The American Dream vs. The Gospel of Wealth: The Fight for a Productive Middle-Class Economy
The American Dream vs. The Gospel of Wealth: The Fight for a Productive Middle-Class Economy
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Overview
Garfinkle employs historical insight and data-based economic analysis to demonstrate compellingly the sharp departure of the supply-side Gospel of Wealth from an American ideal that dates back to Abraham Lincoln—the vision of America as a society in which ordinary, hard-working individuals can get ahead and attain a middle-class living, and in which government plays an active role in expanding opportunities and ensuring against economic exploitation. Supply-side economic policies increase economic disparities and, Garfinkle insists, they fail on technical, factual, moral, and political grounds. He outlines a fresh economic vision, consonant with the great American tradition of ensuring strong economic growth, while preserving the middle-class American Dream.
Product Details
| ISBN-13: | 9780300137804 |
|---|---|
| Publisher: | Yale University Press |
| Publication date: | 10/01/2008 |
| Series: | The Future of American Democracy Series |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Sales rank: | 301,134 |
| File size: | 3 MB |
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The American Dream vs The Gospel of Wealth
The Fight for a Productive Middle-Class EconomyBy NORTON GARFINKLE
Yale University Press
Copyright © 2006 Norton GarfinkleAll right reserved.
ISBN: 978-0-300-10860-6
Chapter One
The American Economic Vision
Is there an American economic vision? Is there some guiding principle of economics implicit in our Declaration of Independence, our Constitution, and our form of government? There is-though at first glance this principle might appear to have little to do with the modern debates over fiscal and monetary policy, the size of government, or the degree of government regulation of economic life. But underlying these modern debates is an economic vision familiar to virtually all Americans: the American Dream-the dream that all Americans will have the opportunity through hard work to build a comfortable middle-class life.
To a large degree, the history of American economic policy making is the story of the waxing and waning of this middle-class ideal. When Alexis de Tocqueville visited America in the 1830s, he was struck by the middle-class character of the country and the conspicuous absence of very rich people. In Tocqueville's eyes, inured as he was to the sharp divisions between wealth and poverty in monarchical France, Americans seemed to be remarkably equal economically. Somewere richer, some were poorer, but within a comparatively narrow band. Moreover, individuals had opportunities to better their economic circumstances over the course of a lifetime, and just about everybody seemed to be busy pursuing these opportunities. People who started as servants could end up as farm owners or professionals or business owners. Tocqueville believed that this combination of relative economic equality and high social mobility in some sense held the key to the American system. It was this combination of factors that defined American democracy's promise and simultaneously underwrote its stability.
President Abraham Lincoln came of age in the nineteenth-century America that Tocqueville described. Lincoln was perhaps the first American leader to fully grasp that this condition of economic opportunity was, in truth, the defining feature of America, its very essence and its justification for existing. He was the first to fully grasp the meaning of what was later called the American Dream.
The freedom guaranteed by the Declaration of Independence and the Constitution was of value, in Lincoln's view, precisely because it enabled humble individuals to attain an independent, middle-class standard of living by the work of their own hands. America was the first nation on earth to offer this opportunity of economic advancement to all, even to the humblest beginner, and this was what made the nation unique and worth preserving. Ultimately, it was the largest reason for Lincoln's willingness to fight the Civil War.
Significantly, Lincoln also believed that government had an active role to play in sustaining and underwriting this "system." If the core meaning of freedom, if the very purpose of liberty, was to enable individuals to advance economically, to improve their condition, then government's role under the Constitution must be understood in light of this principle. Government's role, in Lincoln's words, was to "clear the path" for the individual's economic advancement. In the political debates of his day, Lincoln was firmly on the side of what today we would call activist government. He favored large government expenditures for what were then called internal improvements-canals, bridges, and railroads. He believed in a strong national bank to stabilize the currency. As president, he presided over the vast federally underwritten expansion of the national railroad system and provided the first major federal funding for education with the creation of the land grant colleges. He believed, in the famous words of his Gettysburg address, that government should be not just "of the people" and "by the people," but also "for the people."
Yet in the era of industrialization following the Civil War, a challenge arose to this vision based on a very different view of the meaning of freedom. This new view had its roots not in a political understanding of the Declaration or the Constitution, but in the laissez-faire, or "free market," thinking of British and other European economists. The new vision saw freedom not primarily as a universal promise of social mobility, but rather as an economic mechanism to produce national prosperity. Lincoln's focus was always on the fate of the ordinary worker. The new vision shifted focus to the extraordinary entrepreneur, the business owner, the industrial magnate as the engine of the new industrial prosperity. Lincoln thought government could and should enhance Americans' economic freedom by clearing the path for ordinary Americans to get ahead. The new view saw any government intervention in the economy as a severe violation of freedom and argued that government should stand aside and let business do its job. Lincoln stressed the universality of the American promise-prosperity and betterment, he repeatedly said, were to be for all. The new vision, by contrast, saw society as divided sharply between winners and losers and had little pity for the latter. Indeed, according to this new view, the very fierceness and ruthlessness of economic competition, its unbridled character, was what made prosperity grow. Under the influence of the doctrines of laissez-faire economics and Social Darwinism, the proponents of the new vision claimed that economic life-for that matter American national life-should encourage the survival of the fittest. The government should stand aside and let the laws of evolution determine who wins and who loses. Toward the end of the nineteenth century, the industrial magnate Andrew Carnegie coined a phrase that captured the essence of the new vision: "the Gospel of Wealth." This new vision contemplated a society led by successful businessmen who were responsible for building a growing economy. Justice would be defined by the principle that those who contributed most to the economy deserved to be rewarded most and, in Carnegie's view, could be relied upon to use their wealth for the good of society.
In a certain sense, the two visions were easy to confuse. Both celebrated the value of economic freedom. Both sought prosperity. Both contained a rags to riches theme. But the values they represented were fundamentally at odds. Lincoln's American Dream emphasized prosperity and advancement for the ordinary worker. The Gospel of Wealth promoted worship of the exceptional individual, the millionaire, the industrial magnate, as prosperity's engine. The ideal behind the American Dream was universality and equality of opportunity. The ideal behind the Gospel of Wealth was exceptional rewards for exceptional achievement. The American Dream aspired to a middle-class society. The Gospel of Wealth was content with a society sharply divided between the rich and the poor. The American Dream saw government as a potentially constructive force. The Gospel of Wealth saw government as a problem.
The Gospel of Wealth reigned supreme in both the Democratic and Republican administrations of the late nineteenth century. It resurfaced in the 1920s as the dominant ideology of the Republican Party and was embraced with fervor by Presidents Warren Harding, Calvin Coolidge, and Herbert Hoover.
Yet again and again Americans found the consequences of the Gospel of Wealth unsustainable. Again and again, Americans insisted on a restoration of the American Dream. The major political and economic reforms instituted under the administrations of Theodore Roosevelt, Woodrow Wilson, and Franklin Roosevelt-reforms that to a large degree built the legal framework of the modern American economic system-can be seen as efforts to revive the American Dream. All three presidents returned to ideals first articulated by Lincoln-Wilson perhaps most deliberately and self-consciously, in his references to Lincoln in campaign speeches during the election of 1912.
In his State of the Union address in 1944, President Franklin D. Roosevelt codified the essence of the Lincolnian vision for the modern economy. He proposed "a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race or creed." He included the following among these rights:
The right to a useful and remunerative job in the industries or shops or farms or mines of the nation. The right to earn enough to provide adequate food and clothing and recreation. The right of every family to a decent home. The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment.
That Roosevelt's words are likely to have an odd, almost alien ring to many Americans today is a measure of how far we have come from the consensus that generally sustained American economic policy making in the decades following World War II. Today we are much less likely to speak of economic policy in such moral and political terms and much more likely to debate economic issues on technical-factual grounds that presume that the single important objective of economic policy is the growth of the economy.
It is also a sign that we live in a time when the Gospel of Wealth is again in political ascendancy.
George W. Bush echoes the rhetoric of the American Dream. But the Gospel of Wealth is clearly the basis of his policies. Nearly all the historical Gospel of Wealth themes are there: a laissez-faire economic philosophy, strong opposition to government intervention in the economy, a hatred of taxation, a desire to shrink government and strip it of resources, a celebration of the successful entrepreneur and investor as the source of prosperity and wealth-a sense that people get what they deserve out of the economy and that government has no business stepping in to even the odds. Moreover there is in the Bush program a clear rejection of Lincoln's belief that government's role is to take affirmative steps to encourage equality of opportunity.
Taxing and Spending
A major battleground of economic policy today concerns government's decisions on taxing and spending. We have made very little progress in understanding the differential economic impact of alternative tax policies-largely because political considerations tend to overwhelm factual analysis when it comes to debate about government's decisions to tax and spend.
Many politicians and economists today act as if the only relevant question is the factual one: Does the proposed policy work to increase the nation's Gross Domestic Product (GDP)? They prefer to transform economics into a purely "scientific" discipline based on mathematical analysis. They want to adopt a "value-free" perspective on the discipline of economics, where empirical questions about the impact of alternative policies on economic growth are accepted, but moral judgments about fairness and political judgments about the impact of economic policies on American democracy are excluded as "unscientific." But, in the real world of democratic politics, arguments about moral and political consequences of economic policy are unavoidable.
Americans lack clear factual answers to many of the key economic questions at issue in today's policy debate. Economic policy debates are marked by numerous unsupported assertions-which unfortunately the American public has not been in a position to evaluate on a factual basis. To take just one example: during 2001-03, President Bush and his supply-side supporters, both inside and outside his administration, presented a technical-factual argument that tax cuts-in particular, cuts in the top marginal income tax rate-would pay for themselves by increasing government tax revenues from higher economic growth. But during the previous decade we had seen one of the longest sustained periods of economic growth and one of the biggest investment booms in American history, following President Clinton's increase in the top marginal income tax rate. Do cuts in the top marginal income tax rate increase economic growth, or don't they? Do they increase investment, or don't they? These are factual questions that should have factual answers (I'll examine the empirical evidence on these issues in chapter 8).
But factual consequences were not the only ones. President Bush's reduction of the top marginal income tax rate meant (1) a major loss of revenue for the federal treasury and (2) a sizeable tax windfall for the highest-income earners, including the multibillionaire Warren Buffetts and Bill Gateses of the world. One could argue that such a tax windfall for the highest-income citizens and their heirs was unnecessary and in some respects unfair-since such tax cuts would create deficits and could eventually lead to cuts in the necessary functions of the government. Such functions include national defense, homeland security, dealing with the consequences of natural disasters, and supporting antipoverty and pro-middle-class programs such as unemployment insurance and Social Security. Indeed, President Bush proposed such cuts in government programs at the beginning of his second term. Interestingly, Buffett, one of the country's richest men, wrote an op-ed piece for the Washington Post in 2003 opposing proposed cuts in taxes on dividends, arguing that he would actually end up paying a smaller percentage of his income in taxes than his office receptionist. But President Bush and his economic advisers argued that tax cuts for the highest-income taxpayers, and especially cuts in the top marginal rate, were advantageous, indeed necessary, because they would increase investment, employment, and economic growth.
The president has made this argument on many occasions. To cite but one instance: "We also drop the top rate, of course, from 39.6 percent to 33 percent. If you pay taxes, you ought to get relief. Everybody who-but everybody benefits, I'm convinced, when the top rate drops because of the effect it will have on the entrepreneurial class in America.... And you all can help by explaining clearly to people that reducing the top rate will help with job creation and capital formation; and as importantly, will help highlight the American Dream" (emphasis added).
The president's statement included two kinds of claims. First, cuts in the top marginal rate would increase investment (capital formation) and employment (job creation). That is a factual claim: that cuts in the top marginal income tax rate alter economic behavior in such a way as to cause more investment and employment (and, as a result, more economic growth). This is a claim that is either true or false; one should be able to verify it, based on data showing how the economy has performed under different tax structures. (I shall return to this question in chapter 8.) Second, the president said, "everybody benefits" because of these expected effects. This is a moral claim. Tax cuts for top-income taxpayers, the president argued, are in the interests of everybody. They serve the common good. They might not look fair at first glance, but they are fair because eventually the benefits accrue to society as a whole.
The point is that the president did not have to make this particular moral claim. He might have said alternatively that rich people ought to be able to keep the money they make, simply because they've earned it. But instead he appealed to the common good. Why? Because the president is a politician and America is a democracy. Politicians must persuade the majority that economic policies are in their interest. And in a democracy, as in any society, the rich are not the majority.
(Continues...)
Excerpted from The American Dream vs The Gospel of Wealth by NORTON GARFINKLE Copyright © 2006 by Norton Garfinkle. Excerpted by permission.
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Table of Contents
Contents
Preface....................viiIntroduction....................1
ONE The American Economic Vision....................12
TWO Lincoln's Economics: The Origins of the American Dream....................27
THREE The Gospel of Wealth....................47
FOUR The Age of Reform....................69
FIVE The Business of America Is Business....................88
SIX The Renewal of the American Dream....................107
SEVEN The New Gospel of Wealth....................144
EIGHT The Current Debate: Supply-Side vs. Demand-Side Economics....................163
NINE The Way Forward....................189
Appendix....................201
Notes....................205
Index....................221