The Squandering of America: How the Failure of Our Politics Undermines Our Prosperityby Robert Kuttner
The American economy is in peril. It has fallen hostage to a casino of financial speculation, creating instability as well as inequality. Tens of millions of workers are vulnerable to
A passionate, articulate argument detailing how the United States political system has failed to adapt to the economic challenges of the late 20th and early 21st centuries.
The American economy is in peril. It has fallen hostage to a casino of financial speculation, creating instability as well as inequality. Tens of millions of workers are vulnerable to layoffs and outsourcing, health care and retirement burdens are increasingly being shifted from employers to individuals. Here Kuttner debunks alarmist claims about supposed economic hazards and exposes the genuine dangers: hedge funds and private equity run amok, sub-prime lenders, Wall Street middlemen, and America's dependence on foreign central banks. He then outlines a persuasive, bold alternative, a new model of managed capitalism that can deliver security and opportunity, and rekindle democracy as we know it.
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Introduction: Failures of Politics
Americans have the good fortune to live in a nation that has stood for political liberty and economic opportunity since its founding. Even in the republic’s early years, when we cherished our isolation from a troubled world, the American idea was a beacon to other nations. In the twentieth century, a bolder, more outward-looking America came to stand for enlightened leadership globally. At home, a more democratic America became a more balanced society. Public policies promoted broad prosperity and economic security, by harnessing the creative, often chaotic power of capitalism for the general good.
Today, we are seeing the squandering of America, on multiple fronts. The ultimate test of a democracy is whether it is possible for the people to throw out the governing party. In politics, we have come very close to losing our democracy, not just in rigged rules and stolen elections but in the domination of politics by big money, the decline in participation by ordinary people, and the assault on basic constitutional liberties.
America’s role as a global leader has been squandered as never before. Our government has been pursuing policies based on fantasies, failing to contain Islamist extremism, failing to promote democratic values and international order. Instead, foreign threats are being used to undermine liberty at home. George W. Bush’s bungled war in the Middle East has made a difficult challenge incalculably worse. He has squandered the global goodwill that has long been the necessary complement to America’s military might. His policies in general have made America a lightning rod rather than a source of enlightenment.
The squandering of the natural environment is close to reaching a point of no return. As respected experts predict the rising of the world’s waters, the extinction of fisheries, the proliferation of tropical diseases, and the intensification of extreme weather, America goes on burning fossil fuels, disdaining development of alternatives, and rejecting international collaboration to reverse the impending calamity.
The potential of our economy to underwrite a society of broad prosperity is being sacrificed to financial speculation. The winnings are going to a narrow elite, jeopardizing not only our broad prosperity but our solvency. In less than a decade, our government budget, gutted by tax cuts, has shifted from endless projected federal surpluses to infinite deficits. Our trade imbalances and financial debt to the rest of the world have grown from a modest concern to levels that could produce a crash.
None of this had to be. All of these disastrous trends reflect a failure of our democratic politics to hold leaders and institutions accountable. With imagination and leadership, much of the damage can still be reversed.
To write about all the ways in which the promise of America is being squandered would require more than one book. This book is about one large dimension: the connection between a precarious economy and a diminished politics.
A Squandered Economy
There is a common thread to the squandering of broad American prosperity and the drastic increase in economic risks to individuals and to the system. What links these trends is the steady dismantling of a balanced and managed form of capitalism, by economic elites. That project, in turn, has required a serious weakening of democratic politics. This book addresses the political dynamics of the reduced living standards for most citizens and the increase in systemic risks to the economy. It concludes by suggesting what it will take to reverse these interrelated trends.
The squandering of America’s broad prosperity and solvency has worsened under President Bush, but the roots of the problem go back to the 1970s. For thirty years, the economic condition of most Americans has become ever more precarious, even as the overall output of the economy has doubled. The incomes of two Americans in three have been static or declining. Health insurance and retirement risks and costs are being shifted from private employers and public institutions to individuals and families. Tens of millions of American workers are newly vulnerable to layoffs, outsourcing, and reduced earnings. The role of paid work in the lives of American mothers has undergone a revolutionary change during the same three decades, leaving families more stressed, with no offsetting improvements in social supports. Young Americans find themselves particularly disadvantaged, as their incomes fail to keep up with the cost of housing, tuition loan repayments, and the cost of health insurance. American consumption depends on ever-increasing debt, as people eat into the equity in their homes in order to make ends meet.
The innocent observer would expect that all of this would be the prime subject of political debate. Yet the political system is not taking any of these widely felt economic ills seriously enough.
All of these problems have remedies. Indeed, our political system once addressed similar challenges very effectively, in an era when democracy was more robust. But today the economic frustrations of American families are mostly off the radar screen of public debate. This is a failure of our politics, one that contributes to the weakening of politics.
The hazards are not only a problem for individuals and families; the market economy today faces more systemic risk than at any time since the Great Depression. The real economy of enterprises and workers is hostage to a casino of financial speculation. Our trade policy has squandered American manufacturing, producing a permanent and structural imbalance in which more industries and jobs leave our shores, forcing us to borrow what we no longer finance with exports.
To finance its escalating trade deficit, the United States is ever more deeply in debt to foreign buyers of its bonds, notably Asian central banks. As a consequence of the trade imbalance and foreign debt, sooner or later the U.S. dollar must face a sharp decline in the value of what it can purchase. If that happens in an abrupt collapse, it will lead to more economic damage. Even if the erosion is gradual and we get what is euphemistically termed a “soft landing,” it will still mean a further loss of living standards. As a national challenge demanding attention, the issue of foreign debt is mostly beyond political discourse. Both parties, most of Wall Street, and even the Federal Reserve are whistling past the graveyard. This is another failure of politics.
The evisceration of controls on financial speculation not only contributes to a widening of economic inequality, it increases the risk of an economic crash. The stock market collapsed in 2000—01, and remarkably few lessons were learned. No sooner was a very modest reform enacted than banks and corporations found new subterfuges to disguise illicit financial maneuvers, even as they complained about the burdens of honest accounting required by the timid postcrash reforms.
Connecting the Dots
The failure of politics to seriously engage national problems goes hand in hand with the disrepair of democracy itself. For the first time in more than a century, the national government in the Bush era has spent more effort on suppressing voting than on expanding it. Serious people have good reason to believe that one or both of the last two presidential elections were stolen. Political participation is declining, as money crowds out civic engagement.
When politics does not deliver for people, the people give up on politics. Or they see politics as a realm mainly for cultural warfare, for battles over patriotism, or as something for other people. People internalize economic reversals. Pocketbook troubles seem to be private failures rather than the consequence of political choices. The very citizens most exposed to the most severe economic stress have been deserting politics at the most accelerating rate.
This disconnection of the people from their politics, in turn, leaves democracy far less energized. Consequently, when an autocratic administration ignores rights and laws, invents extraconstitutional doctrines such as presidential “signing statements,” uses a state of permanent warfare to undermine free debate, or colludes in the suppression of the fundamental right to vote and to have every vote counted, there is far too little popular outcry. This is a recipe for losing both a tolerably just society and our democracy.
This book is an effort to connect those dots–to explore how the instruments of broadly distributed prosperity have been stripped not just from public policy but from public debate; to explain how an economy run by and for elites leaves the society not just less equal and less democratic but more vulnerable to systemic shocks and risks, and less efficient as a matter of economics. The book then goes more deeply into the politics of blockage–and possible remedies.
There is a coherent alternative to what is occurring. It requires a cogent ideology and politics of a managed, rather than laissez-faire, brand of capitalism. It requires political leadership with the courage of its convictions and a stronger set of democratic institutions to offset the power of financial elites. That conception of a mixed economy was once public policy and an animating source of popular politics, during the boom decades after World War II. That model delivered broadly shared prosperity, as well as greater security for both the system and individuals. Contrary to prevailing myths, there is nothing about the structure of the new economy to prevent us from reclaiming an economy of broader prosperity and security. But first we need to reclaim our politics.
Successes of Politics
One citizen’s political failure is another’s political triumph. The multiple defaults described in this book can be considered political failures–or successes–depending on who you are and what you wish for America. Declining living standards for most Americans should be understood as a political failure. But for the financial elite, this mass quiescence is a great convenience and a splendid political success.
For most Americans, the years since 1973 have been trying times economically, with stagnating real incomes and increased personal financial risks. But they have been terrific times for the top 10 percent, even better for the top 1 percent, and best of all for the superrich. There have been some brief general boom times, as in the late 1990s, but the period as a whole has brought nothing like the economic gains of the previous quarter century to the common American.
Why did this happen? Many observers have blamed changes in the economy; the shift from manufacturing to services; increased global competition; the entry into the workforce of the large baby-boom generation; the economic emancipation of women; the enlarged presence of immigrants; the demand for more highly educated workers. These influences have played a role, but they could just as well have played a different role. People who look purely at technical economic factors to explain why living standards for most Americans stagnated during a period of sharply rising productivity are looking in the wrong place. They should look at the politics.
America as a secure middle-class economy did not jump. It was pushed. This book argues that the multiple defaults of democratic politics are closely linked. The economic default is substantially bipartisan. Although Democrats have fought skirmishes around issues such as budget balance and tax cutting, too many of them have joined the business class in dismantling a regulated form of capitalism that once produced broader prosperity as well as greater security both for individuals and for the system.
Both parties depend on large donors for the preponderance of their financial support, and election campaigns grow more expensive every year. There are some wealthy liberals, but they tend to be liberal on every issue but the core issue of how to housebreak capitalism.
As this book will explain, I believe that the American economy is in danger not just of increasing economic and financial inequality. It is at risk of a 1929-scale catastrophe. Another serious depression would doubtless transform politics, but not necessarily for the better. In the mass deprivation of the 1930s, demagogues and dictators abounded. It was a miracle that the Depression delivered Franklin Roosevelt and an energizing of American popular institutions, rather than a home-grown Adolf Hitler.
I am writing this book not in anticipation of a serious collapse again discrediting laissez-faire–it ill becomes liberals if their idea of politics is to wait for the next depression–but in the immodest hope that evidence and argument can change political discourse and head off the worst.
This book will explore in detail how democratic checks on financial elites weakened in the era after 1980 and how the elite capture of politics keeps the real issues that trouble American citizens beyond the bounds of public debate. It will conclude by exploring the politics and economics of alternatives to our present course.
From the Hardcover edition.
Meet the Author
Robert Kuttner is a founder and co-editor of The American Prospect magazine. He wrote a column for Business Week for twenty years, and he also has a weekly column in The Boston Globe and many other papers. He has published two books with Knopf--Everything for Sale (1997) and The End of Laissez Faire (1991).
From the Trade Paperback edition.
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American commentator Robert Kuttner has written a very fine study of the USA's economy, an analysis that applies to Britain too. He proves that capitalism is now in absolute decline: its failure to invest in updating the USA's manufacturing industry is causing huge unemployment and cutting most Americans' living standards, education, health care, savings and pensions. He shows how markets do not allocate resources efficiently, or efficiently deliver investment, health care, education, research or energy, or accurately price real assets. Most bank business used to be lending to firms, adding value; now only a tiny bit is - most is extracting fees and adding risk. Finance capital reigns, living off speculation, 'the fraudulent enrichment of financial insiders', stock manipulation, self-dealing, margin loans and short selling. Accountants charge for advice on how to cheat the Revenue. Corruption is the system. Kuttner notes 'the speculative, destabilizing, and ultimately deflationary influence of private capital flows'. Finance capital creates huge public deficits, the related national debt and ever-greater international borrowing. He describes finance capital's 'cynical strategy of permanent structural deficits'. Tax cuts, not welfare costs, cause budget deficits. Wall Street puts 'fiscal discipline' first, that is, ever more tax cuts for itself, ever deeper spending cuts for the public. He warned, before the latest crisis began, "All the elements of a severe downturn are in place, and . their common genesis is financial deregulation and speculation." On globalisation, he observes, "the earlier limits on trade and on immigration had protected American workers from pressures to cut wages for either foreign or immigrant workers willing to perform the same work for less." But, "Once trade barriers fall, the sheer number of worldwide workers seeking employment depresses prevailing wages." Globalisation globalises low wages, weak unions, privatisation and de-regulation. He proposes instead progressive taxation, social investment, worker representation and economic regulation. This populism is popular: most Americans want wealth distributed more equally, most want higher taxes on the rich. He argues for policies to benefit what he calls 'the working middle class', 90 per cent of the population. We in Britain also need a democratic class politics, aimed at defeating the 'financial elite'.
These days, bad economic news is plentiful. But according to economist Robert Kuttner, the future is even bleaker than the numbers suggest. The reason, he says, is that the two major parties have become cheerleaders for laissez-faire, forgetting the lessons of the Great Depression that market failures are widespread. Kuttner argues that financial derivatives, inequitable trade policies, union-busting and economic bubbles have weakened the economy. Wall Street has become enormously powerful, while politicians have been looking the other way. Although the book draws on academic research, it is clearly written and accessible to a broad audience. getAbstract recommends it to political and business leaders, policy makers and citizens concerned about the implications of deterioration in the U.S. political and economic system.