In our winner-take-all casino economy, the middle class is getting royally screwed. A call to arms for populism, before it’s too late.
New York Times | January 6, 2007
A couple of weeks back, out in Omaha, I happened to share a ride to the airport with a pair of United pilots. Both were classics of the type—trim, square-jawed, silver-haired, twangy-voiced white men, one wearing a leather jacket. Sam Shepard or Paul Newman could’ve played them. They spent the entire trip sputtering and whining—about being baited and switched when their employee ownership of the airline had been evaporated by its bankruptcy, about the default of their pension plan, about their CEO’s 40 percent pay raise, about the company to which they’d devoted their whole careers and now didn’t trust a bit, and, in effect, about turning from right-stuff demigods who worked hard and played by the rules into disrespected, sputtering, whining losers. The next morning back in New York, I read the news about the record-setting bonuses on Wall Street, an aggregate amount 1,100 percent higher than in the go-go year of 1986. The 2006 revenues at just one bank, Goldman Sachs, were larger than the GNPs of two-thirds of the countries on Earth—a treasure chest from which the firm was disbursing $53.4 million to its CEO and an average of $623,000 to everybody who works at the place.
Ordinarily, I would shrug and move on with New Yorkerly indifference—the pilots are still flying, their reduced pensions notwithstanding, and I wouldn’t trade my life for any banker’s. But I haven’t been able to stop thinking about my jump-cut visions of those defeated pilots and the megabonused Wall Street guys shopping for $15 million apartments. And as a result, this holiday fortnight has felt to me fully Dickensian—the jolly bourgeois bustle and glow, as usual, but also in the foreground the conceited, unattractive rich, our Dombeys and Bounderbys and unredeemed Scrooges.
A month ago, I was ragging on CNN for presenting Lou Dobbs’s hour of pissed-off populism as if it were a traditional nightly news show, and I still think it has a serious truth-in-packaging problem. But (like Dickens’s Mr. Gradgrind, with his epiphany about the poor in Hard Times) I now get Dobbs’s and his followers’ anger and disgust about the ongoing breaches of the social contract, an American economic system that seems more and more rigged in favor of the extremely fortunate.
I know capitalism is all about creative destruction, that the pain of globalization must be endured and flexible labor markets are good; inequality is endemic; life is uncertain and unfair, sure, yeah, of course. We’re all Reaganites now—or at least no longer socialists by instinct. But during the past two decades we’ve not only let economic uncertainty and unfairness grow to grotesque extremes, we’ve also inured ourselves to the spectacle. As America has become a lot more like Pottersville than Bedford Falls, those of us closer to the top of the heap have shrugged and moved on.
The asymmetry between the Goldman boss’s compensation and that of his average employee—85 times as big—is virtually Ben-and-Jerry’s-like these days: An average CEO now gets paid several hundred times the salary of his average worker, a gap that’s an order of magnitude larger than it was in the seventies. In Japan, the ratio is just 11-to-1, and in Britain 22-to-1.
This is not the America in which we grew up.
Back before the Second World War, in the teens and twenties, the richest one-half of one percent of Americans received 11 to 15 percent of all income, but from the fifties through the seventies, the income share of the superrich was reasonably cut back, by more than half. The rich were still plenty rich, and American capitalism worked fine.
Starting in the late eighties, however, the piece of the income pie taken each year by the rich has once again become as hugely disproportionate as it was in the twenties. Meanwhile, the median household income has gone up a measly 15 percent during the past quarter-century—and for the last five years it has actually dropped.
It used to be that when the economy thrived and productivity grew, pay for working people rose accordingly. Yet as the Times reported this past summer, the first six years of the 21st century look to be “the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers.”
People have put up with all this because it happened so quickly and for the same reason that the great mass of losers in casinos put up with odds that favor the house: The spectacle of a few ecstatic big winners encourages the losers to believe that, hey, they might get lucky and win, too. We have, in effect, turned the U.S. into a winner-take-all casino economy, substituting the gambling hall for the factory floor as our governing economic metaphor, an assembly of individual strangers whose fortunes depend overwhelmingly on random luck rather than collective hard work. And it’s been unwitting synergy, not unrelated coincidence, that actual casino gambling has become ubiquitous in America at the same time.
I don’t know about you, but I find casinos, for all their adrenaline and glitz, pretty depressing places.
Risk-taking is fabulous, central to the American ethos—but not when it’s involuntary. Too many Americans have been too suddenly herded into our new national economic casino, and without debate turned into the suckers whose losses become the elite’s winnings.
That’s the central argument of Yale political scientist Jacob Hacker’s valuable new book, The Great Risk Shift. Beyond our recent reversion to extreme, twenties-style income inequality, he presents data explaining the new sense of economic dread hanging over Americans. We all know that in this globalized, ultracompetitive age, job security has been beggared, but Hacker attaches startling numbers to the national anxiety. In short, people’s incomes are swinging wildly—like winnings in a casino. In 1970, a family in any given year had a one-in-fourteen chance of its income dropping by half; today, the chance is one in six. No wonder mortgage foreclosures and personal bankruptcies have quintupled during the same period. Middle-class Americans live more and more with the kind of gnawing existential uncertainty that used to be mainly a problem of the poor.
The Great Society programs of the mid-sixties—Food Stamps, Head Start, Medicaid, Medicare—were the final flowering of a social-welfare era that began with FDR’s New Deal 30 years earlier. The countervailing rightward pendulum swing—deregulation and tax cuts under Reagan, welfare reform under Clinton, still more tax cuts under Bush—has dominated our political economy for nearly the past 30 years.
In other words, the time seems to be ripening for a transformative surge of new passion and policy and political traction around the idea of economic fairness. Blaming illegal Mexican immigrants and dollar-an-hour Chinese workers for our troubles is an easy way to vent, but Lou Dobbs’s other regular targets are pretty much on the mark: corporate greedheads and their craven enablers in the political class.
For more than a generation, the Republicans have pitched themselves as the good-old-days party, appealing to the nostalgic hunger for the wholesome, coherent society and culture of mid-century, before life went crazy around 1968. What the Democrats can do now is the same thing, only different—that is, appeal to the nostalgic hunger for the sense of basic economic security and fairness that prevailed before life went crazy around 1986.
Just as Republicans depicted Democrats as insanely freewheeling social experimenters determined to lavish money on the undeserving poor, the caricature can be convincingly reversed: Now the GOP is the party of arrogant, reckless risk-takers—invading Iraq, denying climate change, privatizing Social Security—determined to lavish money on the undeserving rich.
Populism has gotten a bad odor, and not just among plutocrats—for most of the political chattering class, it is at least faintly pejorative. But I think that’s about to change: When economic hope shrivels and the rich become cartoons of swinish privilege, why shouldn’t the middle class become populists? What Professor Hacker calls “office-park populism” will be a main engine of any new cyclical progressive renaissance. The question is whether we’ll elect steady, visionary FDR-like national leaders—Bloomberg? Obama?—who can manage to keep populism’s nativist, Luddite tendencies in check.
I think practical-minded political majorities can be brought together to fix the big, important things that have nothing to do with religious faith or sex. In polls, between 60 and 70 percent of people now think “it is the responsibility of the federal government to make sure all Americans have health-care coverage” “even if taxes must be raised.” Universal health coverage, protecting everyone against the mammoth downside economic risk of illness, would empower people to take constructive economic risks, freeing them to move to new jobs or start new businesses. We could enact de facto compensation caps for top executives, either by limiting the tax deductibility of CEO pay or, as in Britain, by making CEO pay subject to a shareholder vote every year. We can raise—and certainly not further reduce—taxes on the extremely well-to-do.
We’ve had a bracing, invigorating run of pedal-to-the-metal hypercapitalism, but now it’s time to ease up and share the wealth some. We can afford to make life a little more fair and a lot less scary for most people. It’s not only a matter of virtue and national self-image. Because the future that frightens me isn’t so much a too-Hispanic U.S. caused by unchecked Mexican immigration, but a Latin Americanized society with a high-living, blithely callous oligarchy gated off from a growing mass of screwed-over peons. I think we need to put up with the Republicans’ complaining about “class war!” now in order to avoid a real one later.
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