Aftershock: The Next Economy and America's Future (18 page)

The question is not whether the pendulum will swing back. It surely will. The question is
how
it will swing—whether with reforms that widen the circle of prosperity, or with demagoguery that turns America away from the rest of the world, shrinks the economy, and sets Americans against one another.

My bet is on the former. America has an enormous reservoir of
resilience and common sense. Whenever we have faced a palpable crisis—a depression, an enveloping war, a profound threat to our civil liberties—we have put partisan politics and abstract ideology aside and gotten on with what needed to be done. Whenever we have faced the moral urgency of living up to our ideals—to recognize the rights of blacks, women, and the disabled, for example—we have risen to the occasion.

None of us can thrive in a nation divided between a small number of people receiving an ever larger share of the nation’s income and wealth, and everyone else receiving a declining share. The lopsidedness not only diminishes economic growth but also tears at the fabric of our society. America cannot succeed if the basic bargain at the heart of our economy remains broken. The most fortunate among us who have reached the pinnacles of power and success depend on a stable economic and political system. That stability rests on the public’s trust that the system operates in the interest of us all. Any loss of such trust threatens the well-being of everyone. We will choose reform, I believe, because we are a sensible nation, and reform is the only sensible option we have.

This book is the result of discussions with people too numerous to name, although some will no doubt recognize their arguments and counterarguments in these pages. Special mention should go to my former colleagues Jack Donahue and Richard Parker and current colleagues George Akerlof, Brad DeLong, Jack Glaser, David Kirp, Jane Mauldon, Harley Shaiken, Eugene Smolensky, and Laura Tyson, all of whom helped me sharpen my arguments but none of whom should bear responsibility for them. Several friends subjected earlier drafts to the sort of criticism only friends can be trusted to provide. Here, Doug Dworkin, John Isaacson, and Erik Tarloff played their customary roles. I am also grateful to diligent students here at the Goldman School of Public Policy, especially to Mia Bird, Teal Brown, Jason Burwen, Jonathan Stein, and Renee Willette, who helped me trace down facts and focus the argument. The Blum Center and the Goldman School, both at the University of California at Berkeley, provided financial support. As usual, my assistant, Rebecca Boles, was extraordinarily helpful, and Manuel Castrillo was responsive to all calls for technical assistance. I want to give special thanks to my partner, Perian Flaherty, for her remarkable insight, editorial flair, patience, and ever wise judgment. My agent, Rafe Sagalyn, provided much needed advice, and my long-standing editor and friend, Jonathan Segal, offered abiding encouragement, wisdom, and thoughtfulness.

1
“for too long, Americans were buying”: Timothy Geithner, “Press Briefing by Treasury Secretary Tim Geithner on the G20 Meetings,” Pittsburgh, September 24, 2009.

2
Our history swings much like a pendulum: On this point, see Arthur M. Schlesinger, Jr.,
The Cycles of American History
(New York: Houghton Mifflin, 1986). Schlesinger defined a political-economic cycle as “a continuing shift in national involvement between public purpose and private interest” (p. 27). See also Albert O. Hirschman,
Shifting Involvements: Private Interest and Public Action
(Princeton, N.J.: Princeton University Press, 1982).

3
the last time income was this concentrated: See Thomas Piketty and Emmanuel Saez, “The Evolution of Top Incomes: A Historical and International Perspective,”
AEA Papers and Proceedings
96, no. 2 (May 2006): 200–205.

1
“Men I respected assured me”: All quotes in this chapter are from Marriner Eccles’s memoir,
Beckoning Frontiers
(New York: Alfred A. Knopf, 1951), pp. 54, 71–81.

1
The wages of the typical American: See Bureau of Economic Analysis, National Compensation Survey, “Current-Dollar Historical Listings: Employee Cost Listings Historical Index,” Tables 4–10, January 2010.

2
a male worker earning the median male wage: See U.S. Census Bureau press release, “Household Income Rises, Poverty Rate Unchanged, Number of Uninsured Down,” U.S. Census Bureau, Current Population Survey data, August 26, 2008.

3
Economists Emmanuel Saez and Thomas Piketty: See Thomas Picketty and Emmanuel Saez, “The Evolution of Top Incomes: A Historical and International Perspective,”
AEA Papers and Proceedings
96, no. 2 (May 2006): 200–205. The most recent update of their data can be found in Emmanuel Saez, “Striking It Richer: The Evolution of Top Incomes in the United States,” University of California, Department of Economics, August 5, 2009. Their calculation is before paying taxes, and it includes income from capital gains.

4
Sociologists Robert S. Lynd and his wife: See Robert S. Lynd and Helen Merrell Lynd,
Middletown
(New York: Harcourt Brace, 1929), pp. 21–24.

5
Savings had averaged 9–10 percent of after-tax income: See Bureau of Economic Analysis, National Income and Product Accounts Table, “Personal Income and Its Distribution,” last updated January 29, 2010 (
http://www.bea.gov/national/nipaweb/
TableView.asp?SelectedTable=58&ViewSeries=NO&Java=no&
Request3Place=N&3Place=N&FromView=YES&Freq=Year
&FirstYear=1943&LastYear=2009&3Place=N
&Update=Update&JavaBox=no#Mid
).

6
Total mortgage debt was almost three times higher: See ibid.

7
The Dow Jones Industrial Average: See Dow Jones Industrial Average Historical Charts, daily, Thomson Reuters and IDC/ComStock (
http://stockcharts.com/charts/historical/djia19201940.html
).

8
Four years later: See
Stock Exchange Practices
, Hearings, April–June 1932, Part 2, pp. 566–67.

9
Meanwhile, National City Bank: See Federal Deposit Insurance Corporation, “Learning Bank”
http://www.fdic.gov/about/learn/learning/when/1930s.html
.

1
On January 5, 1914, Henry Ford: See A. Rees, National Bureau of Economic Research,
Real Wages in Manufacturing 1890 to 1914
, Chapter 5, “Real Wages,” 1961 (
http://www.nber.org/books/rees61-1
).

2
Ford was … a smart capitalist: See A. Nevins and F. Ernest Hill,
Ford: The Times, the Man, the Company
(New York: Scribners, 1954).

3
By the first decades of the twentieth century: See Damon Silvers, “How a Low Wage Economy with Weak Labor Laws Brought Us the Mortgage Credit Crisis,” lecture presented by
The Berkeley Journal of Employment and Labor Law
, Institute of Research on Labor and Employment, University of California, Berkeley, April 2, 2008 (
http://www.irle.berkeley.edu/events/spring08/feller/
).

4
British economist John Maynard Keynes: These and subsequent quotes
from John Maynard Keynes,
The General Theory of Employment, Interest and Money
(New York: Harcourt Brace, 1936), pp. 373–74.

5
“Liquidate labor, liquidate stocks”: See Herbert Hoover,
The Memoirs of Herbert Hoover
, vol. 3:
The Great Depression 1929–1941
(New York: Macmillan, 1952).

1
The richest man in the world: See “Richest in the World, 2008,”
Forbes
magazine (
http://www.forbes.com/lists/2008/10/billionaires08_Warren-Buffett_C0R3.html
).

2
in the same gray stucco house: See Roger Lowenstein,
Buffett: The Making of an American Capitalist
(New York: Broadway Books, 1995), pp. 8–10.

3
“If I wanted to,” Buffet once said: See Janet Lowe,
Warren Buffett Speaks: Wit and Wisdom from the World’s Greatest Investor
(New York: John Wiley & Sons, 1997), pp. 165–66.

4
the nearly $100 million Kenneth Lewis earned: See Securities and Exchange Commission Filings compiled by
Forbes
magazine,
CEO Compensation Reports
(sources: Bank of America SEC Filings; FT Interactive Data; and LionShares via FactSet Research Systems).

5
In the year prior to Lehman Brothers’: See ibid.

6
Taxing the wealthy to help the poor: See Jeremy Bentham, “Critique of the Doctrine of Inalienable, Natural Rights,” in
Anarchical Fallacies
, vol. 2 of
The Works of Jeremy Bentham
, ed. John Bowring (Edinburgh: William Tait, 1843).

7
the top 10 percent took home: See analysis by Lawrence Mishel, Jared Bernstein, and Heidi Shierholz,
The State of Working America, 2008/2009
, Chapter 5, Table 2.4, “Shares of Total Income (Before and After Tax) and Income Tax for Percentile Groups” (Washington, D.C.: Economic Policy Institute, 2010).

8
“much lower stakes will serve”: John Maynard Keynes,
The General Theory of Employment, Interest and Money
(London: Macmillan, 1961), p. 374.

1
“Without this rescue plan”: See “White House Written Statement of President George W. Bush,” September 28, 2009 (
http://thepage.time.com/statement-by-president-bush/
).

2
“If we do not do this”: Senator Judd Gregg to the Associated Press, September 28, 2008.

3
The relative calm of preceding decades: The theoretical underpinnings of this occurrence had been developed by economist Hyman Minsky. See Hyman Minsky,
Stabilizing an Unstable Economy
(New York: McGraw-Hill, 2008).

1
During this quarter century: See U.S. Census Bureau, Current Population Reports,
Measuring 50 Years of Economic Change Using the March Current Population Survey
(U.S. Government Printing Office, Washington, D.C., 1998), pp. 7–8.

2
Labor productivity: U.S. Bureau of Labor Statistics, Historical SIC Industry Labor and Cost Indexes, 1947–1977.

3
Expressed in 2007 dollars: See U.S. Bureau of Labor Statistics Series Reports, “Family, All Races by Median and Mean Income: 1947 to 2006,” Table F-7 (
http://www.census.gov/hhes/www/income/histinc/f07ar.html
).

4
By the end of the war: See Budget of the United States Government, Historical Tables, Federal Debt, Table 7.1 —Federal Debt at the End of Year: 1940–2013, Executive Office of the President, December 2008.

5
“All alike expect and fear”: Alvin Hansen,
Economic Problems of the Post War World: Democratic Planning for Full Employment
, National Council for the Social Studies, 1942.

6
By the mid-1950s: See “Union Members Summary,” U.S. Bureau of Labor Statistics economic news release, January 2010 (
http://www.bls.gov/news.release/union2.nro.htm
).

7
“Unless we get a more realistic distribution”: See Nelson Lichtenstein,
Walter Reuther: The Most Dangerous Man in Detroit
(New York: Basic Books, 1995), p. 231.

8
A college sociology textbook of 1956: See Joseph Kahl,
The American Class Structure
(New York: Holt, Rinehart, 1956), pp. 109–10.

9
The interstate highway system: See Richard Weingroff,
The Greatest Decade: 1956 to 1966
, Federal Highway Commission Report, December 22, 2008.

10
The expansion of public universities: See U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements, “Type of Family, All Races by Median and Mean Income: 1947 to 2006” (
http://www.census.gov/hhes/www/income/histinc/f07ar.html
).

11
The federal government, especially the Defense Department: See U.S.
Department of Education, National Center for Education Statistics,
Digest of Education Statistics, 2008
(NCES 2009–020), Chapter 3, 2009.

12
The Pentagon also gave birth: See M. H. Weik, “The ENIAC Story,” Ordinance Ballistic Research Laboratories, 1961.

13
New fighter jets and engines morphed: See Boeing Airlines, “Commercial Airplanes: Military Derivatives,” Boeing Airlines External Communications Commercial Airline Division (
http://www.boeing.com/commercial/707family/deriv.html)
.

14
“The old imperialism”: Inaugural address of President Harry S. Truman, January 20, 1949.

15
In the 1950s, under President Dwight Eisenhower: See Internal Revenue Service, Statistics of Income, Individual Statistical Tables by Tax Rate and Income Percentile.

16
“a better, richer, and happier life”: James Truslow Adams,
The Epic of America
(Boston: Little, Brown, 1931), p. 73.

1
By the late 1990s: See U.S. Census Bureau, “Historical Trends in Income Inequality—Middle Class,” Table H-3, “Historical Income Tables by Quintile.”

2
the median wage flattened: See U.S. Census Bureau, “Historical Trends in Income Inequality—Middle Class,” Table H-3.

3
It shredded safety nets: See U.S. Department of Labor, Workforce Security Data Tables, “Unemployment Insurance Data Tables: 1st Quarter–4th Quarter, 2007,” Division of Actuarial Resources, Office of Income Support, January 7, 2010.

4
by 2010, fewer than 8 percent: See U.S. Bureau of Labor Statistics economic news release, “Union Members Summary—2009,” January 22, 2010.

5
And nothing impeded CEO salaries: See Lawrence Mishel, “Executive Pay,” in
The State of Working America
(Washington, D.C.: Economic Policy Institute, 2008), pp. 220–24.