The Broken Contract: Inequality and American Decline

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 Social Security and Medicare, which had brought economic security to the middle class. They were not voting to weaken government itself, as long as it defended their interests. But for the next three decades, the dominant political faction pursued these goals as though they were what most Americans wanted. Organized money and the conservative movement seized that moment back in 1978 to begin a massive, generation-long transfer of wealth to the richest Americans. The transfer continued in good economic times and bad, under Demo – cratic presidents and Republican, when Democrats controlled Congress and when Republicans did. For the Democrats, too, went begging to Wall Street and corporate America, because that’s where the money was. They accepted the perfectly legal bribes just as eagerly as Republicans, and when the moment came, some of them voted almost as obediently. In 2007, when Congress was considering closing a loophole in the law that allowed hedge fund managers to pay a tax rate of 15 percent on most of their earnings-considerably less than their secretaries-it was New York’s Democratic senator Charles Schumer who rushed to their defense and made sure it did not happen. As Bob Dole, then a Republican senator, said back in 1982, “Poor people don’t make campaign contributions.”

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 selfrestraint. 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.”

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