The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity by Robert Kuttner. Knopf, 337 pages, $26.95.
Reviewed by George Scialabba
In one sense, The Squandering of America is misnamed.
One squanders (American Heritage Dictionary: "spend extravagantly;
waste; dissipate") one's own wealth, not other people's; one can only
squander what one already possesses (or, in the case of a trustee,
controls). But the corporate and financial elites who play the leading
role in Robert Kuttner's excellent new book are shown not spending but
acquiring: manipulating or rewriting economic rules in order to loot
their shareholders, beggar their workers, and shift their tax
obligations onto their fellow citizens. Arguably, Kuttner's book should
be titled The Plundering of America.
Then again, perhaps "squandering" is the right word. The
quarter-century or so of what Kuttner calls "managed capitalism" - the
New Deal and its international counterpart, the Bretton Woods regime -
was America's golden age of broadly based prosperity and increased
security for working people. If the economy had continued to grow at
the same pace and with the same income distribution as in those
decades, present-day America would be a far richer, safer, happier,
healthier, and fairer country - truly America the Beautiful. But that
opportunity was tragically wasted - squandered - through a combination
of ideological delusion and raw greed. Kuttner tells this painful story
extremely well.
Though challenged periodically by labor unions, Populist farmers,
and Progressive reformers, business elites dominated American politics
from the beginnings of industrialization in the second half of the
nineteenth century. But when the economy collapsed in the 1930s,
business could no longer stave off substantial regulation; and the
collective effort called forth by World War II gave rise to a modicum
of social solidarity. The resulting institutions of managed capitalism
included labor legislation, unemployment insurance, tuition assistance
through the GI Bill, mortgage assistance for first-time home-buyers,
Social Security, Medicaid, a fiscal policy aimed at full employment, a
structure of mainly reasonable industrial and financial regulations
(along with a serious commitment to enforce them), and a decently
progressive income tax; internationally, a fixed-rate currency exchange
system, limits on financial capital flows, and, in the World Bank and
International Monetary Fund, instruments of stabilization and
reconstruction for national economies in trouble. Together, these
policies produced a high level of widely shared economic well-being and
security. For a brief, bright interval, capitalism worked properly.
The economic turbulence caused by Indochina war expenditures and a
sharp rise in oil prices, along with racial and cultural polarization,
nourished a conservative backlash. Nixon did not attack the welfare
state directly, but he did withdraw the United States from the Bretton
Woods agreement. Carter initiated the fateful estrangement of the
Democratic Party from its New Deal heritage, which culminated in the
Wall Street-dominated Democratic Leadership Council. Ronald Reagan was
not elected to dismantle the New Deal and may not even have understood
that this was what the rest of his administration was up to. But his
large and regressive tax cuts, as well as a cascade of deregulation and
non-enforcement, massively increased military spending, and the
heavy-handed use of the IMF and World Bank (with an assist from the CIA
when necessary) to force a "favorable investment climate" (i.e., low
wages and unrestricted capital flows) on the developing world - all
these policies began to change America from a middle-class society and
mixed economy with countervailing power centers to a sharply unequal,
business-dominated society.
The Clinton administration increased taxes on the rich and restored
a modicum of integrity to the regulatory apparatus. But it also joined
the rhetorical assault on "big government" and sponsored considerable
deregulation, both on Wall Street and by means of "free trade"
agreements, which sought to reduce the leverage of organized labor and
democratic governments over American investors. Under the Bush/Cheney
administration and the Gingrich/DeLay congress, America has degenerated
into a thoroughly corrupt plutocracy.
This enormous rightward shift has been by propelled by overt and
covert forces: ideology and money. The belief has spread over the last
several decades that government action for the purpose of
redistribution, environmental protection, consumer protection, or
worker protection is almost always less efficient and fair than leaving
such purposes to be achieved through unregulated interactions - chiefly
buying and selling - among individuals and businesses. The writings of
Friedrich Hayek, Milton Friedman, and Robert Nozick have been
influential in propagating this view, along with the far cruder
fulminations of Ayn Rand and the simple-minded slogans of Ronald
Reagan. Kuttner's last book, Everything for Sale: The Virtues and Limits of Markets
(1997), persuasively confuted this shallow but lamentably widespread
creed. "The claim that markets optimize outcomes is true in some realms
but blatantly false in many others. Markets do not efficiently deliver
health care, research, education, pollution control, or the
distribution of income and outlay generally. ... Leave health care to
the market, and some people will die in the street for want of medical
attention, the sick will be ejected from health plans, doctors will be
turned against patients, and insurance companies and drug magnates will
grow very rich. Leave electricity to the market, and both price gouging
and system failures will ensue. Leave the financial market to its own
discipline, and you court massive insider corruption and the risk of
collapse."
Like all complex institutions, markets rest on supporting
structures of rules, impartially devised and enforced. That requires
politics, preferably democratic politics. And no rules, however well
formulated and enforced, can prevent large differences in initial
endowments of ability, resources, and information from producing
extreme and permanent inequality. That requires redistribution. Public
or collective goods - infrastructure, literacy, basic science, clean
air - cannot be privately owned and so will not be privately produced.
That requires public investment. A viable society requires civic
virtue, above all an irreducible minimum of selflessness. Laissez-faire
ideology cannot generate, or even comprehend, selflessness. As Kuttner
writes: "Trust, civility, long-term commitment, and the art of
consensual deliberation are the antithesis of pure markets and the
essence of effective politics."
Everything for Sale pointed out the flaws in laissez-faire theory; The Squandering of America
rehearses its dire consequences. Actually, that statement needs some
qualification: the situation is indeed dire, but laissez faire is not
exactly what the Republican Party in power has been practicing. The
theory justifies minimal government on the premise that those who reap
the rewards of risky behavior in unregulated markets will also pay the
costs of their failures. But such people (or corporations) tend to be
major political donors and therefore cannot be allowed to suffer very
much. They must be bailed out. Privatize the gains, socialize the
losses: this is what laissez-faire capitalism amounts to in the
Reagan/Gingrich/Bush II era. Enron, WorldCom, Tyco, the savings and
loan industry, Third World debt, the subprime mortgage industry - in
all these cases, investment banks, hedge funds, and corporate
management reaped colossal profits as long as the bubble lasted, while
small investors, employees, and taxpayers mostly paid the costs of
collapse.
"Efficiency," "incentives," personal responsibility," "the
ownership society" and other slogans have served to disguise class
warfare: a sustained assault on the income and security of the vast
majority. Republican administrations have refused to enforce labor
laws, allowing employer coercion to stifle union organizing and thereby
decimating the labor movement. There has thus been little effective
opposition as more and more employers have abandoned or downgraded
their health insurance coverage and pension plans. Unemployment
insurance was curtailed, and the federal minimum wage stuck at the same
level for a decade or more. The progressivity of the tax code was
undermined directly - by lowering top tax rates, capital gains taxes,
and inheritance taxes, while raising payroll taxes - and indirectly -
by underfunding the IRS and shifting enforcement priorities from
corporations and rich individuals to low- and middle-income taxpayers.
Not to mention the steady accretion of special-interest loopholes and
the increasing popularity of tax evasion by the wealthy - Kuttner notes
that "estimates of otherwise taxable capital kept beyond the reach of
national tax authorities" are "about $9 trillion." The elimination of
longstanding conflict-of-interest rules (those, for example, separating
investment banking from commercial banking); limited liability for law
and accounting firms; non-enforcement of capital reserve requirements;
the absence of any regulation of hedge funds or derivative trading; the
lack of corporate governance reform - all these policies have completed
America's evolution into what Kuttner aptly calls a "casino economy."
As in any casino, the house (in this case, Wall Street) is always the
big winner.
"Free trade" is a second front in the war on the New Deal. If free
trade means unrestricted access for foreign exporters and investors,
then no country has ever practiced free trade. As Kuttner points out,
England, the United States, continental Europe, China, Japan, South
Korea, Taiwan, and every other economically successful country have
practiced "strategic" trade and managed capitalism. All have identified
key industries and technologies and nurtured them by targeting
subsidies, limiting imports and foreign ownership, and demanding
technology transfer in exchange for a favorable investment climate. All
protected their currencies by limiting speculative foreign capital
flows. All tolerated domestic cartels, tariffs, and piracy of foreign
intellectual property. Only when a country gained global economic
hegemony (England in the mid-nineteenth century, the United States in
the late twentieth) did it demand an end to economic nationalism.
For reasons related to the Cold War, the US allowed Japan, South
Korea, and Taiwan to ignore laissez-faire principles and free-trade
theory. Why was this tolerated by American manufacturers, many of whom
lost market share as a result? Other reasons have reconciled them to
East Asian mercantilism. Low wages, low taxes, and lax environmental
standards offshore help undermine American wages and tempt American
localities bidding for investment to lower or eliminate taxes and
environmental protections.
There is a third major cause of America's economic decline, about
which Kuttner has less to say: military spending. The costs of empire
are immense. According to political scientist Chalmers Johnson, "it is
virtually impossible to overstate the profligacy of what our government
spends on the military." One study from the late 1980s showed that in
the preceding four decades, the sum of US defense expenditures equaled
the value in 1985 of America's entire capital stock. And there has
been, of course, no "peace dividend" after the Cold War. For FY 2008,
if one includes the cost of the Iraq and Afghanistan wars, medical care
for the casualties of those wars, military pensions, nuclear weapons,
NASA, counterterrorism and homeland security, and interest payments on
past debt-financed military expenditures, total defense-related
spending equals $1.1 trillion. Fiscally, we may already be over the
cliff.
The damage is inestimable; the squandering is unforgiveable.
Something must be done. What to do is the easy part. Kuttner is a close
student of European social democracy and convincingly defends its form
of managed capitalism against American detractors. Europe's economy is,
broadly, as efficient and innovative as America's, and its population
has more leisure, job security, social supports, and quality health
care. The US could doubtless catch up by returning to the spirit of the
New Deal. The steps are obvious: roll back the Bush tax cuts, curtail
tax evasion by the rich, regulate the casino economy, extend Medicare
to all, equalize per-pupil expenditures, reduce military spending, link
trade agreements to foreign labor rights, reform campaign finances, and
appoint people to the Labor Department, FDA, HUD, EPA, SEC, and IRS who
want to achieve rather than frustrate the purposes of these agencies.
If there is a will, these are plainly the ways.
But where is the will? Where is the country's republican pride, its
democratic honor? Why is American politics so far to the right not only
of European but even of American public opinion? Why are our elected
representatives so often corrupt mediocrities? Why are so many
Americans either ignorant and resentful or demoralized and passive?
What should one do when the best of one's fellow citizens lack all
conviction, while the worst are full of passionate intensity?
Kuttner does not address these questions; they're not his brief.
He's written a superb polemic, which in a healthy civic culture would
sweep all before it, and his readers will be grateful. But how, in the
money-manipulated puppet theater that is American politics today, to
give it effect?
[END]
GEORGE SCIALABBA (www.georgescialabba.net) is the author of Divided Mind and the forthcoming What Are Intellectuals Good For?
