Now that the 2012 campaign is over, we would do well to turn attention in earnest to the problems the United States faces, none of which are the slightest bit closer to resolution as a consequence of the election.1 Never has an American presidential race been so devoid of serious debate and genuine ideas as this one was, and this at a time when our need for real analysis and bold proposals is greater than ever. The country is in real trouble—not on account of some foreign adversary, but because our political system has become broadly dysfunctional. The recent election season, far from improving things, rather stands as a symptom of the dysfunction.
Strong views on the sources of contemporary American political dysfunction certainly exist, but just as certainly there is no consensus as to which view is correct—and one cannot readily remedy a problem unless one has first figured out what it is. This is obviously no easy task, or someone would have already done it.
Why has this task been so hard? There are several reasons, but a key one is that it’s not obvious what we need to know. We have a levels-of-analysis problem, and we need a Goldilocks Solution for it. Some fixes are too superficial: Just repair the campaign finance system, or persuade politicians to be less partisan and more civil and all will be well, some say. But they won’t, and the fact that we cannot achieve even these modest objectives points to something deeper having gone awry. We dare not dig too deep, on the other hand, lest we find our problems to be standing on the backs of other problems all the way down, as in the cosmological turtle myth. Since everything is caused by something else more foundational, and since causal arrows often point in many directions at once, it is hardly obvious that a deeper analysis, lying somewhere in the recesses of, say, culture, will best repay practically minded effort.
Not that deeper searches cannot be rewarding and suggestive. Plenty of real interest has been written, for example, about changes in the self-image and behavior of American elites; about changing values, like thrift, as a means to explain the profligacy of recent times; and about a media culture that has taken us in barely more than one generation from Father Knows Best to a primetime diet of murder, child molestation, madness and casual torture. When connected to real social history, the truths that emerge from such analyses are not flimsy. But they are not especially helpful truths because they can rarely be specific enough to inspire useful policymaking. We need more appropriately sited evaluations of the problem, neither too superficial nor too deep. These evaluations fall into three groupings.
The first of these we can call globalization/automation for short, the second political/institutional and the third corruption/plutocracy. These groupings are not mutually exclusive; certain insights from each ramify through the other two. The three classes of explanation are analytically distinct but form one great mess of a problem in the real world.
Globalization/Automation
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s to globalization/automation, the basic argument is clear enough. The accelerated post-Cold War lowering of barriers to the free movement of capital and information means that national boundaries are now much less a limiting factor on where manufacturing and servicing operations can be sited. As a consequence, labor pools are no longer as readily defined by political borders. As corporations have become more adept at coordinating production, assembly, marketing and other functions across different sites around the globe, low-cost wage pools far more readily underbid higher-cost ones. This means, in turn, that, all else equal, products enjoying low-wage cost inputs can outsell others so long as the degree of advantage trumps transportation and other connectivity costs.
One result of this shift is that global trade balances have shifted dramatically, and another is that trade and manufacturing labor unions in wealthy countries have lost ground as the share of manufacturing in these economies has declined relative to countries without effective labor union movements. It is hard to prove, but most likely corporate America knew exactly what it was doing when it embraced China as a production platform—and it has succeeded: The power of trade unions has been emasculated. It is easy to demonstrate this at a time of falling wage levels for union work, and it is one of the saddest hallmarks of the past quarter century that the international division of the AFL-CIO, once the proud throne of Lane Kirkland, has been so poorly led, opening wide the global door to a race to the bottom.
At the same time, technological advance has enabled an accelerated substitution of capital for labor, increasingly automating virtually any job based on routine procedure. Together, the automation of many fixed-routine jobs and the dissolution of traditional labor-pool boundaries have hollowed out labor markets for semi- and low-skilled jobs in wealthier countries like the United States. Over time this has led to growing inequality as returns to capital have far outdistanced returns to labor in an environment that rewards high technology and symbol manipulation capabilities over more traditional labor categories.
Most economists and many others have interpreted the general trajectory of both globalization and automation in positive terms. Greater competition across national boundaries stimulates greater efficiency and hence higher productivity, they generally argue. In time, the growth of middle classes in heretofore poor or middling economies will enable more people to buy more products, and to buy increasingly high value-added ones from wealthier economies. The implication is that countries like the United States, even with a very large domestic market, will become more export oriented as globalization spreads and deepens.
As for automation, old jobs will disappear but new and better ones will arise, as long as the education system keeps up with demand. This has been the history of technological progress for several centuries now, after all. Thoughtful observers have been making fun of populist panic over supposed unemployment-generating machines for a long time. By increasing productivity per unit of energy input, technology makes everyone richer, and the aggregate demand that flows from increased affluence creates the salaries of those holding these new and better jobs. Meanwhile, in a market system, light but predictable government regulation and corporate philanthropy help to bound and recycle business profits to keep the social peace underlying a growing but unequally benefacting economy from getting too far out of kilter.
If one credits this analysis, then rising inequality in the United States is temporary, just as past episodes in which wealth was concentrated at the top have been temporary. Economic historians point out that increases in inequality during times of rapid technology-driven economic growth are normal: So it was in the first Gilded Age, so it was in the 1920s, and so it is again today. Not only will inequality even out again in due course, regardless of what government does, but America as a nation will most likely come out ahead of the pack for a host of reasons.
So, argue some, nothing fundamental is out of whack. If we have problems, their source resides elsewhere. This is therefore no time to tamper with the structure of the American political economy. In this view, we just need to once again focus on investing in the future—in education, science and technology, and infrastructure—instead of throwing great wads of money at present consumption. That’s what’s wrong, and it’s not that big of a deal. What would really be wrong is if in a panic we set out to fix things that aren’t broken.
T
here is, however, another way to look at all this that is not so cheery or acquiescent. Creative destruction, as Schumpeter famously called the competitive churn of market economics, is all well and good—or at least it is ultimately necessary. Without it, a nation stultifies and falls behind. You want an omelet, you know what happens to the eggs. Everyone cannot be a winner in a competitive world, even if society as a whole comes out ahead for all its trouble. But as Schumpeter himself understood, for competition to benefit a nation society has to be able to assimilate it. Just as too intense a surge of power can burn up a motor instead of making it run well, so too does too much churn, too fast, erode the underlying institutions and attitudes a vibrant economy needs to stay healthy. Just where one locates the tipping point has always been a question of one’s opinion and temperament.
There have always been those sad to see old ways pass from the scene. We have plenty of romantics in America today who want to slow down what has become a truly galloping process of churn so that communities can adapt to change, if they can adapt at all, with minimal social disturbance and pain. But you don’t have to be a romantic to credit the problem. There are cold-blooded, realistic reasons to acknowledge the cultural costs of the churn. It is not merely romantic to hate the homogenized mediocrity that corporate America brings to small (and not-so-small) towns across the country, where the slash-and-burn business models of Walmart and a plague of franchised fast-food joints grind every craftsman-based and one-of-a-kind family business to dust. That’s not creative destruction; that’s just plain destruction.
Even if one is prepared to bite one’s lip about the churn domestically, the process of creative destruction often does not translate well across borders. If, for example, some large and ambitious developing countries manipulate their currency to tilt globalization in their favor, then the losers are less outcompeted than swindled. There cannot be much doubt that this is precisely what China has been up to for roughly the past two decades. As a result, the pace of U.S. manufacturing jobs as well as investment heading to China has accelerated rapidly. As a result, too, there are now more than twice as many Americans (about 22.5 million) working for municipal, county, state and Federal government as there are in manufacturing. Government is a transactional cost; it produces nothing anyone can eat, drive, or use for shelter or anything else. So it’s no wonder that private-sector median wages have stagnated. And why is anyone surprised that the government share of GDP in the economy and all its attendant costs have skyrocketed?
There are national security implications in all of this, of course, but, even short of that, creative destruction in an era of globalization affects whole domestic policy domains, such as immigration, which has long been the neuralgic third rail of American politics. Once a middling-sized, discrete issue, immigration today is vastly more salient and complex politically because it aligns with opposing views on globalization. Those who would shield American communities from too much churn, too quickly, generally support some degree of trade protectionism and oppose liberal immigration policies (and want to expel undocumented residents, or at least limit their social benefits). Corporate interests, on the other hand, oppose protectionism and like cheap mobile labor pools and the porous borders that accommodate their migrations because this arrangement translates into a competitive advantage for them.
If free trade and “loose border” supporters point out that the law of comparative advantage dooms the citizens of protected economies to a lower level of prosperity as a price for relative stability, the latter may return the comment with a question or two: Exactly what do you mean by prosperity? Do you mean the mass ability to buy imported plastic and electronic junk no one needs in the first place? And prosperity at what cost to the losers? How much inequality should we tolerate for this method of supposedly making the nation more affluent? What these critics are saying, along with the Legatum Institute’s Prosperity Index, is that measuring aggregate demand at the level of the economy as a whole is not a very useful metric of genuine national prosperity.
Protectionist arguments, well made and otherwise, used to be the province of the trade union movement, but as that movement has weakened similar arguments have been taken up from new quarters. Thus we arrive at what may be called the “green”, or crunchy, side of American politics, a point of view that questions the sovereignty of economic criteria as the basis of all national decisions.
There are left-of-center and right-of-center crunchies, both flavors going well with standard environmentalist arguments. When some argue that the economy suffers from too little aggregate demand from the besieged middle class, crunchies assert that the logic of hyper-consumption puts us on a treadmill that is ultimately incompatible with the carrying capacity of the environment. Globalization has sharply accelerated this kind of logic, crunchies argue, around the world. No one denies the ability of sound macroeconomic policies in an open international economic order to pull huge numbers of people from abject poverty, as indeed they have done. But we now see dramatic transformations of consumer behavior over very short periods in places like China, Korea and India, not to speak of Saudi Arabia, Kazakhstan and now even Mongolia. As restraints against profligacy in hoary cultures crumble like so many stale oatmeal cookies, a good many of the nouveau riche have been left asking themselves, in effect, “Now what? What does having all this stuff mean, anyway?” (They don’t know, any more than we do.)
To a true crunchy, as opposed to a standard-issue trade unionist, our core problem lies in a wholesale displacement of human values for a system in which everything of value is measured in economic terms. This diagnosis does not see what happened in the fall of 2008 as a source but as a symptom. Note, too, some ancillary evidence for this view in the fact that the data points that make headlines and guide high-powered decisions on a regular basis these days did not even exist a century ago. Back in 1874 no one worried about the unemployment figures for the last quarter of 1873, because there weren’t any in what was then an only semi-monetarized economy.
It is a truth of human nature that we of the promiscuously associational brain tend to be influenced unwittingly by the terminology we inherit. And it is equally true that we tend to focus on those facets of life we can grab onto through the vehicle of information. A lot of people ascribe more concreteness to quantitative information than they do to words. As Nietzsche once wrote, presumably before he went mad, “Were it not for the constant counterfeiting of the world by means of numbers, men could not live.” Our materialist obsession owes much (though no one can calculate how much) to the illusory concreteness of the data that now envelope us. To paraphrase Churchill, we have shaped our house of data, and now it is shaping us.
Further, just how much sense does it make, a crunchy will ask, for our leaders to tell us both that we need to save money, because we are too much in debt, and that we need to spend money to create aggregate demand sufficient for national economic well-being? Isn’t it a telltale sign of lunacy to advise people to do two diametrically opposed things at the same time?
From this point of view, globalization and automation may be great for business and especially for transnational business, and they’re fine for big stockholders in such businesses and the politicians they rent for various and sundry purposes. But they’re not such a great deal for ordinary people in wealthy countries or ultimately for most people in the world. We Americans, anyway, are busy hyper-consuming ourselves to oblivion, spinning away from our founding virtues as we go a-whoring in our era’s functional equivalent of Babylon. Next thing we’ll be offering our children up to Moloch because there’s a three-for-one-sale at the local altar. No wonder we can’t get a grip anymore, say the crunchies; the sudden advent of a supersonic version of global capitalism has driven us crazy. That’s what’s wrong.
Political/Institutional
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hose who point to the dysfunction of our political institutions generally raise several distinct but interwoven phenomena. The first is the increased role of ideology in American politics. Both parties have become far fonder, if not necessarily more adept, at that particular form of abstract thinking. Ideological polarization between the two major parties is greater than it has been since the Civil War. As has often been pointed out, until about a quarter-century ago there were always some Republicans who were more liberal than some Democrats, and some Democrats who were more conservative than some Republicans. No more. White Southern Democrats of more conservative mien are virtually all Republicans now; liberal Northeastern Republicans have likewise gone almost extinct.
One result is that leaders in both parties feel freer to make broad moralistic assertions about what is right and wrong because they no longer need worry about alienating significant numbers in their own party. It used to be that proper management of party discipline required horse-trading and understatement; now it requires rigidity and exaggeration. Naturally, a dialectic of vitriol tends to emerge from this circumstance, growing on itself to the point that those of different parties rarely even speak to one another, at least civilly. Getting to pragmatic compromise is obviously more difficult under such conditions.
According to many analysts, since ideological polarization prevents the institutions of government from reaching compromise, it thus paralyzes the government’s capacity to adjust to rapidly advancing new circumstances in the world. (Thus we find a link between the globalization/automation argument and this one.) Some believe further that, at a time of waning social trust in the United States, politics-as-usual has morphed into a form of identity politics, and those who anchor their personalities in political terms are not wont to compromise easily, or at all. Other problems compound ideological polarization, such as gerrymandering that produces too many noncompetitive congressional districts and therefore tends to drive discourse toward the extremes. The reason is that in situations where primaries are more important than the general election, highly ideological voters become the kingmakers. There are also longstanding constitutional issues, such as the one that enables Senators representing only 17 percent of the U.S. population to control agriculture policy. The Senate, too, has balled itself up into a situation in which the filibuster is overused, and in which one typically needs a supermajority, not a mere 51 votes, to pass any significant program into law. There is plenty of broken institutional china to choose from.
All these problems, some analysts reason, are exacerbated by aspects of technology. Our political discourse is no longer a two-way street, where candidates and citizens exchange views on a regular basis. Rather it has become a one-way torrent of mass-junk mail and television ads aimed at citizens. The increased sophistication and professionalization of political consultancy, using the most advanced statistical techniques social science can provide, have also contributed to the bifurcation of the electorate by campaign professionals. To raise the enormous and still escalating sums of money to run a national or statewide campaign, one has to activate the core, but often to win the election one has either to move toward the center or, much more popular lately, tear down the reputation of the opponent with negative advertisements. So wild ideological simplifications combine with attack ads to produce double-barreled campaign strategies that both disorganize our stock of knowledge about public policy and tend to alienate any voter with a brain.
Of course, these dysfunctions at the top of our political system are well known, since some have been extent for many years. And there is no shortage of proposals to fix them, some wise, some counterproductive and most, in current circumstances, quite fanciful.
Among the most fanciful is the geographer Etzel Pearcy’s proposal, now more than thirty years old, to re-divide and rename the fifty states into a more coherent 38-state scheme that, Dr. Pearcy asserts, would save at least $4.6 billion a year in fixed costs. Another scheme, only slightly less fanciful, is to split up the large states like California into smaller units in order to bring people closer to their government. Similarly, there is the perfectly sensible, and completely impossible for now, idea that when we do the census every decade we should increase the size of the House of Representatives to match population growth. We used to do this, going from 65 at the start to 105 in 1790 to 142 in 1800 and so on, but stopped doing so in 1910. The population has more than tripled since then, with the result that we have now approximately 710,770 voters to 1 congressman. That’s absurd.
Yet another proposal is that we de-politicize redistricting after each census. It is shameful what the political parties have done with this responsibility in recent years, but it is not inevitable that things remain as they are. California removed the responsibility for redistricting to a non-partisan committee in 2010 (Proposition 20), possibly the only smart thing that has gone on in California politics in more than forty years. If California can do it, other states can, too. Congress could, Supreme Court willing, even make them; this is, however, extremely unlikely.
Then there are the counterproductive or plainly unconstitutional proposals, many of which are by now well known: term limits, a constitutional amendment to mandate balanced budgets, mandatory public financing of elections and others. We spend way too much time discussing bad or impossible ideas to the exclusion of better and possible ones. That’s one reason nothing has changed for the better.
W
hatever the state of dysfunction at the “high politics”, decision-making level of government, there is also institutional dysfunction at the administrative/bureaucratic level. This form of dysfunction, while less obvious and far more complex, is more profound and probably more important than the first sort. It’s not just that government isn’t making timely and sensible policy decisions, it’s that it can’t implement decisions except in wasteful and often counterproductive ways. The reason, many believe, is that government is insulated from competition, along with those sectors of the economy it dominates but does not directly manage, notably justice and prison functions, health care and education. The result is that government and these related functional sectors are organizationally hidebound and risk-averse because they are able to avoid most pressure to innovate and adapt. Public-service unions contribute to this not only because they protect bureaucratic operations from pressures to be more efficient, but also because they wield massive influence as active fundraising and voting constituencies in their own right.
The dialectic of expansion and ossification of the American bureaucracy is not a recent development. It is part and parcel of the huge and rapid enlargement of the purview of the Federal government after, first, the onset of the Great Depression and, then, the struggle to win World War II. It is also bound up with a legal development that few well-educated Americans have ever even heard of, called, for short, Humphrey’s Executor v. United States. This refers to a 1935 Supreme Court decision that allowed the delegation of legislative authority to administrative agencies. That Court decision eventually led to the Administrative Procedures Act (APA) of 1946, one of the most important documents of contemporary American political culture that, again, virtually no one has ever heard of.
This is not the place to detail these developments, but, in a nutshell, they allowed Congress to write fairly vague laws and then let bureaucrats write the regulations to turn these laws into actual legal and administrative realities. This same decision and subsequent interpretations of it also reinforced the subordination of Executive Branch departments and agencies to Congress rather than to the White House. It means, to simplify somewhat, that the President cannot fire a high-ranking bureaucrat just because that bureaucrat disagrees with his policies. The bureaucracy is legally autonomous, and Congress, not the White House, controls its budget. It is for this reason that some legal scholars have proposed a more imperial Executive to solve the problem of unresponsive and persnickety bureaucracies.
As the size and scope of the Federal government grew, the percentage of the discrete decisions and judgments it made fell increasingly to the unelected reg-writing bureaucrats. Most of the expansion, though engineered at the Federal level, expressed itself in the states through the legal concept of cooperative federalism. As government grew, too, its transactional costs increased not arithmetically but exponentially. There is a scientific principle behind this observation: Whether in a given animal or a distributed system, the larger the weight, the greater the proportion of bone (or internal structure) needed to support it. One critical implication of this principle is that economies of scale can in time give way to destructive diseconomies of scale. (Just ask a dinosaur.) Bureaucratic creep, too, can cause a tipping point to be reached where growing transactional costs outweigh the benefits of scaling up. Technological change can move that tipping point over time. But institutional arrangements are generally conservative, so it is easy to pass tipping points from economies of scale to diseconomies of scale without noticing the change for a fairly long time.
This observation in turns throws critical light on the common quip that American citizens are like little children, wanting a whole range of government services but not wanting to pay for them. This is sometimes true, but the plaint ignores a dynamic inherent to an expanding administrative bureaucracy. Most of the capillary-scale things that government does, at local, state, or Federal level, no citizens have ever asked it to do. Rather, these functions inhere logically to the nature of administrative systems.
Thus, a law may ask regulators to accomplish a certain goal without legislators having thought through what may be involved. It is natural to an administrative bureaucracy to want to cover all bets in getting the assigned job done, not least because that tends to widen the permanent base of its budget share. But it is just as true and probably more relevant that attempts to affect any social environment tend to beg the efficacy of each successive generation of rules whenever the definition of the mission is inherently open-ended. In such circumstances, every administration-bound definition or rule-set tends to sire more specific definitions and rule-sets as the generic, open-ended goal of the organization—say, safety in the work place, or environmental health, or national security—proves both expansive by dint of progressive success and hence eternally elusive. There is no practical limit on how far bureaucracies can push out their standard operating procedures except the amount of money Congress provides them. And Congress has tended not to say “no” very often, because who wants to be accused of making work places unsafe, of polluting some asthmatic’s air, or of jeopardizing American security?
Thanks to this natural dynamic, administrative mission creep tends to accumulate over time, producing a bureaucratic metabolism that is as large and slow as a whale heart, circulating managerial blood to an enormous amount of tissue. This has nothing to do with what any citizen ever asked government to do without wanting to pay for it. The point is that the gratuitous complexification of routine and often functionally marginal administrative procedures are both lethal to efficiency—and expensive to boot.
That’s not all. The paradox is that the Federal government today is both too large and too small at the same time. It is too large in what it promises to do, and too small to be able to do it. The latter is partly a reaction to the longstanding and hardly arcane complaint that government is too ponderous. The solution (you remember Al Gore “reinventing government”, right?) was contracting, a domestic form of outsourcing. We have applied it with alacrity to logistical support within the military. This same approach characterized the way the Bush Administration set up the new Department of Homeland Security, and the result has been disastrous. All this looked like making government smaller at first blush, but not if you read the fine budget print. What it actually created, as Donald F. Kettl puts it, is “a bigger government with more shared responsibility [that] has created a system in which no one is fully accountable for anything government does” on the level of providing basic services.2
In such a system it becomes impossible to follow the money from authorization and appropriation to who actually spends it and how. A lack of accountability all through the sprawling network of middle managers and accountants tends to bring out the worst in human nature, too. How else can Amtrak, with a captive clientele, manage to lose nearly a billion dollars over the past ten years selling food?3 Largely, we are advised, because Amtrak workers all along the supply chain are stealing food, and no one in particular seems to think he or she is responsible for stopping the theft.
This datum, breathtaking as it is, is just a single dot in a huge matrix of third-party payments, obscure and non-interoperable accounting methods, and look-the-other-way, public-union-protected bureaucratic careerism. As outrageous as the Amtrak example is, take a guess what the whole picture looks like. A recent Institute of Medicine report estimates that thirty cents out of every dollar spent on medical care in the United States is squandered through unnecessary care, byzantine paperwork and outright fraud. That’s roughly $750 billion each year in waste. Why? In part because in very large, essentially unaccountable bureaucracies that are shielded from best-practice competition by their association with government it is no one’s job to stop this sort of waste.
Moreover, as the administrative bureaucracy of government and its related functional domains has both grown and become less effective at the same time, the quotidian habits of democracy have atrophied. Economists and social scientists interested in economic behavior sometimes use the phrase “rational ignorance.” What they mean by this is that small, capillary-level regulatory decisions that government makes by the tens of thousands each year, each one recorded in hernia-inducing tomes of the Federal Record, are much too insignificant for citizens to know about, to care about, or certainly to do anything about. It doesn’t make sense for the average person to spend time and energy becoming knowledgeable about such small-bore policy debates. It makes even less sense if legislators are not making the actual decisions, while bureaucrats and contractor personnel are. The more that government is taken up with such below-the-radar kinds of judgments, the more the average citizen tends to feel that this is really none of his or her business. And of course, the larger the scope of government authority and the more detailed its managerial purview, the more rational ignorance and political passivity condition the sense of what it means to be a citizen in this American democracy.
The result, among other things, is to open the door wide for the logic of collective action. Small numbers of people who care about these kinds of decisions are very likely to get their way if nobody else can be bothered to object. (This, too, is not a new insight. See Mancur Olson in the 20th century, William Graham Sumner in the second half of the 19th, and Condy Raguet in the first half of that century.) The problem here is that these small-bore decisions multiply and compound themselves over time, ultimately creating a corpus of government behavior that tilts the playing field toward special interests and against the general welfare. Therefore, when a critical political mass of citizens does espy a genuinely salient public policy issue and wants to weigh in, it often turns out that that particular issue has already been shaped and bound by relentless, persistent and personalized lobbying.
If for a moment we were to take all these aspects of dysfunction and leave aside the polarized high politics of decision-making, we can see the deep damage that has accumulated over time at the cellular level of government. If one wants to push the biological metaphor a bit further, one might describe it as septic. It doesn’t matter what the brain wants or orders, for nothing it can do will offset the underlying condition that distorts and thwarts every well-intentioned programmatic signal that comes down.
It is largely on account of all this that a group of Republicans, beginning in the middle to late 1970s, could accuse government itself of being the problem rather than the solution to national challenges, a view that has become the dominant strain among Tea Party Republicans. Corporate-friendly Republicans didn’t mind the logic of collective action when it worked to the benefit of business interests, as it usually did. But not all Republicans were corporate-friendly back then, just as the Tea Party movement today, in its more lucid moments, is capable of knowing corporate welfare when it sees it. Moreover, not all the special interests getting their licks in were pro-business; the aforementioned public service unions, trial lawyers, one-issue activists of various kinds and others besides figured out how to play the logic-of-collective-action game as well.
These anti-government Republicans were not just whistling Dixie; they had a point, although a point they took too far, with disastrous consequences ever since. It is not just that large numbers of Americans don’t trust government to be effective stewards of their tax dollars. (Who can blame them for that?) It’s that they are alienated from government itself as a democratic decision-making system, the result being that they don’t want to cure the sick baby but drown it in the bathtub instead.
It is important to be clear about what this means politically. “Blue-model” liberals, as Walter Russell Mead has called them, either do not or refuse to understand the basis of this criticism, so they think it is disingenuous from the get-go. It’s all just a cover for selfishness. Grover Norquist doesn’t actually believe the nonsense he spouts about “starving the beast” to get runaway government under control, or the absurd myth that tax rates are the only factor that really counts when it comes to economic growth and job creation. This is just the way Republicans appeal to the baseness of their wealthy base.
This accusation is both true and not true. Republicans have indeed made an art out of appealing successfully to selfishness. But yes, Norquist really does believe what he says, and his view of “the beast”, however rigid and harmful it may be, is not without a basis in reality. (The argument about taxation and job creation, on the other hand, has no basis in reality at all.)
Speaking of rigid and harmful, the ideological turn in American high politics has a tendency to transform any analysis of government efficiency and effectiveness into a passion play of good guys and bad guys with little to no gray area of nuance in between. Here is where the two aspects of political/institutional dysfunction—the high politics/decision-making aspect and the bureaucratic/administrative aspect—join forces to form a genuine monster. It’s why it is so common to hear bureaucrats and administrators demonized together as an evil coven of surly DMV employees. But this rap isn’t true. Bureaucrats aren’t bad people; they’re merely self-interested ones enmeshed in a system over which they themselves have scant control. In a system that no longer works very well, however, that’s all they need to be to get most everyone else pissed off at them.
The result of the combination of selfish and principled opposition to taxation is of course the Tea Party, which has all but turned the Republican Party into an insurgent movement within American politics. This is not the place for an extended analysis of the Republican Party. Suffice it to say that throughout the 20th century there has never been a single or unified tendency in the GOP. It has had its pro-big-business wing, which has been as pragmatically fond of a paternalist government as much as it has been theoretically critical of government; a populist “moral majority” wing; and an anti-state libertarian wing. The views of these three wings sometimes overlap and sometimes conflict, depending upon the issue on the table, but they are not in principle fully reconcilable. That is why when one wing rises in prominence, the other two usually work to limit that rise. The Tea Party is unusual because it constitutes a two-winged Republican movement, which is largely why it has been able to fly so far, so fast: It comes out of both the populist (selfish anti-taxation) and libertarian (principled anti-taxation) wings. Yet it is funded largely by big business (not least the Koch brothers) for its own purposes. This is fundamentally manipulative, an attempt to harness and turn the energies of this movement in a direction that betrays its own populist instincts. It will be interesting to see if and when the Tea Party types ever catch on to this, and what they then do about it.
However that drama turns out, it should go nearly without saying that, to the extent that we have a significant caucus within our body politic that rules out the possibility of effective government policy as a premise, it’s going to be hard to get anything constructive done. If that attitude becomes pervasive enough, it will paralyze any institutional arrangement, even an effective one, if we can figure out what that would look like under present circumstances. These days this argument is joined over the pre-eminent question of the Federal budget deficit. But it doesn’t take a budget deficit to join this argument, because the argument was born and grew more popular (thanks in no small measure to Ronald Reagan) at a time when deficits were far less menacing than they are today.
The two ideological poles of American politics today, one blue, one red, are both one-eyed, and so perennially have no depth perception. Ideological liberals believe that government is the way to solve all problems, and that we are a wealthy enough nation to afford such solutions if only our politicians will tax our wealthy at historically “normal” rates, meaning the rates roughly between about 1940 and 1990. Most will claim that they believe in the efficacy of markets, all else equal, but that markets are not automatically efficient, especially when corrupted by corporate lobbying, and that there are some domains of social life that should not be subject to full-frontal economic rationality. Many justify redistributionist policies by reasoning that corporate plundering creates the need for such policies in the first place. But with one eye closed, they see nothing wrong with how government works today.
Ideological conservatives, on the other hand, believe that government cannot do anything right (except maybe national defense), and that what it does do is usually counterproductive since it distorts free markets to benefit those who don’t pull their own weight: the hangers-on, sycophants, self-styled victims and modern-day courtiers who suck from the ample teats of big government. Some will admit that markets can be imperfect, but with the other eye closed they are blind to systematic efforts by the plutocracy to avoid paying taxes and usually insist that government attempts to bound or regulate markets invariably lead to even worse consequences.
There is no need to choose between these accusations. If we open both of our eyes for a change, we ought to be able to discern some truths, as well as many exaggerations and outright falsehoods, in both points of view. The old, blue, big-government model no longer works under current global economic and demographic conditions, and those who defend it, while they think of themselves as progressives, are actually reactionaries. In that, Republicans are right. But anti-government Republicans, those of the now ascendant libertarian persuasion in particular, have completely left the reservation of logic and common sense. In that, Democrats are right. Libertarian and most Tea Party Republicans believe that government is incapable of creating social capital; it can only destroy it. They say this despite the history of the Homestead Act, the Civilian Conservation Corps and the GI Bill, and they say it, too, with the assumed conviction that while government can only destroy social capital, huge agglomerations of private corporate power cannot, or at any rate do not, do so.
Both the liberal pro-“blue” and the conservative anti-government narratives are also backward-looking. Yes, it’s true, we had a clear choice when Paul Ryan and his budget plan joined Governor Romney on the GOP ticket: Americans could choose whether they want a government that consumes 30–40 percent of GNP under a blue model or a 15–25 percent under a red model. The only problem is that the way the choice was presented by the parties gave us the options of going back to 1965 or to 1925, respectively.
America’s political institutions are so fouled up at both the politics/decision-making and the bureaucratic/administrative levels that one can actually make a plausible case that all the variance we are trying to account for lives here. One can make this case regardless of political affinities, too. Liberals argue that our economic situation, touched off by the financial collapse of autumn 2008, is all the fault of anti-government, market-fundamentalist types obsessed with deregulation. Conservatives argue that our economic situation is what it is because we are hopelessly in debt thanks to the futile and counterproductive meliorist entitlement policies of bleeding-heart liberals, who care more about intentions than outcomes. Both are partly right, but also partly wrong or, better, incomplete, in their analysis. This brings us, finally, to door number three.
Corruption/Plutocracy
A
reasonably alert reader might think that between globalization/automation causes and our political/institutional dysfunction there is nothing left to account for to explain what’s wrong with the United States these days. That would be wrong. More of the variance lies in this third group than in either of the first two. Globalization and automation have upset our apple cart faster and more profoundly than our ability to right it, and institutional/political dysfunction has mightily compounded the problem. But both aspects involve a pervasive corruption, without which these problems would not be nearly so formidable and would be dramatically easier to repair.
It’s hard to date the beginning of the problem. George Packer puts it at 1978.4 That year, he claims, marks the rise of organized money. He blames both conservative intellectuals and post-Watergate, McGovernite reformers for opening the political process to wads of cash from all over the place. In what he shrewdly calls a story about the perverse effects of democratization, Packer argues that the electorate was transformed from coalitions of different blocks to an atomized nation of television watchers: “Politicians began to focus their energies on big dollars for big ad buys.” So another link between schools: Technology has not only helped to stultify our national political conversation; it has also abetted corruption by making it attractive to channel enormous sums of money into electoral politics. Packer picks 1978 because three bills came before Congress that year, all of them perfectly sensible, and all of them defeated by the new power of organized big money.
One could as easily choose 1994, the year the Republicans won the House of Representatives, when all the committee chairmen flipped and Newt Gingrich became Speaker of the House. These Republicans managed in just two or three years to far eclipse the corrupt accretions that Democrats took more than two decades to amass. The Democrats in the main built the troughs of big government, but corporate-friendly Republicans truly excelled in supping at them. Or one can think of 1978 as “ignition”, 1994 as “lift-off”, and the 1999 passage of the Financial Services Modernization Act (the Gramm–Leach–Bliley Act) as “entry into orbit” for the most recent visitation of American plutocracy.
That latter date also marks the true entry of financial industry lobbying within the broader framework of corporate lobbying. It is this development, arguably, that has done the most harm, as the banking sector itself has turned from an institution based on the idea that it should help to create value into an institution based on the idea that the way to make money is to create debt. This is also the key fact connecting the globalization/automation dimension of the problem with the corruption/plutocratic dimension.
The U.S. financial sector loves globalization and automation. It facilitates the globalization of investment strategies from which the financial elite profits. It facilitates the process of sending corporate investments abroad and simultaneously weakening the power of American labor unions, which keeps corporate profits high. In essence, as James Kurth has put it, financial plutocracies prefer investing in old industries in new places to investing in new industries in old places. That was true of Britain in the 1920s and 1930s, and it is true in the United States since the late 1990s.5 The same goes for automation. Whatever keeps labor costs down benefits the corporate sector and thus ultimately the financial sector, as well. What did corporations and banks do with their burgeoning profits? In part they plowed them back into the policy process via lobbying to gain even more subsidies, tax breaks and credits for a development that was hollowing out American manufacturing and destroying huge swaths of the middle class.
Of course, the obsession to free the movement of capital, at its height during the Clinton-era “Washington Consensus” and the Rubin-Summers tenure in the Treasury Department, caused huge havoc in Mexico (twice), in Russia and, most of all, in Asia. It seems never to have occurred to these high-octane global capitalism boosters that what we really needed was some sort of speed limit for globalization, a limit that did not allow capital to flood into societies that were still based on pre-modern patrimonial arrangements and that were woefully under-institutionalized when it came to banking and financial structures. But despite the massive Asia crisis and lesser examples of similarly caused economic mayhem, American banks made out very well overall in the shaky 1990s, and so did most enlarging European ones, against whom large American banks felt they needed to compete. For the banks, pedal-to-the-metal riches galore was the way to go, pedestrian casualties be damned.
Packer does not go into it, but he might have mentioned that it was around this time that the direction of the flow of money in American politics changed. It used to be that the major party organizations would help select candidates for office, so that money most often flowed from the top down. That enabled the national political committees, more or less controlled by their most senior members, to enforce party discipline. When prominent politicians, aided by sophisticated campaign consultants, began to raise large sums of money themselves, this flow changed. Political celebrities were expected then to pass money up to the national committee level. Obviously, it became much harder to control what these political heavy hitters said and did, and how they voted. Party discipline suffered.
The advent of big money in American politics, therefore, changed a great deal, and this happened at a time when the technology of campaigning grew more sophisticated, so that spending lots of money on something considered newly valuable in electoral battles seemed to make sense. From that day we have never looked back. The cost of national and statewide political campaigns has continued to explode ever since, up 525 percent just since 1983 by one count.
Packer also fails to mention another trend that flows heavily into the money-soaked politics he describes. As libertarians never tire of pointing out (and in this case they are certainly correct), the more that the Federal government takes upon itself to do, the more rent-seeking opportunities it offers in the process. So if we want to reduce the power of money in national politics, we need to reduce the volume of policy worth buying by curtailing what the Federal government presumes to do. Clearly, during and after the early 1970s, the Federal government’s appetite for activism exploded.
W
hatever the concatenation of reasons, money politics moved in to stay, whether in 1978, 1994 or 1999, and it has only gotten worse with each passing year. But precisely when this plutocratic metathesis occurred is less important than its nature and present condition. Before we can further discuss corruption and plutocracy intelligently, however, we must define what we mean by these terms.
Corruption is not only the passing around of literal bribe money. That is actually rare at the national level. It is not everyday, thankfully, that a Congressman is found with tens of thousands of dollars in cash stashed in his freezer. By corruption, I mean the systematic exchange of campaign contributions for votes.
Now, as recently as the late 1970s money bought access, not votes, and since lobbyists with different points of view could all buy access, no one was particularly advantaged by it. Some Congressmen honestly believed (and many still do) that without lobbyists they couldn’t do their jobs well, since lobbyists provided a convenient way to learn about some highly technical subjects. To some extent this is true, but there’s a big difference between lobbyists who try to persuade Congressmen to adopt their point of view on some issue and those who function mainly as designated campaign war-chest fundraisers.
There were examples of quid pro quo years ago, too, of course. But those usually involved small sums of money compared to what goes on now. Now the money does buy votes, especially on low-salience issues, and it does so in part because, again, the financial demands of running successful political campaigns have skyrocketed. And that is where the logic of lobbyists-as-fundraisers comes from. Incumbents used to have a pretty good idea of what a campaign was going to cost, but now, especially in the post-Citizens United era of super PACs, no incumbent knows how much money the other guy is going to spend, or even who he will raise it from. Thus the compulsions of the permanent campaign grow even more extreme. Candidates spent something like $9.8 billion in television advertising alone in 2012, which, whatever else it did, helped to create very rich people in the mainstream media and thus added to the ranks of likely corporate plutocrats.
To get an idea of the scale of change, consider that it cost Jimmy Carter and Gerald Ford about $35 million each to run for President in 1976. The 2012 campaign cost each side about $1 billion, and that’s not even counting super-PAC money. Where else are politicians supposed to get this kind of dough, except from rich people, cash-plush corporations, dues-laden large unions, and their lobbyist delivery boys? Is it any wonder that this money comes with strings attached? A person would have to be naive to the point of downright doltish to claim otherwise.
And money doesn’t just buy votes these days; it even buys the power to write the text of laws and regulations. Corporate lobbyists actually provide congressional staff with specific language. Some industries in effect pool their lobbying efforts, thus acting as oligopolies. Oil and automotive companies, whose products are obviously related, are famous for this. Ferocious and long-standing lobbying in and out of concert by these oligopolistic forces explains why we still have a petroleum monopoly in transportation fuels, which has proved not only expensive but deeply harmful in terms of our environmental, balance-of-payments and foreign policy portfolios. It also “trains” those who would be President, especially Republicans, not to advocate energy policy strategies that deviate from the plutocratic agenda.6
My favorite recent example of corporate lobbyists writing legislation goes back to November 2009. That’s when it came to light that biotech lobbyists from the company Genentech had provided health care policy talking points to the staffs of several House members that made their way verbatim into the congressional record via the identical official statements of a clutch of Representatives. Genentech had earlier poured many dollars into these Representatives’ campaign coffers. But Evan L. Morris, head of Genentech’s Washington office, claimed, without anyone prodding him to do so, “There was no connection between the contributions and the statements.” Heaped on this insult to our intelligence, another lobbyist commented, “This happens all the time. There’s nothing nefarious about it.”7
On the contrary: The fact that it happens all the time is precisely what is nefarious about it. But yes, it’s true: Few in Washington politics care these days, and even the mainstream media seems bored with it. Indeed, you have to do something genuinely illegal, and of truly gargantuan, Jack Abramoff/Michael Scanlon proportions, to get any serious press attention at all, and in the Abramoff case even that took years to catch up with him.
Even worse perhaps, lobby moneymen deliberately write laws and regulations in such a convoluted fashion that ordinary mortals, including most Congressmen, cannot understand them. That means that public policy ends up being affected in ways corporate donors understand better than anyone else. It also means that the rules are written in such a way that large organizations are advantaged over smaller ones or start-ups. This is true in business and banking culture, for charities and foundations, and for many more sectors besides. The basic effect is to help large, often self-satisfied organizational leaders gain leverage over their smaller, hungrier and frequently more innovative competitors.
This in turn helps to explain why all the various well-intentioned and sometimes eloquent pleas from public intellectuals and scholars that we invest in infrastructure, education, research and development, and so on are sort of beside the point. It’s not that we have become that much stupider than our forbears who made such investments in the future; it’s because we have become that much more corrupt.
This process of deliberate obfuscation that tends to reward bigness has several layers of impact. In banking, for example, the crowding out of local banks by the hypermarkets that buy and sell mortgages has all but eliminated the restraints against fraud and shysterism that inheres in the moral bonds of local community. A banker or a broker is a lot less likely to screw a client if his kids and their kids play on the same little league or soccer team, or if his clients go to the same church or belong to the same golf club.
This dynamic, which depends on the effective delegation of law-making functions to a large and essentially unaccountable administrative bureaucracy, describes not only the workings of the interest-group-friendly logic of collective action, but at least part of the anatomy of what is known as regulatory capture, the phenomenon wherein the domains of the private sector being regulated by government end up in effect as the bosses of those who regulate them. This is not piles of cash being handed over in brown paper bags or stashed in legislators’ freezers, but it is corruption all the same.
Similarly, plutocracy does not mean simply that wealthy people tend to end up being the rulers. By that definition, just about every political regime since the Flood has been a plutocracy, and it is no help to lump such disparate phenomena together. Rather, I mean by plutocracy a political circumstance in which wealth manages to produce conditions conducive to its own preservation and extension. There are only five taxonomical categories that define these conditions.
First, plutocracy is characterized by getting taxpayers to finance the cost of industry regulation instead of the profitable industries being regulated. A good and very old example is the relentless refusal of corporations, via their rented politicians, to pay any of the price of the societal costs created by business activity like pollution.
Second, in a plutocracy the legal structure of taxation, and the terms of debate pertaining thereto, advantage the wealthy at the expense of others. This is exactly the concern voiced by Madison in Federalist No. 10 when he defined a faction as “a number of citizens . . . who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community.”
Third, in a plutocracy money regularly skews electoral politics. In this post-Citizens United year of super-PACs no more need be said about this.
Fourth, plutocrats seek to ensure maximum feasible lobbying, because the ability to lobby to the best of one’s ability and wealth is the ultimate guarantor of the prior three forms of plutocratic influence. The Supreme Court’s interpretation of the First Amendment over the years has made this relatively easy.
And fifth, in industrial democracies large corporations use their influence to guarantee a dominant share of government contracting monies, and in so doing are often able to devise barriers to entry to keep potential competitors at bay. This is obviously economically inefficient for the economy as a whole since it both retards the engines of creative destruction and fuels inequality.
This fifth category may be the oldest of the five, at least in the U.S. example, but it is also in some sense the newest. Let me explain.
Government pro-corporate paternalism has existed since the Civil War era and grew to its basic shape because of and during that war. After the war trusts formed from their wartime expansion and links to government, and 120 years ago Americans were already railing regularly (though not regularly enough, evidently) against, in the words of Hamlin Garland, the sort of corporate power that depends not on the absence of “paternal” government but on its presence in the form of favorable tax policy, subsidies, land grants, huge construction contracts and other forms of assistance. Government, Garland charged, had “fathered” a great concentration of wealth, creating “vast corporations and privileged classes” and even the “giant corporations to dominate our legislature.” Its intervention had undercut competition and created “the trusts.”8
A century and more after the railroad barons and oil trusts, the privileged position of several major American corporations, not to speak of a few mega-consultancies that make fortunes from contracting, still depend in part on government contract work in both defense and non-defense sectors. But what is new about this oldest form of American plutocracy is the enormous increase in the ratio of public to private spending within the economy. In the 1900s, government at all levels accounted for about 10 percent of GNP. By the early 2000s that number had risen to 32 percent, and today it stands at around 40 percent. This is what whale-hearted administrative bureaucracies create when left to expand according to their own self-interested and open-ended logic. With the ratio of private to public spending falling from 9:1 to 3:2 in just over a century, corporations would be crazy not to develop active lobbies to grab part of that public spending.
S
peaking of inequality, as I have done in passing, let me now distinguish my view of this problem from what has lately become the most popular view. Recent books by Joseph Stiglitz, Timothy Noah, Jacob S. Hacker and Paul Pierson, Michael J. Casey, and others assert that corruption is all about inequality. Corruption causes inequality: It’s essentially the rich taking from the poor, if not literally and directly, then in effect and indirectly. Furthermore, they assert, inequality is the toxic substance most threatening to American society because it makes us as a nation less efficient economically.
Yes, plutocracy does exacerbate natural inequalities in a market economy, and that does dampen efficiency. But plutocracy’s worst effects concern the paralysis of public policy writ large. We cannot deal with the real sources of escalating health care costs, to the point that major politicians don’t even discuss them. We cannot properly invest in infrastructure. We cannot do much about our educational deficits, or the counterproductive way that the student loan system discourages creative risk-taking by young people and makes their path to middle-class status increasingly parlous. (It would have been of far greater value to America’s future to bail out indebted students instead of the banks—a bottom-up rather than a top-down use of quantitative easing.) We cannot reform the absurd drug laws that paralyze our justice and penal systems. We cannot agree on revamping immigration policy. We cannot rationalize agricultural policy, improve the way we regulate and approve new pharmaceuticals, or deal comprehensively with food safety issues. Above all, we cannot seriously put a brake on the dangerous risk-taking behavior of the financial industry. (How Wall Street lobbyists, using Senators and Representatives as front-men, have tried to vivisect the Volcker Rule is a case in point.) Nor can we reform either the tax code or the campaign finance system. Hell, we can’t even fix the post office. All of these incapacities come down to the same cause: There is way too much corporate lobbying money in all the wrong places in my hometown, Washington, DC.
There is no need to repeat here the reams of data charting the rise of the number of registered lobbyists or the escalating ratio of money spent per Congressman. And now, thanks to Citizens United and lower court interpretations of it, we cannot control at all the impact of money, not just on Legislative Branch elections but even on the elections of judges in dozens of states. Because corporate money can now buy legislation, regulatory judgments in the Executive Branch and judges in the Judicial Branch, it can essentially lock in the advantages enjoyed by the most-wealthy Americans. That plutocratic hat trick has closed the circle, essentially short-circuiting nearly all legal means of leveling the tilted playing field.
There is now no realistic way, just to take one example, to close the gap between legal tax avoidance and illegal tax evasion. Just ask Senator Levin, who has headed the extremely underpopulated effort to get at this problem for years now, with nothing whatsoever to show for it. This “gap”, by the way, sums worldwide to more than $30 trillion in offshore accounts alone.9 This gap will probably grow wider as even less fabulously wealthy Americans become able to afford tax letters to shield their income from the IRS and its counterparts abroad. We are therefore creating the conditions for the rise of an American aristocracy, something we have arguably not had since before the days of Andrew Jackson. This is the problem, not garden-variety inequality and inefficiency à la Stiglitz, which is a perennial condition both of human nature and of market economics.
Besides, the actual data on inequality is usually misunderstood and improperly interpreted. As Tyler Cowen has shown, the data set most people use to make assertions about inequality has been skewed dramatically by changes in the share taken by just the top half or even tenth of 1 percent in the United States. The income differentials in that top half of 1 percent are so huge that they skew the entire picture.10 But the idea that wide strata of American society, say from the fiftieth percentile on down, have become absolutely poorer over the past three or four decades largely because they have been exploited by rich people is primitive and usually leftist nonsense. Both their income and their wealth levels have continued to rise over the past thirty years, though not as sharply as the echelons above them, and particularly the echelons at the very top of the income pyramid.11
And that does not account for the fact that income is not the same as wealth, and that neither income nor wealth equate to quality of life. The data do not account for declines in the real purchase price of some goods, and for the lower socio-economic brackets it does not factor in the considerable value of government benefits. Nor does it take account of the fact that there are many more threshold earners in the United States these days, people who are not trying to maximize income for a variety of social reasons: extended graduate school years, living alone, and so forth. Once one controls for these exogenous factors, most of the supposedly terrible things that afflict the great middle of the middle class by way of inequality wash out. Yes, inequality has grown statistically, but no, it doesn’t mean “in real life” what many observers say it means.
What’s really going on is subtler than that. It is captured in some of Robert H. Frank’s work. Frank, one of the new breed of “behavioral economists”, argues that status envy creates expectation cascades that cause those in lower socio-economic rungs to want to live like those in the socio-economic rungs above them.12 Fretting more about what they don’t have rather than feeling grateful for what they do have, they go irresponsibly into debt trying to keep up with the Joneses. Some of this stretching is not irresponsible, of course. For example, parents want to give their children the best education possible, which sometimes means moving into the best school districts, where real estate is expensive. But a lot of it is, if not irresponsible, illustrative of the old adage that “want” has a way of transforming itself into “need” without anyone noticing the difference.
Closely related, Neil Gilbert has pointed out that the way the U.S. government measures poverty these days looks like something out of a funhouse mirror.13 It has more to do with satisfying the scions of the poverty industry bureaucracy, and how their particular pieces of bread get buttered in budget processes, than it does with anything having to do with poor people. There are people below the official poverty line with a mortgage, two cars, two or more television sets, more clothes than they can wear in any given year, and so much food that obesity is a far more common problem than hunger. Not that hunger isn’t a growing problem among those who are really and truly, not just bureaucratically defined, poor; it is, thanks to the bank-driven rise in commodity prices.
What’s different about the current anxiety over inequality is how it’s being perceived. Traditionally, Americans have not gotten particularly annoyed by inequality, and the reason, often attested, is that for the most part they see it as a natural consequence of differential talent, virtue, effort and luck. As long as great gains were not ill gotten, most people have figured, hey, it could have been me, and it might be my kids. What Americans do not abide is a game that is fixed, a playing field that has been deliberately made uneven. Inequality resulting from inside shenanigans tick us off today no less than they ticked off Mark Twain and others back in the post-Civil War era. Back in those days there was a reaction—the Grange, the Populist movement, eventually the Progressives, all the way to William Allen White, Theodore Roosevelt and his trust busting. None of that banished inequality, and no one save the likes of Emma Goldman and Eugene Debs asked it to. What it banished was plutocracy—at least for a time.
Now the perception of inequality is returning to something like that of the Populist era, despite the fact that, aside from the marginal and now depleted Occupy Wall Street movement, there has been no significant political mobilization to the left of center. Still, despite the widespread common-knowledge misunderstanding of what inequality actually is and means, there is still a rising sense that something profoundly unfair is going on.
There is a growing awareness, too, that the dark side of globalization and many manifestations of our political dysfunction are somehow implicated in this unfairness. It is one thing to expect and tolerate winners and losers in Schumpetarian creative destruction, and another to tolerate a situation in which the power of plutocratic financial parasitism creates a tiny number of huge winners to the detriment of the vast majority. Americans by and large are still fond of rich people and admire them, but they hate bankers like Mr. Potter from It’s a Wonderful Life. It is a sign of either our maturity as a society or of our near-total anesthetization by corporate-funded celebrity culture that there isn’t more anger, and that so far we have experienced virtually no political violence. In many less institutionalized but professionally armed democracies, circumstances comparable to ours would have already brought forth a military coup.
In sum, we can add up the three groupings of causation or explanation for what’s wrong and come up with a synopsis of our “mess of a problem”: Changes in the underlying ratio of labor and capital inputs in the American political economy, thanks to globalization and automation, have advantaged the political power of capital (especially finance capital) even as they have disrupted the foundation of our politics and made all but obsolete our inherited ideological/explanatory templates. This has happened at the same time that our political institutions have ossified from within, especially on the bureaucratic/administrative level, a development abetted in no small part by the accumulated distortions of interest-group, rentier politics in an increasingly top-heavy, unbalanced Federal system. That dysfunction, mightily exacerbated by the organized lobbying power of corporate interests, has given shape to the present wave of plutocracy washing over us. The depredations of plutocracy, in turn, double back in such a way as to render us unable to properly understand or deal with the structural economic changes we face, or to repair our political institutions. In a nutshell, that—all that together—is what’s wrong.
1This essay is roughly half of a forthcoming book titled What’s Wrong, and How to Fix It. The book has been largely inspired by two essays written by my American Interest colleagues Walter Russell Mead [“The Once and Future Liberalism”, The American Interest (March/April 2012)] and Frances Fukuyama [“The Future of History”, Foreign Affairs (January/February 2012)]. This essay, in earlier form, appeared as a three-part series in The American Interest Online.
2Kettl, The Next Government of the United States: Why Our Institutions Fail Us and How to Fix Them (W.W. Norton, 2008).
3Ron Nixon, “Amtrak Losing Millions Each Year on Food Sales”, New York Times, August 2, 2012.
4Packer, “The Broken Contract”, Foreign Affairs (November/December 2011).
5James Kurth, “The Foreign Policy of Plutocracies”, The American Interest (November/December 2011).
6On Romney’s energy policy volte face from being Governor of Massachusetts to his run for the White House, see Sheryl Gay Stolberg, “Romney Shifted Right on Energy As Presidential Politics Began”, New York Times, September 30, 2012.
7Robert Pear, “In House, Many Spoke With One Voice: Lobbyists’”, New York Times, November 14, 2009.
8Hamlin quoted in David Green, “A Call to Linguistic Disobedience”, The American Interest (July/August 2012).
9James Henry, “The Price of Offshore Revisited”, Tax Justice Network, July 2012.
10Cowen, “The Inequality That Matters”, The American Interest (January/February 2011).
11How one states the facts here depends on a range of assumptions. Another way to look at this is that median household income has risen slightly since 1973 (in the 1–3 percent range depending on the base year chosen) but not at all since the late 1990s. But there have been no absolute declines in median income before just the past two or three years. The estimated decline for 2011 is –4 percent, and that is distressingly large.
12Frank, Falling Behind: How Rising Inequality Harms the Middle Class (University of California Press, 2007).
13Gilbert, “What Poverty Means”, The American Interest (July/August 2012).
