My new book, The Confiscation of American Prosperity, will appear tomorrow.
This book resembles a crime story in four parts. The first part, The Plunder, uses the example of the regressive redistribution of income in the United States since 1970 -- a redistribution that quantitatively dwarfs the Russian or the Chinese Revolutions -- to give a sense of the extent of the right wing revolution, which has remade all branches of government, the legal system, and perhaps most of all, the way people understand their condition in society. In the process, I show how the official statistics fail to capture the scope of this revolution, using examples such as corporate jets for executives and excessive fees and interest rates charged to the poor.
The second part, The Plot, tells the story of the right wing takeover in the United States from the perspective of political economy.
The third and most extensive part, Retribution, explains how this right wing revolution is laying the foundation for the next Great Depression, a cataclysm that will cost everyone dearly, even intended beneficiaries of the revolution.The final part, The Impotence of the Economics Profession, tells the story of the missing cop on the beat the economics profession -- showing how we economists have nurtured a trained incapacity for doing what should be our most important work, warning about dangerous tendencies in the economy and pointing to a better way.
The Confiscation of American Prosperity:
From Right‑Wing Extremism and Economic Ideology to the Next Great Depression
Prologue
For the last three and a half decades a tiny minority of people has captured the lion's share of the fruits of economic growth in the United States. At the same time, the middle class is disappearing and much of the rest of society is rapidly falling behind, producing a level of inequality that has not been seen since the eve of the Great Depression. Business leaders, along with most politicians and economists, celebrate this new state of affairs, and pretend the benefits are certain to trickle down soon to the rest of society.
This book does not belabor the obvious injustices of inequality; instead, it describes the extent of this confiscation of wealth, how the perpetrators managed to pull it off, and finally how this confiscation is setting the stage for a catastrophic depression. Leaders in the world of business and government, as well as professional economists, seem oblivious to the dangers ahead. The extreme inequities in society breed a hubris that prevents them from even considering the possibility that they are contributing to a catastrophe. All the while, the economics profession seems unable to comprehend the depth of the problem.
Unless strong actions are taken, the calamity that currently afflicts the poor is certain to trickle up, engulfing even the very rich. I do not mean the very rich will become destitute; only that the losses they will eventually experience will far outweigh the vast amount of extra wealth and income that they now claim for themselves.
Despite the dangers ahead, the United States still possesses the most powerful economy the world has ever known. The unique conditions that once made the US economy so effective are already beginning to unravel. People in power commonly realize that the US economy has fallen considerably short of its promise. In terms of traditional measures, such as Gross Domestic Product, the economy has modestly progressed, but the rate of growth is disappointing at best, especially considering the proliferation of new technologies. The quality of life for the majority of society has deteriorated.
In many respects, the gross inequities of United States society are coming to resemble some of the more impoverished countries in the world. Amidst splendid opulence, we find declining industries, unemployment, and even squalor. With so much potential, providing a decent standard of living for everybody should be a simple matter.
Despite these unpleasant symptoms, the deeper problems are not yet obvious. The dangers that I will explore do not appear in the media ‑‑ not even in the business press.
In his justly famous farewell address, President Eisenhower identified the main problem identified in this book as the "disastrous rise of misplaced power." At the time, he was referring to the military‑industrial complex. Today the pathology has advanced much further. The complex now includes a vast network of corporate power, political parties, well‑financed think tanks, and religious movements. This network has also enjoyed the support of much of the media and even a good part of academia. These parties did not have identical goals in mind, but they all shared a distaste for the sociopolitical climate of the late 1960s. The result was a conservative revolution.
The US had already been on a steady path to the right. Indeed, since the election of Franklin Roosevelt in 1932, every Democratic administration with the exception of Lyndon Johnson's has been more conservative ‑‑ often far more conservative ‑‑ than the previous Democratic administration. Similarly, every elected Republican administration, with the single exception of George Herbert Walker Bush's, has been more conservative than the previous Republican administration. Although the national election in 2006 appears to be a repudiation of the right‑wing agenda, the most important factors in the election were the disastrous war in Iraq and a multitude of scandals that damaged the Republicans.
Given this relentless drift to the right, the policies of Richard Nixon now appear to the left of those of Bill Clinton. Yet by the time Nixon took office, business was distraught. Many business leaders at the time were under the impression that socialism would soon triumph in the United States. The first part of the book will explain this paradox.
In the early 1970s, business successfully launched an aggressive campaign to take a firmer hold on the levers of power. Instead of the gradual drift toward more conservative economic policies, revolutionary changes became the order of the day. Within a couple of decades, a right‑wing revolution had swept aside much of the New Deal.
These right‑wing revolutionaries professed conservative ideals, including a more modest role for the state. In practice, their willingness to use state power was hardly modest, except insofar as the state might otherwise inconvenience the interests of the corporations and the super rich. Backed up by the strict dogma of economic theory, conservatives categorically promised markets would cure all social ills. Markets, however, pay attention only to commercial activities, ignoring considerations such as quality of life or environmental degradation. Markets also disempower people from making political choices.
Rules and regulations provide a counterweight to market forces, creating a means to keep the harmful effects of markets in check. By this standard, the United States certainly has the most market‑friendly economy in the world.
Regulations can protect people's health and safety and limit fraud; however, rules and regulations are not necessarily positive. They can also be used to shore up the corporate power to the detriment of society. The right‑wing revolution has gone a long way toward dismantling the protective regulatory layers, while hardening the procorporate parts. This book emphasizes the importance of regulations as a check on some of the destructive speculative forces that can unleash depressions.
This reformulation of the ground rules of the system has given birth to a grotesque form of crony capitalism, which has been metastasizing for many decades. Under this crony capitalism, markets lack the capacity to discipline the most powerful players, which is supposedly one of the greatest benefits of capitalism. A wave of corporate manipulation and government favoritism will eventually wreak havoc on the economy.
This book explains the evolution of this system, while analyzing the deeper but often less obvious consequences of this deformed economy. It also shows the inevitability of a disaster so extreme that it will devastate even the most affluent who are benefiting the most from the current economy. The last part of the book explains why economists are unable to come to grips with this dangerous slide into disaster.
The trajectory of The Confiscation of American Prosperity resembles a crime story. The first part, The Plunder, describes the caper. The second part, The Plot, shows how brilliantly it was organized. The third part, Retribution, explains how it is going to blow up in the faces of the perpetrators, and finally the book turns to the presumptive cops on the beat, the economists, who should have known to have spoken up.
But this is not really a crime story. Although a few of the major players may have violated the law, most of what happened was perfectly legal. People combined raw power with dazzling tactics to engineer a right‑wing takeover. While they mastered the short term tactics necessary to achieve their objectives, their ambition and greed blinded them to the long‑run consequences of their actions.
Overview
The first part of this book describes how the conservative revolution permitted a small number of people to plunder the lion's share of three decades of economic growth ‑‑ perhaps the greatest confiscation of wealth and income in the history of the world.
The second part begins with the economic crisis in the late 1960s that pushed business to go on the offensive. Economists refer to the period following World War II as the "Golden Age" because conditions at the time were so exceptional. During that period, both business and the majority of the economics profession had been under the impression that with proper management, including government intervention in the economy, the good times could last forever.
Unfortunately, this faith was groundless. Business, political, and economic leaders were caught unaware of the inevitable unraveling of the Golden Age. No market economy, even with the most intelligent management, has ever achieved the kind of stability people came to expect during the Golden Age. Instability, even if punctuated by periods of calm, is a natural part of capitalism.
As the Golden Age ended, profits shrunk and business first became despondent then launched a furious campaign to reshape the social and economic structure of the United States in an effort to restore corporate power to its pre‑Depression level.
This victory was even more impressive because the right wing managed to induce many people to support an agenda that was sure to undermine their own economic welfare. The right succeeded in this effort in large part because the deteriorating economic conditions left many working‑class people confused and angry. Taking advantage of this mood, the right wing electoral machine caused many people to lose sight of their own economic interests by effectively railing about the contentious social conditions of the 1960s.
By the time Richard Nixon came to office in 1968, everything seemed aligned to allow conservatives to take political power. The Democrats had discredited themselves with an unpopular war and had done little to address the real needs of their political base.
Building upon the grass roots movement begun in the wake of Barry Goldwater's defeat in 1964, the Nixon administration launched a frontal attack on the New Deal coalition by appealing to the culture war of the day. Now the rich and powerful appeared poised to win support for their agenda.
These divisive machinations seemed to have cleared the way for an economic revolution, except a problem remained. Although part of the working class was antagonized by the upheavals of the 1960s, a growing antiwar movement and an energized civil rights movement presented serious challenges. The emergence of the environmental movement with the broad sympathy of much of the middle class complicated matters even more. Nixon moved to placate the environmental movement to appear to be more inclusive. Within this contentious political climate, he did not dare to carry out a broad offensive against labor.
Suddenly, the conflict took a decisive turn. A small group of business interests carefully engineered a conservative takeover of the main organs of power in the United States beginning in the 1970s. Using a combination of well‑financed think tanks, racist demagoguery, and sophisticated political maneuvering, business countered the modest progressive successes of the 1960s. These institutions worked to change the political climate of the country by influencing the media. Even more importantly, business used its newfound powers to counter a falling rate of profit by turning back many of the reforms dating back to the New Deal.
The third part concentrates on how the right‑wing revolution set in motion the destructive forces that are responsible for many of the difficulties that the US economy already faces and why the future damage will be far more extreme. I will also explain why not just ordinary working‑class people will suffer from its harmful consequences, but even the intended beneficiaries of the right‑wing revolution ‑‑ business and the very wealthy ‑‑ will pay a price.
In some cases, the costs of the right‑wing revolution are already relatively obvious. For example, the obscene military budget crowds out important social and economic programs while military adventurism promises to make even greater demands on the economy in the future. In other cases, such as the undermining of the educational
system, the effect is less immediate, but just as devastating.
The right‑wing revolutionaries express vehement hostility toward the government. Indeed, the ability of t
he government to regulate some of the worst business abuses is now practically non‑existent. Today, public agencies are less capable of protecting the environment, providing education, and promoting science and technology ‑‑ all of which are essential ingredients of a vibrant economy. All the while, bu
siness shameless
ly wallows in generous government subsidies and other forms of favoritism.
In the fourth and final part, I discuss the impotence of the economics profession. This part recounts the evolution of the economics profession in the United States, including the long‑standing suppression of critical voices. Despite intense and even acrimonious debate about minor issues, economics evolved into a narrow orthodoxy. I also discuss how the largely ideological nature of modern economics has more or less led the discipline into a dead end, leaving it incapable of dealing with the emerging economic catastrophe.
