Part I. American Democratic Capitalism Now and in the Past
Chapter 1. The American Dream in Crisis
"The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”
- James Truslow Adams, The Epic of America, 1931[1]
“In the Gettysburg Address, President Abraham Lincoln said that America was fighting a Great Civil War so that 'Government of the people, by the people, and for the people shall not perish from this earth.' But if what has been happening continues, that dream is in peril.”
- Joseph Stiglitz, The Price of Inequality, 2012[2]
There is a real possibility that a majority of Americans born in the last 30 years will not lead lives better than those of their parents. Many no longer believe in the American Dream, the idea that each generation can do better than the previous one, and that all Americans have a reasonable opportunity to succeed. Without economic security and the reasonable opportunity for all Americans to improve their lives, the security of the nation is threatened. The worst crisis is in our national government, which, because of political gridlock, has failed to properly address the nation's economic problems.
The destruction of the middle class did not happen overnight. It just seems that way now because there is so much attention being paid to it. When it first started to happen, unless your company moved your job overseas, or you were replaced by a computer, like most of us, you probably didn't notice.
It started in the 1970s when everything went haywire. There was an oil crisis, with long lines at gasoline stations. Oil prices quintupled and thus, so did the cost of gasoline. There were scandals and incompetence in our government. A Vice President resigned because of accusations of corruption, and then a President resigned just before he was likely to be impeached. There was something new called "stagflation," - inflation and economic stagnation, including high unemployment. The Vietnam War ended ignominiously with an embarrassing exit by the U.S. followed by North Vietnamese victory. A Democratic President was unable to get along with a Democratic-controlled Congress. Muslim radicals overthrew the U.S. ally, the Shah of Iran, and seized the American embassy in Tehran and its personnel. Relations between Iran and the U.S. have been hostile ever since. Incomes rose substantially and so did house values, but inflation increased even faster wiping out the gains, and leaving many struggling to stay even. To do so many middle class families substantially increased their use of credit cards and home equity loans, and millions of women whose mothers had been housewives now entered the work force, many because they wanted careers, but many others because one average income no longer could support a family.
The problems of the 1970s caused disillusionment with the liberal ideals that had guided the nation for 50 years, and opened the door to the White House to a conservative for the first time since before the Great Depression. In 1980, the Republican Ronald Reagan blamed the government for the nation's problems and narrowly defeated Jimmy Carter's re-election bid.
Reagan probably was underestimated by his opponents and overestimated by his supporters. He had an instinct for leadership that made him appear more competent, and more in control than his recent predecessors, and more so than he probably was. He knew how to play the part as President and after all that happened in the 1970s he projected a strong and reassuring personality that made him popular. The turmoil of the 1970s soon was history, especially inflation, which the Federal Reserve - not the politicians in the White House - has kept under control ever since.
America's principal enemy, the Soviet Union, went into crisis and then disintegrated, leaving America the victor in the Cold War, effectively without firing a shot. The United States really appeared to be in the position of that “shining city on the hill,” described by Reagan when he became President.[3] However, because of many of his policies, which were continued by his successors, as well as some significant technological changes, we now know that shining city was looted.
Gone are many of the great industries that lifted our parents and grandparents into the middle class out of the nightmare of the Depression. One of the greatest symbols of 20th Century American industrial might, the city of Detroit, has lost most of its industry, two thirds of its population, and is bankrupt. Homeowners lost trillions of dollars in the value of their homes following the 2008 financial crisis, and only slightly more than half of those losses had been recovered by late in 2013.[4] For the hundreds of thousands, maybe more, forced out of their homes because of lowered income due to job losses, or retirements, the losses were permanent, and nothing has been done to rectify the situation.
Before Reagan, the national government had operated for nearly 50 years generally with the economic policies initiated by Franklin Roosevelt during the Great Depression in the 1930s, and greatly influenced by the British economist John Maynard Keynes. His core theories included the idea that consumer demand drives economies and when recessions slow demand, governments should increase spending to replace the consumer demand. Keynes also believed that expanding the supply of money in times of recession also could spur the economy.
Reagan adopted “Supply Side” economic theory, generally attributed to the economist, Milton Friedman and the University of Chicago School of Economics, but also with roots in the Social-Darwinist theories of the “Gilded Age” of the late 19th Century. This theory holds that the economy is primarily driven by the suppliers of goods and their willingness to expand production. Supply-siders support lower taxes on corporations and the wealthy to provide them with more money to invest in economic expansion. The theory is that the benefits of this economic expansion will create greater wealth, and some of this wealth will “trickle down” to the lower income groups. This has been converted into the argument contemporary Republicans have used against tax increases on the wealthy who they call the “job creators.”
Supply-siders favor less government regulation, even complete deregulation, of most businesses to make it less expensive for them to expand. Supply side economics also does not support using the money supply to spur the economy, generally favoring tighter money than Keynesian economists.
The contemporary intellectual descendants of Keynes such as Nobel Prize winners Joseph Stiglitz and Paul Krugman, among others, repeatedly have argued in the past several years that because of lowered incomes and assets, the vast majority of Americans have not had enough money to generate the demand for products necessary to significantly grow the economy.
Because of the application of Keynesian economics and progressive government philosophy - greatly influenced by liberal theories - the domestic focus of the national government from FDR to Ronald Reagan was on improving the lives and incomes of average citizens through major federal programs and regulations, in the belief that this was the best way to grow the economy. Even when Republican Dwight Eisenhower was President in the 1950s and Republican Richard Nixon in the late 1960s and early 1970s, their policies did not focus on expanding the power, or wealth, of the rich. From 1940 to 1980, a period generally of enormous prosperity, economic expansion, and general wealth creation, the nation had the lowest disparity of wealth among all segments of the population of any time measured in history.
That changed with Reagan and his economic policies, which we now know were wrong and had an enormously destructive effect on middle class Americans. But Reagan was very popular while he was President, and he almost has been beatified by Republicans ever since. Their religious-like belief in the false "trickle-down" concept continues to hamper effective federal responses to the current economic malaise of the nation. Reagan's economic policies were a significant cause of the greatest disparity in income and wealth between the wealthiest 10 per cent and everyone else in our history.
The economist, Emmanuel Saez, of the University of California at Berkeley, who is the leading American authority on wealth and income disparity, wrote in January, 2013:
The overall pattern of the top decile share over the century is U-shaped. The share of the top decile is around 45 percent from the mid-1920s to 1940. It declines substantially to just above 32.5 percent in four years during World War II and stays fairly stable around 33 percent until the 1970s. Such an abrupt decline, concentrated exactly during the war years, cannot easily be reconciled with slow technological changes and suggests instead that the shock of the war played a key and lasting role in shaping income concentration in the United States. After decades of stability in the post-war period, the top decile share has increased dramatically over the last twenty-five years and has now regained its pre-war level. Indeed, the top decile share in 2007 is equal to 49.7 percent, a level higher than any other year since 1917, and even surpasses 1928, the peak of stock market bubble in the “roaring” 1920s. In 2011, the top decile share is equal to 48.2 percent. [5]
And what has happened recently is not encouraging.
From 2009 to 2011, average real income per family grew modestly by 1.7% … but the gains were very uneven. Top 1% incomes grew by 11.2% while bottom 99% incomes shrunk by 0.4%. Hence, the top 1% captured 121% of the income gains in the first two years of the recovery.[6]
Joseph Stiglitz wrote:
“The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent...”
“While the top 1 percent have seen their incomes rise 18 percent over the past decade, those in the middle have actually seen their incomes fall. For men with only high-school degrees, the decline has been precipitous—12 percent in the last quarter-century alone. All the growth in recent decades—and more—has gone to those at the top. In terms of income equality, America lags behind any country in the old ossified Europe that President George W. Bush used to deride.”[7]
Although the vast majority of Americans have not experienced any substantial increase in wealth for the past 33 years, the number of our citizens who have accumulated enormous wealth has rapidly grown. The number of billionaires on the Forbes billionaires list in 1982 was 28. It grew to 132 by 1996, and to 412 in 2011.[8]
According to a study[9] of income inequality by state from 1928 to 2011, published in February, 2014, “Between 1979 and 2007, the top 1 per cent took home well over half (53.9%) of the total increase in U.S. income. Over this period, the average income of the bottom 99 per cent of U.S. taxpayers grew by 18.9 per cent. Simultaneously the average income of the top 1 percent grew over 10 times as much – by 200.5 per cent.”
And, there was an increase in the disparity between the 1 per cent and everyone else in every state.
“
This rise in income inequality represents a sharp reversal in the patterns of income growth that prevailed in the half century following the beginning of the Great Depression; the share of income held by the top 1 percent declined in every state but one between1928 and 1979.”[10]
While virtually all of the increase in wealth of the nation is going to the rich, many other people still are leading comfortable lives. But the number is declining. At the present pace, in another generation or two, the vast American middle class that exploded out of the Depression and World War II, may be nothing more than a fading memory of a golden age.
Americans generally are not jealous of the rich. We like the idea that people can get rich in our country. Many of us hope to be among them, and we don't want to eliminate the opportunity. We admire success. If anything, we admire it too much. Many self-made wealthy individuals have become folk heroes, often escaping scrutiny of the means by which they succeeded. The “robber barons”[11] of the 19th Century have been lifted into legendary status because of the enormous wealth they obtained, and the family fortunes they created, despite the fact that much of it was gained through fraud, bribery and worse.
The success of ruthless business tyrants such as Cornelius “Commodore” Vanderbilt[12] in the 19th Century, and Henry Ford in the 1920s, led a few to even propose they be candidates for President, not dissimilar to the brief promotion of Donald Trump in 2011 as a potential Republican candidate. But the only businessmen ever elected President, Herbert Hoover in 1928, and George W. Bush in 2000 and 2004, were unable to deal with the economic crises that Republican policies brought about. The skills required for political leadership are far different from those employed in business.
We certainly don't want to eliminate the opportunity for our citizens to become rich, although perhaps we should examine a little more closely the methods employed before we make them into folk heroes. As admirable as was Steve Jobs' success with Apple, would not it be far more admirable if Apple's products were not assembled by very cheap Chinese labor, people who live in dormitories and sometimes are forced to work in the middle of the night?[13]
Even in our toughest times, we have supported free enterprise and capitalism. Communism never had much appeal to us, even during the depths of the Great Depression. So why should we worry about wealth disparity?
The enormous disparities of wealth and income are both symptoms and causes of great problems with our economy and our government. The Great Depression followed the last period of great disparities in wealth and income. The Great Recession came after the greatest increase in wealth disparity in our history. Even more important, wealth disparity is a threat to freedom, opportunity, and ultimately, national security.
Economic security and the opportunity to improve one's life, basic concepts of the American Dream, are essential to political and personal freedom, and the stability of the nation. The unprecedented concentration of most of the wealth in the hands of a few in this nation also can concentrate governmental power in their hands. The Constitution makes it very clear that all citizens are to be equal under the law. No one is suppose to be able to buy government influence. In fact, bribery is one of two enumerated offenses in the Constitution constituting grounds for impeachment. And to prevent unequal treatment of citizens under the law – and thus by government - any formal titles of nobility or aristocracy are specific forbidden to be created either by the federal government, or by the states.
We have not created such titles under law, but, in effect, we are creating them with our economic and tax policies. A class of “super rich” now exist, primarily from a combination of inherited wealth, historically unprecedented compensation of senior banking and corporate executives and business entrepreneurs, and the enormous incomes of stars in sports and entertainment. The use of this concentration of wealth to influence government to act even more favorably towards the interests of the wealthy has been known since the time of ancient Greece as plutocracy. It is the antithesis of democracy, and the power of plutocrats is rapidly growing today in the United States.
There is ample evidence today that certain of these “plutocrats” are using, or changing, governmental policies to make themselves even richer, at the expense of the majority of the population. This reduces the economic security of millions, limits their freedom and endangers the nation. Even though they do not seem to realize it, it ultimately endangers even most of the wealthy. Without an economically vibrant middle class, the American economy will remain stagnant, or grow very slowly, which may lead to future downturns in profitability for businesses. It also is possible that at some point the people will no longer peacefully tolerate this situation.
Billionaire plutocrats, such as the Koch Brothers, owners of the second largest privately held corporation in the U.S., have aligned with extremist religious and political groups, and funded political action committees that support extremist political candidates and numerous conservative and right-wing organizations such as the Tea Party, and think tanks like the Heritage Foundation and The Cato Institute. Their father was a founder of the extreme right-wing John Birch Society. David Koch was the Vice Presidential candidate of the Libertarian Party in 1980 when they advocated abolition of Social Security, Medicare, Medicaid, welfare and virtually all taxes. To people like these, there is no social contract. They do not feel any obligation to their fellow Americans for the largesse, tax breaks, and opportunities to become wealthy that they have received. They view government as nothing more than a tool for them to use to increase their wealth and influence.
They and numerous other wealthy individuals and corporations have driven the Republican Party into extremist positions on most issues, threatening not only the economic security of most Americans, but also basic American rights and freedoms, including the right to privacy, religious freedom, free speech, and the benefits of Social Security, Medicare and Medicaid.
Joseph Stiglitz's concern, expressed in the quotation at the beginning of this chapter, now has been echoed in great detail in Thomas Piketty's Capital in the 21st Century, discussed in the Introduction. The rapidly escalating concentration of wealth in the hands of a small minority of the people in the U.S. and almost everywhere else presents an enormous threat to democratic government and to the economic well-being of the vast majority of people.
We already have seen the effects in states controlled by Republicans. Hundreds of bills have been passed by Republican-controlled state legislatures restricting, or nearly eliminating access to abortion, a right guaranteed by the Supreme Court in the landmark decision, Roe v. Wade.[14] Following the Supreme Court's partial dismantling in 2013 of the Voting Rights Act that had eliminated racial discrimination in voting, several states with large black populations immediately moved to restrict voting rights.
Unions, which did the most to raise the incomes of American workers to living levels, are among the principal targets of corporate plutocrats. Since Ronald Reagan became President in 1981, union membership has dropped by 50 per cent. Many Republican-controlled states are trying to limit the union rights of public employees. Not only have unions historically been responsible for obtaining living wages for the workers they represent, they also generally have been aligned with the Democratic Party, and have been a huge source of campaign funds by Democratic Party candidates. By killing the unions, Republicans not only help plutocrats drive down labor costs, they also eliminate a major source of funding of their political opponents.
Many of the people who lost their jobs that supported their middle class lifestyles now are working for much lower wages in service jobs and living in, or close to, poverty. A Federal Reserve study reported that the greatest demand for workers since the Great Recession has been in the poverty-level minimum wage-paying service industries, and the lowest demand is for the mid-level workers who once comprised the vast majority of the middle class.[15]
An April, 2014, report by the National Employment Law Project provided details supporting the Federal Reserve study. During the recession low-wage jobs, those paying less than $27,700 per year had both the lowest percentage of losses and the highest percentage of gains. Twenty-two percent of the total job losses were in the low-wage category, but 44 percent of new jobs were in that category. Mid-wage jobs, those paying between $27,700 and $41,600 had the lowest percentage of new jobs created, 26 percent, but the second highest rate of job losses, 37 percent. High-wage jobs, those paying more than $41,600 had the highest rate of losses, 41 percent, but a higher rate of new jobs created, 30 percent, than the mid-wage category.[16]
In addition, Right to Work laws in many states have limited the ability of unions to organize workers in the low-paying service industries, or in the mostly foreign owned auto factories that located in several Southern states.[17]
Education always has been one of the primary means to achieving the American Dream. Free public education, which became widely available late in the 19th Century, provided a primary means by which millions of immigrants were assimilated into American culture and were able to take advantage rapidly of the opportunities available. This powerful concept that has driven our nation – of a national identity incorporating people of all nationalities, races, religions and economic levels – is under assault today in many different ways. It is especially under assault at its heart – free public education. Republican-controlled state governments have been cutting education budgets, firing teachers, and diverting education funds to privately owned, profit-making charter schools, some of which are owned by their financial contributors.
Low-cost state colleges and universities, many of them initially funded by federal land grants, provided access to advanced education to millions of lower income people. Now, when education is more important than ever before, nearly all states have cut education budgets not only for secondary schools, but also for state colleges and universities.
The cost of a college degree in a public college, or university, used to be low, or non-existent. Now, in states like California, where before Ronald Reagan became Governor it was virtually free, it now costs approximately $25,000 a year. Private colleges and universities routinely cost twice as much. Most students have to borrow money to obtain a college education, which in today's high-tech economy is a virtual requirement to obtain a decent-paying job. Today the total of student loan debt, now more than $1.2 trillion, exceeds the total of credit card debt. Millions of young people face the prospect of having to borrow so much money to get an education to get a decent job that they will not have enough money left after paying on their loans to buy houses. That is not good for the economy, nor for the social fabric of the nation.
Enormous financial largesse has been made available, almost without restriction, to banks and major corporations, but the pension and health benefits of middle class public employees are being cut almost everywhere. Budgets for the education of our young people are being slashed. Food stamps and welfare for the poor have been cut. Social Security and Medicare, the most effective, and most important, social programs ever implemented, are in danger if Republicans get complete control of the federal government. And despite all the largesse, the tax breaks and credits, and other subsidies the wealthiest and most powerful banks and corporations receive, any effort to raise any tax to maintain programs that support the poor and middle classes are beaten down. The rich now want more tax cuts for themselves, and budget cuts for everyone else.
We continue to worship the American mythology, but we really no longer practice it. While we incarcerate more people than any other nation, our prison populations contain none of those responsible for the losses of trillions of dollars of national treasure that occurred because of the sub-prime mortgage crisis and other shenanigans of Wall Street. Our modern day robber barons are media stars, and have more influence on both of our political parties than any other interests. Our national economic policies continue to favor the rich and powerful at the expense of the middle class and the poor. This is not what our founders intended. There is no right to this favored treatment in our Constitution.
The change from the Depression-era progressive-liberal government policies to the generally conservative policies initiated by Reagan, but not significantly changed by his successors, has resulted in a dysfunctional national government that is both unable and unwilling to address the nation's major problems. While we have many economic problems, the real crisis is the failure of government to act responsibly to solve our problems and to help create the conditions that will enable the American Dream to be attainable for current and future generations. There actually are elected officials – especially members of Congress – who brag about how little Congress has done since Republicans gained control. Even polls showing substantial national support for an action fail to generate action in Congress.
This is not the American mythology. It is its opposite. It is a tale of greed and horror. This is why a new progressive movement to restore American optimism, opportunity, and equality of citizenship, is essential to our economic health and, ultimately, the secure future of this democracy.
[1] Adams, p -
[2] Stiglitz p. 137.
[3] Reagan, who defeated President Jimmy Carter's re-election effort in 1980, becoming the first conservative to be elected President since before the Great Depression, repeatedly used the term “shining city on a hill” as his vision of America during his eight years in office, echoing the writing of the Puritan John Winthrop and Jesus' Sermon on the Mount. Reagan's emphasis was somewhat different from the Puritan Winthrop's whose focus almost entirely was on religious purity of the city. Reagan's concept echoed de Tocqueville and Adams. In his 1989 farewell address Reagan described it as, “a tall proud city built on rocks stronger than oceans, wind-swept, God-blessed and teeming with people of all kinds living in harmony and peace, a city with free ports that hummed with commerce and creativity, and if there had to be city walls, the walls had doors and the doors were open to anyone with the will and the heart to get here.”
[4] William R. Emmons and Bryan J. Noeth. "Housing Rebound Broadens the Wealth Recovery But Much More is Needed." Federal Reserve Bank of St. Louis. "In the Balance," Issue 5-2013. http://www.stlouisfed.org/... accessed June 22, 2014
[5] Saez, Emmanuel with Thomas Piketty. "Striking it Richer: The Evolution of Top Incomes in the United States", Summary updated January 2013 http://elsa.berkeley.edu/...
[6] Ibid.
[7] Stiglitz, Joseph E. “Of the 1%, by the 1%, for the 1%.” New York: Vanity Fair, May, 2011.
[8] Domhoff, G, William. “Who Rules America.” http://www2.ucsc.edu/... (accessed June 27, 2014).
[9] Estelle Sommeiller and Mark Price.”The Increasing Unequal States of America.” Washington, DC: Economic Analysis and Research Network, Feb. 10, 2014 http://s2.epi.org/... (accessed June 27, 2014)
[10] The exception was Alaska, which only became a state in 1959.
[11] The term “robber barons” did not come into general use until the publication of The Robber Barons: The Great American Capitalists 1861-1901 by Matthew Josephson (Harcourt Brace, 1934, 1962)..
Perhaps the landmark history of the robber barons – although he did not use that term - and the criminal and other nefarious methods they employed to create their family financial empires, is the work cited in the Introduction, History of the Great American Fortunes, by Gustavus Myers. Chicago: Charles H. Kerr & Co., 1909–1910. Three volumes. This is a work of enormous original research and detail, and it was substantially revised and updated to the 1930s by the author in a one volume edition published in 1936 by The Modern Library. That is the edition that will be referenced herein.
[12] Perhaps the only 19th Century “Robber Baron” whose criminal conduct was detailed in a Congressional investigation of his fraudulent and corrupt dealings with the Union before and during the Civil War, including selling the government a ship that he knew not to be seaworthy. .Myers pp. 279-289
[13] Duhigg, Charles and David Barboza. “In China, Human Costs Are Built Into an iPad.” The New York Times. Jan. 25, 2012.
[14] ROE v. WADE, 410 U.S. 113 (1973)
[15] For a discussion of this subject, with links to various articles, see http://economistsview.typepad.com/... (Accessed June 27, 2014)
[16] "Data Brief: The Low-Wage Recovery, Industry Employment and Wages Four Years into the Recovery." New York: National Employment Law Project, April, 2014.
[17] A union organizing effort in a Tennessee BMW plant in 2014 failed to win the votes necessary to form a bargaining unit.