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HOPELESSLY DIVIDED

ROWMAN & LITTLEFIELD PUBLISHERS, INC.

Chapter One

Washington is home to a vertiginous tangle of industry associations, activist groups, think tanks and communications shops. These forces have overwhelmed the government that was originally conceived by the founders.

Republican politicians don't design policies to meet specific needs, or even to help their own working-class voters. They use policies as signaling devices—as ways to reassure the base that they are 100 percent orthodox and rigidly loyal ... As for the Democrats, they offer practically nothing. They acknowledge huge problems like wage stagnation and then offer ... light rail! Solar panels!

—David Brooks, New York Times, June 14 and 16, 2011

There is an increasingly serious crisis in American politics—a crisis that was rarely discussed until recently yet explains much of the dysfunctionality and dissatisfaction that we see every day. Our system has simply stopped working, and both the politicians and the people know it. Moreover, the political class—political leaders, business elites, and those in the information and technology vanguard—have explicitly come to function on their own behalf. They've put ordinary, mainstream Americans in a subsidiary, indeed inferior, position.

As a result, the political class is very happy with how things are going in America, while everyone else suffers, economically and politically. Ordinary people, regardless of ideology or social position, have come to believe that an unrepresentative, self-interested elite has rigged the system against them.

To be sure, the public has splintered ideologically. Those on the right want to dramatically reduce the size and scope of government, while those on the left want bigger government, more stimulus, and higher taxes on the wealthy.

Regardless of ideology, mainstream Americans believe the system no longer works on their behalf; that the American Dream no longer is a reality for them and their families; and that their institutions—those that they were brought up to cherish—have largely failed them and their fellow citizens.

And the political elite has either tuned out ordinary, mainstream Americans or come up with schemes to manipulate them in a variety of ways. The elite helps politicians of the right and left raise huge war chests for campaigns, support massive lobbying campaigns for special interests, and more frequently, deploy huge amounts of secret campaign funds independently to protect their interests. Moreover, they cater to an increasingly polarized electorate with blatant appeals to the political extremes. They create, facilitate, and maintain electoral rules that play to these extremes.

The result is an unsustainable system that perpetuates a self-selecting, self-satisfied elite and increasingly alienates a restive and frustrated electorate that substitutes ideology for thought, anger for judgment, and alienation for commitment.

Something has to give, and soon.

THE FAILURE OF THE POLITICAL CLASS

For the last several years, the American people have withstood one blow after another: a financial crisis, a housing and foreclosure crisis, an unemployment rate far higher than we've seen in generations, stagnating middle-class incomes, and a general sense of a declining quality of life and diminished prospects for the future. Substantial percentages of Americans tell pollsters they've lost faith in the American Dream. The nation faces a genuinely frightening debt profile, a federal deficit at record highs, states and municipalities near bankruptcy, and no real sense that job recovery is in sight in the near or even distant future.

In my life, now is the most difficult time I can remember in this country, and it's made worse by the prevailing sense that our political leaders in Washington, both Republican and democrat, have no answers for it. One might even conclude, from watching their endless partisan squabbling and failure to come to compromises on monumental issues, that they feel it might not be in their interest to find answers—as if the system they've set up, painful as it has become for everyone else, is serving them rather nicely, thank you very much.

In fact, that's how most Americans do tend to see it.

What else should they conclude about a system in Washington which, in summer 2011, held a gun to the head of the American economic and financial system with an absurd, incredibly destructive battle over raising the federal debt ceiling?

Never before had the U.S. government seen anything like it: a battle to the finish between the two parties over what had been, for decades, a routine transaction: raising the nation's credit limit so that it could continue to make payments to the creditors of its national debt, not to mention fulfill a host of other obligations. At the eleventh hour an agreement was reached, but the damage was done: standard & Poor's, citing dysfunction and rampant partisanship in Washington, downgraded the nation's credit rating for the first time in American history.

Even that wasn't the end of it: barely a month and a half later, the two parties were at it again. This time, the issue was provisions for disaster relief in a short-term government funding bill known as a continuing Resolution—again, a fairly routine mechanism in Washington. Democrats wanted to insert the higher funding number from a senate version of the bill, while Republicans insisted that any increased funding had to be offset by spending cuts. Inside baseball? normally, yes—except that, just like in the debt-ceiling fight, both sides refused to budge. Without a deal, the federal government would have shut down. Once again, Americans watched as their elected representatives spent most of their energy on partisan warfare instead of bipartisan solutions.

And so Americans have lost almost all confidence in their political institutions, especially the two parties—Democrat and Republican—that have been at the heart of the political system for over 150 years. Americans see in the two parties little but partisanship, self-interest, ideological obsession, and a prevailing desire to hold on to power at all costs, including the cost of national interest. They view government as being insulated from the problems of ordinary Americans, almost solely responsive to organized special interests or to financial elites. An ABC news poll in June 2011 found 69 percent of those polled described themselves as dissatisfied or even angry with the way the federal government is working. Less than one in five has any confidence left in government. some 70 percent of Americans believe the nation is on the wrong track.

Perhaps most striking of all, millions of Americans have lost their faith in the American Dream. They no longer believe that, under the current system, their children will enjoy the same opportunities. I've seen this in my own polling. In an April 2011 poll of unemployed and underemployed men I conducted for Newsweek and the daily beast, 42 percent of respondents said that they felt the American dream was out of reach for them; 18 percent said they weren't sure. About 75 percent said that they didn't have the money to live the way they wished, while 65 percent said they had tapped their retirement savings to get by. Last fall, an ABC News/Yahoo poll's findings were similar. Just half the respondents believed that the American Dream still existed, while nearly the same portion said explicitly that it was a thing of the past. Not surprisingly, those who earned over $75,000 had the most confidence in today's American Dream.

The implications of such an outlook cannot be overstated. It goes to the fundamental nature of the crisis we face today, the observable fact that for millions of Americans, the system no longer works. If the only demographic group that retains belief in the American Dream is the wealthy—and even then, by not much of a majority—then the American meritocratic ideal has clearly fallen on hard times.

Those hard times have eaten away at a defining American trait—optimism—both in the short and long term. Consider the findings of a Newsweek poll conducted by my firm, Douglas E. Schoen, LLC, in May 2011:

Three out of four people believe the economy is stagnant or getting worse. One in three is uneasy about getting married, starting a family, or being able to buy a home. Most say their relationships have been damaged by economic woes or, perhaps more accurately, the dread and nervousness that accompany them.

As our Newsweek survey demonstrated, the magnitude of the nation's problems, combined with the vacuum of leadership, has had a debilitating effect on American confidence in the future and on the core values and principles of our society.

Though I can't prove it, I'd be willing to bet that throughout American history, in good times and bad, there has never been a time when a majority of Americans didn't believe that the future held great promise or that their children wouldn't have the chance for a better life. Until now.

Unfortunately, this widespread despair is grounded in troubling realities. Consider the situation we face:

• A national debt of over $14 trillion

• A federal budget deficit projected to reach $1.5 trillion in 2011, the highest in American history

• Our major entitlement programs—Medicare, Medicaid, and Social Security—headed toward bankruptcy

• An exploding wealth gap between the rich (and super-rich) and the poor: 14.5 to 1, nearly double the 7.69 to 1 figure from 1968, according to the 2010 census

• Failing education and health-care systems and crumbling infrastructure

• Falling living standards for millions in the middle class, with no hope for improvement

• An unemployment rate still holding at 9 percent

The problems confronting the country today are quickly becoming immediate threats to our well-being, both in the short and long term. Look no further than our frankly terrifying debt picture: a spring 2011 report from the Peterson Institute for International Economics estimates that the nation's debt as a percentage of GDP, which currently stands at 65 percent, will surge to 155 percent in 2035 under a "best-case" outlook, while a darker projection would have it reaching 302 percent of GDP. The Peterson Institute report—which notes that "debt ratios of around 200 percent of gross domestic product are at the extreme limit of what advanced economies can experience without becoming destabilized"—reads like a description of a slow onset of Armageddon.

Meanwhile the Federal Reserve System (the Fed), writes esteemed financial market analyst Martin Weiss, is printing money around the clock, doubling the nation's monetary base in just the last two years. Fed chief Ben Bernanke, Weiss writes, "has made it crystal clear that he will continue burying the world in newly created dollars to finance our record federal deficits." The result is that global investors are dumping dollars on a massive scale, and the IMF is considering going off the dollar as the world's reserve currency. Weiss warns of consumer prices exploding in the near future.

While alarmism is never helpful, it must be said that the united states faces issues truly disturbing in their magnitude and severity. And Washington's inability, or unwillingness, to put forth genuine solutions makes the situation even more dire. When the parties do focus on major problems, they either cannot articulate rational solutions or they become mired in partisan warfare, falling back on reckless ideological positions.

MAINSTREAM PAIN, ELITE PROSPERITY

This loss of faith in the American Dream underscores the other fundamental source of division between the mainstream and the political class. Besides seeing the world very differently, the two groups are also faring very differently in today's economy: one group is prosperous, while the other, for the most part, has been engulfed in economic distress matched only by the Great Depression. Within the mainstream, the economic suffering is acute, broadly dispersed, and chronic. The Great Recession, as it has been called, might be, given different historical eras and economic structures, equal to that calamity or even worse. to give a brief picture:

• The United States has lost a net $7.7 trillion in household wealth since the meltdown, and Americans' home equity has declined 35 percent.

• As of September 2011, six million Americans have been out of work for twenty-seven weeks or more; in summer 2010, some 4.7 million Americans had been out of work for over a year.

• The unemployment rate jumped 102 percent from 2007 to 2009.

• One in five Americans is either unemployed or underemployed.

• One in eight mortgages is in default or foreclosure, and millions more homes are on the brink.

• One in seven Americans is on food stamps.

• The U.S. median household income declined $2,241 from 1999 to 2008—even before the start of the Great Recession.

• The price of a college education, meanwhile, has grown 467 percent since 1985, putting higher education out of reach for many middle-class students and burdening others with crushing debt.

No wonder a recent poll showed that nearly half of Americans surveyed believe the nation is in a depression. And 44 percent, according to an NBC/Wall Street Journal poll in June 2011, believe that the nation is headed back into recession.

Meanwhile, corporate earnings are at their highest in history—according to the New York Times, fourth-quarter 2010 profits at American businesses were up an astounding 29.2 percent, the fastest growth in more than sixty years. Collectively, American corporations logged profits at an annual rate of $1.68 trillion. Since 2007, wall street profits have risen 720 percent. The top one-hundredth of one percent of households now makes an average of $27 million per household (the bottom 90 percent of American households makes an average of $31,244). While families dissolve under the blows of unemployment, while fifty-something professionals look in vain for work and college graduates work odd jobs in lieu of entry-level professional positions that can help them pay down their loans, the political class keeps cashing in—whether in Washington or on Wall Street.

Those most directly responsible for the 2008 financial crisis have gone unpunished, often rewarded with more lavish payouts and positions of leadership. The insiders' club continues to thrive; its members have made full recoveries from the financial meltdown and the Great Recession—if they were even thrown off stride at all.

Just consider the fate of the leadership of Fannie Mae, the federal mortgage broker whose liquidity crisis—and bailout—has so far cost taxpayers $162 billion. Tom Donilon, who served as general counsel of Fannie Mae, is now President Obama's national security advisor. Bill Daley, who served as a director, is the president's chief of staff. Franklin Raines, the disgraced CEO, left Fannie Mae with a golden parachute valued at perhaps as much as $240 million. Neither he nor anyone else associated with the Fannie Mae scandal has had to give any money back, let alone face any civil or criminal charges.

But while Fannie Mae went bust, Americans were evicted from their homes, and personal bankruptcies and foreclosures reached record highs. With that trail of destruction left behind them, the political class is only further enriched, empowered, and in effective control of government.

What the electorate sees when it looks at Washington is a political class that, over the last decade especially, has consistently made decisions on the great issues of the day that benefit the wealthy, the powerful, or the politically connected. No event of recent years has provoked this response more vividly than the government's handling of the financial crisis.

To be sure, what the political leadership in Washington faced in the fall of 2008 was truly daunting: nothing less than the threat of a systemic meltdown of our financial system. Some, like federal Reserve chairman Ben Bernanke, told Republican and Democratic lawmakers that failing to act risked a Great Depression scenario. And three years later, it's certainly possible—though probably not provable—that what the federal government did in enacting the Troubled Asset Relief Program (TARP) and bailing out firms such as AIG, Bear Stearns, and Goldman Sachs really did prevent just such a scenario.

(Continues...)

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Excerpted from HOPELESSLY DIVIDED by Douglas E. Schoen Copyright © 2012 by Douglas E. Schoen. Excerpted by permission of ROWMAN & LITTLEFIELD PUBLISHERS, INC.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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