Economic Inequality Put an End to the American Century

The biggest impediment to U.S recovery is economic inequality. This is the central argument in my article "The U.S. No Longer Makes the Grade: Economic Inequality Put an End to the 'American Century"" in the Phi Kappa Phi Forum, vol. 92, No. 3.  This article is available at Butler's "Digital Commons" site by clicking here.  The footnotes for the article are temporarily available at the Forum's website at this link.

Correction:  There is an important typo on page 7, column 1, 2nd paragraph.  The sentence there should read as follows:

"A recent global study by the International Monetary Fund, for example, found that countries with strong economic growth tended to have greater income equality than those with weak growth...."

 Comments and (civil!) discourse on this piece are welcome.

The Startling Growth of Inequality

In The End of the American Century, first published in 2008, I called attention to the disturbing growth of economic inequality in the U.S., to levels (even then) unprecedented since the Great Depression of the 1920s. But since 2008, in the midst of the "Great Recession," the situation has gotten even worse. A recent (3/25) New York Times op-ed by Steven Rattner, "The Rich Get Even Richer," notes that in 2010 (during the supposed economic recovery), "the top 1 percent took in 93 percent of the additional income" generated that year. A graphic linked to that article on line shows the pattern.

In a forthcoming article I have written which reflects on the themes of The End of the American Century, four years on, I contend that the unprecedented growth of economic inequality in the U.S. is the single biggest issue preventing the recovery of the United States--and in many ways the root cause of the many problems facing the U.S. in these difficult times.

"Occupy Wall Street" Interpreted for China

Today's issue of Wen Hui Daily in Shanghai includes a long interview with me on the Occupy Wall Street movement. The editors approached me on this topic because of the Chinese publication of my book The End of the American Century. The interview is interesting as much for the nature of their questions as for my own responses (though the latter did tie in very closely to important themes in my book).

Almost all of my responses seem to have been translated verbatim. However, the editors did exclude two items:

1) My reference (in answer "A3") to the 1980 Solidarity movement and the overthrow of the communist government in Poland.

2) The last question (16) and answer, which addressed Obama's commitment to social justice and a reference to Martin Luther King's statement that “the arc of the moral universe is long, but it bends towards justice.”

A link to the original Chinese publication is here.

My original English language responses to their questions appears below.

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Q1:The Occupy Wall Street movement is an event of global political life and social life. How to define this campaign? Is it a carnival, as Zizek worried about? or a media show? or a social movement to fight against financial oligopolies and to protest injustice?

A1. Occupy Wall Street is difficult to define because at this stage it is so amorphous, decentralized, and unfocussed. I would say it is an incipient social movement that captures a widespread sentiment in the United States against inequality and corporate greed, excess and corruption. Like many social movements, it has started out small, but has grown quickly, in terms of number, diversity of participants, and geographic scope. What started in New York has now spread to many US cities, and even to other countries.

But it would be a mistake to view these protests as a major political force, at least at this point. The protestors in New York number only about 1000 on any given day. On most days the Wall Street protests do not even make the front page of the daily newspaper in my city of Indianapolis.

You asked about Slavoj Zizek—the Slovenian Marxist philosopher who joined the protesters this week. But he is almost completely unknown in the United States, except perhaps by a relatively few intellectuals. His appearance at the Wall Street protests was not mentioned in most American news reports.

Nevertheless, I do believe that Occupy Wall Street is potentially very important in the U.S. It is focusing attention on inequality—a problem that has gotten very little attention in this country, but is, in my mind, at the heart of the serious economic, social and political problems the U.S. is now encountering. Wealth and income inequality in the U.S. are at the highest levels in 70 years—since the Great Depression—and are higher than in any other industrialized democratic state.

Q2. Some people think that liberalism in the pursuit of efficiency and profit has dominated the world for more than half a century, and the hands of the history should go to the side of fairness and justice. Do you agree with this? Will this movement really bring new social imagination to the world?

A2. I agree that neo-liberalism has dominated the world for more than half a century, but this is because the United States has been the dominant global power in that period, and the U.S. has demonstrated, exhibited and promoted this model of economic and political development. And it cannot be denied that the American model of capitalism and democracy has been both broadly appealing around the world, and highly successful in many parts of it. The fifty years following World War II were ones of unprecedented growth in global wealth and welfare—much of that fueled by the astounding growth of the economy, consumption, and prosperity in the United States.

But there was a dark underside to that economic growth, which became increasingly evident and problematic in the 1970s, and has accelerated since then. Increasing prosperity in the United States camouflaged a widening rich-poor gap in this country, and globally. Excessive consumption led to a proliferation of debt, both by governments and households. In the pursuit of profits and consumer goods, we increasingly neglected social goods: education, health care, infrastructure, and the environment. All of these are in serious difficulties now.

So in a sense, it is now time to right the balance, and to put more emphasis on fairness, justice and equality. These have always been central to the American ideal, and the American Dream, but have taken a back seat in recent years. I believe this is one of the principal concerns animating the Occupy Wall Street Movement.

Q3. We noticed that many people compare this movement to the events of 1968. But obviously, the Occupy Wall Street movement lacks clear leadership, lacks clear political pursuit, and also lacks a schedule, and a particular solution. Will all of these weaken its real strength?

A3. There are some similarities of the current movement with those of 1968 which, like the Wall Street protest, began mostly with young people. Comparisons could also be made to the recent Tahrir Square protests in Egypt; civil rights protests in the American South in the 1950s and 1960s; and the “velvet revolutions” in Eastern Europe in 1989. I think there are also intriguing similarities to the 1980 strikes in Poland, which quickly mushroomed into the “Solidarity” movement which came to topple the communist government in that country in 1989. (One of my own research specialties is Poland, where I spent much time in the 1980s).

It is true that the lack of leadership, focus and specific demands of the Wall Street movement diminishes its potential impact and power. Maybe these will cause it to collapse. But many of these other social movements mentioned above were also essentially leaderless, at least at first. The demands of some of them—including the student movements of the 1960s, and the Tahrir Square demonstrations—were quite diffuse and general. But all of those earlier movements, like this one, touched a nerve in the broader society, and in the end made significant, even revolutionary, changes in society.

Q4. The two political parties hold different attitudes towards the movement. On the Democratic side many people have shown understanding and sympathy towards the movement. The Republicans are opposite, saying the demonstration was "a battle with the wrong goal". So will these different attitudes lead the protests to be used by different political forces in different ways?

A4. It is true that the Wall Street Movement has been embraced by most Democratic politicians and pundits, and rejected or ridiculed by most Republican ones. However, I do believe the Occupy Wall Street movement has the potential to attract supporters across the political spectrum, from left to right. Let me offer two explanations for this reasoning.

First, public opinion surveys show a substantial majority of Americans have a favorable view of the Wall Street protests. A Time Magazine poll this week shows 54% viewing the protests favorably, and only 23% unfavorably. In contrast, only 27% still have a favorable view of the Tea Party movement. Another poll by NBC and the Wall Street Journal found that 37% of the respondents “tend to support” the Wall Street movement, while only 18% “tend to oppose” it. As I mentioned earlier, I think the Wall Street movement has touched a nerve in American society, and therefore has the potential to become much bigger.

Second, I would argue that there is actually a good deal of common ground and overlap between Occupy Wall Street and the Tea Party. While they are rooted in different segments of the population, and have different agendas, both movements are populist and anti-establishment, and both are reacting against the concentration and abuse of power, and the perceived neglect of average Americans. While I am sure many Tea Partiers are skeptical, and even hostile, toward the “hippies” protesting on Wall Street, I suspect that many of them would agree with the Wall Street Occupation complaints about government policies that favor the rich, the government’s bank bailouts, and the influence of money in the political system.

Q5. Protesting the greedy of Wall Street appears to be the most direct appeal of this campaign. But wasn't it Wall Street financial innovations that brought the United States to gain the leading position in nearly 20 years of global technological and financial competition?

A5. In my view, “financial innovation” contributed almost nothing to the growth of the U.S. economy in recent years. In fact, quite the opposite is true. The awe-inspiring postwar growth of the American economy, and of U.S. global power and influence, was rooted in a combination of explosive manufacturing growth, technological innovation, rapid growth in the standard of living and consumption, rapid increases in productivity, and the expansion of global trade. Banks and financial institutions were important tools in all of this, but it was their security and stability that was most important for these developments, rather than any financial innovations.

Indeed, the rapid growth of the financial services sector of the American economy in the last twenty years is a principal cause of our current economic crisis, and of America’s domestic and international decline. Over the last two decades, manufacturing has steadily declined as a share of the American economy, while financial services have steadily increased. But financial services, per se, contribute almost nothing to the economy. They just move money around. They are based on, and primarily depend on, the accumulation of debt. Banks and mortgage companies encouraged American consumers to take out loans, even when it was unwise for them to do so, because those institutions made money on such transactions.

In 2008, it suddenly became clear that this large sector of our economy was essentially a hollow shell. But because it was so large, the biggest financial institutions—like AIG, Citigroup, and Bank of America—could not be allowed to fail, for fear that the whole economy would collapse. Thus the government bailouts.

Yet now, just a few years later, many of these institutions are thriving again, and their CEOs are receiving compensation packages worth tens of millions of dollars. Meanwhile, unemployment remains mired at 9%, and the average worker in the U.S. is earning no more, in real [i.e. adjusted for inflation] terms, than he or she was twenty years ago.

This is one of the main grievances of the Wall Street Occupiers. Indeed, it angers most Americans.

Q6. After the outbreak of financial crisis, the appeal to reform the financial industry is very high, Obama also argued for increased financial control to win the election, but after he came into power why is it so hard for him to put into practice the regulation of the financial industry?

A6. President Obama did manage to steer through Congress a major reform of the financial regulatory system, the “Dodd-Frank Wall Street Reform and Consumer Protection Act,” in the summer of 2010. This act included the creation of a Consumer Financial Protection Bureau, which eliminates many of the worst practices of banks and credit card companies, which had helped drive so many consumers into debt. The Dodd-Frank bill was passed when the Democrats controlled both houses of Congress. Since the 2010 Congressional elections, which gave the Republicans control of the House of Representatives, any new initiatives in this direction have been defeated by Republicans, who oppose almost any efforts to strengthen the role of government.

Q7. The financial system has become the solid structure of modern society. Many economists think the campaign should not alter this basic framework. Is it because of this that global politicians and thinkers have not been able to put forward an effective alternative when confronting the real world?

A7. As I mentioned before, I disagree with this characterization of the financial system being the core of the modern economy. Banks and financial institutions are an essential tool for the development of modern economies. But their primary role is to provide stability and security so economic transactions and trade can operate smoothly.

The problem is that the financial services sector became a major independent actor in generating wealth based on moving money around, often through complex and obtuse financial instruments like hedge funds and credit default swaps. Many financial institutions became so wrapped up in this money-making sideshow that they undermined their primary purpose of providing stability and security to consumers, investors, producers, and governments.

Q8. People may feel that the government has been hijacked by entrenched politicians and financial oligarchs and increasingly polarized by the two parties. Even President Obama has said that he would rather the country lose than his rivals win [sic?]. For this, will the "occupation Wall Street" movement become helpless in facing this "institutional predicament"?

A8. It is true that money plays a huge and detrimental role in the American political system. Lobbies and moneyed interests play a disproportionate role in elections and policy-making, to the detriment of ordinary citizens. This is one of the complaints of Occupy Wall Street—though it is also of concern to populists on the right, like the Tea Party.

The polarization of politics, and the unwillingness of politicians to compromise, is also hurting the country, and inhibiting efforts to deal with the huge problems we are confronting. I think, though, that the poisoned political atmosphere, as well as the emergence of radical populist movements on both the right and the left, are a predictable response to the protracted economic crisis that we find ourselves in. People’s jobs, homes, standard of living, and economic security are all in jeopardy, and this causes fear and anxiety. Normal politics, and political compromise, are hard to come by in such an atmosphere.

Q9. In the end of the American century, you said, "American exceptionalism" makes Americans believe that poverty and wealth are due to the individual’s faults or achievements, and has nothing to do with the system. Will the campaign lead people’s thinking to the level of the system?

A9. In a big international public opinion survey that I directed some years ago, we found that Americans, more than any other country that we sampled, were more likely to believe that an individual’s wealth or poverty was due largely to his/her own talents or work, rather than to the economic or social system. Americans tend to believe that if a person works hard, he or she will succeed, and that anyone can become rich and successful, even those from disadvantaged backgrounds.

But in fact, there is less social and economic mobility in the U.S. than there was a generation ago. Increases in poverty and inequality over the last several decades are both a cause and a result of this. Children in poor neighborhoods (especially in cities) often go to poor schools, and are more likely to be exposed to drugs and violence. This poses enormous obstacles to achieving a good education, which is essential for success in the work force.

As I mentioned before, I think the major accomplishment of the Occupy Wall Street movement, so far, has been to focus attention on and raise awareness of the issues of economic and social inequality in the United States. As people confront this issue, they will begin to learn more about the systemic aspects of inequality. Mainstream news sources like Time Magazine and The New York Times are increasingly addressing issues of poverty, wealth and inequality. At least in part this is a response to the Occupy Wall Street movement.

Q10. Many young people participate in the "occupation" movement, and US young people have always been defined by their "generation:" the youth after the first world war was called the "lost generation;" and after the second world war was called the collapse generation. Will this one be called the awakening generation because of the "occupation" movement ?

A10. While the Wall Street movement began mostly with young people, it has now spread and grown and become more diverse. The issues that they raise affect almost everyone: witness the growing popularity of the slogan “We are the 99%.” So I do not think that this is primarily a generational revolution, like the ones of 1968. In the U.S. the richest 1% receive about 20% of the country’s income, and control about a third of its wealth--more than the amount possessed by the "bottom" 90% of the population.

Q11. The new media, which takes Wall Street financial innovation as its driving force to develop, such as FACEBOOK, TWITTER, has played an important role in the campaign,. Is this a great irony?

A11. I do not see it so much as an irony, as a function of modern society. Social movements and revolutions have speeded up, like everything else in modern life. Social media and electronic communications facilitated this in Tunisia and Cairo, and are doing so now in the U.S. and elsewhere.

Q12. the participants of this movement also wrote many slogan in Chinese. Is this behavior art of consumerism, or does it show that China provides some dimensions of their thinking?

A12. There are many signs, posters and slogans carried by the protesters, and a very few of these are in Chinese, which has received much coverage in the Chinese media. But I do not think that there is much, if any, Chinese connection

Q13. Winter is coming, so what do you see as the outcome of this movement? What’s the best situation or the worst case outcome？

A13. Bad weather is likely to put a damper on the movement, or at least the most visible manifestation of it—the actual “occupation” of Liberty Square in New York City. But we have already seen the expansion of the movement to many other cities and countries, so it seems to me that the movement has gained some traction, and I doubt that it will disappear anytime soon. If it is to develop as a true social movement, it will need some organizational structure to carry it over. This will be one of the early tests of its staying power. There were some indications of this potential this weekend, when it was reported that Occupy Wall Street has collected some $300,000 through fundraising.

Q14. In "The End of the American Century, you expressed some pessimism about the future of the US. But we also see that American technology, military and finance are still in leading positions globally. For example, the annual global university rankings show that American universities still leads the way in the world. This is one important symbol showing continuing US competitive advantage in comprehensive national strength. So is the view, perhaps, not so pessimistic?

A14. In my book, I argued that the United States has lost its leading or dominant position in almost every area: social, economic, political and international. I present data showing this decline, both compared to our own past, and compared to other countries. I argued that the exploding growth of debt was particularly problematic for the United States, and that the country was destined for a sustained and deep economic downturn. It will no longer be the dominant economic, military and global power that it was in the fifty years following World War II.

At the same time, this does not mean that the U.S. is disappearing as a rich and powerful country. Even if we returned to the standard of living we had in the 1970s, we would still be one of the most prosperous nations on earth. The U.S. model of democracy, and its ideals of liberty, equality and justice, have sustained the country through many crises, and remain a source of inspiration for people all over the globe.

What this means for the U.S., in my view, is that the country will have to adjust to a different global environment—one requiring cooperation rather than dominance—and to an era of reduced growth, reduced spending, and reduced expectations. This is a psychological adjustment, more than anything else, but for that reason all the more difficult to achieve! So far, we have not met that challenge very well.

Q15. You would be on the left flank of United States intellectuals. Be are intellectuals like you the majority or minority in mainstream American society?

A15. The sorts of things I write and say—in particular the notion that the U.S. is no longer #1 in many areas, is threatening to many people. Americans are generally optimistic, proud, and upbeat, and they do not like to hear, and often refuse to hear, messages that are less positive. But I think more and more “intellectuals” are beginning to recognize that the U.S. is in serious trouble, and this is trickling out to the general public. Occupy Wall Street is one manifestation of this.

Q16. Could you introduce an international justice plan under your leadership?

A16. It would be nice, but I am not in a position to do so! I believe that the election of Barack Obama was the best we could do in striving to achieve more justice, both domestic and international. Unfortunately, he was elected in the midst of an economic crisis that will not soon disappear. But I often take heart from the frequently repeated words of Martin Luther King: “the arc of the moral universe is long, but it bends towards justice.”

Cluster Bombs Used by Libya--and by the U.S.

The New York Times has a front-page story today on how "Qaddafi is using cluster bombs in civilian areas." This is an atrocity and a tragedy, of course, but it is difficult for the U.S. to raise much of a fuss about it, because U.S. armed forces have also used cluster bombs in Iraq, Afghanistan, and Yemen. There is an international treaty--the Convention on Cluster Munitions--that bans the stockpiling and use of such weapons, but the U.S. is one of the few countries that has not signed the treaty. Fifty-six countries have ratified the Convention, and another 52 have signed but not yet ratified it. Among those that have not signed it are Israel, Pakistan, Libya....and the United States.

Chapter 6 of The End of the American Century, on "Abandoning International Order," documents the refusal of the U.S. government to sign dozens of international treaties and conventions that almost every other country in the world has adopted. It is this unilateralism and exceptionalism that has withered America's stature and moral authority in the world, and is one of the factors that makes it difficult for the U.S. to resume the leadership it held for so long in the postwar period.

Zakaria on American Decline

The cover of Time magazine's March 14 issue features a piece by Fareed Zakaria, entitled "Yes, America Is In Decline." The inside story carries a less emphatic title: "Are America's Best Days Behind Us?" The article demonstrates how far Zakaria has come since his book (The Post American World) and mine (The End of the American Century) were first published in 2008. At that time, Zakaria viewed global changes as mostly coming from "The Rise of the Rest" rather than American decline. My book focussed on domestic American decline as the root of the problem, in combination with the rise of other global powers. I pointed out our differences at the time in a posting here on "Zakaria's Optimism."

Zakaria's story is accompanied by a graphic design (by Joe Magee) depicting the US flag falling apart--remarkably similar, I must say, to the cover design of my own book, with the U.S. flag in a vortex.

One can hardly call Zakaria's latest essay optimistic. That issue of Time presents a host of statistics and rankings, showing how poorly the US fares compared to both our past, and to other countries. The US ranks #10 in the world on the "Prosperity Index." We rank 6th in higher education enrollment; 11th in R&D spending; 27th in life expectancy; 31st in "Adequate food and shelter;" and 84th in the world on the domestic savings rate. (My book showed that, even in 2008, the US was falling behind on all of these measures).

Zakaria finds it especially unsettling that "Americans seem unable to grasp the magnitude of the challenges that face us. Despite the hyped talk of China's rise, most Americans operate on the assumption that the U.S. is still No. 1."

He concludes with the observation that we have to recognize our problems before we can adequately address them.

"For most of our history, we have become rich while remaining restless. Rather than resting on our laurels, we have feared getting fat and lazy. And that has been our greatest strength. In the past, worrying about decline has helped us avert that very condition. Let's hope it does so today."

This was the same overall message of my book.

The same issue of Time also includes a counterpoint article called "Don't Bet Against the United States."

What is the most beautiful music in YOUR country?

As a pleasant diversion from the travails of The End of the American Century, I have created a new blog "The World's Most Beautiful Music" to debate and discuss this question: what is the most beautiful piece of symphonic music ever created in each country of the world? We've started out with the United States (Gershwin, Copland or Barber?), China, Zimbabwe and--the toughest one of all--Germany (Beethoven, Bach, Haydn, Wagner...or Mozart [is he German?]). Join the conversation, offer your suggestions, and vote!

Der Spiegel on "A Superpower in Decline"

Sometimes the most clear-eyed analysis of the United States comes from outside the country, and this may be especially true in these times when so many Americans are frightened and angry about the way things are going. Germany's weekly newsmagazine Der Spiegel has published a long and thoughtful piece about the United States, entitled "A Superpower in Decline: Is the American Dream Over?" which reflects and updates many of the themes I raised in The End of the American Century.

For those who would dismiss Spiegel's analysis as biased, left-wing, or "socialist," I should point out that the magazine is generally considered to have a conservative (and capitalist!) slant. It is enlightening, and a little sobering, to read an intelligent analysis of our problems from outside the cauldron of contemporary U.S. politics.

Below are a few excerpts from the Spiegel article, though I would encourage everyone to read the whole thing.

• America has long been a country of limitless possibility. But the dream has now become a nightmare for many. The US is now realizing just how fragile its success has become -- and how bitter its reality. Should the superpower not find a way out of crisis, it could spell trouble ahead for the global economy.

• Americans have lived beyond their means for decades. It was a culture long defined by a mantra of entitlement, one that promised opportunities for all while ignoring the risks.

• The country is reacting strangely irrationally to the loss of its importance -- it is a reaction characterized primarily by rage. Significant portions of America simply want to return to a supposedly idyllic past.

• The rich keep getting richer, with the top 0.1 percent of income earners making more money than the 120 million people at the bottom of the income scale.

• Since the beginning of the millennium, no new jobs are being created on balance, because the US economy has undergone structural change. Companies are dominated by investors interested only in the kinds of quick and large profits that can be achieved by reducing the workforce.

• In 1978, the average income for men in the United States was $45,879. In 2007, it was $45,113, adjusted for inflation.

• How strong is the cement holding together a society that manically declares any social thinking to be socialist?

• The United States of 2010 is a country that has become paralyzed and inhibited by allowing itself to be distracted by things that are, in reality, not a threat: homosexuality, Mexicans, Democratic Majority Leader Nancy Pelosi, health care reform and Obama.