Taxes make civilization possible. When the ancient Greeks introduced democracy roughly 2,500 years ago, they implemented a progressive taxation prototype so that those who benefited most bore the heaviest burden of maintaining the civilized society that enabled and protected their wealth. Athenians also honored the rich for paying their taxes. The U.S. Constitution itself was born of a tax crisis—a story hardly anyone knows. In 1787 we scrapped the Articles of Confederation, which had reduced the United States to begging for alms from 13 parsimonious states, and created a new republic that could tax its citizens. As I have long told my law students, a government is its taxes.

Every American schoolchild is taught, in the official version of the reasons we declared independence from the mad tyrant in London, that taxes can oppress and even destroy. But they can also enrich the politically connected and their enterprises. In a democracy, the design of tax systems is central, and America today suffers a monstrosity that burdens most workers more than billionaires.

Enter Ray D. Madoff’s Second Estate, a book about the role of federal taxes in worsening inequality. Madoff, a professor at Boston College Law School, argues that income and wealth have become dangerously disconnected, that the rich can live tax-free by borrowing against assets, and that charitable vehicles like private foundations and so-called donor-advised funds worsen inequality rather than serve the public. Her title evokes the French nobility whom the crown exempted from taxes, a favor that helped sustain their lavish lifestyles while impoverishing everyone else. 

To understand Madoff’s book, imagine that you are an economist from another solar system, sent to stealthily observe earthly conditions. Your report would note that in wealthy countries taxes are more than a third of economic activity, poor ones half that much, and that contentment is highest in high-tax countries. 

Since high taxes align with prosperity, you might expect taxes to be something people love and embrace. Instead, you find that tax is a vile three-letter word, especially in the largest wealthy nation in the world. A society that cannot function without taxation has taught itself to see taxes as illegitimate.

It is this paradox that gives Second Estate its energy. Madoff contends that taxes in the United States do not simply raise revenue—they allocate privilege, as well. Workers face immediate withholding, wage reporting, and payroll levies, while owners of capital enjoy loopholes and leniency. A telling detail: Amazon founder Jeff Bezos used the child tax credit that Bill Clinton signed into law in 1997. Bezos got this benefit because the way Congress wrote the tax law, he is a pauper. 

How do gazillionaires pose as paupers? Congress lets them borrow against their assets, spending freely while showing no earnings. For years, Elon Musk paid himself a one-dollar salary while borrowing against Tesla stock to finance a lifestyle of palaces and private jets. On their tax forms, these men look poor.

Anyone can borrow, of course, but unless your wealth grows faster than your debts and interest, you will be crushed. For billionaires, whose fortunes compound faster than they can spend, borrowing is a tax-free fountain of cash. This “buy, borrow, die” strategy—buy appreciating assets, borrow against them during life, and die with the gains untaxed thanks to the step-up in basis—has become the template for dynastic wealth in America.

Allowing the super-rich to borrow and spend their untaxed wealth without bearing any of the burden of supporting the government that protects their lives and fortunes is just the start of a cornucopia of tax favors for the richest of the rich.

Consider income taxes. Workers pay higher tax rates than owners of capital. Earn a million dollars in wages, and your marginal tax rate is 37 percent. Realize a million in capital gains, and you pay 23.8 percent. That means a well-paid worker forks over more than half as much to Uncle Sam than the investor who cashes in. On top of that, workers pay payroll taxes. Social Security applies only up to a wage cap, but Medicare applies to every dollar earned, with a surtax on high earners. The few hundred Americans whose salaries exceed $50 million pay Medicare tax on every dollar. No investor pays anything comparable on their gains.

On this point, which was central to my 2003 tax book Perfectly Legal, Madoff is persuasive. America really does operate two tax systems: one for wage earners, whose income is independently verified and taxed at the source; and another for private business and real estate owners, who decide how and when to report, or whether to report at all. This asymmetry explains why workers cannot cheat and investors often can.

But the strength of Second Estate is also where its weaknesses appear. Nowhere does Madoff write that inequality would be reduced if the Social Security tax applied to all wages. Removing the cap would generate a torrent of revenue, shoring up its coming shortfalls and enabling increased benefits, particularly for the poorest among the elderly and disabled, thereby reducing inequality. Madoff calls payroll taxes “hidden,” even though they appear on every pay stub. She repeatedly cites the capital gains tax as 20 percent, omitting the 3.8 percent surtax imposed to fund the Affordable Care Act. She writes that income, capital gains, gift, and estate tax rates stack to produce levies as high as 74 percent, a mathematical fiction. These mistakes are not trivial. From a tax law professor, readers expect precision.

Equally troubling is what Madoff leaves out. In addition to Social Security tax reform, the word audit never appears in her book. Yet enforcement is the fulcrum of taxation. Congress requires employers to report wages and withhold taxes, but trusts business owners to self-report income, deductions, and estate transfers. 

Unsurprisingly, cheating is rampant. Donald Trump, for example, claimed fictitious companies and phony tax losses for at least seven years. Unless audited, such returns stand. And audits have collapsed. IRS auditors of large corporations cost taxpayers about $200,000 annually in salary and benefits, yet uncover nearly $20 million each in unpaid taxes. Any rational business would expand that workforce. Congressional Republicans instead decimated it. The IRS reported that in 2022 it completed just five audits of individual international tax returns, down from almost 8,300 in 2014.  The IRS completed only 38 audits of America’s 26,500 ultra-high-income individuals in 2018. In some years, low-income Americans have been more likely to be audited than those making more than $100,000. The collapse of enforcement is not a footnote: It is one of the chief reasons inequality has widened. By ignoring it, Madoff misses the engine that makes her strongest anecdotes possible.

Where she does train her fire, at length, is on philanthropy. Madoff devotes much of her book to what she characterizes as abuses by private foundations and by an equivalent used by many merely prosperous Americans (including my wife and me) called donor-advised funds.

She is right that some donor-advised accounts sit idle, and that wealthy families sometimes use foundations to maintain influence under the cover of charity. But her treatment makes them seem like the beating heart of inequality when in fact they are a small piece of the picture. The combined $1.7 trillion in endowments and donor-advised funds may sound vast, but it represents about 1 percent of national wealth. By comparison, capital gains preferences, gutted audits, and payroll tax caps shield sums that dwarf the charitable sector.

What is most frustrating is how little credit she gives to the practical safeguards that exist. Private foundations are required by law to pay out 5 percent of assets annually. In practice they exceed that. In 2022, the total figure was $103 billion—6.4 percent of assets. Donor-advised funds also pay out generously, though individual accounts can stagnate. To deal with this, many community foundations already enforce a rule that after three years of inactivity, the donor loses advisory privileges and the sponsoring foundation makes the grants. It is a sensible fix Congress could easily adopt. Madoff prefers to tar the entire vehicle with insinuations of a “wink-and-nod” culture.

That insinuation is not only unfair, it is demonstrably false. My wife, who ran a community foundation for three decades, oversaw thousands of grants each year. To test Madoff’s charge, I tried to recommend a grant from our family’s donor-advised fund to an organization that was authorized by Congress but not a 501(c)(3) charity. The software instantly blocked it. No wink, no nod. Her blanket suspicion of impropriety is less an argument than a smear, and it distracts from the real issues: how to make permanent charitable capital more accountable without destroying its usefulness.

Surprisingly, Madoff never questions why giving away appreciated stock subject to a 23.8 percent tax can produce a 37 percent tax savings instead of being limited to the value of the tax avoided.

Madoff also misses the history of reform proposals that could have helped her case. More than half a century ago, the charity reformers Pablo Eisenberg and Norton Kiritz urged Congress to require private foundations to evolve so that boards would eventually be controlled by outsiders rather than heirs. The Filer Commission, a national study of philanthropy in the 1970s, endorsed the idea on the grounds that “citizen empowerment” groups needed a chance to compete with the older, larger institutions that then enjoyed a near monopoly. By ignoring this history, Madoff forfeits the chance to show how her critique fits into a longer tradition of efforts to democratize philanthropy. 

Still, the book has value. She reminds readers that taxation is not an afterthought but the core act of democratic life.

The post How America’s Tax Code Built an Aristocracy appeared first on Washington Monthly.

So few Americans have ever had financial assets that getting a monthly statement showing shares of mutual funds can make one feel prosperous. As a leader of the Machinists union told me in May about his members–who all made less than $20 an hour–having a 401(k) plan makes working men think they are capitalists–until their jobs disappear and they have to cash in their mutual funds, paying a 10-percent tax penalty, just to feed the kids and keep a roof over their heads.

Anyone who watched their 401(k) mutual funds plummet 25 percent in the last two years may be wondering if the benefits of these instruments as retirement vehicles haven’t been greatly oversold. And they are right to do so. The success of 401(k) plans is a triumph of marketing over sound policy, for despite their portability they are inadequate to the task set for them: to provide reliable income in retirement.

High fees make them inefficient. Contributors are at risk from kleptomaniac bosses. And overall, they are so heavily invested in employer stock–as in Enron and Global Crossing–as to make them a gross violation of the three basics of investing: diversify, diversify, and diversify.

In their generally excellent book, The Great 401(k) Hoax, William Wolman and Anne Colamosca show us how most of us are not so smart as we imagine when it comes to understanding value for our money. This timely book shows the real costs, and risks, of mass innumeracy. And the portrait it paints of the investment skills of most Americans raises serious doubts about the Bush administration’s proposal to allow workers to invest two percentage points of their Social Security taxes on Wall Street.

Wolman, recently retired after a long career as the economics editor of Business Week, and Colamosca, a freelance writer who is his wife, skillfully cut through the gloss used to market these plans. The authors present a marvelous synthesis of the literature of the Roaring 20s and relate it to the Soaring 90s, reminding us of Mark Twain’s observation that “history does not repeat, but it rhymes.”

They show how, during a two-decade period of asset inflation, 401(k) plans were marketed as the solution to the financial needs of Americans, who, the authors say, were told that they could prosper from ever-rising stock prices without being cautioned that stocks can also lose value and go for long periods with no growth. Behind the marketing, the authors reveal a larger scheme to relieve corporations of the long-term burden of funding traditional pension benefits and to fatten the bottom lines of Wall Street investment firms. The 401(k) typically costs businesses much less than traditional pension plans, and, not surprisingly, leaves many workers much worse off than they would be under the old system, even with several job changes during their careers.

One important piece of this story that the authors do not present is how accidents of law, one man’s enterprise, and journalism combined to make the 401(k) a household word. The story begins with a 1978 tax bill which, without debate or any public record of its sponsor, added a (k) to Section 401 of the Internal Revenue Code, which deals with pay deferrals.

A smalltime benefits consultant named Ted Benna realized, as did many others in his field, that this little addition opened new opportunities for workers to squirrel away part of their pay. But only Benna, unable to persuade a banking client to adopt a new retirement plan based on the new law, sought a ruling from the Internal Revenue Service on the law’s uses. He got a favorable decision, and tried to get news coverage of his idea, only to be rebuffed by both The Wall Street Journal and The New York Times. But Craig Stock of The Philadelphia Inquirer wrote up Benna’s idea, prompting a flood of telephone calls. From there, the 401(k) quickly became America’s favorite retirement savings plan.

Initially the 401(k) was promoted as a supplement to pensions and as a way to provide retirement savings for smaller employers without such plans. Quickly, though, many companies replaced their pension with a 401(k).

While sloppy news organizations often use the word “pension” when writing about a 401(k), they are in fact very different. In a pension, money is set aside in an investment pool to finance benefits from retirement to death. The employer assumes the investment risk and the government guarantees most benefits. The benefit formula is usually based on years on the job, multiplied by a percentage of salary in the last five years of work. With a 401(k), the worker typically defers money from his or her paycheck and the company matches a portion of it, most often 25 cents on each dollar saved up to a very low limit, often $1,000 or less for the match. The worker assumes the risks of investing with no government guarantees.

Despite all the shares of stock in 401(k) plans, the authors note, the wealthiest 10 percent of Americans still own 85 percent of all stocks. At the end of 1998, half of all 401(k) accounts held less than $16,000. The average balance for people in their sixties was $117,300–hardly enough to get an elderly couple through five years of retirement, much less 20 or 30 years.

These figures tend to be understatements because many people move their 401(k) savings to Individual Retirement Accounts when they switch jobs. (However, five out of six people changing jobs also dip into their rollover, spending some of their nest egg.) While the 401(k) has only been around for two decades, few people are likely to build career-end balances that are much larger than the low six figures simply because so few workers make enough to save much, if anything, during their twenties and thirties.

The authors go on to show convincingly that no matter how you slice the numbers, the 401(k) is not up to the task of providing a secure retirement income, especially in a world in which half of all women who turn 50 this year are expected to live into their nineties. One key problem with 401(k) plans, as opposed to pensions, is that one must make sure to save enough extra money so the funds do not run out before life does. That requires a large cushion for each individual, larger than in the kind of efficient risk-spreading pool that is a pension fund.

Those 20-percent-plus annual gains in share prices in the mid-1990s made many people feel rich. But that was a short-term phenomenon, which, the authors predict, will be evened out by losses or modest gains which may endure for a decade or more.

If stocks rise an average of 1.9 percent annually above inflation, they calculate, $1,000 saved today will be worth just $1,457 two decades from now. Consequently, if you saved $10,000 annually from age 40 until retirement at age 65–a mammoth sum for most Americans–and earned 1.9 percent above inflation, you would have $305,000 saved, enough to spend a bit more than $1,200 per month.

Wolman and Colamosca’s assessment is blunt: “We believe that the capital gains game envisioned by 401(k) proponents has all the makings of a Ponzi scheme,” by which they mean, not that the market itself is a fraud, but that people were lured and continue to be lured into buying stocks at such high multiples of their earnings that many of these 401(k) savers will die before their stocks will grow in value.

The authors do have a practical suggestion for 401(k) savers, one that makes sense for those who expect to tap their funds within the next two decades: Buy bonds.

Fat fees also erode returns. Exxon-Mobil, a company that knows how to wring value out of a dollar, manages its pension fund for less than a nickel per $100 invested, but the authors say that many 401(k) plans charge $2.40 per $100, which is 48 times as much. These fees for investment advice, trading, and record keeping are not explicitly stated, however. Instead, they are subtly bundled into the overall annual returns, making them invisible.

The authors do not dwell on it, but the design of most 401(k) plan statements also can leave participants believing, as the Beardstown ladies did, that they are earning fabulous investment returns when much of the growth in their account balances comes from new contributions, not the market.

Even if the economy does well, a 7-percent annual return above inflation is the best investors can expect, the authors write. Subtract a 2.4-percent annual fee from that and it will take more than 15 years for a dollar saved today to double. (Similarly, for the half of workers who make $26,000 or less, President Bush’s proposed 2 percent release of Social Security into private funds would come to just $520 annually. It takes a balance five or six times that amount for an investment house just to cover their costs, and even that requires fees far above the minuscule administrative costs of Social Security.)

The authors also show how 401(k) plans restrict investment decisions, such as timing purchases and sales, in ways that tend to depress returns. Workers in 401(k) plans typically get a narrow range of mutual fund, bond, and money-market offerings picked by management. They have limited rights to shift assets within these choices and often cannot get out if their investment is in their employer’s stock, even if it plummets as Enron’s did.

And, in many plans, workers’ voting rights to their 401(k) shares are severely limited. Management can even vote the stock against the wishes of workers in some cases.

Most significantly, 401(k) plans shift investment risks from employers to workers, many and perhaps most of whom are ill-equipped in terms of knowledge or nature to invest for a financially sound retirement.

Finally, 401(k) plans–and their siblings, the 403(b) for nonprofit workers and the 457 for government workers–work best as one leg of a three-legged stool. The other legs are Social Security and pensions. But for many employers, there is only a two-legged stool wobbling beneath the workforce, a 401(k)-type plan and Social Security. The net result of 401(k)-type plans has been to send the Boomers hurtling toward the winter of their lives without the resources to make this season their golden years.

What to do? The authors suggest raising Social Security benefits. Not likely today. They also suggest revising the laws governing pension plans, which require that these investment pools be used solely to benefit the workers and yet remain the property of employers, creating inherent conflicts. A good idea, but also not likely to catch Washington’s attention.

Another option would be more of the new so-called “cash-balance plans,” which provide a guaranteed income stream backed by the government, and yet are also portable like the 401(k). These could help make pensions work for a nation of job-hoppers. Unfortunately, cash-balance plans have acquired a bad reputation because some big companies used them as cheapskate replacements for their traditional pension plans.

Even if you are a diligent saver, and turn out to be a brilliant investor, the fact that millions of others are not may become a problem for you. When millions retire with too little to get by they are going to be mad. And like other older Americans, they are going to vote. Washington may then give them more Social Security benefits, tax breaks or other help. And to pay for all of that, what would look more attractive than to tax your nest of golden eggs?

The post Account Down appeared first on Washington Monthly.

If ever there was a moment ripe for a serious examination of bankruptcy in America, this is it. The last history was published in 1935, making a solid history of how we got here most welcome just now. Author David A. Skeel Jr., a University of Pennsylvania law professor, promises readers the untold story of how bankruptcy evolved as a uniquely American way of dealing with debtors who cannot pay their bills, a story that he writes was shaped by political forces and an elite section of the bar.

At the founding of the Republic, Alexander Hamilton and the Federalists pressed for a new idea of bankruptcy as renewal, not a time for debtor’s prison. Hamiltonians wanted to encourage credit to spur economic expansion, while the Jeffersonian Republicans wanted to protect farmers from foreclosure by bankers. This debate over how to deal with the insolvent and balance the interests of creditor and debtor, Skeel writes, has been waged for more than two centuries. A host of schemes have been tried, modified, and abandoned by Congress.

Now, as we learn to live in a global economy, the American idea of bankruptcy as renewal rather than ruin is gaining currency in other developed countries, but the down side of that system is becoming all too apparent in the United States. A critical examination of the confluence of forces—asset inflation, accounting rules, and changing partnership laws—is desperately needed. Unfortunately, Skeel’s book isn’t it.

When the dot-com bubble burst, we came to what may be the end of two decades of asset inflation encouraged by government policy and financial engineering. Asset values are falling and bankruptcy filings are rising to record levels. Enron, Global Crossing, Kmart, Sunbeam, and more dot-coms than this article has periods have had to seek refuge from creditors in federal bankruptcy court.

Avoiding bankruptcy, because they had enough cash in hand to hold creditors at bay, were Cendant, Lucent, Mercury Finance, and a host of other companies that reported fattening bottom lines quarter after sizzling quarter until all that profit suddenly evaporated. The corporate books had been finely cooked until investors were served up a most unsavory net wealth reduction.

The executives who mismanaged their companies gorged themselves on greenback soup while serving up the mock kind to anyone not lucky enough, or informed from the inside, to sell their shares before the final course. And through all of this, the Big Five auditing firms put on the garnish of their opinion letters, helping lure more share buyers at ever-higher prices until the collapse.

The willingness of the Big Five accounting firms to sell their reputations was driven not by the lowest-bid work of auditing the books, which is supposed to give shareholders a reasonably reliable picture of a company’s financial condition. What compromised their integrity was the big money they could get from these same companies selling “products” that make profits vanish from corporate income tax returns, as well as consulting. This is where the Big Five made their real profits.

And then there was an obliging Congress, which, along with the 50 state legislatures, gutted partnership laws in ways that made corner cutting and outright fraud more palatable in the halls of accountancy and law. Until a decade or so ago, each partner was liable for the acts of every other partner, which served as a powerful self-policing mechanism within the corporate professions. Then came the savings and loan scandals of the 1980s, a rich treasure of bankruptcy lore, in which not a few accountant partners let their greed get the better of their professionalism. Soon partners in these global firms, who may never have set foot in an S & L, found themselves taking out second mortgages to pay the damages awarded against the entire partnership.

The damages inflicted on all partners by the corrupt few should have prompted a new vigilance to ensure integrity. Instead, the accountants lobbied and donated their way into “reform” of the partnership laws. Now we have “limited liability” partnerships and corporations, which means that your partner down the hall can cheat left and right and your fortune remains safe so long as you do not inquire into his conduct and thereby make yourself a knowing, and thus liable, party to the chicanery. Thus, at least in the immediate term, market forces fail to correct misconduct.

A decade ago, the S & L crisis, together with the damage wreaked by Michael Milken’s schemes and other imprudent investments, caused a hiccup in the phenomenal growth since about 1982 of the gross national product—remember the Recession of ’91?

During that hiccup we were treated to two important developments affecting bankruptcy. One dealt with the benefits of regulation for a company eager to stiff its creditors. The other dealt with retirement pay in a precursor of everything that happened to Enron workers and their 401(k) plans, only worse.

In one well known example of the first scenario, we saw Donald Trump and Merv Griffin borrow millions in the corporate bond market, even though their own loan applications, in the form of prospectuses, made it clear that the money would not be paid back. One set of Trump bonds, underwritten by Merrill Lynch, defaulted almost before the ink dried.

Neither The Donald nor the Merv was at risk of having unpaid creditors seize their temples of chance, however, just because they skipped their mortgage payments. That’s because they held gambling licenses and the bondholders did not. Both the New Jersey Attorney General’s Division of Gaming Enforcement and the Casino Control Commission demonstrated the benefits of regulation to the regulated when they found a way around a most simple rule. That rule said that an Atlantic City casino must be solvent to stay in business. The rule defined solvency as the ability to pay bills as they come due. It might seem that Trump and Griffin failed that test when they missed their interest payments, but the creative regulators took the view that once a bankruptcy deal was in the works the interest payments were no longer due and, thus, the casino companies were solvent.

Welcome to strategic bankruptcy, forever to be a part of our future, unless Congress intervenes. It is what Kmart did when it filed Chapter 11, not because it was out of cash, but because it wanted out of leases and the landlords wanted their promised monthly rent. Corporate bankruptcy can be contract renegotiation by other means.

The second egregious bankruptcy practice emerged when management ran into the ground such once great companies as Morrison-Knudsen, builders of Hoover Dam, and Carter Hawley Hale, operator of department stores from Santa Monica to Sacramento. These companies all had as their retirement plans a pool of their own stock, just as Enron had. Companies deduct the value of stock or cash they put in these accounts, where the money is safe from the company’s creditors, but not from the risk that the investments will lose value.

But highly paid workers get an extra dollop of stock put into their “executive deferred compensation plan” that is not subject to any limits. These plans also do not generate an immediate tax deduction for the company. By law the money that executives defer can be seized by creditors if the company goes bankrupt, which would seem to create a powerful incentive for the executives to run the company prudently. It does not.

At Morrison-Knudsen, Carter Hawley Hale, and eight other companies, the workers whose funds were safe from creditors were wiped out when their company’s stock sank to zero. The executives, however, pocketed 100 cents on the dollar. How?

The executives got paid in full because when the creditors came in to take over the bankrupt companies and rehabilitate them in the Hamiltonian fashion, they needed these executives to hang around and help until they had full control of the enterprise. And what did the executives demand as the price to stay? That their deferral accounts pay off. Bill Agee demanded that Morrison-Knudsen pay him to the penny. He walked away with $367,062.30. Department store mogul Phil Hawley pocketed several million dollars.

These bankruptcy developments were both front-page news. The Trump and Griffin cases were covered in detail, under my byline, in The Philadelphia Inquirer, author David A. Skeel Jr.’s hometown newspaper, and in other major news outlets. And the executives like Agee and Hawley who kept dry while their companies sank were the subject of the first two parts of “Rushing Away From Taxes,” a 1996 series in The New York Times that was the paper’s biggest investigative effort since the Pentagon Papers.

Despite their relevance to bankruptcy history, readers will not find a word about these matters in Debt’s Dominion. If that were all that was missing, it would be of little significance. But there is more, much more, that Skeel left out. Skeel’s readers will learn nothing about partnership law “reform” or savings and loan chicanery and its role in bankruptcy law. Indeed, they will not even learn about the very first federal bankruptcy law, enacted in 1800, simply because Skeel finds it inconvenient to address what that first law did. He writes lamely that “for simplicity, and because involuntary-only disappeared as a viable option by the middle of the nineteenth century, however, I will banish it from discussion.”

The issue of whether a debtor could declare himself bankrupt or only his creditors could was, by Skeel’s own account, a major issue in the history of pre-Civil War bankruptcy, which makes this omission nothing short of astonishing. But then it may be that Skeel simply did not want to do the work to understand the 1800 law.

The evidence for this lies in the sloppy way that Skeel identifies and writes about key historic figures in bankruptcy law and in his lack of logical organization. Asking for narrative may be a bit much, but how about simple chronology, the most basic format for history? Instead of marching straight forward from 1800 and describing our nation’s experiments with bankruptcy, Professor Skeel flits back and forth across decades, often incoherently, giving some dates, hinting at others and sometimes forgetting to say in just what era he is wandering.

Again and again, Skeel tells the reader what he is going to argue or what he has just argued, an annoying device that fills at least 1 percent of his book. He mentions bimetallism, but wastes no words explaining the reasons that a monetary system based on silver and gold could have resulted in inflation that benefited debtors and hurt creditors in the late 19th century, a major issue at the time of William Jennings Bryan’s “Cross of Gold” speech.

Skeel cites neither the Currency Act of 1792, which made bimetallism government policy for the next 141 years, nor the discovery of the Comstock Lode, whose rich veins flooded the late 19th century world with so much silver that it altered the relative prices of the two precious metals. Without context, what he writes on bimetallism is worthless. Unfortunately, the totality of what the reader gets from Debt’s Dominion is almost unimaginable: a history that is ahistorical.

That an undergraduate would hand in such a sloppily written, disorganized, and half-baked mess is reality. That a professor of law at the University of Pennsylvania would do so, and that Princeton University Press would publish it along with the author’s encomium to his editor, is sad evidence of another kind of bankruptcy at both academic institutions.

David Cay Johnston, a reporter for The New York Times, won the Pulitzer Prize last April for his coverage of inequities and loopholes in the tax system.

The post Protection Racket appeared first on Washington Monthly.