by George Packer
As a thought experiment, compare your life today with that of someone like you in 1978. Think of an educated, reasonably comfortable couple perched somewhere within the vast American middle class of that year. And think how much less pleasant their lives are than yours. The man is wearing a brown and gold polyester print shirt with a flared collar and oversize tortoiseshell glasses; she's got on a high-waisted, V-neck rayon dress and platform clogs. Their morning coffee is Maxwell House filter drip. They drive an AMC Pacer hatchback, with a nonfunctioning air conditioner and a tape deck that keeps eating their eight-tracks. When she wants to make something a little daring for dinner, she puts together a pasta primavera. They type their letters on an IBM Selectric, the new model with the corrective ribbon. There is only antenna television, and the biggest thing on is Laverne and Shirley. Long-distance phone calls cost a dollar a minute on weekends; air travel is prohibitively expensive. The city they live near is no longer a place where they spend much time: trash on the sidewalks, junkies on the corner, vandalized pay phones, half-deserted subway cars covered in graffiti.
By contemporary standards, life in 1978 was inconvenient, constrained, and ugly. Things were badly made and didn't work very well.
Highly regulated industries, such as telecommunications and airlines, were costly and offered few choices. The industrial landscape
was decaying, but the sleek information revolution had not yet emerged to take its place. Life before the Android, the
The surface of life has greatly improved, at least for educated, reasonably comfortable people -- say, the top 20 percent, socioeconomically. Yet the deeper structures, the institutions that underpin a healthy democratic society, have fallen into a state of decadence.
We have all the information in the universe at our fingertips, while our most basic problems go unsolved year after year: climate change, income inequality, wage stagnation, national debt, immigration, falling educational achievement, deteriorating infrastructure, declining news standards. All around, we see dazzling technological change, but no progress.
[For example], a Wall Street company that few people have ever heard of dug an 800-mile trench under farms, rivers, and
mountains between Chicago and New York and laid fiber-optic cable connecting the
We can upgrade our iPhones, but we can't fix our roads and bridges. We invented broadband, but we can't extend it to 35 percent of the public. We can get 300 television channels on the iPad, but in the past decade 20 newspapers closed down all their foreign bureaus. We have touch-screen voting machines, but just 40 percent of registered voters turned out, and our political system is more polarized, more choked with its own bile, than at any time since the Civil War. There is nothing today like the personal destruction of the McCarthy era or the street fights of the 1960s. But in those periods, institutional forces still existed in politics, business, and the media that could hold the center together. It used to be called the establishment, and it no longer exists. Solving fundamental problems with a can-do practicality -- the very thing the world used to associate with America, and that redeemed us from our vulgarity and arrogance -- now seems beyond our reach.
THE UNWRITTEN CONTRACT
Why and how did this happen? Those are hard questions. A roundabout way of answering them is to first ask, when did this start to happen? Any time frame has an element of arbitrariness, and also contains the beginning of a theory. Mine goes back to that shabby, forgettable year of 1978. It is surprising to say that in or around 1978, American life changed -- and changed dramatically. It was, like this moment, a time of widespread pessimism -- high inflation, high unemployment, high gas prices. And the country reacted to its sense of decline by moving away from the social arrangement that had been in place since the 1930s and 1940s.
What was that arrangement? It is sometimes called "the mixed economy"; the term I prefer is "middle-class democracy." It was an unwritten social contract among labor, business, and government -- between the elites and the masses. It guaranteed that the benefits of the economic growth following World War II were distributed more widely, and with more shared prosperity, than at any time in human history. In the 1970s, corporate executives earned 40 times as much as their lowest-paid employees. (By 2007, the ratio was over 400 to 1.) Labor law and government policy kept the balance of power between workers and owners on an even keel, leading to a virtuous circle of higher wages and more economic stimulus. The tax code restricted the amount of wealth that could be accumulated in private hands and passed on from one generation to the next, thereby preventing the formation of an inherited plutocracy. The regulatory agencies were strong enough to prevent the kind of speculative bubbles that now occur every five years or so: between the Great Depression and the Reagan era there was not a single systemwide financial crisis, which is why recessions during those decades were far milder than they have since become. Commercial banking was a stable, boring business. (In movies from the 1940s and 1950s, bankers are dull, solid pillars of the community.) Investment banking, cordoned off by the iron wall of the Glass-Steagall Act, was a closed world of private partnerships in which rich men carefully weighed their risks because they were playing with their own money. Partly as a result of this shared prosperity, political participation reached an all-time high during the postwar years (with the exception of those, such as black Americans in the South, who were still denied access to the ballot box).
At the same time, the country's elites were playing a role that today is almost unrecognizable. They actually saw themselves as custodians of national institutions and interests. The heads of banks, corporations, universities, law firms, foundations, and media companies were neither more nor less venal, meretricious, and greedy than their counterparts today. But they rose to the top in a culture that put a brake on these traits and certainly did not glorify them. Organizations such as the
Of course, the consensus of the postwar years contained plenty of injustice. If you were black or female, it made very little room for you. It could be stifling and conformist, authoritarian and intrusive. Yet those years also offered the means of redressing the very wrongs they contained: for example, strong government, enlightened business, and activist labor were important bulwarks of the civil rights movement. Nostalgia is a useless emotion. Like any era, the postwar years had their costs. But from where we stand in 2011, they look pretty good.
THE RISE OF ORGANIZED MONEY
Two things happened to this social arrangement. The first was the 1960s. The story is familiar: youth rebellion and revolution, a ferocious backlash now known as the culture wars, and a permanent change in American manners and morals. Far more than political utopia, the legacy of the 1960s was personal liberation. Some conservatives argue that the social revolution of the 1960s and 1970s prepared the way for the economic revolution of the 1980s, that
The second thing that happened was the economic slowdown of the 1970s, brought on by "stagflation" and the oil shock. It eroded Americans' paychecks and what was left of their confidence in the federal government after Vietnam, Watergate, and the disorder of the 1960s. It also alarmed the country's business leaders, and they turned their alarm into action. They became convinced that capitalism itself was under attack by the likes of
Among the non-disinterested spending that corporations began to engage in, none was more interested than lobbying. Lobbying has existed since the beginning of the republic, but it was a sleepy, bourbon-and-cigars practice until the mid- to late 1970s. In 1971, there were only 145 businesses represented by registered lobbyists in Washington; by 1982, there were 2,445. In 1974, there were just over 600 registered political action committees, which raised
These changes were wrought not only by conservative thinkers and their allies in the business class. Among those responsible were the high-minded liberals, the McGovernites and Watergate reformers, who created the open primary, clean election laws, and "outsider" political campaigns that relied heavily on television advertising. In theory, those reforms opened up the political system to previously disenfranchised voters by getting rid of the smoke-filled room, the party caucus, and the urban boss -- exchanging
This is a story about the perverse effects of democratization. Getting rid of elites, or watching them surrender their moral authority, did not necessarily empower ordinary people. Once
In 1978, all these trends came to a head. That year, three reform bills were brought up for a vote in
How and why this happened are explored in
Organized money did not foist these far-reaching changes on an unsuspecting public. In the late 1970s, popular anger at government was running high, and President
But that archetypal 1978 couple with the AMC Pacer was not voting to see its share of the economic pie drastically reduced over the next 30 years. They were not fed up with how little of the national income went to the top one percent or how unfairly progressive the tax code was. They did not want to dismantle government programs such as
MOCKING THE AMERICAN PROMISE
This inequality is the ill that underlies all the others. Like an odorless gas, it pervades every corner of the United States and saps the strength of the country's democracy. But it seems impossible to find the source and shut it off. For years, certain politicians and pundits denied that it even existed. But the evidence became overwhelming. Between 1979 and 2006, middle-class Americans saw their annual incomes after taxes increase by 21 percent (adjusted for inflation). The poorest Americans saw their incomes rise by only 11 percent. The top one percent, meanwhile, saw their incomes increase by 256 percent. This almost tripled their share of the national income, up to 23 percent, the highest level since 1928. The graph that shows their share over time looks almost flat under Kennedy, Johnson, Nixon, Ford, and Carter, followed by continual spikes under Reagan, the elder Bush, Clinton, and the younger Bush.
Some argue that this inequality was an unavoidable result of deeper shifts: global competition, cheap goods made in China, technological changes. Although those factors played a part, they have not been decisive. In Europe, where the same changes took place, inequality has remained much lower than in the United States. The decisive factor has been politics and public policy: tax rates, spending choices, labor laws, regulations, campaign finance rules. Book after book by economists and other scholars over the past few years has presented an airtight case: over the past three decades, the government has consistently favored the rich. This is the source of the problem: our leaders, our institutions.
But even more fundamental than public policy is the long-term transformation of the manners and morals of American elites -- what they became willing to do that they would not have done, or even thought about doing, before. Political changes precipitated, and in turn were aided by, deeper changes in norms of responsibility and self-restraint. In 1978, it might have been economically feasible and perfectly legal for an executive to award himself a multimillion-dollar bonus while shedding 40 percent of his work force and requiring the survivors to take annual furloughs without pay. But no executive would have wanted the shame and outrage that would have followed -- any more than an executive today would want to be quoted using a racial slur or photographed with a paid escort. These days, it is hard to open a newspaper without reading stories about grotesque overcompensation at the top and widespread hardship below. Getting rid of a taboo is easier than establishing one, and once a prohibition erodes, it can never be restored in quite the same way. As Leo Tolstoy wrote, "There are no conditions of life to which a man cannot get accustomed, especially if he sees them accepted by everyone around him."
The persistence of this trend toward greater inequality over the past 30 years suggests a kind of feedback loop that cannot be broken by the usual political means. The more wealth accumulates in a few hands at the top, the more influence and favor the well-connected rich acquire, which makes it easier for them and their political allies to cast off restraint without paying a social price. That, in turn, frees them up to amass more money, until cause and effect become impossible to distinguish. Nothing seems to slow this process down -- not wars, not technology, not a recession, not a historic election. Perhaps, out of a well-founded fear that the country is coming apart at the seams, the wealthy and their political allies will finally have to rein themselves in, and, for example, start thinking about their taxes less like
In the meantime, inequality will continue to mock the American promise of opportunity for all.
Inequality creates a lopsided economy, which leaves the rich with so much money that they can binge on speculation, and leaves the middle class without enough money to buy the things they think they deserve, which leads them to borrow and go into debt. These were among the long-term causes of the financial crisis and the Great Recession. Inequality hardens society into a class system, imprisoning people in the circumstances of their birth -- a rebuke to the very idea of the American dream. Inequality divides us from one another in schools, in neighborhoods, at work, on airplanes, in hospitals, in what we eat, in the condition of our bodies, in what we think, in our children's futures, in how we die. Inequality makes it harder to imagine the lives of others -- which is one reason why the fate of over 14 million more or less permanently unemployed Americans leaves so little impression in the country's political and media capitals. Inequality corrodes trust among fellow citizens, making it seem as if the game is rigged. Inequality provokes a generalized anger that finds targets where it can -- immigrants, foreign countries, American elites, government in all forms -- and it rewards demagogues while discrediting reformers. Inequality saps the will to conceive of ambitious solutions to large collective problems, because those problems no longer seem very collective. Inequality undermines democracy.
"The Broken Contract: Inequality and American Decline"