This enhanced edition of Robert B. Reich’s eBook exclusive Beyond Outrage features five videos that are both entertaining and informative. In them, Reich puts his patented wry style—not to mention his whiteboard—to good use, breaking down what’s wrong with this country and urging Americans to get beyond mere outrage about the nation’s increasingly concentrated wealth and corrupt politics in order to mobilize and to take back our economy and democracy

Americans can’t rely only on getting good people elected, Reich argues, because nothing important happens in Washington unless good people outside Washington are organized to help make those things happen after the election. But in order to be effectively mobilized, we need to see the big picture. Reich connects the dots for us, showing why the increasing share of income and wealth going to the top has hobbled jobs and growth for everyone else, while undermining our democracy; has caused Americans to become increasingly cynical about public life; and has turned many Americans against one another. He also explains why the proposals of the “regressive right” are dead wrong and provides a clear road map for what must be done instead. Here is a blueprint for action for everyone who cares about the future of America.

Beyond
Outrage

What has gone wrong
with our economy
and our democracy,
and how to
fix it

Robert B. Reich

Alfred A. Knopf
New York
2012

THIS IS A BORZOI EBOOK ORIGINAL
PUBLISHED BY ALFRED A. KNOPF

Copyright © 2012 by Robert B. Reich

All rights reserved. Published in the United States by Alfred A. Knopf, a division of Random House, Inc., New York, and in Canada by Random House of Canada Limited, Toronto.

www.aaknopf.com

Knopf, Borzoi Books, and the colophon are registered trademarks of Random House, Inc.

eISBN: 978-0-307-96139-6

Videos produced and directed by Jacob Kornbluth

Cover design by Carol Devine Carson

v3.1

To the Occupiers, and all others committed to taking back our economy and our democracy

Contents

Cover
Foreword
Title Page
Copyright
Dedication
List of Videos
Introduction

Part One
The Rigged Game

Part Two
The Rise of the Regressive Right

Part Three
Beyond Outrage: What You Need to Do

Acknowledgments
A Note About the Author
Also by Robert B. Reich

List of Videos

Video 1: You need to be outraged, but you also need to move beyond outrage and take action.

Video 2: The first thing to do is connect the dots, to see how one frustrating or outrageous thing is connected to all the other frustrating and outrageous things.

Video 3: Why the regressive right is wrong—dead wrong—and the ten biggest lies they’re peddling.

Video 4: What are the most important steps toward creating good jobs at good wages, and an economy and democracy that work for all of us and not just a few?

Video 5: That’s what we need to do, that’s why things are as screwed up as they are, that’s why the dice are loaded against most average Americans—and this is what you can do.

“There is video content at this location that is not currently supported for your eReading device. The caption for this content is displayed below.”

You need to be outraged, but you also need to move beyond outrage and take action. (1:35)

Introduction

I’ve written this eBook to give you the big picture of why and how our economy and our democracy are becoming rigged against average working people, what must be done, and what you can do about it. I’ve called it Beyond Outrage for a very specific reason. Your outrage is understandable. Moral outrage is the prerequisite of social change. But you also need to move beyond outrage and take action. The regressive forces seeking to move our nation backward must not be allowed to triumph.

I have been involved in public life, off and on, for more than forty years. I’ve served under three presidents. When not in office, I’ve done my share of organizing and rabble-rousing, along with teaching, speaking, and writing about what I know and what I believe. I have never been as concerned as I am now about the future of our democracy, the corrupting effects of big money in our politics, the stridency and demagoguery of the regressive right, and the accumulation of wealth and power at the very top. We are perilously close to losing an economy and a democracy that are meant to work for everyone and to replacing them with an economy and a government that will exist mainly for a few wealthy and powerful people.

A presidential election year can draw people’s attention to larger challenges facing our nation. But elections can also be distracting. The media focus on the game—who’s up and who’s down and which political strategies are winning or losing—rather than on the big issues. And campaigns are geared only to winning on Election Day rather than to building long-term strategies and movements for fundamental change.

This book is meant to help you focus on what needs to be done and how you can contribute, and to encourage you not to feel bound by what you think is politically possible this year or next. You need to understand why the stakes are so high and why your participation—now and in the future—is so important. I’ve tried to array concepts and arguments in a way that you’ll find helpful. All the facts I’ve cited are from government reports unless otherwise indicated. In my experience, nothing good happens in Washington unless good people outside Washington become mobilized, organized, and energized to make it happen. Nothing worth changing in America will actually change unless you and others like you are committed to achieving that change.

Connecting the Dots

The first thing you need to do is connect the dots and understand how many troubling but seemingly unrelated things are interwoven. The challenge we face is systemic. The fundamentals of our economy are out of whack, which has distorted our democracy, and these distortions, in turn, are making it harder to fix the economic fundamentals. Later in the book we’ll examine several of these dots in detail, but now I’d like you to see the big picture.

“There is video content at this location that is not currently supported for your eReading device. The caption for this content is displayed below.”

The first thing to do is connect the dots, to see how one frustrating or outrageous thing is connected to all the other frustrating and outrageous things. (2:03)

The first dot: For three decades almost all the gains from economic growth have gone to the top. In the 1960s and 1970s, the wealthiest 1 percent of Americans got 9–10 percent of our total income. By 2007, just before the Great Recession, that share had more than doubled, to 23.5 percent. Over the same period the wealthiest one-tenth of 1 percent tripled its share. We haven’t experienced this degree of concentrated wealth since the Gilded Age of the late nineteenth century. The 400 richest Americans now have more wealth than the entire bottom half of earners—150 million Americans—put together. Meanwhile, over the last three decades the wages of the typical worker have stagnated, averaging only about $280 more a year than thirty years ago, adjusted for inflation. That’s less than a 1 percent gain over more than a third of a century. Since 2001, the median wage has actually dropped.

This connects to …

The second dot: The Great Recession was followed by an anemic recovery. Because so much income and wealth have gone to the top, America’s vast middle class no longer has the purchasing power to keep the economy going—not, at least, without going deeper and deeper into debt. But debt bubbles burst. The burst of 2008 ushered in a terrible recession—the worst economic calamity to hit this country since the Great Depression of the 1930s—as middle-class consumers had to sharply reduce their spending and businesses, faced with declining sales, had to lay off millions. We bottomed out, but the so-called recovery has been one of the most anemic on record. That’s because the middle class still lacks the purchasing power to keep the economy going and can no longer rely on borrowing.

While at the same time …

The third dot: Political power flows to the top. As income and wealth have risen to the top, so has political clout. Obviously, not everyone who’s rich is intentionally corrupting our democracy. For those so inclined, however, the process is subtle, if lethal. In order to be elected or reelected, politicians rely greatly on advertising, whose costs have risen as campaign spending escalates. They find the money where more and more of it is located—with CEOs and other top executives of big corporations and with traders and fund managers on Wall Street. The wealth of these people also works its way into politics through the corporations they run or own, which employ legions of lobbyists and public relations experts. And their wealth buys direct access to elected officials in informal dinners, rounds of golf, overnight stays in the Lincoln Bedroom, and fancy boondoggles.

Which connects to …

The fourth dot: Corporations and the very rich get to pay lower taxes, receive more corporate welfare, and are bound by fewer regulations. Money paid to politicians doesn’t enrich them directly; that would be illegal. Rather, it makes politicians dependent on their patrons in order to be reelected. So when top corporate executives or Wall Street traders and managers want something from politicians they have backed, those politicians are likely to respond positively. What these patrons want most are lower taxes for themselves and their businesses; subsidies, bailouts, government contracts, loan guarantees, and other forms of corporate welfare; and fewer regulations. The tax cuts enacted in 2001 and 2003—and extended for two years in 2010—in 2011 saved the richest 1.4 million taxpayers (the top 1 percent) more money than the rest of America’s 140.89 million taxpayers received in total income.

Leading to …

The fifth dot: Government budgets are squeezed. With so much of the nation’s income and wealth at the top, tax rates on top earners and corporations dropping, and most workers’ wages stalling or declining, tax revenues at all levels of government have fallen precipitously. This has led to a major squeeze on government budgets. The result has been deteriorating schools, less college aid, crowded and pockmarked highways, unsafe bridges, antiquated public transportation, unkempt parks, fewer police officers, fewer social workers, and the decline of almost everything else the broader public relies on.

Which connects to …

The sixth dot: Average Americans are competing with one another for slices of a shrinking pie. There is now more intense competition for a dwindling number of jobs, a smaller share of total income, and ever more limited public services. Native-born Americans are threatened by new immigrants; private sector workers are resentful of public employees; unionized workers are threatened by the nonunionized; middle-class Americans are competing with the poor. Rather than feel we’re all in it together, we increasingly have the sense that each of us is on his or her own.

Which leads, finally, to …

The seventh dot: A meaner and more cynical politics prevails. Because of all of these occurrences, our politics has become nastier, more polarized, and increasingly paralyzed. Compromise is more difficult. Elections are more venomous, political advertising increasingly negative. Angry voters are more willing to support candidates who vilify their opponents and find easy scapegoats. Talking heads have become shouting heads. Many Americans have grown cynical about our collective ability to solve our problems. And that cynicism has become a self-fulfilling prophecy, as nothing gets solved.

Connect these dots and you understand why we’ve come to where we are. We’re in a vicious cycle. Our economy and our democracy depend on it being reversed. The well-being of your children and grandchildren requires it.

In Part One, I describe how the game is becoming rigged against average working people and in favor of wealthy plutocrats and large corporations. In Part Two, I explain the rise of the regressive right, a movement designed not to conserve what we have but to take America backward toward social Darwinism. In Part Three, I suggest what you can do to reverse this perilous course.

Part One
The Rigged Game

I receive many e-mails from people who have read my columns or who have seen me on the media. Some e-mails are very friendly, others are hostile. But almost all share a common feature. The writers believe the game is rigged. Here’s a composite of several I’ve received from people who describe themselves as Tea Partiers:

Mr. Reich,

I saw you on television just now. You want to raise taxes on the rich so there’s more money for education and infrastructure. You’re a stupid ass. When taxes go up, it’s people like me who end up paying more because the rich always find ways to avoid paying. If you think the money will go to helping average Americans, you’re even dumber. Government is run by Wall Street traders, the CEOs of big corporations, and military contractors. They’ll get the benefits. Where were you when my taxpayer dollars were used to bail out fucking Wall Street? The answer is less government, not more. Do me a favor and shut up.

I don’t recall so many people, regardless of political party or ideology, expressing so much outrage and cynicism about our economic and political system.

Mitt Romney is correct when he says free enterprise is on trial—but it’s not on trial in the way he assumes. The attack on it is not coming from the left. It’s coming from the grass roots of America. And it’s been triggered by an overwhelming consensus that Wall Street, big corporations, and the very wealthy have rigged it to their benefit. Increasingly, the rewards have gone to the top, while the risks have been borne by middle- and lower-income people. At the same time, the very wealthy are getting a greater share of total income than they did at any point in the last eighty years. Their tax rates are lower than they’ve been in a generation. Republicans want us to believe that the central issue is the size of government, but the real issue is whom government is for. Public institutions are deteriorating. We’re saddled by the most anemic recovery from the worst economy since World War II, while the basic bargain linking pay to productivity continues to come apart.

Free Enterprise on Trial

In the late 1980s, I noticed a troubling trend. A larger and larger share of the nation’s income and wealth was going to the very top—not just the top 1 percent, but the top of the top 1 percent—while other Americans were dividing up a shrinking share. I wrote up my findings, and my tentative explanation for this trend, in a book called The Work of Nations. Bill Clinton read the book, and after he was elected president, he asked me to be his secretary of labor. He told me he was committed to reversing the trend, and he called for more investment in education, training, infrastructure, and health care in order to make the bottom half of our population more productive. Clinton and his administration worked hard, but we were never able to implement his full agenda. The economic recovery of the middle and late 1990s was strong enough to generate twenty-two million new jobs and raise almost everyone’s wages, but it did not reverse the long-term trend. The share of total income and wealth claimed by the top continued to grow, as did the political clout that accompanies such concentration. Most Americans remained unaware.

But now the nation is becoming aware. President Obama has made it one of the defining issues of his reelection campaign. The nonpartisan Congressional Budget Office has issued a major report on the widening disparities. The issue is now front-page news. For the first time since the 1930s, a broad cross section of the American public is talking about the concentration of income, wealth, and political power at the top.

Score a big one for the Occupiers. Regardless of whether you sympathize with the so-called Occupier movement that began spreading across America last fall, or whether you believe it will become a growing political force in America, it has had a profound effect on the national conversation.

Even more startling is the change in public opinion. Not since the 1930s has a majority of Americans called for redistribution of income or wealth. But according to a recent New York Times/CBS News poll, an astounding 66 percent of Americans say the nation’s wealth should be more evenly distributed. A similar majority believes the rich should pay more in taxes. According to a Wall Street Journal/NBC News poll, a majority of people who describe themselves as Republicans believe taxes should be increased on the rich.

I used to be called a class warrior for even raising the subject of widening inequality. Now it seems most Americans have become class warriors. Or at least class worriers. And many blame Republicans for stacking the deck in favor of the rich. In that New York Times/CBS News poll, 69 percent of respondents said Republican policies favor the rich (28 percent said the same of President Obama’s policies).

The old view was that anyone could make it in America with enough guts and gumption. We believed in the self-made man (or, more recently, woman) who rose from rags to riches—inventors and entrepreneurs born into poverty, like Benjamin Franklin; generations of young men from humble beginnings who grew up to become president, like Abraham Lincoln. We loved the novellas of Horatio Alger and their more modern equivalents—stories that proved the American dream was open to anyone who worked hard. In that old view, which was a kind of national morality play, being rich was proof of hard work, and lack of money was proof of indolence or worse.

A profound change has come over America. Guts, gumption, and hard work don’t seem to pay off as they once did—or at least as they did in our national morality play. Instead, the game seems rigged in favor of people who are already rich and powerful—as well as their children. Instead of lionizing the rich, we’re beginning to suspect they gained their wealth by ripping us off.

As recently as a decade ago the prevailing view was also that great wealth trickled downward—that the rich made investments in jobs and growth that benefited all of us. So even if we doubted that we ourselves would be wealthy, we assumed we’d still benefit from the fortunes made by a few. But that view, too, has lost its sheen. Americans see that nothing has trickled down. The rich have become far richer over the last three decades, but the rest of us haven’t benefited. In fact, median incomes are dropping.

Wall Street moguls are doing better than ever—after having been bailed out by taxpayers. But the rest of us are doing worse. CEOs are hauling in more than three hundred times the pay of average workers (up from forty times the pay only three decades ago). But average workers have been losing their jobs and wages. The ratio of corporate profits to wages is higher than it’s been since before the Great Depression. The chairman of Merck took home $17.9 million last year, as Merck laid off sixteen thousand workers and announced layoffs of twenty-eight thousand more. The CEO of Bank of America raked in $10 million, while the bank announced it was firing thirty thousand employees.

Even though the rate of unemployment has begun to fall, jobs still remain scarce, and the pay of the bottom 90 percent continues to drop, adjusted for inflation. But CEO pay is still rising through the stratosphere. Among the CEOs who took in more than $50 million last year were Qualcomm’s Paul Jacobs ($50.6 million), J. C. Penney’s Ron Johnson ($51.5 million), Starbucks’s Howard Schultz ($68.8 million), Tyco International’s Ed Breen ($68.9 million), and Apple’s Tim Cook ($378 million). The titans of Wall Street are doing even better.

The super-rich are not investing in jobs and growth. They’re putting their bonanza into U.S. Treasury bills or investing it in Brazil or South Asia or anywhere else it can reap the highest return. The American economy is in trouble because so much income and wealth have been going to the top that the rest of us no longer have the purchasing power to keep the economy going. I’ll get into this in greater detail shortly.

Some apologists for this extraordinary accumulation of income and wealth at the top attribute it to “risk taking” by courageous entrepreneurs. Mitt Romney defines free enterprise as achieving success through “risk taking.” The president of the Chamber of Commerce, Tom Donohue, explains that “this economy is about risk. If you don’t take risk, you can’t have success.” But in fact, the higher you go in today’s economy, the easier it is to make a pile of money without taking any personal financial risk. The lower you go, the bigger the risks and the smaller the rewards.

Partners in private-equity firms like Romney’s Bain Capital don’t risk their own money. They invest other people’s money and take 2 percent of it as their annual fee for managing the money regardless of how successful they are. Private-equity firms get around two-thirds of their total revenues from these fees. They then pocket 20 percent of any upside gains and pay taxes on only 15 percent of what they make—a lower rate than that paid by many middle-class Americans—because of a loophole that treats that income as capital gains.

Rather than taking any real risks, they get government to subsidize them. Having piled the companies they purchase with debt, private-equity managers then typically pay themselves gigantic “special dividends” that recoup their original investments. Interest payments on the mountain of debt they create are tax deductible. In effect, government subsidizes them for using debt instead of incurring any real risk with equity. If the companies are subsequently forced into bankruptcy because they can’t manage payments on all this debt, they dump their pension obligations on taxpayers when the Pension Benefit Guaranty Corporation, a federal agency, picks up the tab.

It’s another variation on Wall Street’s playbook of maximizing personal gains and minimizing personal risks. If you screw up royally, you can still walk away like royalty. Taxpayers will bail you out. Personal responsibility is completely foreign to the highest echelons of the Street. Citigroup’s stock fell 44 percent last year, but its CEO, Vikram Pandit, got at least $5.45 million on top of a retention bonus of $16.7 million. The stock of JPMorgan Chase fell almost 22 percent, but its CEO, Jamie Dimon, was awarded a package worth $17 million.

The higher you go in corporate America as a whole, the less relationship there is between risk and reward. Executives whose pay is linked to the value of their firm’s shares protect their wallets by simultaneously placing bets in derivatives markets that their firm’s share prices will drop. This sort of hedging helped AIG insurance head Hank Greenberg collect $250 million in 2008, when AIG collapsed. Other CEOs are guaranteed huge compensation regardless of how their companies do. Disney’s Robert Iger’s arrangement netted him $52.8 million in 2011 and guarantees him at least $30 million a year more through 2015—notwithstanding company performance. The swankiest golf courses of America are festooned with former CEOs who have almost sunk their companies but been handsomely rewarded. Thomas E. Freston lasted just nine months as CEO of Viacom before being terminated and walking away with an exit package of $101 million. William D. McGuire was forced to resign as CEO of UnitedHealth over a stock-options scandal but left with a pay package worth $286 million.

You can push your company into bankruptcy and still make a fortune. Robert Rossiter, former CEO of Lear, landed his company in bankruptcy that wiped out his shareholders along with twenty thousand jobs, but he walked away from the wreckage with a $5.4 million bonus. Earlier this year The Wall Street Journal looked into the pay of executives at twenty-one of the largest companies that recently went through bankruptcy. The median compensation of those CEOs was $8.7 million—not much less than the $9.1 million median compensation of all CEOs of big companies. The reason CEOs get giant pay packages for lousy performance is that they stack their boards of directors’ compensation committees with cronies who make sure they do.

Even if you commit fraud, your personal financial risk is minimal. Since 2009, the Securities and Exchange Commission has filed twenty-five cases against mortgage originators and securities firms. A few are still being litigated, but most have been settled. They’ve generated almost $2 billion in penalties and other forms of monetary relief, according to the commission. But almost none of this money has come out of the pockets of CEOs or other company officials; it has come out of the companies—or, more accurately, their shareholders. In the one instance in which company executives appear to have been penalized directly—a case brought against three former top officials of New Century Financial, a brazenly fraudulent lender that subsequently collapsed—the penalties were tiny compared with how much the executives pocketed. New Century’s CEO had to disgorge $542,000 of his ill-gotten gains, but he took home more than $2.9 million in “incentive” pay in the two years before the company tanked.

Yet as economic risks are vanishing at the top and the rewards keep growing, the risks, as I said, are rising dramatically on almost everyone below, and the rewards keep shrinking. Full-time workers who put in decades with a company can now find themselves without a job overnight—with no parachute, no help finding another job, and no health insurance. More than 20 percent of the American workforce is now “contingent”—temporary workers, contractors, independent consultants—with no security at all.

Most families face the mounting risk of receiving giant hospital bills yet having no way to pay them. Fewer and fewer large and medium-sized companies offer their workers full health-care coverage—74 percent did in 1980, under 10 percent do today. As a result, health insurance premiums, co-payments, and deductibles are soaring.

Most people also face the increasing risk of not having enough to retire on. Three decades ago more than 80 percent of large and medium-sized firms gave their workers “defined benefit” pensions that guaranteed a fixed amount of money every month after they retired. Now it’s down to under 10 percent. Instead, the employers offer “defined contribution” plans where the risk is on the workers. When the stock market plunges, as it did in 2008, 401(k) plans plunge along with it. Meanwhile, people at the top are socking away tens of millions for their retirements while paying little or no taxes—in effect, enjoying a huge government subsidy. Mitt Romney’s IRA is worth between $20 million and $100 million, including Bain Capital holdings in offshore havens like the Cayman Islands.

Romney is right: free enterprise is on trial. But he’s wrong about the question at issue in that trial. It’s not whether America will continue to reward risk taking. It’s whether an economic system can survive when those at the top get giant rewards no matter how badly they screw up while the rest of us get screwed no matter how hard we work.

The Government’s Size Isn’t the Real Issue—It’s Whom Government Is For

Americans have never much liked government. After all, the nation was conceived in a revolution against government. But the surge of cynicism now engulfing the country isn’t about government’s size. The cynicism comes from a growing perception that government isn’t working for average people. It’s seen as working for big business, Wall Street, and the very rich—who, in effect, have bought it. In a recent Pew Research Center poll, 77 percent of respondents said too much power is in the hands of a few rich people and corporations. That view is understandable.

Wall Street got bailed out by American taxpayers, but one out of every three homeowners with a mortgage is now underwater, caught in the tsunami caused by the Street’s excesses. The federal bailout wasn’t conditioned on the banks helping these homeowners, and direct federal help since the bailout has been meager. The recent settlement of claims against the banks is tiny compared with how much homeowners have lost. As a result, millions of people are losing their homes or simply walking away from homes whose mortgage payments they can no longer afford.

Homeowners can’t use bankruptcy to reorganize their mortgage loans, because the banks have engineered the bankruptcy laws to prohibit this. Young people can’t use bankruptcy to reorganize their student loans, because the banks have barred it. But big businesses now routinely use bankruptcy to renege on contracts with their workers. American Airlines, now in bankruptcy, announced plans to fire thirteen thousand workers—16 percent of its workforce—while cutting back the health benefits of current employees. It had intended to terminate its underfunded pension plans, creating the largest pension default in U.S. history, until the taxpayer-financed Pension Benefit Guaranty Corporation made it back off. Now it’s freezing all pensions.

Average consumers and small businesses are still hurting, but corporations that are large enough to finance fleets of Washington lobbyists are raking it in. Big agribusiness continues to claim hundreds of billions of dollars in price supports and ethanol subsidies, paid for by American consumers and taxpayers. Big Pharma gets extended patent protection that drives up everyone’s drug prices, plus the protection of a federal law making it a crime for consumers to buy the same drugs at lower prices from Canada. Big oil gets its own federal subsidy, paid for by taxpayers.

Not a day goes by without Republicans decrying the budget deficit. But the biggest single driver of the yawning deficit is big money’s corruption of Washington. One of the federal budget’s largest and fastest-growing programs is Medicare, whose costs would be far lower if Medicare could use its bargaining leverage to get drug companies to reduce their prices. It hasn’t happened, because the lobbyists for Big Pharma won’t allow it. Medicare’s administrative costs are only 3 percent, far below the 10 percent average administrative costs of private insurers. So it would seem logical to tame rising health-care costs for all Americans by allowing any family to opt in. That was the idea behind the “public option.” But health insurers’ representatives stopped it in its tracks.

The other big budgetary expense is national defense. America spends more on our military than do China, Russia, Britain, France, Japan, and Germany combined. The “basic” defense budget (the annual cost of paying troops and buying planes, ships, and tanks—not including the costs of actually fighting wars) keeps growing. With the withdrawal of troops from Afghanistan, the cost of fighting wars is projected to drop—but the base budget is scheduled to rise. It’s already about 25 percent higher than it was a decade ago, adjusted for inflation. One big reason for that is the near impossibility of terminating large defense contracts. Defense contractors have cultivated sponsors on Capitol Hill and located their plants and facilities in politically important congressional districts. Lockheed Martin, Bechtel, Raytheon, and others have made spending on national defense into America’s biggest jobs program.

So we keep spending billions on Cold War weapons systems like nuclear attack submarines, aircraft carriers, and manned combat fighters that pump up the bottom lines of defense contractors but have nothing to do with twenty-first-century combat. The Pentagon now says it wants to buy fewer F-35 Joint Strike Fighter planes than had been planned—the single-engine fighter has been plagued by cost overruns and technical glitches—but the contractors and their friends on Capitol Hill promise a fight.

Meanwhile, government regulators who are supposed to protect the public too often protect the profits of big companies that provide regulators good-paying jobs when they retire from government, and give key members of Congress fat campaign contributions when they run for reelection. Consider the safety of nuclear reactors. General Electric marketed the Mark 1 boiling-water reactors that were used in Japan’s Fukushima Daiichi plant as cheaper to build than other reactors because they used a smaller and less expensive containment structure. The same design is used in twenty-three American nuclear reactors at sixteen plants. In the mid-1980s, Harold Denton, then an official with the Nuclear Regulatory Commission (NRC), said Mark 1 reactors had a 90 percent probability of bursting should the fuel rods overheat and melt in an accident. But so far, the NRC has done nothing.

The national commission appointed to investigate the giant oil spill in the Gulf of Mexico concluded that BP failed to adequately supervise Halliburton’s work on installing the well. This was the case even though BP knew Halliburton lacked experience in testing cement to prevent blowouts and hadn’t performed adequately before on a similar job. Neither company bothered to spend the money to ensure adequate testing. It was much the same story at Massey Energy, owner of the West Virginia coal mine where an explosion in April 2010 killed twenty-nine miners. Massey wouldn’t spend the money needed to ensure its mines were safe. It had a history of safety violations but did nothing in response other than fighting them or refusing to pay the fines.

No company can be expected to build a nuclear reactor, an oil well, a coal mine, or anything else that’s 100 percent safe under all circumstances; the costs would be prohibitive. It’s unreasonable to expect corporations to totally guard against small chances of every potential accident. Inevitably, there’s a trade-off. Reasonable precaution means spending as much on safety as the probability of a particular disaster occurring, multiplied by its likely harm to human beings and the environment if it does occur.

But profit-making corporations have every incentive to underestimate these probabilities and lowball the likely harms. This is why it’s necessary to have government regulators and why regulators need enough resources to enforce the rules. And it’s why recent moves in Congress to cut the budgets of agencies charged with protecting public safety are so wrongheaded. One such proposal would reduce funding for the tsunami warning system. Another would ban the Environmental Protection Agency from regulating air pollution, including cancer-causing contaminants.

It’s also why regulators must be independent of the industries they regulate. When there’s a revolving door between regulatory agency and industry, officials are reluctant to bite the hands that will feed them. In Japan, it’s common for regulators to retire to better-paying jobs in the industries they were supposed to have regulated, a practice known there as amakudari. The United States, sadly, is no different. Remember the Department of the Interior’s Minerals Management Service, whose officials were supposed to regulate offshore drilling? Many of them now occupy cushy jobs in oil companies. Remember the financial regulators who were supposed to oversee Wall Street before the Street almost melted down, and others who were supposed to oversee the taxpayer-funded bailout of the Street afterward? Many of them are now collecting fat paychecks on the Street.

Protecting the public doesn’t have to be wildly expensive. But regulators and regulatory agencies have to be independent and smart. The public cannot be safe as long as big corporations—including GE, BP, Halliburton, Massey, and the biggest Wall Street banks—are allowed in effect to bribe legislators and entice regulators. Here again, the game is increasingly rigged, and most Americans are paying the price.

“Big government” isn’t the problem. The problem is the big money that’s taking over government. Government is doing fewer of the things most of us want it to do—providing good public schools and affordable access to college, improving our roads and bridges and water systems, maintaining safety nets to catch people who fall, and protecting the public from dangers—and more of the things big corporations, Wall Street, and wealthy plutocrats want it to do.

Some conservatives argue, like my e-mail correspondent, that we wouldn’t have to worry about big money taking over government if we had a smaller government to begin with. They say the reason big money is swamping our democracy is that a large government attracts big money. When I debated this a few months ago with Congressman Paul Ryan on ABC-TV’s This Week, he told me that “if the power and money are going to be here in Washington, that’s where the influence is going to go … that’s where the powerful are going to go to influence it.” Ryan has it upside down. A smaller government that’s still dominated by money would continue to do the bidding of Wall Street, the pharmaceutical industry, oil companies, big agribusiness, big insurance, military contractors, and rich individuals. It just wouldn’t do anything else.

Millionaires and billionaires aren’t making huge donations to politicians out of generosity. Corporations aren’t spending hundreds of millions of dollars on lobbyists and political campaigns because they love America. These expenditures are considered investments, and the individuals and corporations that make them expect a good return. Experts say the 2012 elections are likely to be the priciest ever, costing an estimated $6 billion. “It is far worse than it has ever been,” says the Republican senator John McCain. And an overwhelming share of the money is coming from a handful of wealthy individuals and large corporations. All restraints on spending are off now that the Supreme Court has determined that money is speech—it can’t be limited—and corporations are people under the First Amendment.

By the end of January, according to Federal Election Commission reports, just fifty-nine donors had given at least $500,000 to a super PAC designed to support a presidential candidate. The contributions of these fifty-nine totaled $80.12 million and accounted for 61 percent of all contributions to super PACs that month. Contributions from donors giving over $100,000—$111.1 million in total—accounted for 85.5 percent of all super PAC donations. Super PACs are supposed to operate independently of the candidates, but that’s a sham. They’re all run by close associates of the candidates.

Meanwhile, nonprofit political fronts like Crossroads GPS, founded by the Republican political guru Karl Rove, are gathering hundreds of millions of dollars from big corporations and a few wealthy individuals like the billionaire oil and petrochemical moguls David and Charles Koch and pouring the money into presidential and congressional campaigns. The public will never know who or which corporation gave what, because, under IRS regulations, such nonprofit “social welfare organizations” aren’t required to disclose the names of those who contributed to them. How many billionaires does it take to buy the presidency and Congress? We’ll soon find out—although we won’t know many of their names.

Never before in the history of our republic have so few spent so much to influence the votes of so many.

Yet when real people without money assemble to express their dissatisfaction with all this, they’re told the First Amendment doesn’t apply. Instead, they’re clubbed, pepper sprayed, thrown out of public parks, and evicted from public spaces. Across America, public officials have said Occupiers have to go. Even in universities—where free speech is supposed to be sacrosanct—peaceful assembly has been met with clubs and pepper spray.

The threat to America isn’t coming from peaceful demonstrators. And it’s not coming from a government that’s too large. It’s coming from unprecedented amounts of money now inundating our democracy, mostly from big corporations and a handful of the super-rich. And it is happening precisely at a time when an almost unprecedented share of the nation’s income and wealth is accumulating at the top. We cannot tolerate inordinate wealth for the few along with unbridled money in politics. As the great jurist and Supreme Court justice Louis Brandeis once said, “We may have democracy or we may have great wealth concentrated in the hands of a few, but we can’t have both.”

The Great Switch of the Super-Rich

One of the major returns to the rich from their political investments has been lower taxes. Forty years ago, wealthy Americans helped finance the U.S. government far more than now through their tax payments. Today wealthy Americans help finance the government mainly by lending it money. While foreigners own most of our national debt, over 40 percent is owned by Americans—mostly the very wealthy.

This great switch by the super-rich—from primarily paying the government taxes to now lending the government money—has gone almost unnoticed. But it’s critical for understanding the predicament we’re now in. And for getting out of it.

From World War II until 1981 the top marginal income tax rate never fell below 70 percent. Under President Dwight Eisenhower, a Republican whom no one ever accused of being a socialist, the top rate was 91 percent. Even after all deductions and credits, Americans with incomes of over $1 million (in today’s dollars) paid a top marginal rate, on average, of 52 percent. As recently as the late 1980s, the top tax rate on capital gains was 35 percent. But as income and wealth have accumulated at the top, so has the political power to reduce taxes. The Bush tax cuts of 2001 and 2003, which were extended for two years in December 2010, capped top rates at 35 percent, their lowest level in more than half a century, and reduced capital gains taxes to 15 percent.

Last year, according to the Internal Revenue Service, the four hundred richest Americans paid an average of 17 percent of their income in taxes. That’s lower than the tax rates of many middle-class Americans, as I’ve already said. Mitt Romney paid less than 14 percent on income in excess of $20 million, in both 2010 and 2011. That’s because so much of the income of the super-rich is classified as capital gains, which, at 15 percent, creates a loophole large enough for the super-rich to drive their Ferraris through. Well-heeled tax lawyers and accountants are kept busy year-round figuring out how to make the earnings of their clients look like capital gains. Congress still hasn’t closed the “carried interest” loophole that allows mutual-fund and private-equity managers to treat their incomes as capital gains.

Great wealth creates opportunities for ever greater tax loopholes. In 2010, eighteen thousand American households earning more than half a million dollars paid no income taxes at all. The estate tax (which affects only the top 2 percent) has also been slashed. As recently as 2000 it was 55 percent and kicked in after $1 million. Today it’s 35 percent and kicks in at $5 million.

The share of government revenue coming from corporations has also been dropping—due in no small part to squadrons of corporate lawyers and lobbyists finding and creating ways to cut their companies’ tax bills. American companies are booking higher profits than ever, but corporate tax receipts as a share of profits are at their lowest level in at least forty years. According to the Congressional Budget Office, corporate federal taxes paid last year dropped to 12.1 percent of profits earned from activities within the United States—a sharp decline from the 25.6 percent on average that companies paid from 1987 to 2008. The nation’s biggest corporations, like GE, find ways to pay no federal taxes at all. Congress has quietly cooperated, creating tax breaks that allow companies to write off investments or shelter their earnings abroad.

The only major tax increases in recent years have fallen on the rest of America. Middle- and lower-income Americans are shelling out larger portions of their sinking incomes in payroll taxes, sales taxes, and property taxes than they did thirty years ago. The Social Security payroll tax continues to climb as a share of total government tax revenues. Yet the payroll tax is regressive, applying only to yearly income under $110,100. That means it takes a far bigger bite out of the pay of the middle class and the working poor than out of the rich. Sales taxes at the state and local levels are soaring, along with tolls on highways, bridges, and tunnels, and property taxes. These also take bigger percentage bites out of the incomes of average Americans than they do out of those of the rich.

What are the super-rich and big corporations doing with all their savings? They’ve put significant sums into Treasury bills—essentially loans to the U.S. government—which have proven to be good and safe investments, particularly during these last few tumultuous years. Hence the great switch of the super-rich. Maybe I’m old-fashioned, but it seems to me people at the top, who have never had it so good, should sacrifice a bit more. That way the rest of us—who are struggling harder than Americans have struggled since the 1930s—won’t have to sacrifice quite as much.

Some apologists point to the generosity of the super-rich as evidence they’re contributing as much to the nation’s well-being as they did decades ago, when they paid a larger share of their earnings in taxes. Undoubtedly, super-rich family foundations, such as the Bill and Melinda Gates Foundation, have done much good. Super-rich philanthopic giving is on the rise. Here’s another parallel with the Gilded Age of the late nineteenth century, when magnates like Andrew Carnegie and John D. Rockefeller established philanthropic institutions that survive today.

But a large portion of charitable deductions claimed by the wealthy go not to the poor but to culture palaces—operas, art museums, symphonies, and theaters—where the wealthy spend much of their leisure time, and to the universities they once attended and expect their children to attend (perhaps with the added inducement of knowing that these schools often practice affirmative action for “legacies”). I’m all in favor of supporting the arts and our universities, but let’s face it: These aren’t really charities, as most people understand the term. They’re often investments in the lifestyles the wealthy already enjoy and want their children to have too. They’re also investments in prestige—especially if they result in the family name being engraved on the new wing of an art museum or symphony hall.

It’s their business how they donate their money, of course. But not entirely. This year the U.S. Treasury will be receiving about $50 billion less than it would if the tax code didn’t allow for charitable deductions. (Not incidentally, this is about the same amount the government now spends on Temporary Assistance for Needy Families, which is what remains of welfare.) As with all tax deductions, this gap has to be filled by other tax revenues or by spending cuts, or it just adds to the deficit. I see why a contribution to, say, the Salvation Army should be eligible for a charitable deduction. But why, exactly, should a contribution to the Guggenheim Museum or to Harvard University? A while ago, New York’s Lincoln Center had a gala supported by the charitable contributions of hedge fund industry leaders, some of whom take home $1 billion a year. I may be missing something, but this doesn’t strike me as charity, either. Poor New Yorkers rarely attend concerts at Lincoln Center. It turns out that only an estimated 10 percent of all charitable deductions are directed at the poor. In other words, the great switch of the super-rich isn’t into charity. It is, as I said, from supporting government through taxes to supporting government through lending. As it turns out, that’s not nearly enough support.

The Decline of the Public Good

A society is embodied most visibly in public institutions—public schools, public libraries, public transportation, public hospitals, public parks, public museums, public recreation, public universities, and so on. But much of what’s called “public” today is increasingly private. Tolls are rising on public highways and public bridges, as are tuitions at so-called public universities and admission fees at public parks and public museums. Much of the rest of what’s considered “public” has become so shoddy that those who can afford to do so find private alternatives.

As public schools deteriorate, the upper middle class and the wealthy send their kids to private ones. As public pools and playgrounds decay, the better-off buy memberships in private tennis and swimming clubs. As public hospitals decline, those who can afford it pay premium rates for private care. Gated communities and office parks now come with their own manicured lawns and walkways, security guards, and backup power systems.

Why the decline of public institutions? The financial squeeze on government at all levels since 2008 explains only part of it. The real story began thirty years ago. When almost all the gains from growth started going to the top, the better-off began shifting to private institutions and withdrew political support for public ones, using their political clout to reduce their tax payments. This created a vicious cycle of diminishing public revenues and deteriorating quality, spurring more flight from public institutions.

The great expansion of public institutions in America began in the early years of the twentieth century, when progressive reformers championed the idea that we all benefit from public goods. Excellent schools, roads, parks, playgrounds, and transit systems were meant to knit the new industrial society together, create better citizens, and generate widespread prosperity. Education, for example, was less a personal investment than a public good, improving the entire community and ultimately the nation. This logic was expanded upon in subsequent decades—through the Great Depression, World War II, and the Cold War. The “greatest generation” was bound together by mutual needs and common threats. It invested in strong public institutions as bulwarks against, in turn, mass poverty, fascism, and communism.

Yet increasingly over the past three decades, “we’re all in it together” has been replaced by “you’re on your own.” Global capital has outsourced American jobs abroad. As I’ve noted, the very rich have taken home almost unprecedented portions of total earnings while paying lower and lower tax rates. A new wave of immigrants has hit our shores, only to be condemned by demagogues who forget we are mostly a nation of immigrants. Not even Democrats any longer use the phrase “the public good.” Public goods are now, at best, “public investments.” Public institutions have morphed into “public-private partnerships,” or, for Republicans, “vouchers.”

In his standard stump speech Mitt Romney charges that President Obama and the Democrats have created an “entitlement society,” and he calls for an “opportunity” society. But he hasn’t explained how ordinary Americans will be able to take advantage of opportunities without good public schools, affordable higher education, good roads, and adequate health care.

Romney’s so-called entitlements are mostly a mirage anyway. Medicare is the only entitlement growing faster than the gross domestic product (GDP), but that’s because the costs of health care are growing faster than the economy. Social Security hasn’t contributed to the budget deficit; it’s had surpluses for years. Other safety nets are in tatters. Unemployment insurance reaches just 40 percent of the jobless these days. The only reason food stamps and other benefits for the poor spiked after 2008 is that more Americans fell into poverty after getting clobbered by the Great Recession that hit in that year.

Outside of defense, domestic discretionary spending is down sharply as a percentage of the economy. This spending is “discretionary” in that Congress decides how much to fund such programs in annual appropriations bills. So as the budget is squeezed, these programs are the first to be whittled back. Yet they include the most important things we do as a nation to invest in the future productivity of all our people. With declining state and local spending, total public spending on education, infrastructure, and basic research has dropped from 12 percent of GDP in the 1970s to less than 3 percent last year.

Most federal programs to help children and lower-income families are in this vulnerable category as well. Yet more than one in three young families with children (headed by someone thirty or under) were living in poverty in 2010, according to an analysis of census data by Northeastern University’s Center for Labor Market Studies. That’s the highest percentage on record. The Agriculture Department says nearly one in four young children (23.6 percent) lives in a family that had difficulty affording sufficient food at some point last year. A recent analysis of federal data by The New York Times showed the number of children receiving subsidized lunches rose to twenty-one million in the last school year, up from eighteen million in 2006–2007. Nearly a dozen states experienced increases of 25 percent or more. Under federal rules, children from families with incomes up to 130 percent of the poverty line, $29,055 for a family of four, are eligible.

We’re still in the worst economy since the Great Depression—with lower-income families and kids bearing the worst of it—and yet we’re cutting programs Americans desperately need to get through it. Local family services are being terminated. Tens of thousands of social workers have been laid off. Cities and counties are reducing or eliminating their contributions to Head Start, which provides early childhood education to the children of low-income parents. Medicaid, offering health care for poor families, is also under assault. Congressional Republicans want to reduce the federal contribution to Medicaid by more than $770 billion over the next decade and shift more costs to states and to low-income Americans themselves.

It gets worse. The automatic budget trigger scheduled to cut the federal budget starting next January will take an even bigger whack at domestic discretionary spending. Drastic cuts are already under way at the state and local levels. Since the fiscal year began in July, states no longer receive about $150 billion in federal stimulus money—money that was used to fill gaps in state budgets over the last two years. The result is a downward cascade of budget cuts—from the federal government to state governments and then to local governments—that are hurting most Americans, but kids and lower-income families in particular.

Romney’s budget proposals would shred safety nets even more. According to an analysis by the Center on Budget and Policy Priorities, his plan would throw ten million low-income people off the benefits rolls for food stamps or cut benefits by thousands of dollars a year, or both. “These cuts would primarily affect very low-income families with children, seniors and people with disabilities,” the center concludes. At the same time, Romney’s tax plan would boost the incomes of America’s wealthiest citizens, who are already taking home an almost unprecedented share of the nation’s total income. He wants to permanently extend George W. Bush’s tax cuts, reduce corporate income tax rates, and eliminate the estate tax. These tax reductions would increase the incomes of people earning more than $1 million a year by an average of $295,874 annually, according to the nonpartisan Tax Policy Center.

By reducing government revenues, Romney’s tax cuts would squeeze programs for the poor even further. Extending the Bush tax cuts will add $1.2 trillion to the nation’s budget deficit in just two years. The same amount is supposed to be saved by the automatic spending cuts starting next January—which, as I’ve noted, will hit the poor especially hard. Oh, did I say that Romney and other Republicans also want to repeal President Obama’s health-care law, thereby leaving fifty million Americans without health insurance?

Meanwhile, the nation has been cutting school budgets to shreds, even though the size of America’s school-age population keeps growing. By 2015, an additional two million kids are expected to show up in our schools. Yet so far this year, twenty-three states have reduced education spending, on top of cuts in 2011 and 2010. According to a survey of city finance officers released by the National League of Cities, half of all American cities face cuts in state aid for education. That’s no surprise. Education is one of the biggest expenses in state budgets. But states can’t run deficits—almost every state constitution forbids it—and tax revenues during the prolonged downturn haven’t kept up.

Arizona has eliminated preschool for more than four thousand children and cut funding for books, computers, and other classroom supplies. California has reduced kindergarten through twelfth grade aid to local school districts by billions of dollars and is cutting a variety of programs, including adult literacy instruction and help for high-needs students. Colorado and Georgia have reduced public school spending nearly 5 percent from 2010; Illinois and Massachusetts, by 3 percent. Virginia’s $700 million in cuts include funding for class-size reduction in kindergarten through third grade. Washington suspended a program to reduce class size. Pennsylvania has squeezed local budgets: Philadelphia is laying off fourteen hundred teachers and staff; Carlisle is using sheep to trim its playing fields.

Local communities can’t make up the difference. As housing values have declined, revenues from local property taxes have plummeted. This means even less money for schools and local family services. So kids are being squeezed into ever more crowded classrooms with reduced school hours and shorter school weeks. Prekindergarten programs are being cut. Schools have even started to charge families for textbooks and extracurricular activities.

Meanwhile, at least forty-three states are cutting back on funding for public colleges and universities and increasing tuitions and fees. As a result, many qualified young people won’t be able to attend. For example, the University of California has increased tuition by 32 percent and reduced freshman enrollment by twenty-three hundred students; the California State University system cut enrollment by forty thousand students. Arizona’s Board of Regents has approved in-state undergraduate tuition (tuition paid by students who are residents of the state) increases of between 9 and 20 percent as well as fee increases at the state’s three public universities. Florida’s public universities have raised tuition 32 percent. New York’s state university system has increased resident undergraduate tuition by 14 percent. Texas has cut funding for higher education by 5 percent, or $73 million. Washington has reduced state funding for the University of Washington by 26 percent.

Because of these state cuts and tuition hikes, families and young people are absorbing more of the cost of higher education. The total amount of outstanding student debt is staggering. The New York Federal Reserve Bank estimates it to be $550 billion; Sallie Mae, the school-loan equivalent of the housing industry’s Fannie Mae and Freddie Mac, puts it at $757 billion. Almost a third of students graduating from college are burdened with these debts. Punitive laws enforce repayment, and it is almost impossible to shed student loans in bankruptcy. There is no statute of limitations for non-repayment. Why have we allowed this to happen? Our young people—their capacities to think, understand, investigate, and innovate—are America’s future. In the name of fiscal prudence we’re endangering that future.

In a recent survey of thirty-four advanced nations by the Organization for Economic Cooperation and Development, our kids came in twenty-fifth in math, seventeenth in science, and fourteenth in reading. The average fifteen-year-old American student can’t answer as many test questions correctly as the average fifteen-year-old student in Shanghai. America’s biggest corporations don’t seem to care about the deterioration of American education, because they’re getting the talent they need all over the world. Many of them now have research and development operations in Europe and China, for example. America’s wealthy and upper-middle-class families don’t seem particularly worried, either. They have enough money to send their kids to good private schools and to pay high tuitions at private universities. But the rest of the nation is imperiled.

I’m not one of those who believes the only way to fix what’s wrong with American education is to throw more money at it. We also need to make improvements in how we educate students. Judging teacher performance has to be squarely on the table, and teachers should be paid according to how well their students learn. We should experiment with vouchers whose worth is inversely related to family income. Universities have to tame their budgets for student amenities that have nothing to do with education. But considering the increases in our population of young people and their educational needs in the new global economy, more resources are surely needed.

President Obama calls this a “Sputnik moment,” referring to the wake-up call to America by the Soviet’s successful launch in the 1950s that resulted in the National Defense Education Act, training a whole generation of math and science teachers. Sadly, we’re heading in the opposite direction. The latest budget agreement invites even more federal budget cuts in public education. Pell Grants that allow young people from poor families to attend college are already squeezed.

No wonder so many Americans feel that no matter how hard they or their children try, they can no longer get ahead. The game seems rigged because, increasingly, it is. We’re losing public goods available to all, supported by taxes. In their place are private goods available mainly to the very rich. At the same time, the rich are paying less to support the public good. And more and more government expenditures are finding their way into bailouts, subsidies, and government contracts going to favored industries and their shareholders and executives.

There is something dreadfully wrong with this picture.

The Broken Basic Bargain

As I write this, jobs are starting to return, and America appears to be emerging from the deepest economic downturn we’ve experienced since the Great Depression. But the pay of most Americans is not returning—and that is the longer-term and more disturbing story. For most of the last century, the basic bargain at the heart of the American economy was that employers paid their workers enough to buy what American employers were selling. That basic bargain created a virtuous cycle of higher living standards, more jobs, and better wages. But for the last thirty years that basic bargain has been coming apart.

In 1914, Henry Ford announced he was paying workers on his Model T assembly line $5 a day—three times what the typical factory employee earned at the time. The Wall Street Journal termed his action “an economic crime,” but Ford knew it was a cunning business move. The higher wage turned Ford’s autoworkers into customers who could afford to buy Model Ts. In two years Ford’s profits more than doubled.

That was then. Now Ford Motor Company is paying its new hires about half what it paid its new employees a decade ago. Ford’s newest workers earn about $14 an hour, in contrast to the $25 an hour earned by new Ford workers in 2002 (adjusted for inflation). Ford also gives today’s new recruits a maximum of four weeks of paid time off a year; Ford workers used to get five weeks. And instead of receiving a guaranteed $3,000-a-month pension when they retire at age sixty, new hires must build their own “personal retirement plans,” to which Ford contributes less than $2,000 a year.

It’s the same story across America. At GE, new hires now earn $12 to $19 an hour, versus $21 to $32 an hour earned by workers who started at GE a decade or more ago. New data from the Commerce Department show employee pay is now down to the smallest share of the economy since the government began collecting wage and salary figures data in 1929. Meanwhile, corporate profits now constitute the largest share of the economy since 1929.

In case you forgot, 1929 was the year of the crash that ushered in the Great Depression. In the years leading up to that crash, most employers forgot Henry Ford’s example. The wages of most American workers remained stagnant. The gains of economic growth went mainly into corporate profits and into the pockets of the very rich. American families maintained their standard of living by going deeper into debt. In 1929 the debt bubble popped.

Sound familiar? It should. The same thing happened in the years leading up to the crash of 2008. The latest data on corporate profits and wages show we haven’t learned the essential lesson of the two big economic crashes of the last seventy-five years: when the economy becomes too lopsided—disproportionately benefiting corporate owners and top executives vis-à-vis average workers—it tips over.

In other words, the real reason the American economy tanked in 2008, and why we’re still struggling to recover, is that the basic bargain has been broken. The big news isn’t the slow return of jobs. It’s the drop in pay. Most of the jobs we’ve gained over the last two years pay less than the jobs we’ve lost. An analysis from the National Employment Law Project shows that the jobs created since February 2010 pay, on average, significantly lower wages than the jobs lost between January 2008 and February 2010. The biggest losses during the Great Recession were jobs paying between $19.05 and $31.40 an hour. The biggest gains over the past two years have been in jobs paying an average of $9.03 to $12.91 an hour.

For several years now, conservative economists have blamed high unemployment on the purported fact that many Americans have priced themselves out of the global/high-tech jobs market. So if we want more jobs, they say, we’ll need to accept lower wages and benefits. That’s exactly what Americans have been doing. More and more Americans are retaining their jobs by settling for lower pay or going without cost-of-living increases. Or they’ve lost a higher-paying job and have taken one that pays less. Or they’ve joined the great army of contingent workers, self-employed “consultants,” temps, and contract workers—without health-care benefits, pensions, job security, or decent wages.

All told, this has been the worst decade for American workers in a century. According to Commerce Department data, private sector wage gains over the last decade have even lagged behind wage gains during the decade of the Great Depression (4 percent over the last ten years, adjusted for inflation, versus 5 percent from 1929 to 1939). Conservatives say that’s still not enough, which is why unions have to be busted—and why Republican governors and legislators are trying to pass so-called right-to-work laws banning employment contracts requiring employees to join a union and pay union dues. Without such a requirement there’s no reason for any particular worker to join a union, because he can get the bargaining advantages of unionization without paying for them—which in turn destroys unions, exactly the point. Indiana just enacted the nation’s first right-to-work law in more than a decade and the first ever in the heavily unionized upper Midwest.

The current attack on public sector workers logically follows. As the pay and benefits of workers in the private sector continue to drop, Republicans claim public sector workers now take home more generous pay and benefits packages than private sector workers. It’s not true on the wage side if you control for level of education, but it wasn’t even true on the benefits side until private sector benefits fell off a cliff. Meanwhile, all across America, public sector workers are being “furloughed,” which is a nice word for not collecting any pay for weeks at a time.

It’s no great feat to create lots of lousy jobs. A few years ago Michele Bachmann remarked that if the minimum wage were repealed, “we could potentially virtually wipe out unemployment completely because we would be able to offer jobs at whatever level.” If you accept her logic, why stop there? After all, slavery was a full-employment system.

Conservative economists have it wrong. The underlying problem isn’t that most Americans have priced themselves out of the global/high-tech labor market. It’s that most Americans are receiving a smaller share of the American pie. This not only is bad for the majority but also hobbles the economy. Lower incomes mean less overall demand for goods and services, which translates into lower wages in the future. The basic bargain once recognized that average workers are also consumers and that their paychecks keep the economy going. We can’t have a full-fledged recovery and we can’t sustain a healthy economy until that bargain is restored.

What happened to America? Why and how did we come apart?

What Went Wrong

It’s estimated the economy will grow between 2 and 3 percent in 2012, which is peanuts. The deeper the economic hole we’ve been in, the faster we need to grow in order to get back on track. Given the depth of the hole we fell into in 2008, we need the economy to be growing by 4–6 percent by now. In 1934, when the economy began emerging from the bottom of the Great Depression, it grew 7.7 percent. The next year it grew more than 8 percent. In 1936 it grew a whopping 14.1 percent.

The U.S. economy won’t really bounce back until America’s surge toward inequality is reversed. When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt—which, as we’ve seen, ends badly. The 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to Moody’s Analytics. Yet the spending of the richest 5 percent alone will not lead to that virtuous cycle of more jobs and higher living standards. Nor can we rely on exports to fill the gap. It is impossible for every large economy, including that of the United States, to become a net exporter. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well, but they pull back when the values of their assets tumble. Sound familiar?

Even if President Obama is reelected, and even if by some miracle he gets congressional support for another big stimulus while Ben S. Bernanke’s Federal Reserve keeps interest rates near zero, these policies can’t work without a middle class capable of spending. Pump priming helps only when a well contains enough water.

Look back over the last hundred years and you’ll see the pattern. During periods when the very rich took home a much smaller proportion of total income—as in the Great Prosperity between 1947 and 1977—the nation as a whole grew faster, and median wages surged. The basic bargain ensured that the pay of American workers coincided with their output. In effect, the vast middle class received an increasing share of the benefits of economic growth. We created that virtuous cycle in which an ever-growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats. On the other hand, during periods when the very rich took home a larger proportion—as between 1918 and 1933, and in the Great Regression from 1981 to the present day—growth slowed, median wages stagnated, and we suffered giant downturns.

It’s no mere coincidence that over the last century the top earners’ share of the nation’s total income peaked in 1928 and 2007—the two years just preceding the biggest downturns. Starting in the late 1970s, the middle class began to weaken. The two lines began to diverge: Output per hour—a measure of productivity—continued to rise. But real hourly compensation was left in the dust. This was mainly because new technologies—container ships, satellite communications, eventually computers and the Internet—started to undermine any American job that could be automated or done more cheaply abroad. Factories remaining in the United States have shed workers as they automated. So has the service sector. But contrary to popular mythology, trade and technology have not reduced the overall number of American jobs; their more profound effect has been on pay. As I noted, jobs are slowly returning from the depths of the Great Recession, but in order to get them, many workers have to accept lower pay than before.

Over the last three and a half decades the middle class continued to spend, the breakdown of the basic bargain notwithstanding. Its spending was at first enabled by the flow of women into the workforce. In the 1960s, only 12 percent of married women with young children under the age of six were working for pay; by the late 1990s, 55 percent were. When that way of life stopped generating enough income, Americans went deeper into debt. From the late 1990s to 2007, the typical household debt grew by a third. As long as housing values continued to rise, it seemed a painless way to get additional money. Eventually, of course, the bubble burst. That ended the middle class’s remarkable ability to keep spending in the face of near-stagnant wages.

The puzzle is why so little has been done in the last thirty-five years to help deal with the subversion of the economic power of the middle class. With the continued gains from economic growth, the nation could have enabled more people to become problem solvers and innovators—through early childhood education, better public schools, expanded access to higher education, and more efficient public transportation. We might have enlarged safety nets—by having unemployment insurance cover part-time work, by giving transition assistance to those moving to new jobs in new locations, by creating insurance for communities that lost a major employer. And we could have made Medicare available to anyone. Big companies could have been required to pay severance to American workers they let go, and train them for new jobs. The minimum wage could have been pegged at half the median wage, and we could have insisted that the foreign nations we trade with do the same so that all citizens could share in gains from trade. We could have raised taxes on the rich and cut them for poorer Americans.

But starting in the late 1970s, and with increasing fervor over the next three decades, government did just the opposite. It deregulated and privatized. It cut spending on infrastructure as a percentage of the national economy and shifted more of the costs of public higher education to families. It shredded safety nets. And it allowed companies to bust unions and threaten employees who tried to organize. Fewer than 7 percent of private sector workers are now unionized. Meanwhile, as I’ve noted, the top income tax rate was halved to 35 percent, and many of the nation’s richest were allowed to treat their income as capital gains subject to no more than 15 percent tax. Inheritance taxes that affected only the topmost 1.5 percent of earners were sliced. Yet at the same time sales and payroll taxes—which are more painful to those with modest paychecks—were increased.

Most telling of all, Washington deregulated Wall Street while insuring it against major losses. In so doing, it allowed finance, which until then had been the servant of American industry, to become its master, demanding short-term profits over long-term growth and raking in an ever-larger portion of the nation’s profits. By 2007, financial companies accounted for more than 40 percent of American corporate profits and almost as great a percentage of pay, up from 10 percent during the Great Prosperity.

Some say the regressive lurch occurred because Americans lost confidence in government. But this argument has cause and effect backward. The tax revolts that thundered across America starting in the late 1970s were not so much ideological revolts against government—Americans still wanted all the government services they had before, and then some—as revolts against paying more taxes on incomes that had stagnated. Inevitably, government services deteriorated and government deficits exploded, confirming the public’s growing cynicism about government’s doing anything right.

Others say we couldn’t have reversed the consequences of globalization and technological change. Yet the experiences of other nations, like Germany, suggest otherwise. Germany has grown faster than the United States for the last fifteen years, and the gains have been more widely spread. While Americans’ average hourly pay has risen only 6 percent since 1985, adjusted for inflation, German workers’ pay has risen almost 30 percent. At the same time, the top 1 percent of German households now takes home about 11 percent of all income—about the same as in 1970. And although in recent months Germany has been hit by the debt crisis of its neighbors, its unemployment is still below where it was when the financial crisis started in 2007. Germany has done it mainly by focusing like a laser on education (with regard to math scores, German students continue to extend their lead over American students) and by maintaining strong labor unions.

The real reason for America’s Great Regression was political. As income and wealth became more concentrated in fewer hands, American politics reverted to what Marriner S. Eccles, a former chairman of the Federal Reserve, described in the 1920s, when people “with great economic power had an undue influence in making the rules of the economic game.” But it’s unlikely that the plutocrats can retain their political clout forever. So many people have been hit by job losses, sagging incomes, and declining home values that Americans will eventually become mobilized. The question is not whether but when. Perhaps the Occupier movement marks the beginning. Americans have summoned the political will to take back our economy before, in even bleaker times. As the historian James Truslow Adams defined the American dream when he coined the term at the depths of the Great Depression, what we seek is “a land in which life should be better and richer and fuller for every man.”

Why Big Corporations Won’t Lead the Way

Republicans want to rely on big American corporations to solve our economic problems and to reduce the size and scope of government. But the prosperity of America’s big businesses has become disconnected from the prosperity of most Americans. Without a government that’s focused on more and better jobs, we’re left with global corporations that don’t give a damn. And American corporations are increasingly global, with less and less stake in America. According to the Commerce Department, American-based global corporations added 2.4 million workers abroad in the first decade of this century while cutting their American workforce by 2.9 million. Apple employs 43,000 people in the United States but contracts with over 700,000 workers abroad. It makes iPhones in China both because wages are low there and because Apple’s Chinese contractor can quickly mobilize workers from company dormitories at almost any hour of the day or night.

American companies aren’t creating just routine jobs overseas. They’re creating good high-tech jobs there and doing more of their research and development (R&D) abroad. The National Science Foundation (NSF) warns that the United States is quickly losing ground in research. China’s share of global R&D now tops ours. One big reason, according to the NSF, is that American firms nearly doubled their R&D investment in Asia over the last decade.

That’s because China has a national economic strategy designed to make it the economic powerhouse of the future. China wants to create the technologies and the jobs of the future, and it has been pouring money into world-class research centers designed to lure American corporations along with their engineers and scientists. The Chinese are intent on learning as much as they can from American corporations and then going beyond them—as they already have in solar and electric-battery technologies. They’re also pouring money into education at all levels. In the last dozen years they’ve built twenty universities, each intended to become the equivalent of MIT. American corporations are happy to play along because China has the biggest consumer market in the world, to which every American company wants access.

At last year’s summit between the Chinese president, Hu Jintao, and President Obama, China agreed to buy $45 billion of American exports. President Obama said the agreement would create more American jobs, but in fact it would create more profits for American companies and relatively few new jobs for Americans. Nearly half of the deal was for two hundred Boeing aircraft whose parts are coming from all over the world. The rest involved agricultural commodities that don’t require much U.S. labor (because American agribusiness is highly automated) and chemical and high-tech goods that are even less labor-intensive. American corporations signed up for deals with China involving energy and aviation manufacturing, but much of the work is to be done in China.

American companies don’t care, as long as the deals help their bottom lines. An Apple executive told The New York Times, “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.” He might have added, and showing profits big enough to continually increase our share price. If Apple or any other big American company can make a product best and cheapest in China or anywhere else, then that’s where it’ll do it. I don’t blame the companies. American corporations are in business to make profits and boost their share value, not to create good American jobs. That’s the form of capitalism we practice, in contrast with China’s “state-run” capitalism.

The real problem is that American firms also have huge clout in Washington. They maintain legions of lobbyists and are pouring boatloads of money into political campaigns. After the Supreme Court’s decision in Citizens United v. Federal Election Commission, there’s no limit. (That ruling allows corporations to give unlimited amounts of money to candidates.) Their clout extends into the Obama White House. The president’s own Council on Jobs and Competitiveness is chaired by Jeffrey Immelt, CEO of GE, and is full of CEOs of other big American corporations.

But the indifference if not outright opposition of big American corporations to higher wages and better jobs in America hobbles the development of a national economic strategy to generate both. GE, for example, has been creating more jobs outside the United States than in it. A decade ago, most of GE’s employees were American; today, the majority are non-American. Fifty-three percent of GE’s $150.2 billion in revenue last year, from all sources, came from abroad (up from 35 percent only a decade ago). And like other major corporations, GE has also been shifting more of its research to China. It recently announced a $500 million expansion of its R&D facilities there on top of a $2 billion initial investment. GE’s joint venture with Aviation Industry Corporation of China, to develop new integrated avionics systems (which presumably will find their way into Boeing planes), will be based in Shanghai.

It should come as no surprise that the President’s Council on Jobs and Competitiveness is calling for lower corporate taxes and fewer regulations. It has also called for repeal of the anti-corporate-looting provisions enacted by Congress in 2002 in response to Enron, arguing that they impede growth and hiring. But lower corporate taxes and fewer regulations won’t bring good jobs to America. They might lower the costs of production here, but global companies can always find even lower costs somewhere else around the world. America’s corporate elite also wants China to raise the value of its currency, so that everything it buys from us is cheaper and everything we buy from it is more expensive. But even if our currencies were better balanced, China would still come out ahead. We’d have more jobs because our exports would be more attractive in world markets, but those jobs would summon fewer goods from around the world. A lower-valued dollar makes everything else we buy from the rest of the world more expensive, so we in effect become poorer.

Global corporations will create jobs wherever around the world they can get the best return—either where wages are lowest or where productivity is highest or both. America can’t and shouldn’t try to compete on the basis of low wages; that’s a recipe for a continuously declining standard of living. Global companies will create good, high-wage jobs in the United States only if Americans are productive enough to summon them. Yet the sad truth is a large and growing portion of our workforce is handicapped by deteriorating schools, unaffordable college tuitions, decaying infrastructure, worsening health and rising health-care costs, and diminishing basic R&D. All of this is putting us on a glide path toward even lousier jobs and lower wages. And we have no national plan to reverse any of this.

Instead of a national economic strategy to make these investments in our people, we have a hodgepodge of tax breaks and corporate welfare crafted by American-based global corporations to maximize their profits. They’ll do and make things in China and give the Chinese their know-how when that’s the best way to boost the corporations’ bottom lines, and they’ll utilize research and development wherever around the world it will deliver the biggest bang for the dollar. Meanwhile, deficit hawks in Congress are cutting publicly supported R&D. And cash-starved states are cutting K–12 education and slashing the budgets of their great public research universities.

China has a national economic strategy designed to create more and better jobs. We have global corporations designed to make money for their shareholders. No contest.

The Continuing Clout of the Street

Wall Street, meanwhile, has been using its lobbying power to water down regulations emerging from the Dodd-Frank financial reform law. The Street says Dodd-Frank is overkill. Dodd-Frank may, in fact, be too weak.

The European debt crisis, for example, isn’t a problem for America’s real economy. Whatever happens to Greece or other deeply indebted European governments, America’s exports to Europe aren’t going to dry up. In any event, those exports are small relative to the size of the U.S. economy. If you want to find the real reason for concern in the United States about what’s happening in Europe, follow the money. If Greece defaults on its debts, Italy and Spain—the next weakest borrowers—will have to pay higher interest rates on their own debts, pushing one or both of them to the brink. A default by either Italy or Spain would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008—that is, financial chaos. It could easily pummel German and French banks, to which big Wall Street banks have lent a bundle. The Street has also bet on or insured all sorts of derivatives—in effect, bets placed on the outcomes of other trades—emanating from Europe, on energy, currency, interest rates, and foreign exchange swaps. If a German or French bank goes down, the ripple effects are incalculable.

The Street says it’s not worried because most of its exposure to European banks is insured through “credit-default swaps” that will offset any losses. But AIG nearly collapsed in 2008 because it couldn’t make payments on its swap contracts that were supposed to insure big Wall Street banks against losses on their bets. American taxpayers had to bail out AIG as well as the big banks. One of the many ironies here is that some badly indebted European nations (Ireland is the best example) went deeply into debt in the first place by bailing out their banks from the crisis that began on Wall Street. Full circle.

You don’t have to be an Occupier to conclude the Street is still out of control. Last summer, after Groupon selected Goldman Sachs, Morgan Stanley, and Credit Suisse to underwrite its initial public offering, the trio valued Groupon at a generous $30 billion. Subsequent accounting and disclosure problems showed this estimate to be absurdly high. But the banks didn’t care a whit. The higher the valuation, the fatter their fees. Or consider the recent collapse of MF Global, a Wall Street firm that gambled in financial futures, bet wrong on sovereign debt, and lost between $1.2 billion and $1.6 billion of its customers’ money. Those funds were supposed to have been held separately, but MF Global and other firms trading futures contracts have few safeguards to protect customer money and don’t even have to inform customers about where their money is.

Or take a look at the fancy footwork by Bank of America (BofA) when hit by a credit downgrade last fall. BofA avoided higher charges by simply moving the risky derivatives that had triggered the downgrade from its Merrill Lynch unit to a retail subsidiary flush with insured deposits. The subsidiary has a higher credit rating because those deposits are insured by the Federal Deposit Insurance Corporation (that is, you and me and our fellow citizens). Result: BofA improved its bottom line, at the expense of American taxpayers.

Wasn’t this supposed to be illegal? Keeping risky assets away from insured deposits had been a key principle of U.S. regulation for decades before the 1999 repeal of the Glass-Steagall Act, the Depression-era law that separated investment banking (betting in the financial casino) from commercial banking (taking in deposits and lending them out). Glass-Steagall’s demise allowed bankers to place large bets with other people’s money—and make huge bundles for themselves. It also led to the near meltdown of the Street in 2008. But even then, the Street fought against resurrecting Glass-Steagall. Reluctantly, bankers accepted as a compromise the so-called Volcker rule, which under pressure from Wall Street’s lobbyists has morphed into almost three hundred pages of regulatory mumbo jumbo riddled with exemptions and loopholes.

Meanwhile, the portion of the Dodd-Frank law that’s now supposed to be in effect is barely being enforced. That’s because the agencies charged with enforcing it, including the Securities and Exchange Commission, don’t have enough money or staff to do the job. The Street’s Washington lobbyists have made sure Congress doesn’t appropriate even these bare necessities. Several of these agencies are still lacking directors or commissioners. Ironically, many of the business leaders who blame the sluggish economy on “regulatory uncertainty” are the same ones who are keeping financial regulation in limbo. A senior vice president of the Chamber of Commerce told The New York Times, “Uncertainty among companies about the rules of the road is keeping a lot of capital on the sidelines.” Yes, and the chamber has been among the groups most responsible for maintaining uncertainty about Dodd-Frank’s final regulations.

Bankers try to justify their attempted murder of Dodd-Frank by saying tightened regulatory standards would put them at a disadvantage relative to their overseas competitors. JPMorgan Chase’s Jamie Dimon publicly accosted Ben Bernanke, complaining that the law’s implementation would harm the Street’s competitiveness. The argument is pure claptrap. In fact, senior Wall Street executives are making the same argument to financial regulators in Europe, arguing that tighter bank regulations there will cause Wall Street to move more of its business out of Europe and back to New York.

The problem isn’t excessive greed. If you took the greed out of Wall Street, all you’d have left is pavement. The problem is the Street’s excessive power. Wall Street is the richest and most powerful industry in America with the closest ties to the federal government—routinely supplying Treasury secretaries and economic advisers who share its worldview and its financial interests and routinely bankrolling congressional kingpins. How else can you explain why the Street was bailed out with no strings attached? Or why taxpayers didn’t get equity in the banks we bailed out—as Warren Buffett got when he bailed out Goldman Sachs—so when the banks became profitable again, we didn’t get any of the upside gains? Or why no criminal charges have been brought against any major Wall Street figure—despite the effluvium of frauds, deceptions, malfeasance, and nonfeasance in the years leading up to the crash and subsequent bailout? Or why Dodd-Frank is being eviscerated?

Since Dodd-Frank was enacted, Wall Street has spent as much on lobbyists and what amount to political payoffs designed to stop the law’s implementation as it did trying to water down the law in the first place. The six largest banks spent $29.4 million on lobbying in 2010, and even more in 2011. According to the Center for Public Integrity, the Street and other financial institutions hired roughly three thousand lobbyists to fight Dodd-Frank—more than five lobbyists for every member of Congress. They’ve hired almost the same number to delay, weaken, or otherwise prevent its implementation.

Earlier this year the Street’s biggest lobbying groups filed a lawsuit against the Commodity Futures Trading Commission, seeking to overturn its new rule limiting speculative trading in food, oil, and other commodities. Wall Street makes bundles from these bets, but they raise consumer costs—another redistribution from the middle class and the poor to the top. The Street argues the commission’s cost-benefit analysis wasn’t adequate. It’s a clever ploy, because there’s no clear legal standard for an “adequate” weighing of costs and benefits of financial regulations since both are so difficult to measure. And putting the question into the laps of federal judges gives the Street a major tactical advantage, because the Street has almost an infinite amount of money to hire so-called experts who will say benefits have been exaggerated and costs underestimated, while the commission’s budget is limited.

The Street used the same ploy last year after the Securities and Exchange Commission (SEC) tried to make it easier for shareholders to nominate company directors. Wall Street argued that the SEC’s cost-benefit analysis was inadequate. Last July, a federal appeals court—inundated by Wall Street lawyers and hired-gun “experts”—agreed with the Street. So much for shareholder rights.

Obviously, government should weigh the costs against the benefits of anything it does. But when it comes to regulating Wall Street, one big cost doesn’t make it into any individual weighing: the public’s mounting distrust of our entire economic system, generated by the Street’s repeated abuse of the public’s trust. Wall Street’s shenanigans have convinced a large portion of America that the economic game is rigged. Yet capitalism depends on trust. Without trust, people avoid even sensible economic risks. They also begin trading in gray markets and black markets. They think that if the big guys cheat in big ways, they may as well begin cheating in small ways. And when they think the game is rigged, they’re easy prey for political demagogues with fast tongues and dumb ideas.

Wall Street has blanketed America in a miasma of cynicism, and much of it is directed against Wall Street. The Street has only itself to blame. It should have welcomed new financial regulation as a means of restoring public trust. Instead, it’s been busily shredding new regulations and making the public more distrustful than ever. The cost of such cynicism has leached deep into America, finding expression in Tea Partiers and Occupiers and millions of others who think the Street has sold us out.

Whom Is the Economy for, Anyway?

All of this raises the basic question of whom the economy is for. Surely it’s not just for a few Wall Street executives and traders or a handful of managers of hedge funds and private-equity funds, and not just for big corporations and their CEOs. The success of our economy cannot be measured by how fast the GDP grows or how high the Dow Jones Industrial Average rises, because in an economy like ours very few of the gains from growth or from a rising stock market are trickling down to most people.

The economy’s success can’t be measured by the unemployment rate, either. As I’ve emphasized, that rate doesn’t take account of declining wages. Nor does it account for all the people who have become too discouraged to look for work because there are no jobs for them, and all those who are working part-time who want and need full-time jobs—or the growing ranks of contract workers, temporary workers, and others living from paycheck to paycheck with no job security at all.

Our economy’s success can’t even be measured by whether average incomes are turning upward. An average can disguise what’s happening to the majority because averages are pulled up by the top, and when the top is exceptionally high, the average can be far better than what most people experience. Shaquille O’Neal and I have an average height of six feet.

Even if most Americans are able to buy more, our lives will not improve if our schools, parks, roads, air and water, and other public goods continue to deteriorate. We won’t feel better off if our workplaces are unsafe, if we can’t safely walk on the streets of our communities, if we have no regular access to medical care, or if the cost of a major illness can wipe out our savings. And our lives will not be better if our democracy is dying, replaced by a system mostly responsive to big corporations and wealthy individuals. It is impossible to live happily in a society that seems fundamentally unfair or to live well in a nation rife with anger and cynicism.

Part Two
The Rise of the Regressive Right

People who call themselves conservative Republicans offer one option for what to do about all this, but their option would make matters worse. Their goal is not to conserve the best of what we now have; it is to return America to a time long before we achieved it. In truth, their agenda is regressive rather than conservative. They believe in social Darwinism, and many will stop at nothing to get their way. Their strategy is to divide working Americans and to convince them of the truth of a few very big lies.

The Rebirth of Social Darwinism

A fundamental war has been waged in this nation since its founding between progressive forces pushing us forward and regressive forces pulling us backward. We are in that battle once again.

Progressives believe in openness, equal opportunity, and tolerance. Progressives assume we’re all in it together: We all benefit from public investments in schools and health care and infrastructure. And we all do better with strong safety nets, reasonable constraints on Wall Street and big business, and a truly progressive tax system. Progressives worry when the rich and privileged become powerful enough to undermine democracy.

Regressives take the opposite positions. Right now their most prominent members are the House majority leader, Eric Cantor; the House budget chief, Paul Ryan; the former Speaker Newt Gingrich; the former senator Rick Santorum; the former majority leader Dick Armey; Governor Rick Perry; Representative Michele Bachmann; the former governor Sarah Palin; Representative Ron Paul; and the former governor Mitt Romney (to the extent he has any consistent principles at all); along with the antigovernment guru Grover Norquist, several Fox News anchors, the Supreme Court justices Antonin Scalia and Clarence Thomas, and the Republican strategist Karl Rove. Behind them—funding their activities but remaining out of the spotlight—are the media mogul Rupert Murdoch, the billionaires Charles and David Koch, and a coterie of other moneyed interests on and off Wall Street who view the regressive movement as their best means of maintaining their power and privilege and accumulating even more.

Many of these people would like to return America to the 1920s—before Social Security, unemployment insurance, labor laws, the minimum wage, Medicare and Medicaid, worker safety laws, the Environmental Protection Act, the Glass-Steagall Act, the Securities Exchange Act, and the Voting Rights Act. In the 1920s, Wall Street was unfettered, the rich grew far richer and everyone else went deep into debt, and the nation closed its doors to immigrants. These regressives also want to resurrect the classical economics of the 1920s—the view that economic downturns are best addressed by doing nothing until the “rot” is purged out of the system (as Andrew Mellon, Herbert Hoover’s Treasury secretary, so decorously put it).

Many would even like to take the nation back to the late nineteenth century—before the federal income tax, antitrust laws, the Pure Food and Drug Act, and the Federal Reserve. It was a time when so-called robber barons—railroad, financial, and oil titans—ran the country; a time of wrenching squalor for the many and mind-numbing wealth for the few, when the federal government was small, the Fed and the IRS had yet to be invented, state laws determined worker safety and hours, evolution was still considered contentious, immigrants were almost all European, big corporations and robber barons ran the government, the poor were desperate, and the rich lived like old-world aristocrats.

Listen carefully to today’s Republican right and you hear the same social Darwinism that was used more than a century ago to justify the brazen inequality of the Gilded Age: survival of the fittest. Don’t help the poor or the unemployed or anyone who’s fallen on bad times, they say, because this only encourages laziness. America will be strong only if we reward the rich and punish the needy.

It was an era when the nation was mesmerized by the doctrine of free enterprise but few Americans actually enjoyed much freedom. The financier Jay Gould, the railroad magnate Cornelius Vanderbilt, and the oil tycoon John D. Rockefeller controlled much of American industry; the gap between rich and poor had turned into a chasm; urban slums festered; children worked long hours in factories; women couldn’t vote, and black Americans were subject to Jim Crow; and the lackeys of the rich literally deposited sacks of money on desks of pliant legislators.

Most tellingly, it was a time when the ideas of William Graham Sumner, a professor of political and social science at Yale, dominated American social thought. Sumner brought Charles Darwin’s thinking to America and twisted it into a theory to fit the times. Few Americans living today have read any of Sumner’s writings, but they had an electrifying effect on America during the last three decades of the nineteenth century.

To Sumner and his followers, life was a competitive struggle in which only the fittest could and should survive—and through this struggle societies became stronger over time. A correlate of this principle was that government should do little or nothing to help those in need because that would interfere with natural selection.

Listen to today’s Republicans and you hear a continuous regurgitation of Sumner. “Civilization has a simple choice,” Sumner wrote in the 1880s. It’s either “liberty, inequality, survival of the fittest” or “not-liberty, equality, survival of the unfittest. The former carries society forward and favors all its best members; the latter carries society downwards and favors all its worst members.” Sound familiar?

Mitt Romney isn’t as regressive as some, but like Herbert Hoover he doesn’t want the government to do much of anything about unemployment. As I said earlier, he accuses President Obama of having created an “entitlement society” that has fostered a culture of dependence. Romney thinks government shouldn’t try to help distressed homeowners but instead let the market “hit the bottom.” And he is dead set against raising taxes on millionaires, relying on the standard Republican rationale that millionaires create jobs and that benefits trickle down.

Rick Santorum says the president is getting America hooked on “the narcotic of dependency” and alleges the reason we have high unemployment is that people are deliberately staying out of the workforce in order to get unemployment benefits. “When you have ninety-nine weeks of unemployment benefits and a variety of other social safety-net programs, people can make choices that they otherwise wouldn’t make.”

Newt Gingrich not only echoes Sumner’s thoughts but mimics his reputed arrogance. Gingrich says we must reward “entrepreneurs” (by which he means anyone who has made a pile of money) and warns us not to “coddle” people in need. He calls laws against child labor “truly stupid” and says poor kids should serve as janitors in their schools. He doesn’t want to extend unemployment benefits because, he says, “I’m opposed to giving people money for doing nothing.”

Sumner, likewise, warned against handouts to people he termed “negligent, shiftless, inefficient, silly, and imprudent.” Here’s Sumner, more than a century ago: “Millionaires are a product of natural selection, acting on the whole body of men to pick out those who can meet the requirement of certain work to be done.… It is because they are thus selected that wealth—both their own and that intrusted to them—aggregates under their hands.… They may fairly be regarded as the naturally selected agents of society.” Although they live in luxury, “the bargain is a good one for society.”

Other Republican hopefuls also fit Sumner’s mold. Ron Paul, who favors repeal of President Obama’s health-care plan, was asked at a Republican debate in September what medical response he’d recommend if a young man who had decided not to buy health insurance were to go into a coma. Paul’s response: “That’s what freedom is all about: taking your own risks.” The Republican crowd cheered. If the young man died for lack of health insurance, he was responsible. Survival of the fittest.

Read the writings of the current darling of conservative intellectuals, the sociologist Charles Murray, and you find the same philosophy at work. In his latest book, Coming Apart, Murray attributes the decline of the white working class to what he sees as their loss of traditional values of diligence and hard work. Increasingly addicted to drugs, failing to marry, giving birth out of wedlock, dropping out of high school, and remaining jobless for long periods of time, America’s white working class has, in Murray’s view, brought its problems on itself. Government has aided and abetted the decline by providing too much help in the form of social programs that encourage pathologies and dependence.

Murray and other neo–social Darwinists seem not to have noticed that for the past thirty years the wages of the old working class have declined, steady union jobs once available to them have disappeared, the economic base of their communities has deteriorated, and their share of the nation’s income and wealth has dramatically shrunk. It seems more likely that these are the underlying sources of the social problems and pathologies Murray chronicles, but this logic is inconvenient because it suggests that any solution requires reversing the widening inequities that have hit the old working class especially hard.

A hundred years ago social Darwinism offered a moral justification for the wild inequities and social cruelties of the late nineteenth century. It allowed John D. Rockefeller, for example, to claim the fortune he accumulated through his giant Standard Oil Trust was “merely a survival of the fittest.” It was, he insisted, “the working out of a law of nature and of God.” The social Darwinism of that era also undermined all efforts to build a more broadly based prosperity and rescue our democracy from the tight grip of a very few at the top. It was used by the privileged and powerful to convince everyone else that government shouldn’t do much of anything.

Not until the twentieth century did America reject social Darwinism. We created the large middle class that became the engine of our economy and our democracy. We built safety nets to catch Americans who fell downward, often through no fault of their own. We designed regulations to protect against the inevitable excesses of free-market greed. We taxed the rich and invested in public goods—public schools, public universities, public transportation, public parks, public health—that made us all better off. In short, we rejected the notion that each of us is on his or her own in a competitive contest for survival.

Even the GOP eventually disavowed social Darwinism. In the 1950s and 1960s, Republicans like Mark Hatfield of Oregon, Jacob Javits and Nelson Rockefeller of New York, Margaret Chase Smith of Maine, and Presidents Dwight Eisenhower and Richard Nixon lent their support to such interventionist measures as Medicare and the Environmental Protection Agency. Eisenhower pushed for the greatest public works project in the history of the United States—the National Interstate and Defense Highways Act, which linked the nation together with four-lane (and occasionally six-lane) interstate highways covering forty thousand miles. The GOP also backed large expansion of federally supported higher education. And to many Republicans at the time, a marginal income tax rate of more than 70 percent on top incomes was not repugnant.

The Republican Party of the 1950s and 1960s had its share of kooks and crackpots, such as Senator Joe McCarthy of Wisconsin, who conducted an infamous communist witch hunt, and General Douglas MacArthur, who told the Republican convention of 1952 that the Democratic Party had “become captive to the schemers and planners who have infiltrated its ranks of leadership to set the national course unerringly toward the socialistic regimentation of a totalitarian state.” But for the most part, the party’s elders controlled the nutcases.

Yet the Republican Party that emerged at the end of the twentieth century began to march backward to the nineteenth. Ronald Reagan lent his charm and single-mindedness to the movement, but he was not a true regressive. It was only when Newt Gingrich and his followers took over the House of Representatives in 1995 that regressives began retaking the GOP. The Koch brothers bankrolled the so-called Tea Party movement, and in 2010 Tea Party Republicans led the way toward capturing the House of Representatives and many state governments.

Through a sequence of presidential appointments, regressives have also gained a slim majority on the Supreme Court. Antonin Scalia and Clarence Thomas, along with Samuel Alito, John Roberts, and, all too often, Anthony Kennedy, claim to be conservative jurists. But they have proven to be judicial activists bent on overturning seventy-five years of jurisprudence by resurrecting states’ rights, treating the Second Amendment as if America still relied on local militias, narrowing the commerce clause, and, as I said earlier, calling money “speech” and corporations “people.”

Regressives have no new ideas for dealing with any challenge of the twenty-first century. Which of the 2012 GOP presidential aspirants do you think delivered the following words at the most recent Conservative Political Action Conference?

We have seen tax-and-tax, spend-and-spend reach a fantastic total greater than in all the previous … years of our Republic.… Behind this plush curtain of tax and spend, three sinister spooks or ghosts are mixing poison for the American people. They are the shades of Mussolini, with his bureaucratic fascism; of Karl Marx, and his socialism; and of Lord Keynes, with his perpetual government spending, deficits, and inflation. And we added a new ideology of our own. That is government give-away programs.… If you want to see pure socialism mixed with give-away programs, take a look at socialized medicine.

If you guessed Newt Gingrich, you could be forgiven. He didn’t utter these precise words, although he uses much the same language and offers the same themes. You’d also be wrong if you guessed Mitt Romney or Rick Santorum, Rick Perry, Sarah Palin, or Ron Paul. But again your mistake would be understandable, because any of them could have delivered this message, and all of them are delivering variations of it, over and over. So are Republican candidates for seats in Congress, state legislatures and governorships, and local elections. It’s the Republican message of 2012.

The correct answer, however, is Herbert Hoover.

Hoover didn’t deliver these words at the last Conservative Political Action Conference. He delivered them at the Republican National Convention in Chicago on July 8, 1952. Regressives haven’t come up with a single new idea since, or a new theme. But Hoover, you may remember, did not have a sterling record when it came to the economy. As president, he presided over the crash of 1929 and ushered in the Great Depression. He had no idea how to respond. By the time he was voted out of office in 1932, one out of four Americans was unemployed.

By 1952, Hoover was hidebound and irrelevant. After Dwight D. Eisenhower won the 1952 Republican nomination and went on to become president, he wisely disregarded everything Hoover had advised. Under Ike, the marginal income tax on America’s highest earners was raised to 91 percent. As I’ve said, Eisenhower also commenced the biggest infrastructure program in the nation’s history—the National Interstate and Defense Highways Act. He also expanded Social Security and signed into law the National Defense Education Act, which trained a whole generation of math and science teachers and upgraded American classrooms for the future. Under Ike, the Defense Department spawned technologies that would cement America’s leadership in aerospace and telecommunications for more than a generation.

The United States did not suffer fascism, socialism, deficits, and inflation, as Hoover had predicted. Instead, the U.S. economy roared. The median wage rose faster than ever before, and the incomes of America’s working class and poor rose at the fastest pace of all. And our democracy became sufficiently confident and expansive that within a few years we passed the historic Civil Rights Act of 1964 and the Voting Rights Act of 1965.

The Stop-at-Nothing Tactic

Social Darwinism is the regressives’ theme. Stop at nothing is their methodology. As the political analyst Michael Lind has noted, today’s Tea Party is less an ideological movement than the latest incarnation of an angry white minority—predominantly southern and mainly rural—that has repeatedly attacked American democracy in order to get its way. It’s no mere coincidence that the states responsible for putting the most Tea Party representatives in the House are all former members of the Confederacy. Of the Tea Party caucus, twelve hail from Texas, seven from Florida, five from Louisiana, and five from Georgia, and three each from South Carolina, Tennessee, and the border state Missouri. Others are from border states with significant southern populations and southern ties. The four Californians in the caucus are from the inland part of the state or Orange County, whose political culture was shaped by Oklahomans and southerners who migrated there during the Great Depression. This isn’t to say all Tea Partiers are white, southern, or rural Republicans—only that these characteristics define the epicenter of Tea Party Land.

The views separating these primarily white, southern, and rural Republicans from other Republicans mirror the split between self-described Tea Partiers and what had been the Republican establishment. In a poll of Republicans conducted for CNN last September, nearly six in ten who identified themselves with the Tea Party say global warming isn’t a proven fact; other Republicans say it is. Six in ten Tea Partiers say evolution is wrong; other Republicans are split on the issue. Tea Party Republicans are twice as likely as other Republicans to say abortion should be illegal in all circumstances, and half as likely to support gay marriage. Tea Party Republicans are more vehement advocates of states’ rights than other Republicans. Six in ten Tea Partiers want to abolish the Department of Education; only one in five other Republicans do. And Tea Party Republicans worry more about the federal deficit than about jobs, while other Republicans say reducing unemployment is more important than reducing the deficit.

In other words, the regressives who are taking over today’s GOP aren’t that much different from the social conservatives who began asserting themselves in the party during the 1990s, and, before them, the “Willie Horton” conservatives of the 1980s, and, before them, Richard Nixon’s “silent majority.” Through most of those years, though, the GOP managed to contain these white, mainly rural, and mostly southern radicals. For one thing, many of them were still Democrats. The conservative mantle of the GOP remained in the West and the Midwest—with the libertarian legacies of the Ohio senator Robert A. Taft and Barry Goldwater, neither of whom was a barn burner—while the center of the party remained in New York and the East, safely within the corporate establishment and Wall Street.

But after the Civil Rights Act of 1964, as the South began its long march toward the Republican Party and New York and the East became ever more solidly Democratic, it was only a matter of time. The GOP’s dominant coalition of big business, Wall Street, and midwestern and western libertarians was losing its grip. The watershed event was Gingrich’s takeover of the House in 1995. Suddenly, it seemed, the GOP had a personality transplant. The gentlemanly conservatism of the Republican House minority leader Bob Michel was replaced by the bomb-throwing antics of Gingrich, Dick Armey, and Tom DeLay. Almost overnight Washington was transformed from a place where legislators sought common ground into a war zone. Compromise was replaced by brinkmanship, bargaining by obstructionism, normal legislative maneuvering by threats to close down government—which occurred at the end of 1995.

Before then, when I’d testified on the Hill as secretary of labor, I had come in for tough questioning from Republican senators and representatives—which was their job. After January 1995, I was verbally assaulted. “Mr. Secretary, are you a socialist?” I recall one of them asking. The new crowd wasn’t willing to compromise on anything. Their distinguishing characteristic was that they’d stop at nothing to get their way. Led by Gingrich, House Republicans closed down the government when they didn’t get their way on the budget. Then stop-at-nothing regressives voted to impeach Bill Clinton. In the Senate, two-thirds of senators from the South voted for impeachment. (A majority of the Senate, you may recall, voted to acquit.)

America has had a long history of white southern radicals who would stop at nothing to get their way—seceding from the Union in 1861, repudiating federal laws designed to protect the rights of black citizens during Reconstruction, enacting Jim Crow laws, resisting desegregation orders in the 1950s, and refusing to obey civil rights legislation in the 1960s. The Gingrich-led government shutdown at the end of 1995 was a prelude to the 2011 showdown over raising the federal debt ceiling—which could have triggered a government default and risked the full faith and credit of the United States. Gingrich’s recent assertion during the Republican primaries that public officials aren’t bound to follow the decisions of federal courts is in the same tradition.

The GOP’s stop-at-nothing insurgents hate government more than they hate the national debt. They refuse to reduce that debt with tax increases, even with tax increases on the wealthy, because a tax increase doesn’t reduce the size of government. By contrast, what’s left of the Republican establishment—still occasionally found on Wall Street and in corporate suites—dislikes the national debt more than it dislikes government, and it opposes using the threat of a default as a bargaining chip. It doesn’t want America’s creditors to become spooked about the risk of runaway inflation or a future default, because it depends on smooth-functioning credit markets and a stable dollar.

Some Americans tolerate the stop-at-nothing assault on our system of government because they’re searching for a villain to blame for their continuing economic fears and insecurities, and government is a convenient scapegoat. At the same time, most of what government does that helps them is now so deeply woven into the thread of daily life that it’s no longer recognizable as government. Think of the indignant Republican voters who showed up at congressional town-hall meetings to protest President Obama’s health-care bill shouting, “Don’t take away my Medicare!” The Cornell political scientist Suzanne Mettler found that more than 44 percent of Social Security recipients say they “have not used a government social program,” as do more than half of families receiving government-backed student loans, 43 percent of unemployment insurance beneficiaries, and almost 30 percent of recipients of Social Security disability. Add in the relentless government hating and baiting of Fox News and Rush Limbaugh and his imitators on rage radio; include more than thirty years of Ronald Reagan’s repeated refrain that government is the problem; pile on hundreds of millions of dollars from regressive billionaires like Charles and David Koch, intent on convincing the public that government is evil, and some public support for stop-at-nothing tactics is not all that surprising.

Yet neither their stop-at-nothing tactics nor their social Darwinist message would have gained much traction were it not for the stunning failure of Democrats to make the case for a strong and effective government that responds to the needs of average people. There is no shortage of evidence—globalizing corporations, rip-roaring CEO pay, mass layoffs, declining pay for the bottom 90 percent, mine disasters, exploding oil rigs, malfeasance on Wall Street, and wildly escalating costs of health insurance—and it is not especially difficult to connect the dots. Yet too frequently Democrats have appeared timid and defensive; too often they’ve given in to regressive demands without a fight; and they’ve allowed the regressives’ big lies to go unrebutted for too long.

The Regressive Strategy: Divide and Conquer

When they’re not spouting social Darwinism or deploying stop-at-nothing tactics, regressives have been trying to convince Americans we can no longer afford to do what we need to do as a nation. They want to distract attention from the extraordinary accumulation of income, wealth, and power at the very top and the historically low tax rates paid by the rich. And they hope no one notices their push for additional tax cuts for the rich—making the Bush tax cuts permanent, further reducing taxes on the rich, eliminating the estate tax, and allowing the wealthy to shift ever more of their income into capital gains, taxed at 15 percent. They say America is broke. Their aim is to divide and conquer: pit unionized workers against nonunionized, public sector workers against nonpublic, older workers within sight of Medicare and Social Security against younger workers who don’t believe these programs will be there for them, and the middle class against the poor.

The strategy has three parts.

The first is being played out in the budget battles in Washington. By raising the alarm over deficit spending and simultaneously squeezing popular middle-class programs, regressives want the American public to view what happens in Washington as a giant zero-sum contest that some average Americans can win only if other average Americans lose. The president has already fallen into the trap by calling for cuts in Medicare, along with other cuts in programs the poor and the working class depend on, such as assistance with home heating, community services, and college loans.

The second part of the regressive strategy is being played out in the states, where public employees are being blamed for state budget crises. Unions didn’t cause these crises—state revenues plummeted because of the Great Recession—but regressives view them as opportunities to gut public employee unions, starting with teachers. Governor Scott Walker of Wisconsin and his GOP majority in the state legislature have ended most union rights for teachers. Ohio’s Republican governor, John Kasich, has tried to push a similar plan through a Republican-dominated legislature. New Jersey’s governor, Chris Christie, has attempted the same, telling a conservative conference, “I’m attacking the leadership of the union because they’re greedy, and they’re selfish and they’re self-interested.”

As I’ve noted, public employees don’t earn more than their private sector counterparts when you take account of their education. In fact, over the last fifteen years the pay of public sector workers, including teachers, has dropped relative to private sector employees with the same level of education. Moreover, most public employees don’t have generous pensions. After a career with annual pay averaging less than $45,000, the typical newly retired public employee receives a pension of $19,000 a year. Yet regressives would rather go after teachers and other public employees than have us look at the pay of Wall Street traders, private-equity managers, and heads of hedge funds whose lending and investing practices were the proximate cause of the Great Recession to begin with and who owe their jobs to the giant taxpayer-supported bailout.

The third part of the divide-and-conquer strategy is being played out in the Supreme Court, which has been politicized more than at any time in recent memory. On January 21, 2010, as I noted earlier, a majority of the justices ruled that corporations have a right under the First Amendment to provide unlimited amounts of money to political candidates. Citizens United v. Federal Election Commission is among the most politically motivated and legally grotesque decisions of our highest court—ranking right up there with Bush v. Gore and Dred Scott v. Sandford. Among those who voted in the affirmative were Clarence Thomas and Antonin Scalia, both of whom have become active strategists in the Republican Party. Two months after the Citizens United decision, the U.S. Court of Appeals for the District of Columbia Circuit, relying on Citizens United, ruled that the existing $5,000-per-year limit on the amount any individual can contribute to a super PAC or other independent group also violates the First Amendment.

These three aspects of the regressive strategy—a federal budget battle to shrink government focused on programs the vast middle class depends on; state efforts to undermine public employees whom the middle class depends on; and a Supreme Court dedicated to bending the Constitution to enlarge and entrench the political power of the wealthy—fit perfectly and diabolically together. They pit average working Americans against one another, distract attention from the almost unprecedented concentration of wealth and power at the top, and conceal regressive plans to further enlarge and entrench that wealth and power.

The Ten Biggest Economic Lies

“There is video content at this location that is not currently supported for your eReading device. The caption for this content is displayed below.”

Why the regressive right is wrong—dead wrong—and the ten biggest lies they’re peddling. (4:08)

A final aspect of the regressive strategy is to tell a few big lies about the economy over and over. You hear them repeated endlessly on right-wing radio and on Fox News, and you read them incessantly on the editorial pages of The Wall Street Journal. Together they paint a picture of an America in which social Darwinism replaces the public good. Demagogues through history have known that big lies, repeated often enough, start being believed—unless they’re rebutted. George Orwell once explained that when a public is stressed and confused, a big lie told repeatedly and unchallenged can become accepted truth. Make sure you know the facts and spread them.

The lies:

1.    Tax cuts for the rich trickle down to everyone else, while higher taxes on the rich hurt the economy and slow job growth. Untrue. Look at recent history. Both Ronald Reagan and George W. Bush cut taxes on the rich. Most Americans’ wages began flattening under Reagan and have dropped since the start of Bush’s administration. Trickle-down economics is a cruel joke.

As I’ve said, from the end of World War II until 1981, the richest Americans faced a top marginal tax rate of 70 percent or above. Under Dwight Eisenhower it was 91 percent. Even after all deductions and credits, the top taxes on the very rich were more than 52 percent—far higher than they’ve been since. Yet the economy grew faster during those years than it has since. During almost three decades spanning 1951 to 1980, when the top rate was between 70 percent and 91 percent, average annual growth in the American economy was 3.7 percent. Between 1983 and the start of the Great Recession, when the top rate dropped to between 35 percent and 39 percent, average growth was 3 percent.

Regressives say small businesses would be hurt by a higher marginal tax. Don’t believe this, either. Only just over 1 percent of small-business owners earn enough to be taxed at the top rate—and that’s just on the portion of their incomes exceeding $379,000.

2.    American corporations would create more jobs and spur the economy forward if their taxes were lower. Wrong again. American corporations don’t need tax cuts. As I’ve noted, many of them, like General Electric, manipulate the tax code so they don’t pay any taxes at all. Besides, large and middle-sized companies are having no difficulty getting loans at bargain-basement rates, courtesy of the Fed. Big companies are sitting on more than $2 trillion of cash right now that they don’t know what to do with.

The reason they’re not investing in additional capacity or many new jobs has nothing to do with taxes. It’s that they don’t see enough customers with enough money in their pockets to buy what the additional capacity would produce. Businesses are spending as much as they can justify economically. Almost two-thirds of the measly growth in the economy last year came from businesses rebuilding their inventories. But without more consumer spending, businesses won’t spend more. A robust economy can’t be built on inventory replacements.

The wrongheaded idea that corporations need tax cuts to create jobs is also being used by regressive governors who are cutting business taxes willy-nilly in order to compete with other states that are doing the same. They’ve entered into a giant zero-sum game that doesn’t create a single new job but robs the states of money needed for critical investments in schools and infrastructure. Florida’s governor, Rick Scott, for example, says his corporate tax cuts “will give Florida a competitive edge in attracting jobs.” But Florida is simultaneously cutting education spending by $3 billion, when the state already ranks near the bottom in per-pupil spending and has one of the nation’s lowest graduation rates. Even if Scott’s tax cuts create jobs, the jobs will pay peanuts.

3.    We’d have more jobs and a better economy if we shrank the size of government. Wrong. Shrinking government results in fewer government workers—including teachers, firefighters, police officers, and social workers at the state and local levels, and safety inspectors and military personnel at the federa level. And it results in fewer government contractors who therefore employ fewer private sector workers. This is the same claptrap regressives have been mouthing for decades. Their ultimate goal, in the words of the regressive guru Grover Norquist, is to take government “down to the size where we can drown it in the bathtub.”

I recently debated a conservative Republican who insisted the best way to revive the American economy was to shrink government. When I asked him to explain his logic, he said, simply, “Government is the source of all our problems.” When I noted government spending had brought the economy out of the Great Depression, he disagreed. “The Depression ended because of World War II,” he pronounced, as if government had played no part in World War II.

4.    We’d have a stronger economy if we had fewer regulations. Untrue. As I said before, corporations exist for one reason only—to make a profit and thereby increase the value of their shares, not to protect the public. Yet public health and safety, fairness to small investors, and a sustainable environment are all public goods. Without them, we’d be the poorer for it. Regulations make sense where the benefits to the public exceed the costs, and regulations should be designed to maximize those benefits and minimize those costs. Period.

5.   The economy would improve if we cut the budget deficit right now. Baloney. With so many Americans still out of work, our first priority must be jobs and growth. Government spending counteracts the shortfall in private spending. Budget cuts now only increase unemployment and reduce tax revenues. We should start cutting the federal budget only when the economy is back on track, when unemployment drops to around 5 percent.

Don’t get me wrong. The national debt is a problem, but the ratio of debt to the economy’s output of goods and services this year is not nearly as high as it was after World War II—when it reached 120 percent. If we move more quickly toward a full recovery, the debt-to-GDP ratio will fall, as it did in the 1950s. Revenues will pour into the Treasury, and much of the current “budget crisis” will evaporate. Growth is the key. When more people are working, more companies are profiting, the economy is expanding, revenues pour into national treasuries, and the debt declines relative to the economy.

When the economy grows more slowly or contracts, the opposite occurs. Economies can fall into vicious cycles of slower growth and lower tax revenues. If governments then cut public spending, the vicious cycle can become an austerity death trap. The debt-to-GDP ratio worsens because the economy shrinks even faster. Greece is already in the trap. Its output has plunged since it adopted austerity measures and slashed its budget in an attempt to gain control over its debt. Spain and Italy are perilously close to the austerity trap. Britain, France, and Germany are tiptoeing up to it. If regressives have their way, America will join them.

The Fed can’t possibly generate a buoyant recovery on its own. Without an expansionary fiscal policy, the Fed’s low interest rates have little effect. Companies won’t borrow in order to expand and hire more workers unless they’re confident they will have customers for what they produce. And consumers won’t borrow money to spend on goods and services unless they’re confident they’ll have jobs.

The recent downgrade of America’s debt by Standard & Poor’s (S&P) is irrelevant. America’s borrowing costs are lower than they’ve been in many years. S&P downgraded the debt because Congress and the president didn’t reach a long-term debt agreement to S&P’s liking. Pardon me for asking, but who gave S&P the authority to tell America how much debt it has to shed, and how? If we pay our bills, we’re a good credit risk. If we don’t, or aren’t likely to, we’re a bad credit risk. When, how, and by how much we bring down the long-term debt—or, more accurately, the ratio of debt to GDP—is none of S&P’s business. S&P’s intrusion into American politics is also ironic because much of our current debt is directly or indirectly due to S&P’s failure (along with the failures of the two other major credit-rating agencies, Fitch and Moody’s) to do its job before the financial meltdown. Until the eve of the collapse, S&P gave triple-A ratings to some of the Street’s riskiest packages of mortgage-backed securities and collateralized debt obligations. Had S&P fulfilled its responsibility and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn’t have become so large—and their bursts wouldn’t have brought down much of the economy. You and I and other taxpayers wouldn’t have had to bail out Wall Street; millions of Americans would now be working instead of collecting unemployment insurance; the government wouldn’t have had to inject the economy with a massive stimulus to save millions of other jobs; and far more tax revenue would now be pouring into the Treasury from individuals and businesses doing better than they are now.

One final point you should know about the federal budget: the mammoth deficits that will be racked up beyond 2020 are due almost entirely to rapidly rising health-care costs along with seventy-seven million baby boomers whose bodies will slowly be deteriorating. At the rate health-care costs are already rising, they’ll also drive average American families into ruin. Which raises the next regressive falsehood …

6.    Medicare and Medicaid have to be scaled back. Untrue. The reason their costs are rising so fast is that the nation’s overall health-care costs are rising so fast. A related lie: The way to slow the growth of Medicare is to give seniors vouchers that can be cashed in for private insurance. That’s the House Republican plan, and it’s dead wrong. Any budget savings would come directly out of the pockets of seniors, as the vouchers fall farther and farther behind the rising costs of health care. The inevitable result would be that more and more seniors would be priced out of the market for health care as the underlying costs of health care continue to soar. A far better way to slow medical costs is to use Medicare and Medicaid’s bargaining power over drug companies and hospitals to get lower prices and to move from a fee-for-service system to a fee-for-healthy-outcomes system. And because Medicare has far lower administrative costs than private health insurers, we should make Medicare available to everyone. I’ll get to this in more detail a bit later.

7.    Our safety nets are overly generous. As I’ve said, in Mitt Romney’s standard stump speech he charges President Obama with creating a nation of dependents: “Over the past three years Barack Obama has been replacing our merit-based society with an entitlement society.” Rick Santorum says, “There’s a push to get more and more people dependent.” Newt Gingrich calls Obama “the best food-stamp president in American history.”

What’s their evidence? They point to federal budget data showing that direct payments to individuals shot up by almost $600 billion, a 32 percent increase, since the start of 2009. They also refer to census data showing that 49 percent of Americans now live in homes where at least one person is collecting a federal benefit—Social Security, food stamps, unemployment insurance, workers’ compensation, or subsidized housing. That’s up from 44 percent in 2008. And they trumpet Social Security Administration figures showing that the number of people on Social Security disability jumped 10 percent during Obama’s first two years in office. They argue that our economic problems stem from this sharp rise in “dependency.” Get rid of these benefits and people will work harder.

But again they have cause and effect backward. The reason for the rise in food stamps, unemployment insurance, and other safety-net programs is that Americans got clobbered in 2008 with the worst economic catastrophe since the Great Depression. They and their families have needed whatever helping hands they could get.

If anything, America’s safety nets have been too small and shot through with holes. That’s why the number and percentage of Americans in poverty have increased dramatically over the past three years. This is the real scandal. For example, only 40 percent of the unemployed qualify for unemployment benefits because they weren’t working full-time or long enough on a single job before they were let go. The unemployment system doesn’t take account of the fact that a large portion of the workforce typically works part-time on several jobs and moves from job to job.

Republicans also promise to repeal President Obama’s health-care law, which covers thirty million more Americans than were covered before. That law still leaves more than twenty million without health insurance. They and any others who lose medical coverage if the new law is repealed get emergency care when they’re in dire straits in any event—hospitals won’t refuse them—but we all end up paying indirectly.

Regressives pretend they’re about opportunity. But in reality, as I’ve said before, they’re promoting social Darwinism.

8.    Social Security is a Ponzi scheme. Don’t believe it. In a former life I was a trustee of the Social Security trust fund, and I know how the Social Security actuaries make their projections. Social Security is solvent for the next twenty-six years. It could be solvent for the next century if we raised the ceiling on income subject to the Social Security payroll tax. In 2012 that ceiling is $110,100.

Until 2010, Social Security took in more payroll taxes than it paid out in benefits. It lent the surpluses to the rest of the government. Now that Social Security has started to pay out more than it takes in, it can simply collect what the rest of the government owes it. This will keep it fully solvent for those twenty-six years. The only reason there will then be a problem is that in 1983, when Alan Greenspan’s Social Security commission was supposed to have fixed the system for good—by gradually increasing payroll taxes and raising the retirement age (early boomers like me can start collecting full benefits at age sixty-six; late boomers born after 1960 will have to wait until they’re sixty-seven)—it failed to take account of widening inequality. The Social Security payroll tax applies only to earnings up to a certain ceiling, which rises annually according to a formula roughly matching inflation. In 1983, the ceiling was set so the Social Security payroll tax would apply to 90 percent of all wages covered by Social Security, and that 90 percent figure was built into the Greenspan Commission’s fixes. Today, though, the Social Security payroll tax affects only about 84 percent of total income. It went from 90 percent to 84 percent because a larger and larger portion of total income has gone to the top. So the logical response to Social Security’s long-term problem is to raise the ceiling on income subject to the Social Security tax, rather than to reduce benefits or raise the age of eligibility.

9.    It’s unfair that middle- and lower-income Americans have been paying a smaller share of federal income taxes and some pay no income tax at all. There’s nothing unfair about it. Fairness requires that people who make more money pay a higher portion of their incomes in taxes than people with less money. That’s called a progressive tax system, and it’s been a foundation stone of America’s tax code. Because the share of total income going to the top 1 percent has doubled since the late 1970s, we’d expect their share of total taxes to have doubled as well, and the share paid by middle- and lower-income Americans to drop. In fact, the top 1 percent’s share of total taxes has not kept pace with their increasing share of total income. If the tax system were totally fair, their share of tax revenues would be more, and everyone else’s share would be less.

Besides, the income tax is only one of the taxes Americans pay. Middle- and lower-income Americans are now paying a significantly larger share of their incomes than are wealthy Americans in payroll taxes (Social Security and Medicare), state and local sales taxes, user fees, and property taxes. Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid 12.3 percent of their incomes in state and local taxes in 2010. When all federal, state, and local taxes are taken into account, the bottom fifth paid a stunning 16.3 percent of their incomes in taxes, on average, a larger percentage than Mitt Romney paid on his $21 million of income that year.

10.  A flat tax would be fairer. Don’t believe it. All flat-tax proposals benefit the rich more than the poor for one simple reason: today’s tax code is still at least moderately progressive. The rich usually pay a higher percentage of their incomes in income taxes than do the poor. A flat tax would eliminate that slight progressivity.

Flat taxers pretend a flat tax is good public policy, for two reasons. First, they say, it would simplify paying taxes. Baloney. Flat-tax proposals don’t eliminate all deductions. In every plan I’ve seen, people with families will still be able to deduct their dependents, while single people will pay a higher rate, businesses will deduct their expenses, and in most plans people with homes will still be able to deduct interest on their mortgages. All this means most taxpayers would still have lots of paperwork.

Second, proponents of a flat tax say it’s fairer than the current system because a flat tax “treats everyone the same.” The truth is that in the current tax code, everyone whose income reaches the same bracket is treated the same as everyone else whose income reaches that bracket (apart from various deductions, exemptions, and credits, of course). For example, no one pays any income taxes on the first $20,000 or so of his income. People in higher brackets pay a higher rate only on the portion of their income that hits that bracket—not on their entire income. Republicans have tried to sow confusion about this. They want Americans to believe, for example, that if the Bush tax cuts ended, small-business owners with incomes of $251,000 a year would have to pay 39 percent of their entire incomes in taxes rather than 35 percent. Wrong. They’d only have to pay the 39 percent rate on $1,000—the portion of their incomes over $250,000.

Get it? We already have a flat tax—flat within each bracket. The real problem is the top brackets are set too low relative to where the money is. The topmost bracket starts at $388,350 on income earned this year. People with incomes higher than that pay 35 percent—again, only on that portion of their incomes exceeding $388,350. This means a doctor who’s making, say, $390,000 a year pays the same income tax rate as a plutocrat pulling in $2 billion or $20 billion. Regressives are pushing the flat tax as a smoke screen. They’d rather not have anyone talk about the unfairness and fiscal absurdity of the current system.

These ten whoppers have been repeated so often by regressives and their media outlets that many Americans have started to believe them. But every one of them is a lie.

Part Three
Beyond Outrage: What You Need to Do

Someone recently approached me at the cheese counter of a local supermarket, asking, “What can I do?” At first I thought the person was seeking advice about a choice of cheese. But I soon realized the question was larger than that. It was: What can I do about what’s happening to America—an economic game increasingly rigged in favor of those at the top and against ordinary Americans, and a government that no longer seems to work for average people but is increasingly responsive to big money? In this part of the book I try to answer that question.

How to Make a Movement

I don’t know where the Occupier movement is heading, but I do know there’s great energy at America’s grass roots for progressive change—more energy now than I’ve seen in decades. The question is how to harness that energy and turn it into a sustainable and powerful progressive movement to take back our economy and our democracy from the regressive forces that have been gaining ground.

People who voted for Barack Obama in 2008 tend to fall into one of two camps: trusters, who believe he’s a good man with the right values and that he’s doing everything he can; and cynics, who have become disillusioned with his bailout of Wall Street, flimsy plan to tame the Street, willingness to jettison the “public option” in his health-care plan, and negotiating strategy that always seems to begin by giving away the store.

In my view, both positions are wrong. No president—even one as talented and well motivated as Obama—can get a thing done in Washington unless the public is actively behind him. As FDR said in the reelection campaign of 1936 when a lady insisted that if she were to vote for him, he must commit to a long list of objectives, “Ma’am, I want to do those things, but you must make me.”

If you believe Obama and the Democrats didn’t push hard enough in Obama’s first term to get done the things you believe in, you and others have got to push Obama and the Democrats harder next term. You also need to organize against the regressives. Don’t be fooled by the lies they’re telling, and don’t let others be fooled. The more you know and understand, the more powerful you will be at mobilizing others.

You can’t accomplish much on your own. You have to join with others and pull in many more. Legislators don’t pay attention to complaints or demands from individual constituents, but they pay lots of attention when those complaints or demands come from hundreds of constituents. The media likewise overlook press conferences organized by small groups, small demonstrations, and modest shows of political clout. But thousands of people gathered together can create news. And when tens of thousands turn out to vote for candidates who will support a progressive agenda, the media begin to see the makings of a political movement. To achieve strength of numbers, you need to be a public educator on a large scale—getting friends to mobilize their friends, and their friends to do the same. Together, you will be heard.

Get out of your ideological bubble. If most of the people you talk with agree with you, you’re wasting your time. You need to engage with people who may disagree or who haven’t thought hard about the issues. Reach across to independents, even to Republicans and self-styled Tea Partiers. Find people who are willing to listen to the facts and are open to arguments and ideas, regardless of the label they apply to themselves. We need them.

Occasionally, I come across demonstrators who are holding signs on street corners where I live, in Berkeley, California. Sometimes the signs ask drivers to honk if they agree that America should cut its defense budget or raise taxes on the rich or that climate change must be reversed. As you can imagine, those street corners can become fairly noisy. I appreciate the effort these demonstrators are making, but I wish they’d do it in places where fewer drivers would honk, and engage those who disagree with them in discussion rather than merely hold up signs. It’s too easy in modern America to preach to the converted because it’s increasingly easy to surround ourselves only with people who share our views.

Discussion isn’t enough. You also need to express yourself in ways that enable those who may initially disagree with you to understand. Appeal to the moral values you and they share. Avoid violence. Violence can put you on the front page, but it will not capture the hearts and minds of those you need to convince. You’ll be most convincing when you combine moral clarity with undeniable facts and common sense. Look for organizing opportunities—teachable moments that illustrate why a policy currently in place is wrongheaded or why another approach is needed. For example, every tax day—April 15—offers an opportunity to point out that if the rich don’t pay their fair share, the rest of us suffer from deteriorating public services or we have to make up the shortfall by paying more taxes.

Don’t think you can be much of an activist by merely sitting behind your computer. I come across many good people who spend many hours online, disseminating petitions or raising money for causes they believe in. I admire them for it, but they need to bear in mind that the convenience of online political activism reduces its political significance. Elected representatives who receive virtual petitions know how little they may mean, relative to the exhausting work of getting out the vote or pushing a legislative agenda through to completion. All too often, virtual organizations and movements are fleeting. Their “members” feel no loyalty or connection to one another. Direct contacts, on the other hand, are more enduring. When people join together in person—when they sacrifice evenings to meet up—they can build the trust and energy required for the long haul.

Get out of your issue cocoon. It’s fine to fight for more efficient fuels or against climate change, or both; good to be concerned about human rights abuses or to push for gay rights or reproductive rights; worthwhile to mobilize around the needs of children, a single-payer health-care system, or cuts in military spending. But don’t be so mesmerized by any single issue that you fail to join with others on the bigger stuff that’s making it harder for the voices of average Americans to be heard on all of these issues and others: the growing concentration of income, wealth, and political power at the top; the increasing clout of global corporations and Wall Street; and the corruption of our democracy.

Don’t focus solely on Washington. Elections for president and Congress are obviously important, but in many respects the people elected to state and local offices have more day-to-day impact, making important decisions that affect the lives of countless people. Nor should you focus entirely on elections. Participate in corporate campaigns. Consumer boycotts of companies responsible for the largest political contributions, media attention to companies that award their top executives the fattest compensation packages while laying off the most workers, and pressure on their key investors can be important aspects of a broad-based corporate campaign to end the rigged game.

Be patient. Changes that alter the structure of power and widen opportunity require years of hard work, as those who toiled for the Civil Rights and Voting Rights Acts, or have been working for the rights of the disabled and gays, would tell you. It took thirty years of continuous fulmination for women to get the right to vote; fifty years of agitation before employers were required to bargain with unionized workers. Those who benefit from the prevailing allocation of power and wealth don’t give up their privileged positions without a fight, and they usually have more resources at their disposal than the insurgents. Take satisfaction from small victories, but don’t be discouraged or fall into cynicism. And don’t allow yourself to burn out. I’ve known many activists who take a kind of masochistic delight in working themselves to exhaustion. Eventually, their health suffers or their emotional resilience disappears. They reach a breaking point and cannot go on. These people don’t know how to pace themselves for the marathon run of a political movement.

Finally, instead of waiting for candidates to emerge with agendas and policy positions, take an active role in creating those agendas and get candidates to run on them. Tell incumbents you and others will work your hearts out to get them reelected on the condition they campaign on that agenda. Then, if and when they’re elected, keep up the heat and the support.

Too many of us think political activism begins a few months before Election Day and ends when winners are announced. I can’t tell you how many political campaigns I’ve been involved with (even my own, briefly, for governor of Massachusetts) that demand so much time and energy there’s none left once the results come in. That’s a big mistake. The day after Election Day is the real beginning. That’s when a loud and determined progressive movement needs to put pressure on newly elected officials and keep the pressure on. They must know you and others like you will continue to mobilize support for a progressive agenda, reward them for pushing it, and hold them accountable in the next election cycle if they don’t; that you will even go so far as to run candidates against them in their next primary—candidates who will run on that agenda.

The following are samples of what I mean. The first is an offer to the president—and implicitly to Democrats and other officials—to get behind him before and after the election, as long as he commits to a progressive agenda. It’s a prototype for the kind of message progressives might be sending and around which we could be organizing. The second is a prototype of a different kind—a “corporate pledge of allegiance” around which progressives might organize to make large companies more accountable.

“There is video content at this location that is not currently supported for your eReading device. The caption for this content is displayed below.”

What are the most important steps toward creating good jobs at good wages, and an economy and democracy that work for all of us and not just a few? (3:54)

An Offer to the President (and to Democrats and Other Officials in 2012 and Beyond)

Mr. President, we hear what you’re saying about the dangers to our economy and our democracy of the increasing concentration of income and wealth at the top. We agree. We are prepared to work hard over the next six months to get you and other Democrats reelected, and others elected. And we’ll keep working after that to help you and to help other Democrats and like-minded officials—as long as you (and they) commit to the following agenda:

RAISE THE TAX RATE ON THE RICH TO WHAT IT WAS BEFORE 1981

The top 1 percent has an almost unprecedented share of the nation’s wealth and income yet the lowest tax rate in thirty years. Meanwhile, America faces colossal budget deficits that have already meant devastating cuts in education, infrastructure, and the safety nets we depend on. The rich must pay at the same rate they did in the 1950s and 1960s. Income in excess of $1 million should be taxed at 70 percent. There should be more tax brackets at the top and higher rates in each of those top brackets. Absurdly, the top bracket is now set at $388,350 with a tax rate of 35 percent; the second-highest bracket, at 33 percent, starts at $178,650 for individuals. But the big money is way higher. And all sources of income, including capital gains, should be treated the same. It’s scandalous that the four hundred richest Americans should pay an average of 17 percent tax on their incomes, a rate lower than that paid by many in the middle class. That’s because so much of the income of the super-rich is considered capital gains, now taxed at only 15 percent. Close this loophole. (Don’t penalize true entrepreneurs, though. If owners have held their assets for at least twenty years, keep their capital gains low.)

You have suggested a 30 percent minimum percentage tax on millionaires, which would yield about $50 billion a year in new revenue. You also want to let the 2001 and 2003 Bush tax cuts expire for taxpayers making over $250,000 a year, which would return the capital gains rate to 20 percent and the top rate on income and dividends to 39.6 percent. This is better than anything the regressives have come up with, but your plan falls short of what’s needed to tame the projected budget deficit and do everything else the nation must do. Sixty years ago Americans earning over $1 million in today’s dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits. If they were taxed at that rate now, they’d pay at least $80 billion more annually, which would reduce the budget deficit by about $1 trillion over the next ten years.

PUT A 2 PERCENT SURTAX ON THE WEALTH OF THE RICHEST ONE-HALF OF 1 PERCENT

The richest one-half of 1 percent of Americans, each with over $7.2 million of assets, own 28 percent of the nation’s total wealth. Given this almost unprecedented concentration, and considering what the nation needs to do to rebuild our schools and infrastructure, as well as tame the budget deficit, a surtax is warranted. It would generate another $70 billion a year, and $750 billion over the decade.

PUT A ONE-HALF OF 1 PERCENT TAX ON ALL FINANCIAL TRANSACTIONS

This would bring in more than $250 billion over ten years while slowing speculators and reducing the wild gyrations of financial markets.

That’s $2 trillion right there—a significant slice off the long-term budget deficit. Every one of these tax changes can be accomplished if Americans understand what’s really at stake here. If the rich don’t pay their fair share of taxes, the rest of us will have to bear more of a burden. That burden will come in the form of either higher taxes on us or less money for the things we depend on—including health care, education, infrastructure, and national defense.

CUT THE MILITARY BUDGET MORE THAN SCHEDULED CUTS

In the likely absence of a bipartisan budget deal, there will be an automatic across-the-board ten-year cut in the defense budget of nearly $500 billion, starting next January. But this isn’t nearly enough. In the next five years, the Pentagon will still spend more than $2.7 trillion, closer to $3 trillion when adjusted for inflation.

You can save hundreds of billions more without jeopardizing the nation’s security by ending weapons systems designed for an age of conventional warfare. Shrink the F-35 fleet of stealth fighters—the costliest Pentagon procurement project in history—whose performance has been awful. You’ve declared your commitment to arms control, but if you followed through, you could save billions more. Cut the number of deployed strategic nuclear weapons, ballistic missile submarines, and intercontinental ballistic missiles. Finally, take a cleaver to the Navy and Air Force budgets. Most of the action is with the Army, Marines, and Special Forces. You can save billions more from programs no one can justify and few can understand.

USE MEDICARE TO CONTROL SOARING HEALTH-CARE COSTS

You’ve recommended an independent commission to come up with cuts in Medicare if its yearly costs rise half a percent faster than the national economy. That’s better than what the Republicans want, but it still assumes that the rising Medicare costs are the fundamental problem when the real problem is a wildly inefficient health-care system—for which Medicare can be the solution. Some features of your new health-care law will slow the rise of costs—insurance exchanges, for example, could give consumers clearer comparative information about what they’re getting for their insurance payments—but the law doesn’t go nearly far enough.

Use Medicare’s huge bargaining leverage over drug companies and health-care providers to bring down health-care costs and to move from a pay-for-service system to a pay-for-healthy-outcomes system. We’re spending almost two and a half times more on health care per person than other advanced nations, yet the typical American doesn’t live as long as the citizens of those nations and we have a higher rate of infant mortality. That’s because here doctors and hospitals have every incentive to spend on unnecessary tests, drugs, and procedures but have little incentive to keep people healthy.

For example, almost 95 percent of cases of lower-back pain are best relieved through physical therapy. But American doctors and hospitals routinely do expensive MRIs and then refer patients to orthopedic surgeons who often do even more costly surgery—because there’s not much money in physical therapy. Twenty percent of the people who go into a hospital for diabetes, asthma, or a heart condition are back within a month; they’d do better if a nurse visited them at home—a common practice in other advanced countries—to answer their questions and make sure they are taking their medications. But nurses don’t make home visits to Americans with acute conditions, because hospitals and nurses aren’t paid for making them. Instead of reimbursing doctors and hospitals for the costly tests, drugs, and procedures, pay them for keeping people healthy.

FIGHT FOR MEDICARE FOR ALL

The Republicans’ plan would simply funnel money into the hands of for-profit insurers whose administrative costs are far higher than Medicare’s. Your approach is smarter but doesn’t address the underlying problem. The real answer to providing broad coverage and keeping a lid on costs is to allow anyone at any age to join Medicare.

Medicare’s administrative costs are in the range of 3 percent—well below the 5–10 percent costs borne by large companies that self-insure, even further below the administrative costs of companies in the small-group market (amounting to 25–27 percent of premiums), and much lower than the administrative costs of individual insurance (40 percent). It’s even below the 11 percent costs of private plans under Medicare Advantage, the current private insurance option under Medicare. Medicare for all would reduce the colossal waste in the current system. Right now we’re spending $30 billion a year fixing medical errors—the worst rate among advanced countries—partly because we keep patient records on computers that can’t share the data. Patient records are continuously rewritten on pieces of paper and then reentered into different computers, which leads to errors. Meanwhile, administrative costs are eating up 15–30 percent of all health-care spending in the United States. That’s twice the rate of most other advanced nations. This money goes mainly into collecting money: doctors collect from hospitals and insurers, hospitals collect from insurers, insurers collect from companies or from policyholders. At some hospitals, billing clerks outnumber physicians. A third of nursing hours are devoted to documenting tests and procedures so insurers have proof.

Estimates of how much would be saved by extending Medicare to cover the entire population range from $58 billion to $400 billion a year. More Americans would get quality health care, and the long-term budget crisis would be sharply reduced.

Your new health-care law requires people to buy health insurance from private insurers. This “individual mandate” spreads the risk of someone needing medical care to younger or healthier people, thereby enabling private insurers to afford to take on older or sicker customers with preexisting medical conditions or to maintain coverage indefinitely for people who become seriously ill. Yet the individual mandate is deeply unpopular. It not only offends libertarian sensibilities but also worries some moderates and liberals who fear private insurers will charge too much because of insufficient competition in the industry. Republicans see an opportunity here to destroy the new health-care law by attacking the individual mandate.

But there’s another way to spread medical risks across the public. It’s the same framework used by Social Security and Medicare—public insurance financed by payroll taxes. Not only are these programs enormously popular—“Don’t take away my Medicare!” was a rallying cry among some conservative populists during the debates over the health-care law—but they rest on a more widely accepted relationship among the individual, the government, and the market. Both Medicare and Social Security require every working American to “buy” them. The purchase happens automatically in the form of a deduction from everyone’s paycheck. Such payments are viewed not as federal mandates that encroach upon individual freedoms, or as payoffs to private companies likely to make even more money from mandatory purchases of their products, but as well-deserved entitlements. Americans are accustomed to paying for public insurance through their payroll taxes. Indeed, the biggest problem with Social Security and Medicare is they’re so popular that politicians have had a hard time trimming their benefits to match payroll tax revenues.

Republican attacks on the individual mandate will give you an opportunity for policy jujitsu. Move to amend the new health-care law and create Medicare for all—premised on payroll taxes and public insurance, the system Americans prefer. The public will be behind it, as will the courts.

USE THESE ADDED REVENUES AND BUDGET SAVINGS TO INVEST IN PUBLIC GOODS—ESPECIALLY EDUCATION AND INFRASTRUCTURE

You understand the importance of education, but your proposed budget doesn’t begin to remedy the scandal of the nation’s schools in poor and middle-class communities. Most teachers in these schools are paid less than $50,000 a year, and classrooms are crammed. These schools can’t afford textbooks or science labs, and they’ve abandoned after-school programs and courses like history and art. The reason: school budgets across America depend substantially on local property taxes that continue to drop in lower-income communities. The federal government should come to their rescue. You also need to help the states finance early childhood education so that every preschooler can begin school ready to learn. And help restore the nation’s system of public higher education, which has been decimated by state budget cuts.

Meanwhile, America’s infrastructure is crumbling. Our roads, bridges, water and sewer systems, subways and other forms of public transit, gas pipelines, ports, airports, and school buildings are all in desperate need of repair. Deferred maintenance is taking a huge toll. The American Society of Civil Engineers has given the nation’s infrastructure an overall grade of D. The percentage of the national economy going to infrastructure continues to drop—from 1 percent in 1960 to barely three-tenths of 1 percent now. It’s time to rebuild America while at the same time expanding high-speed Internet and modernizing the electricity grid.

Over the long term the only way to improve the living standards of most Americans is to invest in our people—especially their educations, and the communications and transportation systems linking them together and with the rest of the world. Spending on these is fundamentally different from other categories of government spending because these outlays are investments in the future productivity of our people. There’s no problem with borrowing from the future in order to finance investments in the future. Families do it all the time. While it might be irresponsible for a family to go into debt in order to finance a worldwide cruise, it would be highly responsible for the same family to borrow money in order to help finance their kids’ college educations. Businesses also borrow in order to increase future productivity. If they didn’t, they’d be out of business. Such borrowing makes sense as long as the return on the investment is higher than the cost (principal plus interest) of the borrowing.

It’s cheaper than ever for the United States to borrow; the yield on the ten-year Treasury bill is hovering around 2 percent. That’s because global investors want the safety of dollars. Europe is in a debt crisis, many developing nations are gripped by fears the contagion will spread to them, Japan remains in critical condition, and China’s growth is slowing. Now is the ideal time to redevelop the public goods America desperately needs.

RESURRECT THE GLASS-STEAGALL ACT

There is no good reason why banks should ever be permitted to use people’s bank deposits, insured by the federal government, to place risky bets on the banks’ own behalf. Yet Wall Street lobbyists have made sure the new Dodd-Frank law has enough loopholes to allow financiers to continue to gamble with other people’s money. The so-called Volcker rule in the new Dodd-Frank Act was designed as a compromise—a kind of Glass-Steagall lite—but under the pressure of Wall Street’s lobbyists it is too weak to do the job. The only way to stop the looting is to bring back Glass-Steagall. The act was put in place after the crash of 1929 to prevent financiers from gambling with people’s bank deposits but was repealed in 1999, and its repeal contributed to the crash of 2008.

CAP THE SIZE OF WALL STREET’S BIGGEST BANKS

The sad lesson of the Dodd-Frank legislation is that Wall Street is too powerful to allow effective regulation of it. We should have learned that lesson in 2008 as the Street brought the rest of the economy—and much of the world—to its knees. The Street’s leviathans do not generate benefits to society proportional to their size and influence. To the contrary, they represent a clear and present danger to our economy and our democracy. The best way to avoid another bailout is to break them up and then put a cap on the maximum size of the biggest banks.

There is precedent. The Sherman Antitrust Act of 1890 and its companion, the Clayton Act of 1914, were designed not only to improve economic efficiency by reducing the market power of economic giants like the railroads and oil companies but also to prevent companies from becoming so large that their political power would undermine democracy. Trustbusters during the first decades of the twentieth century tamed American industry and arguably saved capitalism from its own excesses. We’ve come to a similar juncture a century later, but this time it’s big finance that has to be tamed.

The banks were too big to fail before the bailout and are even bigger now. Twenty years ago, the ten largest banks on the Street held 10 percent of America’s total bank assets. Now the six largest hold over 70 percent. And the biggest four have a larger market share than ever. Their size gives them special privileges at the Fed—lower interest rate charges and special drawing rights—which provides them with a competitive advantage over their smaller competitors. And with this advantage they’re sure to grow even larger.

REQUIRE BIG BANKS TO MODIFY UNDERWATER MORTGAGES

In February, five big banks reached a deal with government authorities over dubious mortgage practices and foreclosure abuses. In exchange for reducing the principal on the mortgage loans of distressed homeowners by $17 billion, the banks have been absolved of many legal claims against them. But given that close to eleven million borrowers are underwater on their loans by about $700 billion, this settlement is barely a drop in a huge bucket. Although some homeowners should have known they were borrowing excessively, most reasonably assumed housing prices would continue to rise. It wasn’t their fault that the banks created a housing bubble that burst, causing home values to plummet. And most of the banks’ wrongdoing has never been fully investigated, including possible tax, trust, and securities violations.

In your State of the Union address in January, you promised a new investigation into mortgage abuses, a broader inquiry that could lead to a much larger package of relief. Launch it, with all the legal resources it needs. Allowing millions of homeowners to remain in their homes and reversing the collapse of housing prices would be good for almost everyone, including banks whose balance sheets have been weakened by the slide in home values.

Modify the bankruptcy laws to allow struggling homeowners to declare bankruptcy on their primary residence. This will give them more bargaining leverage with the banks to reorganize their mortgage loans. Why should the owners of commercial property and second homes be allowed to include these assets in bankruptcy but not regular homeowners?

GET BIG MONEY OUT OF POLITICS

Finally, Mr. President, in order to get any of this done—and more—we have to get big money out of politics. If income and wealth in America were as widely shared as in the first three decades after World War II, we’d have less reason to worry. But now, with an almost unprecedented concentration of money at the very top, the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission invites the worst corruption we have witnessed since the Gilded Age. As you yourself have said, it’s a direct threat to our democracy.

We were disappointed you set up and endorsed your own super PAC. We understand why: Your aides fear $500 million or more will be funneled to Romney by a handful of rich individuals and corporations through right-wing super PACs like American Crossroads. Your campaign manager says you couldn’t “unilaterally disarm.” But we don’t believe refusing to be corrupted this way would really amount to unilateral disarmament. To the contrary, we think this would have given you a rallying cry that nearly all Americans would get behind: More of the nation’s wealth and political power is now in the hands of fewer people and large corporations than since the era of the robber barons of the Gilded Age. I will not allow our democracy to be corrupted by this! I will fight to take back our government!

It’s too late to reverse yourself on this, but you must double your efforts in your second term to clean up the mess the Supreme Court has created. Commit to appointing Supreme Court justices who will reverse the ruling in Citizens United. And lend your support to a constitutional amendment to declare that corporations are not citizens entitled to contribute to political elections and that Congress has the power to set limits on campaign spending.

In the meantime, fight for public disclosure of all donors to super PACs and other organizations that are nothing more than political fronts. Support a law requiring corporations to get the approval of every shareholder before spending corporate funds—the shareholders’ money—on politics. Any shareholder who doesn’t approve should be refunded for such expenses in proportion to his or her share of the company.

Go to bat for a system of public financing that would be available to any presidential or congressional candidate supported by at least 5 percent of the voting public. These funds would provide two dollars for every dollar raised from small donors (each giving no more than $1,000), so candidates could succeed without relying on a few billionaires pumping unlimited sums into a super PAC.

Finally, here’s a step you don’t even need congressional approval for: issue an executive order forcing big government contractors to disclose their political spending, and ban all political activity by companies receiving more than half their revenues from the U.S. government. Lockheed Martin, the nation’s largest contractor, got more than $19 billion in federal contracts last year while spending millions lobbying Congress to get even more. Sixty-four of Lockheed’s lobbyists are former congressional staffers, Pentagon officials, or White House aides. Two are former members of Congress. Lockheed has also been spending more than $3 million a year on political contributions to friendly members of Congress.

Lockheed is not alone. The ten biggest government contractors are all defense contractors. Every one of them gets most of its revenues from the federal government and uses a portion of that money to lobby for even more defense contracts.

That’s one reason the defense procurement budget keeps growing. The drawdown of troops from Iraq in 2011 was supposed to save money, but Lockheed and other giant defense contractors are making sure much of the anticipated savings goes to new weapons systems. Lockheed recently delivered a budget bombshell with a proposed tab of more than $1 trillion for a fleet of F-35 Joint Strike Fighter jets. In the wake of the Citizens United ruling, there’s no limit on what Lockheed and other defense contractors can spend on politics. That’s why you must put an end to this increasingly expensive conflict of interest by banning all political activities by corporations getting more than half their revenues from the federal government.

So here’s the deal, Mr. President (and Democratic candidates for Congress): We’ll give you a mandate to do all this and more in your second term, and we’ll stand behind you as you try to get it enacted. As long as you stand behind us.

The Corporate Pledge of Allegiance

If the Supreme Court and most regressives insist big American corporations are people that deserve to be treated as American citizens, and be given tax breaks and special advantages to create jobs here, we should expect those corporations to show some loyalty to this country. So why not have big American corporations take a pledge of allegiance to the United States? It wouldn’t be a legal requirement. It would be entirely voluntary. Corporations that take the pledge would be able to say in their advertisements, “We pledge allegiance to the United States.” And American consumers would be free to boycott those that don’t take the pledge. In fact, you might consider organizing just such a boycott.

Here’s what a corporate pledge of allegiance might look like:

Our corporation pledges allegiance to the United States of America. To that end:

We pledge to create more jobs in the United States than we create outside the United States, either directly or in our foreign subsidiaries and subcontractors.

We further pledge that no more than 20 percent of our total labor costs will be outsourced abroad. If we have to lay off American workers at a time when we’re profitable, we will give those workers severance payments equal to their weekly wage times the number of months they’ve worked for us.

We pledge to keep a lid on executive pay so no executive is paid more than fifty times the median pay of American workers. We define “pay” to include salary, bonuses, health benefits, pension benefits, deferred salary, stock options, and every other form of compensation.

We pledge to pay at least 30 percent of money earned in the United States in taxes to the United States. We won’t shift our money to offshore tax havens, and we won’t use accounting gimmicks to fake how much we earn.

We pledge not to use our money to influence elections.

This isn’t too much to ask, is it? Again, it wouldn’t be a legal requirement; corporations would be free to pledge or not to pledge. And consumers would be free to boycott those corporations that don’t make the pledge or that disregard it. But at least we’ll know which corporations that enjoy the benefits of American citizenship act like American citizens. That’s important this election year and beyond.

A Final Note on the Basic Choice, This Election Year and Beyond: Regression or Progression, Social Darwinism or the Public Good

America is not the only place struggling with a collision between regressive forces lurching backward toward more authoritarian, intolerant, and unequal societies and progressive forces striving for more democracy, tolerance, and equal opportunity. The details differ, but the larger forces are similar. You see it in Spain, Greece, and Italy, whose citizens are being squeezed by bankers insisting on austerity. You see it in Chile and Israel, whose young people are revolting against limited opportunity and widening inequality. It’s on view in the Middle East, whose “Arab spring” has turned into ongoing struggles to create functioning democracies. You see it even in China, whose young and hourly workers are demanding more, and whose surge toward inequality in recent years has been as breathtaking as its surge toward modern capitalism.

But it is likely to be in America—still the world’s largest economy and its most influential practitioner of democracy—where the collision is most consequential. And I believe we will once again show the world that when our ideals are tested, we do not bend. We do not move backward. We do not tolerate rigged games.

The great arc of American history reveals an unmistakable pattern. Whenever privilege and power conspire to pull us backward, we eventually rally and move forward. Sometimes it takes an economic shock like the bursting of a giant speculative bubble; sometimes we just reach a tipping point where the frustrations of average Americans turn into action. Look at the progressive reforms between 1900 and 1916; the New Deal of the 1930s; the civil rights struggle of the 1950s and 1960s; the widening opportunities for women, minorities, people with disabilities, and gays, starting in the 1960s and continuing, in fits and starts, to the present day; and the environmental reforms of the 1970s. In each of these eras, regressive forces reignited the progressive ideals on which America is built. The result was fundamental reform.

It will happen again—but it will not happen automatically. The nation’s forward movement has always depended on the active engagement and commitment of vast numbers of Americans morally outraged by how far our economy and our democracy have strayed from our ideals—and committed to move beyond outrage to real reform.

Your outrage and your commitment are needed once again.

“There is video content at this location that is not currently supported for your eReading device. The caption for this content is displayed below.”

That’s what we need to do, that’s why things are as screwed up as they are, that’s why the dice are loaded against most average Americans—and this is what you can do. (1:41)

Share your thoughts and ideas for getting beyond outrage

On Twitter:
twitter.com/RBReich
(be sure to use the hashtag #beyondoutrage)

On Facebook:
facebook.com/RBReich

Also, visit my website for my comments and videos:
RobertReich.org

Acknowledgments

My abiding appreciation once again goes to my assistant, Rebecca Boles, for her steadfast and cheerful help in preparing this book for publication, and to Manuel Castrillo, for technical support. As with my other books, this one would not have happened but for the thoughtful guidance of my longtime editor and friend, Jon Segal, and the sage advice of my literary agent, Rafe Sagalyn. I’m also grateful to my students and colleagues at the University of California at Berkeley, whose interest in and commitment to a better world are boundless.

A Note About the Author

Robert B. Reich is Chancellor’s Professor of Public Policy at the Richard and Rhoda Goldman School of Public Policy at the University of California, Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton, and he served as an adviser to President-elect Barack Obama. He has written twelve books, including The Work of Nations (which has been translated into twenty-two languages), Supercapitalism, and the best sellers The Next American Frontier, The Future of Success, Locked in the Cabinet, and, most recently, Aftershock: The Next Economy and America’s Future. His articles have appeared in The New Yorker, The Atlantic, The New York Times, the Financial Times, The Washington Post, and The Wall Street Journal. He is co-founding editor of The American Prospect magazine and chairman of Common Cause. His weekly commentaries on public radio’s Marketplace are heard by nearly five million people. In 2003, Reich was awarded the prestigious Václav Havel Vision Foundation Prize for pioneering work in economic and social thought. In 2008, Time magazine named him one of the ten most successful cabinet secretaries of the twentieth century, and The Wall Street Journal named him one of the nation’s ten most influential business thought-leaders. He blogs at RoberReich.org.

Also by Robert B. Reich

Aftershock: The Next Economy and America’s Future
A brilliant account of the economic crisis—as a product of the ever-diminishing prominence and power of the American middle class—and an impassioned plea for the middle class’s return to a central, stable, and revitalized place in our nation.

Supercapitalism: The Transformation of Business, Democracy, and Everyday Life
A critical examination of the transformation of mid-twentieth-century capitalism into global capitalism, and global capitalism into supercapitalism. As supercapitalism enlarges the economic pie, democracy is becoming less and less effective under its influence.

Reason

I’ll Be Short

The Future of Success

Locked in the Cabinet

The Work of Nations

The Resurgent Liberal

Tales of a New America

The Next American Frontier

As Editor
The Power of Public Ideas

As Coauthor, with John D. Donahue
New Deals: The Chrysler Revival and the American System

Please visit
RobertReich.org