of stock. And in pulling the lever for Republicans, those members of the new shareholder class in America voted their financial interest. They opted for Social Security privatization and pro-saving, pro-investment tax cuts because they implicitly understand these policies are good for growth and good for stocks. Just as importantly, investor class voters rejected a Gore-Gephardt campaign premised on the political banner of class warfare and corporate bashing.

The fact that voters opted against wealth redistribution politics and instead chose the policies of wealth creation tells us a lot about the attitudes of the modern electorate. The vast majority of the 85 million Americans who own stocks are trying to claw their way into the top 1 percent in wealth and income. They are deeply skeptical of political rhetoric and policy proposals that could erode the wealth creation process altogether.

The old-school Democratic strategy of appealing to the New Deal generation of seniors and millions of blue-collar unionized voters has worked magic for liberals in many past elections. Why not this one? The answer is that the voter base for nanny state economics is shrinking. The union vote has changed in two ways in recent times. First, it’s smaller than anytime before in the last 50 years. A political strategy marketed to the self-interest of the new investor class reaches three times as many voters as one targeted to union-headed households. When Lyndon B. Johnson won his landslide victory for president in 1964, there were three times as many union members as investors. In the 2000 election, there were three times as many investors as card-carrying union members. That’s a huge demographic shift.

Second, the union vote now consists increasingly of government employees. Today, almost half of AFL-CIO members work for the government. The fact thatthe AFL-CIO is now dominated by school teachers, bus drivers, and other public employees has moved the union movement sharply to the left, and has simultaneously prevented Democrats from running as Bill Clinton-style New Democrats. Public employee unions won’t tolerate school choice, Social Security choice, free trade, welfare reform, and tax cutting. Al Gore and Richard Gephardt ran away from these populist issues, and the centrist voters abandoned them in the millions.

The $30 million to $40 million campaign by AFL-CIO and supplemented with dollars from the war chest of the trial lawyers was intended to wrench control of the House away from the Republicans. It failed because it’s core message - that government, rather than individuals should be making critical life choices - is as flat as a three-day-old Coke.

Although the final exit survey results aren’t yet available, pre-election polls suggested the GOP had an eight-to-10 point lead over the Democrats with investor class voters. Given that the investor class Americans can be located in virtually every demographic categories - age, race, sex, income and religious affiliation - it appears that for the investor class electorate, pocket book issues, or actually what might be called wealth accumulation issues, transcend concerns that the press cares so passionately about, most notably, abortion, education, prescription drug benefits, gun control, affirmative action and campaign reform.

Investor class voters are a finicky lot, with no deep-rooted party loyalties. They voted for Bill Clinton in 1996, because his administration had been bullish for investor portfolios. Now that they have re-elected the Republicans in Congress, the GOP had better stand and deliver on the pro-growth policies they have promised. The GOP has received a voter mandate for death tax repeal, income tax rate cuts, and private accounts for Social Security. Each of these must be enacted in 100 days. But there’s more that a George W. Bush administration must push to keep mutual funds growing in value.

First, the anti-trust witch hunt of the Reno Justice Department should be immediately closed down. Microsoft and Intel must be left alone to add value for shareholders.

Second, trial lawyers have to be muzzled. They endanger our prosperity by blackmailing private industry. Lawyer fees in cases with government as the plaintiff should be capped at no more than $1,000 an hour. In the tobacco settlement cases, some lawyers were getting $100,000 an hour in fees.

Third, the capital gains tax cut is conspicuously absent from the Bush tax plan. But the last capital gains tax cut increased federal revenues, caused wealthy taxpayers to pay more tax, helped spur an increase in stock values,and corresponded with a huge surge in venture capital funding. That is to say, the class warfare critics were wrong on every count. The correct rate of tax on capital gains is zero, but even a cut from 20 percent to 15 percent would have a bullish impact on the economy.

All this is to say the new Republican regime must focus all its energies on growth policies and politics. Voters took a gamble last Tuesday. Everyday they will be gazing at their stock portfolio to gage whether that gamble is paying off.

Stephen Moore is president of the Club for Growth and an adjunct fellow at the Cato Institute.