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Summary
Summary
A groundbreaking work that identifies the real culprit behind one of the great economic crimes of our time-- the growing inequality of incomes between the vast majority of Americans and the richest of the rich.
We all know that the very rich have gotten a lot richer these past few decades while most Americans haven't. In fact, the exorbitantly paid have continued to thrive during the current economic crisis, even as the rest of Americans have continued to fall behind. Why do the "haveit- alls" have so much more? And how have they managed to restructure the economy to reap the lion's share of the gains and shift the costs of their new economic playground downward, tearing new holes in the safety net and saddling all of us with increased debt and risk? Lots of so-called experts claim to have solved this great mystery, but no one has really gotten to the bottom of it--until now.
In their lively and provocative Winner-Take-All Politics, renowned political scientists Jacob S. Hacker and Paul Pierson demonstrate convincingly that the usual suspects--foreign trade and financial globalization, technological changes in the workplace, increased education at the top--are largely innocent of the charges against them. Instead, they indict an unlikely suspect and take us on an entertaining tour of the mountain of evidence against the culprit. The guilty party is American politics. Runaway inequality and the present economic crisis reflect what government has done to aid the rich and what it has not done to safeguard the interests of the middle class. The winner-take-all economy is primarily a result of winner-take-all politics.
In an innovative historical departure, Hacker and Pierson trace the rise of the winner-take-all economy back to the late 1970s when, under a Democratic president and a Democratic Congress, a major transformation of American politics occurred. With big business and conservative ideologues organizing themselves to undo the regulations and progressive tax policies that had helped ensure a fair distribution of economic rewards, deregulation got under way, taxes were cut for the wealthiest, and business decisively defeated labor in Washington. And this transformation continued under Reagan and the Bushes as well as under Clinton, with both parties catering to the interests of those at the very top. Hacker and Pierson's gripping narration of the epic battles waged during President Obama's first two years in office reveals an unpleasant but catalyzing truth: winner-take-all politics, while under challenge, is still very much with us.
Winner-Take-All Politics --part revelatory history, part political analysis, part intellectual journey-- shows how a political system that traditionally has been responsive to the interests of the middle class has been hijacked by the superrich. In doing so, it not only changes how we think about American politics, but also points the way to rebuilding a democracy that serves the interests of the many rather than just those of the wealthy few.
Author Notes
Jacob S. Hacker is the Stanley B. Resor Professor of Political Science at Yale University. A Fellow at the New America Foundation in Washington, DC, he is the author of The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream , The Divided Welfare State, and, with Paul Pierson, of American Amnesia: The Forgotten Roots of Our Prosperity ; Winner-Take-All Politics: How Washington Made the Rich Richer--and Turned Its Back on the Middle Class ; Off Center: The Republican Revolution and the Erosion of American Democracy. He has appeared recently on The NewsHour, MSNBC, All Things Considered, and Marketplace. He lives in New Haven, Connecticut.
Paul Pierson is the John Gross Professor of Political Science at the University of California at Berkeley. He is the author of Politics in Time , Dismantling the Welfare State? , and (with Jacob S. Hacker), American Amnesia: The Forgotten Roots of Our Prosperity ; Winner-Take-All Politics: How Washington Made the Rich Richer--and Turned Its Back on the Middle Class ; Off Center: The Republican Revolution and the Erosion of American Democracy . His commentary has appeared in The New York Times Magazine , The Washington Post , and The New York Review of Books . He lives in Berkeley, California.
Reviews (4)
Publisher's Weekly Review
Perhaps you haven't heard: over the last 30 years the middle class has shriveled while the wealthy enjoy the skewed economics of the gilded age. The authors do their best to blow the dust off of their subject by taking a close look at this political "30 year war" and carefully parsing its roots. Corporate coalitions, lobbying, tax policies geared to the wealthy, and the extreme use of the "rule of 60" filibuster have tipped the scales and ultimately heaped blame onto the majority party. While Government can affect the distribution of wealth, it doesn't catch up with economic realities in time, and a changing Washington blocks attempts at reform. Where moderates used to rule the swing vote, now radical conservatives have taken hold. Unions are powerless, public interest groups prevail, and Christian conservatives drag Republicans ever right. Meanwhile, voters remain poorly informed. Though they never shed the sheen of "old news," Hacker and Pierson end on a note of optimism: the middle class can take the majority again with a "politics of renewal" shepherded in on a wave of "mass engagement" and "elite leadership." (Sept.) © Copyright PWxyz, LLC. All rights reserved.
Booklist Review
How did the widening gap between haves and have-nots even worse, the haves and have-mores come about? In the past 30 years, the top 1 percent have enjoyed 36 percent of all the income growth generated in the U.S. economy. Treating the growing socioeconomic gap like a whodunit, Hacker and Pierson painstakingly detail the gap between the superrich and everyone else. They paint a portrait of a nation that has fallen behind other developed nations in the widening income gap among its citizens. Worse, the wealth gap cannot be explained away by a lack of education or skills. Even among the well educated, a chasm has developed between the middle class and the wealthy. Whodunit? The U.S. government, which details changes in taxation and public policy, particularly regarding the financial markets, which have favored the wealthy at the expense of others over the last 30 years. Finally, they consider the long-term implications of this troubling trend and offer some encouraging signs health care and financial reform, however anemic and a growing discontent with the status quo.--Bush, Vanessa Copyright 2010 Booklist
New York Review of Books Review
It's a sign of how poorly liberals market themselves and their ideas that the word "liberal" is still in disrepute despite the election of the most genuinely liberal president that the political culture of this country will probably allow. "Progressive" is now the self-description of choice for liberals, though it's musty and evasive. The basic equation remains: virtually all Republican politicians call themselves conservative; few Democratic politicians call themselves liberal. Even retired Classic Coke liberals like Walter F. Mondale are skittish about their creed. "I never signed up for any ideology," he writes in his memoirs. That would be fine (people are sick of labels) if clarity weren't such an obvious political advantage. Simple ideology routinely trounces nuanced pragmatism, just as emotion so often beats reason and the varsity fullback will most likely deck the captain of the debate team in a fistfight. For four decades, conservatives have used the word "liberal" as an epithet, while liberals have used "conservative" defensively ("I'm a little conservative on . . ."). And Fox fans range out of factual bounds ("death panels") more than their NPR-listening counterparts in the liberal "reality-based community" (a term attributed to a Bush White House aide by the author Ron Suskind). Liberals are also at a disadvantage because politics, at its essence, is about self-interest, an idea that at first glance seems more closely aligned with conservatism. To make their more complex case, liberals must convince a nation of individualists that enlightened self-interest requires mutual interest, and that the liberal project is better constructed for the demands of an increasingly interdependent world. That challenge is made even harder because of a tactical split within liberalism itself. Think of it as a distinction between "action liberals" and "movement liberals." Action liberals are policy-oriented pragmatists who use their heads to get something important done, even if their arid deal-making and Big Money connections often turn off the base. Movement liberals can sometimes specialize in logical arguments (e.g., Garry Wills), but they are more often dreamy idealists whose hearts and moral imagination can power the deepest social change (notably the women's movement and the civil rights movement). They frequently over-indulge in fine whines, appear naïve about political realities and prefer emotionally satisfying gestures to incremental but significant change. Many Democrats are an uneasy combination of realpolitik and "gesture politics," which makes for a complicated approach toward governing. As Senator Al Franken says of the Republicans: "Their bumper sticker . . . it's one word: 'No.' . . . Our bumper sticker has - it's just way too many words. And it says, 'Continued on next bumper sticker.' " Action liberalism has its modern roots in empiricism and the scientific method. Adam Smith was the original liberal. While "The Wealth of Nations" (1776) has long been the bible of laissez-faire conservatism, Smith's first book, "The Theory of Moral Sentiments" (1759), pioneered liberal ideas of social and moral interdependence. By today's standards, Abraham Lincoln's support for large-scale government spending on infrastructure and appeals to "the better angels of our nature" would qualify him as a liberal. In the 20th century, progressives cleaned up and expanded government, trust-busted on behalf of what came to be known as "the public interest," and experimented with different practical and heavily compromised ways of addressing the Great Depression. The quintessential example of the pragmatic core of liberalism came in 1943, when President Franklin D. Roosevelt announced that "Dr. New Deal" had become "Dr. Win the War." Roosevelt believed that the ends of liberalism - advancing democracy, expanding participation, protecting the environment and consumers (first promoted by a progressive Republican, Theodore Roosevelt), securing the vulnerable - were fixed, but that the timing and means of achieving them were highly negotiable, a distinction that often eludes modern liberals. Whatever F.D.R.'s advantages over President Obama in communicating with the public, they share an unsentimental emphasis on what's possible and what works. Both men, for instance, rejected the urgent pleas of some liberals to nationalize the banks and tacked toward their goals rather than standing ostentatiously on principle. Roosevelt was criticized by New Deal liberals in 1935 for allowing Congress to water down the Social Security bill before passage. Sound familiar? Many movement liberals consider such concessions to be a sellout, just as they thought President Bill Clinton sold out by signing welfare reform in 1996. It's important to criticize parts of Obama's performance where merited - he didn't use his leverage over banks when he had it - but some liberal writers have gone further, savaging his motives and integrity. Roger D. Hodge's book is called THE MENDACITY OF HOPE: Barack Obama and the Betrayal of American Liberalism (Harper/HarperCollins, $25.99), as if Obama's corporate fund-raising and failure to live up to the unrealistic expectations of purist liberals made him and his team puppets and liars. Hodge says the fact that Obama is "in most respects better" than George W. Bush or Sarah Palin is "completely beside the point." Really? Since when did the tenets of liberalism demand that politics no longer be viewed as the art of the possible? Hodge, formerly the editor of Harper's Magazine, makes valid arguments about the failure of Democrats to undertake the essential liberal function of checking the excesses of capitalism. But the political scientists Jacob S. Hacker and Paul Pierson are closer to the mark in their important new book, WINNER-TAKE-ALL POLITICS: How Washington Made the Rich Richer - and Turned Its Back on the Middle Class (Simon & Schuster, $27). Without rationalizing specific policy choices, they describe the "paradox" Obama confronted on taking office when the country faced a genuine risk of another depression: "how to heal a fragile economy without simply reasserting the dominance of the forces that had brought that economy to the brink of ruin." It's the healing part - preventing another depression - that voters often forget in their understandable rage over bailouts, almost all of which, by the way, have already been paid back. In making the broader case that the rich have essentially bought the country, Hacker and Pierson zero in on two killer statistics. Over the last three decades, the top 1 percent of the country has received 36 percent of all the gains in household incomes; 1 percent got more than a third of the upside. And the top one-tenth of 1 percent acquired much more of the nation's increased wealth during those years than the bottom 60 percent did. That's roughly 300,000 super-rich people with a bigger slice of the pie than 180 million Americans. The collapse of the American middle class and the huge transfer of wealth to the already wealthy is the biggest domestic story of our time and a proper focus of liberal energy. Arianna Huffington wasn't exaggerating when she entitled her latest book THIRD WORLD AMERICA: How Our Politicians Are Abandoning the Middle Class and Betraying the American Dream (Crown, $23.99). Poverty in the United States isn't as bad as in the third world, but the disparity between rich and poor is far beyond that of other highly developed nations. While Huffington's muscular tone fits the mood of today's liberals, she insists on pivoting to the positive. After excoriating politicians, she cites innovative nonprofits that can help liberals feel less helpless. THE good news reported by Hacker and Pierson is that American wealth disparities - almost exactly as wide as in 1928 - are not the residue of globalization or technology or anything else beyond our control. There's nothing inevitable about them. They're the result of politics and policies, which tilted toward the rich beginning in the 1970s and can, with enough effort, be tilted back over time (emphasis added for impatient liberals). The primary authors of the shocking transfer of wealth are Republicans, whose claims to be operating from principle now lie in tatters. It doesn't take feats of scholarship to prove that simultaneously supporting balanced budgets, status quo entitlement and defense spending, and huge tax cuts for the wealthy (the Republicans' new plan) is mathematically impossible and intellectually bankrupt. But of course Democrats, caught up for years in the wonders of the market, are complicit in the winner-take-all ethos. President Clinton and his Treasury secretary Robert E. Rubin played to the bond market, and many of their protégés later came to dominate the Obama administration. Hacker and Pierson call Rahm Emanuel types "Mark Hanna Democrats," a reference to William McKinley's campaign manager, who said: "There are two things that are important in politics. The first is money, and I can't remember what the second one is." Action liberals can explain that they opposed the ruinous 2001 Bush tax cuts and that their prodigious fund-raising is necessary to stay competitive, but large segments of their base are no longer buying it. They want a more bare-knuckle attack on Wall Street than Obama has so far offered. But now the president is getting hit from both sides. In FORTUNES OF CHANGE: The Rise of the Liberal Rich and the Remaking of America (Wiley, $25.95), David Callahan points out that Obama raised more than John McCain in 8 of the 10 wealthiest ZIP codes in the United States. Callahan, the author of "The Cheating Culture," notes that Hollywood money proves that rich donors don't always push the parties to the right. It can also push the Democrats left on issues like the environment and gay rights. And yet in the months since he finished his book, many wealthy Obama supporters have grown disenchanted with what they see as the president's "anti-business" language (he attacked "fat-cat bankers"). This was inevitable. "A benign plutocracy is still a plutocracy," Callahan concludes. He quotes Louis Brandeis: "We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both." That's as relevant today to liberal thinking as it was when Brandeis said it, decades ago. On social issues, liberals have mostly won, with the public backing them on abortion, gay rights and other live-and-let-live ideas. That doesn't necessarily make liberals more libertine (in fact, divorce rates are higher in red states than in blue). But it floats them closer to history's tide. The great hope for the future of liberalism lies in the changing demographics of the country. With younger voters and Hispanics moving sharply into the Democratic column, Republicans are in danger of being marginalized as an old, white, regional party. The Tea Party energy might be seen in retrospect as the last gasp of the "Ozzie and Harriet" order, with Obama as the scary face of a different-looking America. (Why else did Tea Partiers not seem to care over the last decade about President Bush's profligate spending?) For now, of course, it's conservatives who have the mojo, and not just because the economy is so bad. Despite historic advances in 2008, liberals remain better at complaining than organizing, which is a big reason they may take a shellacking in November. A couple of new books recall the story about the civil rights and labor leader A. Philip Randolph, who was visiting F.D.R. to push for a policy. "Make me do it," the president is said to have replied. Roosevelt meant that his visitors should go out and organize and demonstrate, not just expect him to wave a magic wand. Liberals have a tendency to think that when the "right" person wins, order has been restored. The idea of permanent trench warfare between liberals and conservatives is an abstraction to them rather than a call to arms. One reason health care reform stalled in the summer of 2009 was that Tea Party forces turned up en masse at town meetings in swing districts while liberals stayed home, convinced that after electing Obama they were free to go on Miller Time. The enactment of the Patient Protection and Affordable Care Act of 2010 was a bad experience for certain movement liberals. If conservatives were mindless in describing as "socialism" what was essentially a plan pioneered by Bob Dole, Howard Baker and Mitt Romney, liberals seemed strangely incapable of taking yes for an answer after more than 70 years of trying to expand coverage. They were right about the value of a public option, but wrong to attack Obama for not obtaining it when the votes were never there in the Senate. Many Democrats were ignorant of all the good things in the legislation (partly the fault of White House mistakes in framing the message) and politically suicidal in echoing Howard Dean's infamous cry of "Kill the bill!" By the end of the process, voters were revolted by the notorious "Cornhusker kickback" and other smelly deals. If making laws is akin to making sausage (you don't really want to know what goes into it), the stench from Capitol Hill spoiled everyone's appetite for the liberal meal. But somewhere Ted Kennedy is smiling. To the list of revealing Kennedy books, add Burton Hersh's EDWARD KENNEDY: An Intimate Biography (Counterpoint, $32). Hersh, a Harvard classmate of the future senator, ignores much of his Senate career but makes good use of sources going back six decades to paint a personal portrait. While Hersh's uncontrolled freight-train prose is loaded with often extraneous details, he nonetheless brings many of the old stories alive again. Kennedy was both the heart and the tactical brains of late-20th-century liberalism, which won many small victories even as it fell out of fashion. Had he been vital in 2009 and able to work his charm across the aisle, senators in both parties agree, the health care debate would have been healthier. In GETTING IT DONE: How Obama and Congress Finally Broke the Stalemate to Make Way for Health Care Reform (Thomas Dunne/St. Martin's, $25.99), Tom Daschle, the former Senate majority leader, strips the color from that story in order to maintain his Washington relationships. But Daschle, forced by a tax problem to step down as Obama's health care czar, has written, with David Nather, an exceptionally clear account of an exceptionally tangled piece of recent history. He's especially good on why the credibility of Democrats depends on how skillfully they implement the bill over the next 10 years. Left unsaid is that Democrats in 2012 will face not just hostile Republicans favoring repeal but also cost controls on Medicare that will encourage conservatives to resume their pandering to the elderly, an approach long taken by liberals to retain power. Beyond the specifics of the bill, Daschle is obviously right that "health care has become a symbol of the deep divide in Americans' feelings about the role government should play." In his Inaugural Address, Obama tried to define his view of that role when he said, "The question we ask today is not whether our government is too big or too small, but whether it works." This is a sensible definition of modern liberalism but also a bloodless and incomplete one, evoking Michael Dukakis's claim that the 1988 presidential election was about "competence, not ideology." That definitional dispute had first flared four years earlier, when Gary Hart mounted a stiff challenge to Walter Mondale for the Democratic nomination. Both have new books out. Hart's eccentric contribution, THE THUNDER AND THE SUNSHINE: Four Seasons in a Burnished Life (Fulcrum, $25), will remind readers why he and the presidency would have been an awkward fit. His bitterness over the sex scandal that ended his political career in 1987 hasn't fully ebbed. As always, he tries to aim higher: Condoleezza Rice is in the index, but Donna Rice isn't. The book contains a sustained and ponderous "Odyssey" metaphor, with one chapter opening, "As he rises from his stony perch above the harbor, Ulysses tells his mariners that he is prepared to sail beyond the sunset." Hart began his career as a 1960s movement liberal, a seeker and intellectual (he received a doctorate from Oxford in 2001, at the age of 64) with Homeric aspirations. He ruminates well about some of the essential differences between the American political creeds. Conservatives, by nature more skeptical, "accept that life is just one damn thing after another, that we are on our own, and it is up to us to make the most of it. But for those with a sense of commonwealth and common good, the shattering of dreams and hopes is always viewed more tragically." True enough, but it raises the question of why attaching emotion to politics makes conservatives stronger but often weakens liberals. In the years since Presidents Kennedy and Johnson, something soft has wormed its way into the heart of liberalism, a diffidence about the cut-and-thrust of politics. Carville-style fisticuffs are satisfying, but have not yet made it a fighting faith again. Mondale's memoir, THE GOOD FIGHT: A Life in Liberal Politics (Scribner, $28), written with David Hage, is, not surprisingly, more conventional than Hart's, but he comes to terms more squarely with the limits of liberalism. Looking back at his early days in the Senate in 1965, at the peak of Lyndon Johnson's Great Society - what he calls the "high tide" of liberalism - Mondale says: "A lot of it was wonderful, overdue and much needed. But we also overstated what was possible." He recalls the years in the wilderness, when "I wanted to talk about poverty and opportunity, but people wondered why I wanted to give away things for free." Even in feeling vindicated by Obama's election, he admits that "liberalism is still on trial." Especially when it comes to education. It's encouraging that even a paleoliberal like Mondale now believes that "we should weed out teachers who are unsuited to the profession" and that teachers' union rules "must have flexibility." There's a great struggle under way today within the Democratic Party between Obama and the reformers on one side and, on the other, hidebound adult interest groups (especially the National Education Association) that have until recently dominated the party. If liberalism is about practical problem solving, then establishing the high standards and accountability necessary to rescue a generation of poor minority youths and train the American work force of the future must move to the top of the progressive agenda. Education reform is emerging as the first important social movement of the 21st century, a perfect cause for a new generation of idealists. Where education might offer grounds for cooperation with conservatives, foreign policy almost certainly will not. After a long period of favoring interventionism to fight fascism and Communism, liberals have been doves since Vietnam, even in a post-9/11 world. If Democrats retain control of the House, they will pressure Obama hard next year to begin withdrawing from Afghanistan as promised. Chalmers Johnson, a noted scholar of Japan, has in recent years made a point of explaining how the Afghan freedom fighters the C.I.A. supported in the 1980s, when they were fighting the Soviet Union, are now the Taliban and Qaeda forces trying to kill Americans. In DISMANTLING THE EMPIRE: America's Last Best Hope (Metropolitan/Holt, $25), he argues for a complete reordering of the national security state to save not just lives but treasure. While Obama won't go as far as Johnson urges, a big tussle between the White House and the Pentagon is likely next year, when we'll learn if neoconservatives can once again convince the country that liberals are "unpatriotic." The answer to that question - and to the immediate fate of liberal ideas - depends largely on the performance of one man, the president. Jeffrey C. Alexander's intriguing argument in THE PERFORMANCE OF POLITICS: Obama's Victory and the Democratic Struggle for Power (Oxford University, $29.95), a meticulous review of the 2008 campaign, is that his fellow sociologists have overemphasized impersonal social forces at the expense of the theater of public life - the way politicians perform "symbolically." It's a prosaic call for a more poetic (or at least aesthetic) understanding of politics. Ideology must connect viscerally, or it doesn't connect at all. Liberalism, like any idea or product, can succeed only if it sells. Roosevelt was criticized by New Deal liberals for watering down the Social Security bill. Sound familiar? Why does emotion make conservatives stronger but often weaken liberals? Jonathan Alter, a columnist for Newsweek and an analyst for MSNBC, is the author of "The Defining Moment: FDR's Hundred Days and the Triumph of Hope" and, most recently, "The Promise: President Obama, Year One." By Christopher Caldwell Within the space of a week last summer, one judge in Arizona, ruling in a suit brought by the Obama administration, blocked a provision in a new state law permitting police officers to check the status of suspected illegal immigrants, while another blocked the implementation of a California referendum banning gay marriage. The two decisions imposed liberal policies that public opinion opposed. These things happen, of course. Congress had acted contrary to measurable public opinion when it passed health care reform in March. What made the two judicial rulings different was that both seemed to challenge the principle that it is the people who have the last word on how they are governed. American conservatives, most notably the activists who support various Tea Party groups, have a great variety of anxieties and grievances just now. But what unites them all, at least rhetorically, is the sense that something has gone wrong constitutionally, shutting themout of decisions that rightfully belong to them as citizens. This is why many talk about "taking our country back." If polls are to be believed, conservatives should have no difficulty taking the country back or doing whatever else they want with it. Gallup now counts 54 percent of likely voters as self-described conservatives and only 18 per cent as liberals. More than half of Americans (55 per cent) say they have grown more conservative in the past year, according to the pollsters Scott Rasmussen and Doug Schoen in their new book, MAD AS HELL: How the Tea Party Movement Is Fundamentally Remaking Our Two-Party System (Harper/HarperCollins, $27.99). America's self-described conservatives, however, have a problem: They lack a party. While the Tea Party may look like a stalking horse for Republicans, the two have been a bad fit. Insurgents have cut a swath through Republicans' well-laid election plans. They helped oust Florida's party chairman. They toppled the favored candidates of the party establishment in Alaska, Colorado, Delaware, Florida, Kentucky, New York, South Carolina, Utah and elsewhere. More than 70 percent of Republicans embrace the Tea Party, but the feeling is not reciprocated. If conservatives could vote for the Tea Party as a party, they would prefer it to the Republicans, according to Rasmussen. (Lately, Rasmussen's polling, more than others', has favored Republicans. Not coincidentally, perhaps, it has picked up certain recent shifts earlier and more reliably - like the surge that won the Republican Scott Brown the late Ted Kennedy's Massachusetts Senate seat in January.) Much of the Tea Party is made up of conservative-leaning independents. The journalist Jonathan Rauch has called these people "debranded Republicans," and they are debranded for a reason - 55 percent of them oppose the Republican leadership. While Republicans are likely to reap aU the benefit of Tea Party enthusiasm in November's elections, this is a marriage of convenience. The influential conservative blogger Erick Erickson of RedState.com, insists that one of his top goals is denying the Republican establishment credit for any electoral successes. Hence the Republicans' problem. After November, the party will need to reform in a conservative direction, in line with its base's wishes, and without a clear idea of whether the broader public will be well disposed to such reform. How Republicans wound up in this situation requires one to state the obvious. Well before George W. Bush presided over the collapse of the global financial system, a reasonable-sounding case was being mustered that he was the worst president in history. Foreign policy was the grounds on which voters repudiated him and his party, starting in 2006, and President Obama's drawdown of forces in Iraq may be the most popular thing he has done. But foreign policy is unlikely to drive voters' long-term assessment of the parties. The Iraq misadventure was justified with the same spreading-democracy rhetoric that Bill Clinton, Madeleine Albright and other Democrats used to justify interventions in Haiti and the Balkans in the 1990s. President Obama's difficulties in resolving Afghanistan and closing Guantánamo show that Bush's options were narrower than they appeared at the time. Republicans' future electoral fortunes will depend on domestic policy and specifically on whether they can reconnect with "small-c" conservatism - the conservatism whose mottoes are "Neither a borrower nor a lender be" and "Mind your own business," and the opposite of which is not liberalism but utopianism. The Bush administration was a time of "big-C" Conservatism, ideological conservatism, which the party pursued with mixed results. As far as social issues were concerned, this ideology riveted a vast bloc of religious conservatives to the party, and continues to be an electoral asset (although that bloc, by some measures, is shrinking). Had gay marriage not been on several state ballots in 2004, John Kerry might now be sitting in the White House. Ideological conservatism also meant "supply-side economics" - a misnomer for the doctrine that all tax cuts eventually pay for themselves through economic growth. The problem is, they don't. So supply-side wound up being a form of permanent Keynesian stimulus - a bad idea during the overheated years before 2008. Huge tax cuts, from which the highest earners drew the biggest benefits, helped knock the budget out of balance and misallocated trillions of dollars. To a dispiriting degree, tax cuts remain the Republican answer to every economic question. Eric Cantor, potentially the House majority leader, told The Wall Street Journal that if Democrats went home without renewing various Bush-era tax cuts (which they did), "I promise you, H.R. 1 will be to retroactively restore the lower rates." Until recently, supply side was political gravy for Republicans. It confirmed the rule that in American politics the party most plausibly offering something for nothing wins. In the 1980s, the New York congressman Jack Kemp was the archetype of an ambitious, magnanimous, "sunny" kind of Republican who let you keep more of your taxes while building more housing for the poor. Democrats who questioned the affordability of these policies sounded like killjoys. In a time of scarcity like our own, calculations change. Today your tax cut means shuttering someone else's AIDS clinic. Your welfare check comes off of someone else's dinner table. Deficits in the Obama era are a multiple of the Bush ones, and the product of a more consciously pursued Keynesianism. But that does not absolve Republicans of the need to find a path to balancing the budget. With some exceptions - like Representative Paul Ryan of Wisconsin, a Kemp protégé who has laid out a "Road Map" for reforming (i.e., cutting) Social Security in coming generations - Republicans have not adjusted to zero-sum economics. There is certainly no credible path to budget balance in the "Pledge to America" released in late September. YET the case against supply-side economics can never be airtight or decisive, and Republican tax promises will probably help the party this year. That is because taxes are not just an economic benchmark, but a political one. The public should not expect more in services than it pays in taxes. But the government should not expect more in taxes than it offers in representation. And the number of Americans who feel poorly represented has risen alarmingly during the Obama administration. Americans' feelings toward the president are complex. On the one hand, there is little of the ad hominem contempt that was in evidence during the Clinton and Bush administrations. There are no campaign spots showing a Congressional candidate's face morphing into Obama's. But the president's ideology, fairly or not, has provoked something approaching panic. Not many Americans agree that Obama is a closet totalitarian, as the Fox News host Glenn Beck has claimed. But they have serious misgivings of a milder kind. In retrospect it looks inevitable that Republicans would have been punished by voters in 2008; but until Lehman Brothers collapsed in mid-September of that year, it was far from certain they would be, despite strong Democratic gains in the 2006 elections. Independent and Republican voters wanted an assurance that Senator Obama would not simply hand over power to the Democratic Party. He consistently provided it. The centerpiece of his campaign was a promise of post-partisanship. He introduced himself as a Senate candidate in 2004 at the Boston convention, deriding as false the tendency of pundits to "slice and dice our country into red states and blue states" - a bracingly subversive thing to do at a partisan convention. He praised Ronald Reagan. And in 2008 he got more than 52 percent of the vote, a higher percentage than many political consultants thought possible for a Democrat. That means he came into office unusually dependent on the good will of independents and Republicans. And yet, once in power, the president set to work enacting the agenda of the same Congressional Democrats he had implied he would keep at arm's length. No president in living memory has compiled a slenderer record of bipartisanship. It is often said in the president's defense that Republican obstructionism left him no choice. Today, this is true - and it has put an end, for now, to the productive part of his presidency. But it was not true at the time of the stimulus in early 2009, when the president's poll numbers were so stratospherically high that it appeared risky to oppose him on anything. Republicans certainly cannot be blamed for the way Democrats passed their health care bill. Whether or not the deal-making and parliamentary maneuvering required to secure passage was unprecedented, it was unprecedented in the era of C-Span and blogs, and many voters found it corrupt. The president's legislative program has been bought at a huge price in public discontent. The expression "picking up nickels in front of a steamroller" has been used to describe a lot of the gambles taken by A.I.G. and other companies on the eve of the financial crisis. It describes the president's agenda equally well. It is vital to understand where this steamroller is coming from. According to Gallup, support for Obama has fallen only slightly among Democrats, from 90 percent to 81 percent, and only slightly among Republicans, from 20 percent to 12 percent. It is independents who have abandoned him: 56 percent approved of him when he came into office, versus 38 percent now. The reason the country is getting more conservative is not that conservatives are getting louder. It is that people in the dead center of the electorate are turning into conservatives at an astonishing rate. The frustration and disappointment of these voters is probably directed as much at themselves as at their president. Therewere two ways to judge Obama the candidate - by what he said or by the company he kept. The cable-TV loudmouths who dismissed Obama right off the bat were unfair in certain particulars. But, on the question of whether Obama, if elected, would be more liberal or more conservative than his campaign rhetoric indicated, they arrived at a more accurate assessment than those of us who pored over his speeches, parsed his interviews and read his first book. SOME wish the president had governed more to the left, insisting on a public option in the health care bill and pushing for a larger stimulus. But those people make up only a small fraction even of the 18 percent of voters who call themselves liberal. In a time of growing populism and distrust, Republicans enjoy the advantage of running against the party of the elite. This seems to be a controversial proposition, but it should not be. It is not the same as saying that Democrats are the party of elitism. One can define elitism as, say, resistance to progressive taxation, and make a case that Republicans better merit that description. But, broadly speaking, the Democratic Party is the party to which elites belong. It is the party of Harvard (and most of the Ivy League), of Microsoft and Apple (and most of Silicon Valley), of Hollywood and Manhattan (and most of the media) and, although there is some evidence that numbers are evening out in this election cycle, of Goldman Sachs (and most of the investment banking profession). That the billionaire David Koch's Americans for Prosperity Foundation supports the Tea Party has recently been much in the news. But the Democrats have the support of more, and more active, billionaires. Of the 20 richest ZIP codes in. America, according to the Center for Responsive Politics, 19 gave the bulk of their money to Democrats in the last election, in most cases the vast bulk - 86 percent in 10024 on the Upper West Side. Meanwhile, only 22 percent of non-high-school educated white males are happy with the direction the country is going in. The Democrats' overlap with elites leaves each party with a distinctive liability. The Democrats appear sincerely deluded about whom they actually represent. Democrats - who would have no trouble discerning elite solidarity in the datum that, say, in the 1930s the upper ranks of Britain's media, church, business and political institutions were dominated by Tories - somehow think their own predominance in similar precincts is . . . what? Coincidence? Irony? Republicans, meanwhile, do not recognize the liability that their repudiation by elites represents in an age of expertise and specialization - even in the eyes of the non-elite center of the country. Like a European workingman's party at the turn of the last century, the Republican Party today inspires doubts that it has the expertise required to run a large government bureaucracy. Whatever one thinks of Obama's economic team, and Bill Clinton's before it, the Bush White House was never capable, in eight years, of assembling a similarly accomplished one. Nor is there much evidence that Republicans were ever able to conceptualize the serious problems with the nation's medical system, let alone undertake to reform it on their own terms. "Democrats and Republicans agree that our health care system is broken in fundamental ways," Eric Cantor notes in YOUNG GUNS: A New Generation of Conservative Leaders (Threshold, $15), a campaign book he has written with Paul Ryan and Representative Kevin McCarthy of California. Well, great. But for years now, Republicans discussing the availability and cost of health care have been like a kid who, when asked why he hasn't cleaned up his room, replies, "I was just about to!" It is in the context of class that Sarah Palin's two-year career on the American political scene is so significant. She "almost seemed to set off a certain trip wire within the political class regarding access to power," as Rasmussen and Schoen put it. But it is not an ideological trip wire. The Alaska governorship that catapulted Palin onto the national scene requires dealing with oil executives and divvying up the money from their lease payments. It is a job for a pragmatist, not a preacher. Palin has sometimes opposed big government and sometimes favored it, as became clear when journalists discovered that, contrary to Palin's claims, she had been slow to oppose the wasteful Alaskan "Bridge to Nowhere," which became a symbol of federal pork. The controversies over Palin are about class (and markers of class, like religiosity), not ideology. She endorsed several underdog insurgent candidates who wound up winning Republican primaries in the spring and summer. How did she do that, when few observers - no matter how well informed, no matter how close to the Republican base - had given them a chance? Either Palin is a political idiot savant of such gifts that those who have questioned her intelligence should revise their opinion or, more likely, she is hearing signals from the median American that are inaudible to the governing classes - like those frequencies that teenagers can hear but adults can't. This talent alone does not make Palin a viable national leader. But until Republican politicians learn to understand the party's new base, Palin will be their indispensable dragoman. After November's election, the party will either reform or it will disappoint its most ardent backers. If it reforms, it is unlikely to be in a direction Palin disapproves of. In THE RULING CLASS: How They Corrupted America and What We Can Do About It (American Spectator/Beaufort, paper, $12.95), Angelo M. Codevilla, an emeritus professor of international relations at Boston University who formerly was on the staff of the Senate Select Committee on Intelligence, gives a very interesting, conservative account of class politics. Codevilla sees the country as divided into "the Ruling Class" and "the Country Class," who "have less in common culturally, dislike each other more and embody ways of life more different from one another than did the 19th century's Northerners and Southerners." Codevilla's terms are often frustratingly vague. The Ruling Class, in his definition, includes top Democrats as well as Bush Republicans, despite their many differences; the Country Class seems sometimes to mean the passive remainder of the country, and sometimes the vanguard of ideological insurgents. And yet Codevilla captures the texture of today's conservative grievances with admirable boldness and convincing exactitude. Slights are harder to tolerate than exactions, he finds: "Day after day, the Ruling Class's imputations - racist, stupid, prone to violence, incapable of running things - hit like artillery cover for the advance of legislation and regulation to restrict and delegitimize." This is a polemic, and people wholly out of sympathy with conservatism will dislike it. But Codevilla makes what we might call the Tea Party case more soberly, bluntly and constructively than anyone else has done. Codevilla takes seriously the constitutional preoccupations of today's conservative protesters and their professed desire for enhanced self-rule. He sees that the temptation merely to form "an alternative Ruling Class" in the mirror image of the last one would be self-defeating. Americans must instead reacquire the sinews of self-government, he thinks. Self-government is difficult and time-consuming. If it weren't, everyone would have it. The "light" social democratic rule that has prevailed for the past 80 years has taken a lot of the burdens of self-government off the shoulders of citizens. They were probably glad to be rid of them. Now, apparently, they are changing their minds. Codevilla has no illusions about their prospects for success. Americans are not in the position to roll back their politics to before the time when Franklin D. Roosevelt or Woodrow Wilson or whoever-you-like ran roughshod over the Yankee yeomanry. Town, county and state governments no longer have much independent political identity. They are mere "conduits for federal mandates," as Codevilla puts it. He notes that the 132 million Americans who inhabited the country in 1940 could vote on 117,000 school boards, while today a nation of 310 million votes in only 15,000 school districts. Self-rule depends on constitutional prerogatives that have long been revoked, institutions that have long been abandoned and habits of mind that were unlearned long ago. (Not to mention giving up Social Security and Medicare benefits that have already been paid for.) "Does the Country Class really want to govern itself," Codevilla asks, "or is it just whining for milder taskmasters?" WE will find out soon enough. With a victory in November, Republicans could claim a mandate to repeal the Obama health care law and roll back a good deal of recent stimulus-related spending, neither of which they've made any pretense of tolerating. But achieving the larger goal - a citizenry sufficiently able to govern itself to be left alone by Washington - will require more. The Republican Party's leaders will need to sit down respectfully with the people who brought them to power and figure out what they agree on. If Republicans make the error that Democrats did under President Obama, mistaking a protest vote for a wide mandate, the public will turn on them just as quickly. There's a rule in American politics that the party most plausibly offering something for nothing wins. If conservatives could vote for the Tea Party as a party, they would prefer it to the Republicans, a poll finds. Christopher Caldwell, a senior editor at The Weekly Standard, is the author of "Reflections on the Revolution in Europe: Immigration, Islam, and the West."
Choice Review
Hacker (Yale Univ.) and Pierson (Univ. of California at Berkeley) have produced an excellent addition to a growing literature that argues that politics, rather than impersonal economic and technological forces, is the central reason for the recent and dramatic rise of inequality in the US. The authors make a compelling case that the main culprit in this account is the explosion of corporate political organizing starting in the 1970s combined with a decline in organizational strength among key working- and middle-class institutions--badly weakened labor unions being most crucial. Simply put, poorly organized progressive forces cannot compete with the massive financial and well-organized forces of big business. In normal times, the product of this imbalance is a politics of "drift" as popular economic, environmental, and consumer reform proposals are simply killed. During periods of "renewal" (e.g., the elections of 2006 and 2008), corporate domination of campaign finance, and post-election attention by an army of corporate lobbyists, ensures that popular reform efforts will be further frustrated or, at best, passed in watered-down form. Recent health care reform efforts, though successful, illustrate this point, as important business interests were accommodated at the outset lest the effort be doomed from the start. Summing Up: Highly recommended. Undergraduate readers, all levels. S. E. Horn Everett Community College
Excerpts
Excerpts
Chapter 1 The Winner-Take-All Economy Americans like crime dramas, and for good reasons. There is an exciting discovery that immediately creates mystery. The scene has clues to pore over (increasingly, with the latest in forensic technology). Suspects are found and interrogated, their motives questioned, their alibis probed. And if the crime drama is worth its salt, there are surprises along the way--unexpected twists and turns that hopefully lead to a satisfying explanation of the once-mysterious felony. This book starts with a mystery every bit as puzzling as that of the typical crime drama, and far more important for the lives of Americans: Why, after a generation following World War II in which prosperity was broadly distributed up and down the income ladder, did the gains of economic growth start going mostly to those at the top? Why has the economy become more risky and unreliable for most Americans even as it has created vast riches for the well-positioned and well-off? The mystery is dramatic. The scene is strewn with clues. And yet this mystery has continued to bedevil some of the nation's finest economic detectives. It's not as if the post-1970s transformation of our economy has gone unnoticed, of course: Even before the economic crisis that shook the nation in 2008, scores of economists and experts in allied fields, like sociology and political science, were creatively crunching the numbers and fiercely debating their meaning. Yet again and again, they have found themselves at dead ends or have missed crucial evidence. After countless arrests and interrogations, the demise of broad-based prosperity remains a frustratingly open case, unresolved even as the list of victims grows longer. All this, we are convinced, is because a crucial suspect has largely escaped careful scrutiny: American politics. Understandably, investigators seeking to explain a set of economic events have sought out economic suspects. But the economic suspects, for the most part, have strong alibis. They were not around at the right time. Or they were in a lot of countries, doing just the same thing that they did in the United States, but without creating an American-style winner-take-all economy. This chapter is not the place to pin the case on American politics--or spell out exactly how American politics did it. These are tasks for the rest of this book. But we will show what a convincing solution has to look like and introduce the clues that lead us to zero in on American politics as our prime suspect. In the next chapter, we will start laying out what we mean when we say, "American politics did it." For, as will become clear, resolving our first mystery only raises a deeper one: How, in a political system built on the ideal of political equality and in which middle-class voters are thought to have tremendous sway, has democratic politics contributed so mightily to the shift toward winner-take-all? Investigating the Scene As in any investigation, we cannot find the suspects unless we know more or less what happened. A body dead for twenty-four hours yields a very different set of hunches than one dead for twenty-four years. Likewise, we need to be able to characterize the winner-take-all economy in clear, simple, and empirically verifiable terms to rule certain explanations out and others in. Unfortunately, much of the discussion of our current economic state of affairs has lacked such clarity. Indeed, most of the economic investigators have actually been looking in the wrong place. Fixated on the widening gap between skilled and unskilled workers, they have divided the economic world into two large groups: the "haves" with college or advanced degrees; the "have-nots" without them. The clues suggest, however, that the real mystery is the runaway incomes and assets of the "have-it-alls"--those on the very highest rungs of the economic ladder. These fortunate few are, in general, no better educated or obviously more skilled than those on the rungs just below, who have experienced little or none of these meteoric gains. The mystery, further, is not just why the have-it-alls have more and more. It is also how they have managed to restructure the economy to shift the risks of their new economic playground downward, saddling Americans with greater debt, tearing new holes in the safety net, and imposing broad financial risks on Americans as workers, investors, and taxpayers. The rising rewards at the top, as startling and important as they are, are only a symptom of a broader transformation of the American economy. The deeper mystery is how our economy stopped working to provide security and prosperity for the broad middle class. The deeper mystery, the mystery that has yet to be systematically outlined or unraveled, is the rise of the winner-take-all economy . A big reason for the continuing confusion is that the largest body of evidence on which economic investigators have traditionally relied fails to capture the crucial facts. Most of those who have asked how the poor, middle class, and rich have fared have examined national surveys of income, such as the Census Bureau's widely used Current Population Survey--the basis for those annual summaries of income and poverty trends that appear in the news late each summer. These surveys, however, have a serious problem: They do not reach many rich people and, even when they do, do not usually show their exact incomes. (Instead, they cap the maximum amount disclosed, a practice known as top coding.) As a result, most investigators are examining the winner-take-all economy without looking at the winners at all. It is as if Lifestyles of the Rich and Famous took you on an exciting tour of the financial life of a couple making $125,000 a year ("Look: their own washer and dryer!"). Enter two young economists who have turned the investigation upside down: Thomas Piketty and Emmanuel Saez. They are a transcontinental team--Piketty is now based at the Paris School of Economics, while Saez is at the University of California, Berkeley (both are natives of France). In 2009, at age thirty-six, Saez was awarded the John Bates Clark Medal for the economist younger than forty making the greatest contribution to the discipline. The medal was, in large part, for pathbreaking work that he and Piketty have done using income tax statistics to paint a new and revealing portrait of the distribution of economic rewards in the United States and other rich nations.1 Piketty and Saez's approach is simple but revolutionary. Rather than talking to witnesses, the most important of whom (the rich) cannot be easily found, they scour the scene itself. More precisely, Piketty and Saez tap into a source of data that is particularly good at revealing what the have-it-alls actually have: namely, income reported when paying taxes. Information that taxpayers provide about their wages, salaries, capital gains, and other income may contain errors--and sometimes deliberate errors. But tax forms require careful documentation that income surveys don't, and taxpayers have strong legal inducements to get the numbers right. More important, the one group that the tax code generally singles out for special scrutiny is the rich, the very people whom income surveys tend to miss. To be sure, the tax data are not without flaws, and Piketty and Saez assiduously try to correct them (for example, they adjust the results to account for the fact that some people don't file tax returns).1 But they are enormously better than survey results in capturing the full distribution of economic rewards. And what the Piketty and Saez evidence uniquely shows is just how sharply our economy has tilted toward winner-take-all. Most of the gains of economic growth since the 1970s have gone precisely to those that the commonly used surveys miss--not just the top 10 percent, but especially the top 1 percent, and especially the highest reaches of the top 1 percent. Three Big Clues Compared with the standard surveys that portray the rich as earning upper-middle-class salaries, Piketty and Saez's data are like DNA evidence in a case previously investigated using only eyewitness accounts. As it turns out, the DNA evidence reveals three essential clues that were previously neglected. Clue #1: Hyperconcentration of Income The first clue is that the gains of the winner-take-all economy, befitting its name, have been extraordinarily concentrated . Though economic gaps have grown across the board, the big action is at the top, especially the very top. To grasp this point, consider an alternate reality in which income grows at the same pace for all groups in society. In this scenario, the rich get richer at the same rate as everyone else, so the share of national income earned by the rich stays constant. We might call this imaginary country Broadland--a counterfactual parallel to the real world of runaway gains at the top that the writer Robert Frank has evocatively termed "Richistan."2 Broadland would not be some kind of egalitarian fantasy. It would simply be a country where economic growth was making the income distribution neither more equal nor less. It would, in fact, be pretty close to the situation that existed from the end of World War II until the early 1970s, a period in which incomes actually grew at a slightly faster rate at the bottom and middle of the economic distribution than at the top. But Broadland is not the world of the past generation. Instead, the share of income earned by the top 1 percent has increased from around 8 percent in 1974 to more than 18 percent in 2007 (the last year covered by the data)--a more than twofold increase. If you include capital gains like investment and dividend income, the share of the top 1 percent has gone from just over 9 percent to 23.5 percent. The only time since 1913 (the first year of the data) that this share has been higher was 1928, on the eve of the stock market crash that ushered in the Great Depression, when it tickled 24 percent. But the top 1 percent, while seemingly an exclusive group, is much too broad a category to pinpoint the most fortunate beneficiaries of the post-1970s income explosion at the top. The Piketty and Saez evidence allows us to climb higher up the economic ladder and peer into the pocketbooks of the richest tenth of a percent and even the richest hundredth of a percent--yes, 0.1 percent and 0.01 percent--of Americans. The latter comprise the highest-earning 15,000 or so families in the United States, a group in which we would expect Lifestyles of the Rich and Famous to have little trouble finding private jets and opulent mansions. Plenty of jets and mansions, it turns out: The top 0.1 percent (the richest one in a thousand households) collectively rake in more than $1 trillion a year including capital gains--which works out to an average annual income of more than $7.1 million. In 1974, by comparison, the top 0.1 percent's average income was just over $1 million. (All these incomes are adjusted for inflation by expressing them in 2007 dollars.) In terms of the share of national income earned, the top 0.1 percent have seen their slice of the pie grow from 2.7 percent to 12.3 percent of income--a more than fourfold increase. We shall say more about who is in this rarefied group in the chapters to come, but for now, let us simply note that its denizens are not, for the most part, superstars and celebrities in the arts, entertainment, and sports. Nor are they rentiers, living off their accumulated wealth, as was true in the early part of the last century. A substantial majority are company executives and managers, and a growing share of these are financial company executives and managers. High earners in law, medicine, real estate, and other potentially lucrative fields also make an appearance, but they pale in prominence to the "working rich" of the executive world.3 By now it will come as no surprise that the gains within this superrich group are themselves highly concentrated. While things have been good for the top 0.1 percent, the top 0.01 percent (the richest one in ten thousand households) has seen an even more spectacular rise. From less than $4 million in average annual income in 1974, the average member of this select group now earns more than $35 million. From earning less than 1 of every 100 dollars, these supremely fortunate souls now earn more than 1 of every 17--or more than 6 percent of national income accruing to 0.01 percent of families. This is the highest share of income going to this group since the data began to be collected in 1913. The more closely we look at changes in the distribution of economic rewards, the more it becomes clear that the big gains have been concentrated at the very, very top.4 According to Piketty and Saez's revealing evidence regarding pre-tax incomes, we have gone from Broadland to Richistan--from a world in which most of the nation's income gains accrue to the bottom 90 percent of households (the pattern of the economic expansion of the 1960s) to one in which more than half go to the richest 1 percent (the pattern of the last economic expansion from 2002 to 2007). For those in the tightly circumscribed winner's circle of the winner-take-all economy, the last generation has truly been a golden age. Clue #2: Sustained Hyperconcentration The DNA evidence reveals a second important clue: The shift of income toward the top has been sustained, increasing steadily (and, by historical standards, extremely rapidly) since around 1980. Figure 1 tells the story. The poor may not be getting poorer, but the rich have been steadily pulling away: in good times (the strong economy of the mid-to late 1990s) and in bad times (the very weak economy of the early 1980s); under Republican presidents (Reagan, George H. W. Bush, and George W. Bush, whose presidencies are shaded in gray on the figure) and under Democratic President Clinton. The only brief reversals occur during the dives in the stock market that occurred in the late 1980s and around 2000. But the occasional setback associated with a decline in the stock market has only been a springboard to new heights. For thirty years, the good times have just kept rolling. The solution to our mystery, in short, needs to account for a simple fact: The rising share of national income captured by the richest Americans is a long-term trend beginning around 1980. It is a trend, moreover, that is not obviously related to either the business cycle or the shifting partisan occupancy of the White House.5 The partisan to-and-fro and economic ebb and flow surely had some part to play. But something else was at work in creating the winner-take-all economy--something that fostered a sharp divide between broadly shared prosperity and winner-take-all. The Richest 1 Percent's Share of National Income (Including Capital Gains), 1960-2007 Clue #3: Limited Benefits for the Nonrich We come, finally, to the third clue--and perhaps the most puzzling of all. It is so puzzling, and potentially controversial, that we spend much of the rest of this chapter documenting and delving into it. The third clue is this: In an era in which those at the top reaped massive gains, the economy stopped working for middle- and working-class Americans. We know that the rich grew fabulously richer over this period. We know that relative to the rich, the rest of Americans lost ground. But what we have not yet investigated is whether they lost ground overall. How well did they fare in an era in which so large a share of economic gains accrued to those above them? Did they become richer and more economically secure? Did they see their chance of rising to the top increase? How much, in other words, did they really benefit from the winner-take-all economy? The evidence can be summarized in a two-word answer: Not much. When we look at the DNA evidence on U.S. incomes, we find that most Americans experienced extremely modest gains over the era in which the rewards at the top multiplied. This is true, surprisingly and revealingly, even for the mostly highly skilled individuals just below the very top rungs of the income ladder. But the evidence on income gains actually understates the case--by a lot. When we expand our view beyond income to take in the broader canvas of the winner-take-all economy, the argument for thinking that the gains of America's top-heavy economic growth "trickled down" becomes even weaker. This is not just a story of relative income erosion. The fallout of the winner-take-all economy has reached broadly and deeply into the security of the middle class--and, as recent events reveal, the entire American economy. Trickle-Up Economics Ronald Reagan famously asked, "Are you better off than you were four years ago?" Our own version of the question is, "Are you better off than you were a generation ago?"--or, more specifically, "How much better off are middle- and lower-income Americans than they were a generation ago?" The answer has substantial implications for how we judge the economic trends of the last thirty years. After all, if everyone experienced very large gains and the rich just happened to experience even larger gains, this might not cause great concern. Indeed, this is the "trickle-down" scenario that advocates of helping the have-it-alls with tax cuts and other goodies constantly trot out: If a rising tide lifts dinghies as well as yachts, who cares if it does a bit more for yachts? But trickle-down is not the only possibility. Another scenario might be called "trickle-up": The rich are getting fabulously richer while the rest of Americans are basically holding steady or worse. What if the modern economy looks less like an open sea, where rising water lifts all boats, and more like a system of locks, where those who don't get through the gates are left behind? Yachts are rising, but dinghies are largely staying put, locked out (so to speak) from higher waters. Indeed, in this alternative scenario, there is reason to suspect that the dinghies are staying put in part because the yachts are rising--that the rich are closing the locks behind them to capture resources that would otherwise have enhanced the living standards of everyone else. So which of these scenarios is correct--trickle-down or trickle-up? The evidence is not completely consistent, and there is room for debate at the margins. But it's increasingly clear that trickle-down economics is not working as its proponents promise. Trickle-up economics, by contrast, seems to be working all too well. Bringing In Government Taxes and Benefits To see trickle-up in action, we need a source of evidence slightly different from that provided by Piketty and Saez. As mentioned, Piketty and Saez look at tax records, so the family incomes they report basically add up the private sources of income that people list on their tax forms: wages, salaries, investment income, gifts, and so on. These income sources do not include government benefits, such as Social Security payments. Nor do they take into account the effect of taxes themselves: They are the incomes on which people pay taxes, not incomes after people pay taxes. These omissions matter for studying inequality, because in all rich nations, including the United States, government taxes and benefits make the distribution of income more equal, taking more from those at the top and providing more to those at the bottom. These omissions also matter because some of the compensation that people receive in the workplace takes the form of noncash benefits like health insurance and retirement pensions. Thus, if we want the most accurate measure of the resources that middle- and lower-income Americans have at their disposal, we need to take into account government's effect on incomes as well as tally up private noncash compensation. The basic tax data include neither. Fortunately, the Congressional Budget Office--Congress's nonpartisan budget agency, known as CBO--has developed these broader indicators. CBO does this by combining the basic tax data with the results of income surveys that ask people about government and private benefits. In addition, CBO calculates what people with different incomes are required to pay in federal taxes. The result is considered the gold standard for studying family income trends. Although available only back to 1979--unlike the Piketty and Saez data, which go back to 1913--this augmented DNA evidence is as close as we can get to an accurate picture of what happened to the income of American households at the bottom, middle, and top of the distribution over the last generation.6 This picture turns out to be stark: The bottom went nowhere, the middle saw a modest gain, and the top ran away with the grand prize. How Much Did Family Incomes Grow for the Poor, Middle Class, and Rich? Let us start with the simplest measure of economic gains: the percentage increase in the inflation-adjusted incomes of households on different rungs of the economic ladder. The first point to make is that the overall economy expanded substantially over the twenty-seven years covered by CBO. Between 1979 and 2006--the last year currently available--real average household income, according to the augmented DNA evidence, rose by almost 50 percent, a compounded gain of 1.5 percent per year. A household earning exactly the average income had $47,900 in 1979 and $71,900 in 2006, or half again as much. This is the happy story. The less happy story, at least for the nonrich, is where the gains of that growth went. Start with those at the bottom: As figure 2 shows, the average income of the poorest 20 percent, or quintile, of American households rose from $14,900 to $16,500, a meager 10 percent gain over twenty-seven years, even after taking into account government taxes and benefits and private employment-based benefits. What about those in the middle? They did better, but not that much better: The middle quintile of households (that is, the 20 percent of households above the bottom 40 percent and below the top 40 percent) saw their average inflation-adjusted income rise from $42,900 to $52,100--a gain of 21 percent. This may sound good (and because families became smaller over this period, the gains per family member within households are a bit larger). But it works out to a real gain of just 0.7 percent a year, a rate of increase less than half the growth of average income over this period. Not much of a yearly raise. These numbers look all the more striking when we consider a simple fact: American households are working many more hours today than they were in the late 1970s. This is because women are much more likely to work outside the home than they were a generation ago, augmenting both family income and the amount of time that household members spend in the workforce. Among working-age married couples with children, these extra hours totaled more than ten additional full-time weeks in the workforce (406 hours) in 2000, as compared with 1979. Without those additional hours and income, households in the middle of the distribution would have barely budged upward at all. The incomes of households at the bottom would actually have fallen.7 So who received the gains? The simple answer is those at the top, especially the very top. The average after-tax income of the richest 1 percent of households rose from $337,100 a year in 1979 to more than $1.2 million in 2006--an increase of nearly 260 percent. Put another way, the average income of the top 1 percent more than tripled in just over a quarter-century. Figure 2 graphically portrays the scale of the disparity. Just getting the 2006 average income of the top 1 percent on the same axis as the average incomes of other groups is a challenge, so stark is the difference. Average Household After-Tax Income Including Public and Private Benefits, 1979 and 2006 And, again, the gains enjoyed by the top 1 percent pale in comparison to those received by the top hundredth of 1 percent--a group CBO separated out in its analysis up through 2005. Between 1979 and 2005, the CBO numbers show, the average after-tax income of households in the top 0.01 percent increased from just over $4 million to nearly $24.3 million--more than quintupling in a little more than a quartercentury. How Much Richer Are the Rich Because of Unequal Growth? The statistics are stark: Most growth since the late 1970s has gone to the very richest Americans. But what does this mean in terms of the actual incomes of different income groups? Let us return to Broadland. How much more would the poor or middle class take home each year if incomes had grown at the same rate across all income groups between 1979 and 2006, as they more or less did for a generation after World War II? How much better off would Americans at different income levels be if they had stayed in Broadland over these twenty-seven years, rather than moving to Richistan? The answer is summed up in table 1: Few of the benefits of economic growth at the top between 1979 and 2007 trickled down. If the economy had grown at the same rate as it actually did yet inequality had not increased, the average income of the middle fifth of households would be over $12,000 higher today. The average income of the bottom fifth of households would be more than $5,800 higher. Note, again, that we are assuming no change in the overall growth of the economy, just a broader distribution of the economy's rewards. Note, too, that we are accounting here for all government taxes and benefits as well as private workplace benefits. And remember: Broadland is not some hyperegalitarian world in which the rich get "soaked"; rather it's a world in which the rich simply experience the same income growth rate as everyone else, just as they basically had before the late 1970s. Table 1: Richistan vs. Broadland Richistan (average actual income in 2006) Broadland (all groups experience the average rate of household income growth between 1979 and 2006) How Much Richer or Poorer in Broadland in 2006? Bottom Fifth $16,500 $22,366 $5,866 Richer Second Fifth $35,400 $45,181 $9,781 Richer Middle Fifth $52,100 $64,395 $12,295 Richer Third Fifth $73,800 $84,209 $10,409 Richer 80th-90th Percentile $100,915 $106,696 $5,781 Richer 90th-95th Percentile $132,258 $128,714 $3,544 Poorer 95th-99th Percentile $211,768 $181,992 $29,776 Poorer Top 1 Percent $1,200,300 $506,002 $694,298 Poorer So what would have happened to those at the top if they had experienced the same average growth of their income as everyone else? The answer is that they would be pulling down around $500,000 a year on average, rather than the more than $1.2 million the top 1 percent actually earned, on average, in 2006--a nearly $700,000 difference. Unequal growth has been very, very good for the have-it-alls. When Richistan and Broadland are compared, another arresting conclusion comes into view. Other than the richest 10 percent of Americans, every income group would have done better if they had experienced the average growth of household income , that is, if they had lived in Broadland rather than Richistan. (The tipping point where Richistan delivers higher incomes than Broadland is somewhere between the 90th and 95th percentiles, though the gap between Richistan and Broadland is small until the very top of the distribution.) Put another way, the entire bottom 90 percent saw their incomes rise more slowly than average household income between 1979 and 2006. If trickle-up economics has a textbook case, this is it. A Victimless Crime? The DNA evidence shows that real household incomes for all groups but the very well-off have risen only modestly, and almost entirely because of increased family work hours. Meanwhile, the overall economy has expanded substantially. The explanation for this disconnect, mathematically speaking, is that most of the gains of growth have gone to Americans at the top of the economic ladder. But this simple mathematical explanation leaves open an obvious objection: The economy is not zero-sum. Perhaps the gains of the rich, as impressive as they are, did not come at the expense of the rest of Americans. Maybe "Broadland" is not just an imaginary but an unimaginable country. After all, didn't the United States grow much more quickly than other rich nations during this period, allowing the rich to get richer even as the rest of Americans moved ahead as well? In particular, didn't the United States grow a lot faster than Europe, where incomes are generally much more equal and where the massive rise in income inequality seen in the United States did not occur? The answer is no. The American economic engine ran hotter in some years than the European economic engine. But on average, between 1979 and 2006, economic growth per capita was essentially the same in the fifteen core nations of Europe as it was in the United States.8 The United States is richer than these nations, but the gap has been surprisingly stable since the late 1970s. The historical evidence certainly doesn't suggest an American economic miracle alongside European sclerosis. This lends strength to the supposition that the outsized gains of the rich came at the expense of those lower on the economic ladder, who found themselves enjoying less and less of the economic pie. On average, the economic pie grew at essentially the same rate in the United States as it did in nations where the poor and middle class have continued to enjoy a much larger piece. Indeed, in one important respect, the pie actually grew more quickly in Europe than it did in the United States. Recall that American households are working more hours than they did in the past. The same is true in Europe, but not nearly to the same extent. Women have entered the workforce to roughly the same degree--in fact, the share of the population in the workforce grew more quickly in Europe than in the United States between 1979 and 2006.9 Yet in Europe average work hours for those in the workforce have declined, so the net effect is only a small increase in overall work hours, compared with a much more substantial rise in the United States.10 As a result, GDP per hour worked--perhaps the best single measure of a country's economic health--actually rose faster in Europe than in the United States between 1979 and 2006. To be sure, the story of divergent work hours is complicated: Some of the decline in work hours in Europe is involuntary, due to higher levels of unemployment. But the basic story is that the United States did not grow markedly faster than Europe even as American inequality skyrocketed. Adjusted for the growing work hours of American families--with all the attendant stress and strains that those increased hours have caused--the American economic pie actually grew slightly more slowly. The Big Zero If there is a nail in the coffin of the dismissive view about middle-class economic problems, it is the decade that shall not be named: the 2000s. Some call these years the "aughts," others "the aughties," still others "the big zero."11 The last moniker may be the most appropriate. The decade closed with the nation mired in the worst economic downturn in more than seventy years, with the unemployment rate around 10 percent and with the share of Americans unemployed for more than six months at the highest level ever recorded.12 Economically speaking, the 2000s was truly a lost decade. At its end, the stock market was partying like it was 1999. Housing prices had crashed. Home ownership was at 2000 levels.13 Even the most optimistic estimates suggested it would take years to recover from the hemorrhaging of jobs and incomes triggered by the collapse. Here's the kicker: The aughties were awful even before the economy began to crumble in late 2007. They featured six years of consecutive economic growth (from the end of 2001 until the end of 2007) in which the median income of non-elderly households actually fell while the share of Americans living in poverty actually rose. This was the first economic expansion on record in which the typical non-elderly household lost economic ground.14 Yet it wasn't all bad news. Between 2002 and 2007, the real pretax incomes of those in the top 1 percent rose by 10 percent. Per year.15 Beyond Income Those who are inclined to be dismissive of the evidence just reviewed frequently respond by insisting that the focus on income is short-sighted: We should also look at the chance people will rise up the economic ladder, at their workplace benefits, at their spending and wealth, and so on. True enough. Unfortunately, when we take a broader perspective, the conclusion that our economy has become increasingly winner-take-all only becomes stronger. Stagnant Social Mobility Americans have always believed in upward social mobility--both as an ideal and a description of reality. And if social mobility had been rising along with inequality over the last generation, then the growing concentration of income at the top might be less of a concern. One year's poor household might be next year's middle-class or even rich household. Social mobility would soften the sharp edges of a growing class divide. Alas, the evidence is overwhelming that upward social mobility has not increased at the same time that inequality has skyrocketed. Indeed, according to a number of innovative new studies, American mobility may well have declined over the last generation, even as inequality has risen. This is true of both individual mobility ("Am I richer than I was a decade or two ago?") and of intergenerational mobility ("Am I richer than my parents were?").16 Over a typical decade, for example, just under four in five people stay in the same income quintile or move a single quintile up or down. We know less about the long-term mobility of the top 1 percent, but all indications are that people in this rarefied group usually don't drop very far down the ladder for any length of time. Looking just at wage and salary income, for example, more than 70 percent of the highest-earning 1 percent of American households in 2004 were among the highest-earning 5 percent of households in 1994. Only around one in ten had risen from the bottom 80 percent--down from around one in seven in the 1970s.17 And of course, as the gains of economic growth become ever more concentrated, almost by definition fewer individuals will be able to move into the shrinking ranks of the economic winners. Compared with other rich nations, moreover, U.S. intergenerational mobility is surprisingly low, in part because the gap between income groups is so much bigger. The American Dream portrays the United States as a classless society where anyone can rise to the top, regardless of family background. Yet there is more intergenerational mobility in Australia, Sweden, Norway, Finland, Germany, Spain, France, and Canada. In fact, of affluent countries studied, only Britain and Italy have lower intergenerational mobility than the United States does (and they are basically even with the U.S.).18 The differences are often stark. In the United States, more than half of the earnings advantage (or disadvantage) of fathers is passed on to sons. In Canada, only about a fifth or less is. And almost all of the difference is accounted for by the fact that Americans are much more likely to be stuck at the bottom or secure at the top than are Canadians. In short, when mobility is accounted for, the picture of the winner-take-all economy looks no better. If anything, it looks worse. Broken Benefits It is often argued that workplace benefits, like health insurance and retirement pensions, alter the story of the winner-take-all economy--and that, in particular, the middle class does better when you take into account the growing share of compensation that comes in the form of such benefits, rather than cold, hard cash. Actually, the CBO numbers we have been looking at already take into account health and pension benefits, so the anemic gains of working- and middle-class Americans cannot be explained away by suggesting that they are getting better and better benefits at their place of work. But let's take the argument a little further. Are Americans getting better benefits tied to their jobs? Not when it comes to retirement benefits. Employers contribute less to such benefits than they did in the 1970s, and workers are less likely to have an employer-sponsored pension than they were in the late 1970s.19 And many fewer have a guaranteed defined-benefit pension that pays them a fixed income in retirement. Instead, most Americans who have pensions rely on defined-contribution plans that place all the risk of retirement savings on them. This risk has been driven home by the recent stock market drop, which reduced the median balance in 401(k)s by a third between 2007 and 2008.20 As notable as the decline is the end point: the typical amount in a 401(k) in 2008 was a paltry $12,655. Given this, it's no shock that the share of Americans who are at risk of retiring without adequate income has risen substantially since the early 1980s.21 On the other side of the benefits equation, employers and workers are certainly spending more on health insurance--much, much more. The question is what this spending has bought. Are Americans better insulated against medical costs than they were a generation ago? No. Are they more secure against the medical crises and costs that, studies suggest, are associated with more than half of the rising number of personal bankruptcies?22 No. Health costs that outstrip the growth of earnings year after year after year--pushing more people out of coverage and more people into hardship--can hardly be seen as an unqualified benefit for the middle class. That's especially so because these higher costs are not inevitable. The United States spends vastly more than any other rich nation on health care--both as a share of the overall economy and on a per-person basis--even though we are the only affluent democracy that doesn't guarantee insurance to all its citizens. In 2007, the price tag for our exorbitant system came to $7,290 per person. The next most profligate nation, Norway, featured spending of $4,763 per person. Canada's spending per capita is essentially half the U.S. level.23 Yet the United States has fewer doctors, hospital beds, and nurses per person than the norm among rich nations, and Americans (while less healthy overall) visit doctors and hospitals less often and have shorter hospital stays. Indeed, by some measures our care looks surprisingly substandard. For example, recent analyses of "amenable mortality"--deaths that could have been prevented with timely care--find that the United States has the highest rate of preventable death before age seventy-five among rich nations, and that it is falling farther and farther behind.24 And, of course, the United States has had a higher share of citizens without coverage than any other rich nation, and that share has been growing. In 2006, more than 46 million Americans younger than sixty-five were uninsured--nearly 18 percent of the non-elderly population. Back in 1979, the number of uninsured was 27.5 million, or less than 15 percent of the nonelderly population.25 Add in workplace benefits and the situation of most Americans looks even more dire than when we focus on income alone. Consumption to the Rescue? Can another definition of economic well-being come to the rescue? It has long been known that inequality of spending (or "consumption") is less than inequality of income. The reasons are obvious: The rich save more of their money than the poor; at the same time, two major groups in society--retirees and young adults--often spend more than they earn, thanks to savings and loans. So we should expect less consumption inequality than income inequality. The issue is whether we see the same basic trends in inequality of consumption that we do in inequality of income, namely, a big increase. Tackling this issue turns out to be extremely difficult, in part because the main source of evidence, the Consumer Expenditure Survey, largely misses the high-income folks who've benefited from the winner-take-all economy. Still, it is increasingly clear there is no "consumption paradox." Consumption inequality is not as great as income inequality, as we'd expect (especially since the evidence fails to capture the big winners at the top). But the two have grown at more or less the same rate over time.26 Here again we find smart analysts ignoring the most notable feature of the winner-take-all economy--that it's, well, winner-take-all. Have lower-income Americans been borrowing more to sustain their spending? Definitely. Are the less affluent experiencing lower price inflation than richer Americans thanks to cheap Chinese goods?27 Perhaps. But none of this is going to alter fundamentally our view of American inequality. The access of the poor to easy credit or Wal-Mart prices has little bearing on the growing gap between the superrich and the merely well-to-do. Drowning in Debt Furthermore, the flip side of consumption is savings and investment--and the wealth that comes with savings and investment. After all, it's not as if the rich are giving all the money they don't spend to charities for the poor. In fact, money that high earners do not spend gets turned into wealth, and the share of wealth held by the rich is both high and growing. In 2004, the wealthiest 1 percent of households had an average net worth of nearly $15 million.28 (At the very top of the ladder, the wealthiest 400 Americans--according to the famous Forbes 400 list--had an average net worth of $3.9 billion in 2008, more than six times the 1985 average for the Forbes 400.)29 The average net worth of the bottom 80 percent of households, in contrast, was around $82,000, and that includes the wealth that households had in their homes. Average net worth for the bottom 40 percent of households was a paltry $2,200 in 2004, less than half the $5,400 that this group enjoyed in 1983. Strikingly, over the entire period between 1983 and 2004, only 10 percent of all wealth gains went to the bottom 80 percent of Americans, an even more skewed pattern of growth than seen in income.30 Perhaps more striking, 17 percent of households in 2004 had zero or negative net worth--they owed more than they had. (And this was before the collapse of real estate prices put more homes "underwater"--with home loans exceeding home values--than at any time in U.S. history.) Here we find a major clue to why consumption is not always a good measure of income: For a time, at least, people can spend beyond their income by borrowing, and before the 2007 downturn, Americans were borrowing at record rates. But, as the late economist Herbert Stein is reported to have said, "If something can't go on forever, it won't." The inexorable increase in household debt was not sustainable without comparable income gains--and those gains did not occur. Once again, scouring the scene turns up plenty of additional proof that the winner-take-all economy has produced limited gains for those outside the winner's circle. The clues are undeniable: Not only did those below the top reaches of the economic ladder find themselves falling ever farther behind the have-it-alls; they reaped surprisingly few of the gains of the massive expansion at the top. This is an economic puzzle. It is also a political puzzle. Democracy may not be good at a lot of things. But one thing it is supposed to be good at is responding to problems that affect broad majorities. How could events and trends like these evolve with so little response from democratically elected leaders? Indeed, as we shall see, the puzzle is even deeper. For government was no mere bystander in many of these developments. It actually pushed them along. Why? Before we turn to these questions, however, we have one last piece of unfinished business: We need to explain why the prime suspect that America's economic detectives have fingered is, at most, a modest accomplice to the crime. The Usual (but Wrong) Suspect Tune into the cable money stations or read the business press and you are likely to hear an account of rising inequality that goes something like this: "Education is the key to understanding broad inequality trends."31 "To explain increasing inequality we must explain why the economic return to education and to the development of skills more generally has continued to rise."32 "We have an economy that increasingly rewards education and skills because of that education."33 These quotes were not chosen at random. They are the pronouncements, respectively, of the former head of President George W. Bush's Council of Economic Advisers, Gregory Mankiw, a Harvard economist; Fed chairman Ben Bernanke (another economist, formerly of Princeton); and, finally, former President George W. Bush himself. It might seem that the common element connecting these quotes is that those responsible for them have ties to the Republican Party. After all, rising inequality was an inconvenient reality for a GOP president (and, before 2006, a GOP Congress) intent on cutting taxes for the wealthy. The fact is, however, that these three quotes express what was, until recently at least, the overwhelming consensus view on inequality among economists, a view summarized in the ungainly acronym SBTC. The SBTC Seduction SBTC is not a regional telephone company. It stands for "skill-biased technological change," and it is still by far the dominant explanation for American inequality trends.34 According to the SBTC argument, the last thirty or so years have witnessed a massive shift toward more knowledge-based employment. In the popular version of the argument, this shift has been greatly accelerated by the globalization of the American economy. This transformation has made formal education and advanced skills much more valuable, fueling a growing divide between the highly educated and the rest of American workers. In some versions of the argument, skill-biased technological change is driven by computers and the Internet. In others, the main culprit is the failure of the educational advancement of most workers to keep pace with the growing skill demands of a global knowledge economy.35 The account of the crime, however, is the same: SBTC did it. There are just two problems: SBTC isn't even charged with the right crime. And the suspect has an alibi. Why Educational Gaps Can't Explain American Top-Heavy Inequality If there is an Exhibit A in the case that SBTC did it, it is the rising "college wage premium"--the extra amount that college graduates earn relative to their less educated peers. Each year, the College Board publishes a report entitled, "Education Pays," in which it announces that the gap between those who have finished college and those who have not is large and growing. More sophisticated economic analyses usually emphasize the effects of education across the full spectrum of educational achievement, before college and beyond. But they reach the same conclusion: a growing "return to schooling." From here, it's a short leap to the view that the rising bang for one's educational buck is the main cause of growing inequality. Only it's not. The return to schooling--and especially to a college degree--has risen. But, as we've seen, rising American inequality is not mainly about the gap between the college-educated and the rest, or indeed about educational gaps in general. It is about the pulling away of the very top. Those at the top are often highly educated, yes, but so, too, are those just below them who have been left increasingly behind. There's more: The college educated did well relative to those below them, but not because they experienced massive economic gains. Rather, they merely managed to avoid the devastatingly slow growth at the bottom. Assume that the story about a new educational elite is true. The top 20 percent of the income distribution should therefore be composed almost entirely of college graduates. (The share of Americans with a college degree was 29 percent in 2007.) What, then, happened to the household income of someone at the 80th percentile, the starting point for entry into this supposedly favored class? The answer is that it has grown extremely slowly compared with the income of folks at the very top--roughly one-fourth as quickly per year as the average income of the top 1 percent. That middle-class income growth, moreover, is mostly because of increased household work hours, not increased individual earnings. Hard as it may be to believe, a typical entry-level worker (ages 25-34) with a bachelor's degree or higher earned only $1,000 more for full-time, full-year work in 2006 than did such a worker in 1980 ($45,000 versus $44,000, adjusted for inflation).36 And college-educated workers are substantially less likely to receive health insurance in their first job than they once were--almost four in ten now start out in the labor market without health benefits.37 So much for the enormous general rewards of a college degree. To be sure, some workers with advanced education make enormous sums. But that's exactly the point: A huge amount of inequality occurs among workers who have heeded the advice of "Education Pays" and sought a college degree. Economists call this "within-group inequality" (that is, inequality among people with the same education or skills), and it is one of the strongest pieces of exculpatory evidence on SBTC's side. That is because within-group inequality, by definition, cannot be explained with reference to education, since it occurs among people with the same basic characteristics. And within-group inequality accounts for a major part of the rise in inequality since the 1970s, especially at the very top--where almost everyone has a good education.38 Maybe SBTC was at work among these workers in more subtle ways--some argue that college-educated workers with the skills to do routine tasks have lost out to those who do higher-level "abstract tasks"--but the case against SBTC, considered so strong at the outset, becomes harder to make. But forget about the weak case, because the suspect has a strong alibi. Why Didn't Other Rich Nations Experience SBTC's Wrath? SBTC is attractive to economic detectives because it is an all-purpose criminal--one that, its prosecutors argue, can explain both the decline in American inequality in the first half of the twentieth century and its rise in the last thirty years. It is a suspect whose influence should be seen over long spans of time and, more important for the present discussion, across national borders. After all, other rich nations have computers and the Internet too--indeed, quite a few are more networked than we are--and most rich nations are more exposed to the global economy than we are. If SBTC did it here, it should have done it elsewhere, where the same technological and global shifts were taking place. Embarrassingly for the SBTC-did-it consensus, however, SBTC seems to be picky about where to strike. When it comes to rising inequality, the world isn't flat after all. American income inequality is the highest in the advanced industrial world. As one labor economist wryly puts it, "If there were a gold medal for inequality, the United States would win hands down… [S]tandard measures show that the United States more closely resembles a developing country than an advanced country on this measure of economic performance."39 Yet gaps in skills, as measured by years of schooling, are not larger in the United States than they are in other affluent nations. They are actually smaller. Inequality is dramatically higher in the United States not because of greater skill gaps or greater returns to education, but because within-group inequality is greater than it is in other rich nations. Indeed, there is more inequality among workers with the same level of skills (measured by age, education, and literacy) in the United States than there is among all workers in some of the more equal rich nations.40 The Uniqueness of America's Winner-Take-All Economy SBTC's alibi appears even stronger when it comes to the meteoric rise of earnings at the very top, because that rise has been substantially more meteoric in the United States than in other rich nations. Figure 3 shows the share of income, excluding capital gains, going to the top 1 percent of households in twelve nations: Australia, Canada, France, Germany, Ireland, Japan, the Netherlands, New Zealand, Sweden, Switzerland, the United Kingdom, and, of course, the United States.41 The first bar shows the average share in the mid-1970s (1973-1975); the second shows the average share around the millennium (1998-2000). One feature of figure 3 that jumps out is that the United States did not look all that exceptional in the early 1970s. Germany, Switzerland, Canada, even France--all had a higher share of national income going to the top 1 percent a generation ago. Yet that has changed dramatically. The United States is now at the top of the advanced industrial pack, with regard to both the level (16 percent) and the increase (virtually a doubling) of the top 1 percent's share of income. Half of the nations in figure 3--a diverse group that includes France, Germany, Japan, the Netherlands, Sweden, and Switzerland--experienced little or no increase in the share of income going to the top 1 percent. Apparently in these countries SBTC was AWOL. It's true that the other English-speaking nations in this group--Australia, Canada, Ireland, and the United Kingdom--have followed a path more like the United States'. Still, the United States is well in the lead in the competition for the gold medal for inequality. Whereas the United States experienced a doubling of the income share of the top 1 percent, the other English-speaking nations saw only an average rise of around half that in percentage terms. The English-speaking world has certainly emulated the American pattern more closely than other nations have. But this is hardly proof that government policy doesn't matter, since these nations have also generally emulated U.S. public policy more than other nations have. What's more, the trajectory of the two countries that are most often compared to the United States, the United Kingdom and Canada, cannot be viewed as wholly independent of the rise of America's winner-take-all-economy. As we saw when we started to parse the composition of the top 0.1 percent, the rise in the compensation of the highest earners, especially corporate executives and financial managers, drives much of the outsized gains at the top in the United States. Companies in English-speaking nations compete for these workers, and thus have faced the most pressure to match the massive salaries on offer in the States.42 This appears to hold particularly true for Canada.2 While this contagion effect is hard to pin down, there is little doubt that some of the increase in top incomes in other English-speaking nations reflects competitive pressure to match the more dramatic rise in the United States--a rise that we shall see has a great deal to do with U.S. public policy. The Top 1 Percent's Share of National Income (Excluding Capital Gains), Mid-'70s vs. Circa 2000 The cross-national window just opened puts the rise of the winner-take-all economy in surprising perspective. The hyperconcentration of income in the United States--the proximate cause of the death of America's broad-based prosperity--is a relatively recent development. It is also a development that sets the United States apart from other rich nations, calling into serious doubt the usual explanation for America's winner-take-all economy, SBTC. But if SBTC didn't do it, who did? Enter the unusual suspect: American politics. [ *] We should emphasize that the Piketty and Saez data only allow us to say how well different income groups are doing, not how well individual households fare over time--an issue with traditional surveys of income as well. We can say the rich of today are richer than in the past, not how much change there is from year to year in who is rich and who is not. But, as we shall see, taking into account the upward or downward income mobility of households does not change this basic picture. It may even strengthen it, since long-term income mobility is much more limited than Americans believe, and may have declined since the 1960s. In any case, income groups are not statistical fictions. If the rich grow much richer, while the poor and middle class do not, the structure of society will look very different. [ *] Perhaps most telling, there is little sign of the same meteoric rise at the top among French -speaking portions of Canada. Executives in Quebec do not appear to be competing in the same common labor market that has allowed American pay levels at the top to diffuse to the rest of Canada. © 2010 Jacob S. Hacker Excerpted from Winner-Take-All Politics: How Washington Made the Rich Richer-And Turned Its Back on the Middle Class by Jacob S. Hacker, Paul Pierson All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.
Table of Contents
Introduction: The Thirty-Year War | p. 1 |
Part I The Puzzling Politics of Winner-Take-All | |
1 The Winner-Take-All Economy | p. 11 |
2 How the Winner-Take-All Economy Was Made | p. 41 |
3 A Brief History of Democratic Capitalism | p. 73 |
Part II The Rise of Winner-Take-All Politics | |
4 The Unseen Revolution of the 1970s | p. 95 |
5 The Politics of Organized Combat | p. 116 |
6 The Middle Goes Missing | p. 137 |
Part III Winner-Take-All Politics | |
7 A Tale of Two Parties | p. 163 |
8 Building a Bridge to the Nineteenth Century | p. 194 |
9 Democrats Climb Aboard | p. 223 |
10 Battle Royale | p. 253 |
Conclusion: Beating Winner-Take-All | p. 289 |
Acknowledgments | p. 307 |
Notes | p. 311 |
Index | p. 341 |
About the Authors | p. 35 |