THINKING ABOUT IMPEDIMENTS TO REALIZATION OF THE...

THINKINGABOUTIMPEDIMENTSTOREALIZATIONOFTHEAMERICANDREAMBYWALTERRUSSELLMEAD,WHOISJAMESCLARKECHACEPROFESSOROFHUMANITIESANDPOLITICALSTUDIESATBARDCOLLEGEDoyoubelievethatarealsocialcrisisintheUnitedStatesinthewordsofWalterRussellMead,is“theanxietyanddisappointmentaboutthedarkeningprospects”ofeveryoneexceptthetinyminoritywhoare“makingpotsofmoney”?YesNoDon’tknowExplanationofWalterRussellMead’sviewpointonthefirstAmericandreamcenteredonthefamilyfarmofthe19thandearly20thCenturies.”ThecontemporarycrisisofthemiddlestratainAmericansocietyisperhapsbestcomparedtothelongandpainfuldeclineofthefamilyfarm.TheAmericandreamweknowinourtime—agoodjobandanicehouseinadecentsuburbwithgoodschools—isnottheclassicversion.Thedreamthatanimatedthemassofcolonists,thatdrovetheRevolutionandthatdrewmillionsofimmigrantstotheUnitedStatesduringthefirstcenturyofindependence,wasthedreamofowningone’sownfarm.Upuntilthe20thcentury,mostAmericanlivedinruralcommunities.Wellintothe20thcentury,agriculturewasbyfarthemostimportantoccupationinwhichAmericanswereengaged(tosaynothingoftherestoftheworld).”p.17Aslowprocessofagriculturaldeclineanddispossessionstartedinthe1870sandculminatedinthedisastersoftheGreatDepression.Essentially,populardemandfortheAmericandreamofafamilyfarmledthegovernmentintopoliciesthatencouragedafarmbubble.Americansoverinvestedinfarmsevenasfamilyfarmswerebecominglesssustainable.OvertimetheysoughtvariousformsofgovernmentsubsidyandincomesupportastheyclungtotheonlyAmericandreamtheyknew.Butthelawsofeconomicscouldnotbegainsaid,andtheindependentfamilyfarmer,theclassThomasJeffersonbelievedaboveallguaranteedthefutureoftheAmericanrepublic,graduallydecayedandlargelydisappearedintothemawofcontemporaryagribusiness.“p.18ThedeathoftheoldAmericandreamandthebirthofanewoneinthemiddleyearsofthe20thCentury“SotheoldAmericandreamdied,butFranklinRooseveltandHarryTrumanreunitedurbanprogressiveswiththeAmericanmassestorecastthedreaminanewform.Intheolddream,propertyandproductionwereallied.TheAmericanwasapropertyowner,andthatpropertyproducedthelivelihoodthatmadeAmericansprosperousandindependent.Inthe20thcentury,Americashiftedfromanationofindependentfarmerstoanationofhomeowners.Theywerestillpropertyowners,buttheynolongerderivedtheirincomefromthehomestead.Americanfamiliesusedtohaveafarm;nowtheyhadahomeandajob.”p.18

ThecontributiontotheAmericandreamofaregulatedeconomy“Aregulatedeconomy,mostlyconsistingofstablelargemonopolies(likeAT&T)oroligopolies(liketheBigThreemedianetworksandtheBigThreeautocompanies),providedgoodandlastingjobsatgoodwagestoblue-aswellaswhite-collarAmericanworkers.Scientistandengineerswouldcomeupwithtechnologicaladvancesthatraisedproductivityandallowedagenerallyrisinglivingstandard.Aprofessionalcivilserviceregulatedbusinessintheinterestofthe‘littleman’.”p.18-19“…thesocialmobilitywassuchthatitwasnotfar-fetchedtosupposethatthesonofaplumberoranautomechaniccouldbecomeadoctororalawyer,andthatthesonofauniversityprofessorcouldbecomeausedcarsalesman.”p.19QuestionfortheE8ClassWhatisthecontributiontoarealizationoftheAmericandreamoftheU.S.economyoftheearly21stCentury?Responsibilityofadministratorsandprofessionals(andtheU.S.Congress)toregulatefinancialmarkets.Theadministratorsandprofessionalweresupposedtoregulatefinancialmarketstopreventwildcrashes.Theydidn’t;WallStreetcausedahugemessbutforthemostpartdidnotsufferfromitnearlyasmuchasthoseonandaroundMainStreet.TheyweresupposedtoprovideanintellectualframeworkforAmericantradepolicythatensuredthatthemiddleclasswouldbenefitfromthegainsresultingfromtrade.Theydidn’t;Americanshavebeenabletobuyalotofcheapimportsbutlargelyattheexpenseofthemanufacturingjobsthemiddleclassdependedon.sTheyweresupposedtomanagethehousingsystemtomakeitpartofastable,sensibleandprudentmechanismthatgeneratedwealthforthemiddleclass.Theydidn’t;insteadtheyabettedabubble.Theyweresupposedtoexerciseadignifiedrestraintintheirpursuitofmoney.Theymostlydidn’t;insteadtheyforgottheirresponsibilitytothegeneralgoodastheyengagedenthusiasticallyinaprivatescrambleofwealth.”p.20ProfessorWhiteley’scommentary–TheproperroleandscopeofregulationbythegovernmentisacontentiousissueinAmericansociety.ItisparticularlyevidentbeyondtheAmericandreamissuesintheareasoftheprotectionoftheenvironmentcoveredbyE8.AprominentexampleofthisdisputeovertheproperroleofgovernmentiswhetherornottheEnvironmentalProtectionAgency(EPA)hastheauthorityandshouldregulatethegreenhousegasemissionswhichareaprimarycauseofabruptclimatewarming.DuringtheBushadministration,theEPAhaddeclinedtoexercisetheauthoritytoregulatewhichhadbeengrantedbytheU.S.Congress.InMassachusettsv.EPA,theStateofMassachusettsfiledalawsuitintendedtorequireenforcement.TheU.S.SupremeCourtruledinfavoroftheStateofMassachusetts.TheproperregulatoryroleoftheEPAinenforcingenvironmentalregulationisatissueintheupcomingelectionofNovemberof2012.

THINKINGABOUTIMPEDIMENTSTOREALIZATIONOFTHEAMERICANDREAMBYFRANCISFUKUYAMA,WHOISOLIVIERNOMELLINISENIORFELLOWATTHEFREEMANSPOGIINSTITUTEOFSTANFORDUNIVERSITY,ANDAUTHOROF“THEENDOFHISTORYANDTHELASTMANSTANDING”Fukuyamaasksandanswersafundamentalquestions:Question:

“DothewealthyhavedisproportionatepoliticalinfluenceintheUnitedStates?”Answer:

“…theanswerisobviously‘yes,’andthatanswerwouldqualifyasoneofthemostunsurprisingimaginable.Wealthypeoplehavehaddisproportionateinfluenceinmostpoliciesatmosttimesinhistory.”

IfthewealthyhaveadisproportionatepoliticalinfluenceintheUnitedStates,andifthatpoliticalinfluenceisattheexpenseofopportunitytorealizetheAmericandreamfortherestofsociety,thenthreequestionsfollow:

1. HowdothewealthyexertwhatFukuyamameansby“notjustrulebytherich,butrulebyandfortherich”?HecitesbywayofanswertothisquestiontheargumentdevelopedbyAdamGarfinklein“TermsofContention”whichexplorestherelationshipbetweentheinequalityarisingfromthepredominantlymarket-basedAmericaneconomyandtheequalityprincipleembeddedinAmericanpoliticalculture.“…therichinfluencegovernmentinsuchawayastoprotectandexpandtheirownwealthandinfluence,oftenattheexpenseofothers.Astheintroductoryessaytothisissueshows,thisinfluencemaybeexercisedinfourbasicways:lobbyingtoshiftregulatorycostsandotherburdensawayfromcorporationsandontothepublicatlarge;lobbyingtoaffectthetaxcodesothatthewealthypayless;lobbyingtoallowthefullestpossibleuseofcorporatemoneyinpoliticalcampaigns;andabovealllobbyingtoenablelobbyingtogoonwiththefewestrestrictions.Ofthese,thesecondhasperhapsthedeepesthistoricallegacy.”p22

2. WhatistherelationshipofmoneyandpowerincontemporaryAmerica?

Thebroadercontextforthisquestionistheconceptof“TreasonoftheState”usedbyMikeDavisin“PlanetofSlums”toexplaintheplightoftheonebillionpeopleoutofaglobalpopulationofsevenbillionwhoinhabitthe200,000slumsintheworld:“Themostdysfunctionalsocietiesinthedevelopingworldarethosewhoseelitessucceedeitherinlegallyexemptingthemselvesfromtaxation,orintakingadvantageoflaxenforcementtoevadethem,therebyshiftingtheburdenofpublicexpenditureontotherestofsociety.”

TheissueforE8iswhetherornotincomeinequalityhasincreasedsubstantiallyinAmericanSocietyinrecentdecades,therebyshiftingthecostofsocietyintothelesswealthyandtherebyerodingtheiropportunitytorealizetheAmericandream.“ItiswellestablishedthatincomeinequalityhasincreasedsubstantiallyintheUnitedStatesoverthepastthreedecades,thatgainsfromtheprolongedperiodofeconomicgrowththatendedin2007-08havegonedisproportionatelytotheupperendoftherichestlayerofsociety.AstudybyThomasPikettyandEmmanuelSaezshowsthatbetween1978and2007,theshareofU.S.incomeaccruingtothetop1percentofAmericanfamiliesjumpedfrom9to23.5percentofthetotal.ThesedatapointclearlytothestagnationofworkingclassincomesintheUnitedStates;Realincomesformaleworkerspeakedsometimebackinthe1980sandhavenotrecoveredsince.

3. Didthefinancialcrisisof2008-2009negativeimpacttheprospectstorealizetheir

Americandreamofthisgenerationofcollegestudents?“ThecrisislaidbaresomeunpleasantfactsaboutAmericancapitalism.Thebankingindustrylobbiedheavilyinthe1990stofurtherfreeitselffromregulation,atrendthatbeganinearnestwiththevDepositoryInstitutionsandDeregulationandMonetaryControlactof1980.Thisresultedin,amongotherthings,the1999Gramm;Leach;BlileyAct,whichenabledtheemergenceoflarge“universal”banksandnon-transparentmarketinderivatives.BeforethebustintheU.S.housingmarket,therapidlyexpandingfinancialsectortookhomesome40percentofallcorporateprofits,andyetiswasresponsibleforanimplosionthatnotonlywipedoutthebanksthemselvesbutimposedhugecostsoninnocentbystandersbothintheUnitedStatesandabroad.ItalsocostU.S.taxpayersanenormoussuminbailouts.Whatwastrulytroubling,however,wasthatthecollapseunderminedthefundamentalmoraljustificationformaterialinequalityinapoliticallyegalitariansociety.Basictothelegitimacyofmarketcapitalismistheefficientmarkethypothesis—thatis,thenotionthatinatrulycompetitivemarketeveryoneearnssomethingclosetohisorher“social”rateofreturn.Thismeans,inotherwords,thatifyourinvestmentbankerearns100,000timesasmuchasyourplumberit’sbecauseheorsheiscontributingroughly100,000timesasmuchtosociety’stotalpoolofwealth.Thecrisismadeitglaringlyobviousthattheefficientmarkethypothesiswaswrong:Oversizedreturnswereflowingtoinnovativefinancialentrepreneurswho,intheiraviditytocreatenewandmorecomplexfinancialinstrumentsandproducts,weredestroyingratherthancreatingvalueforsocietyasawhole.“

ProfessorWhiteley’scommentary:ThetrillionsofdollarsofstilllostequityintheU.S.housingmarketandthecurrentlongtermlargescaleunemploymentandunderemploymentinAmericansociety

unquestionableerodetheopportunitytorealizetheirAmericandreamformanyofthisgenerationofcollegestudents.Fukuyamacommentsthe“Financiersproudlyseethemselvesas“valuecreators,”notashighbrowpickpockersofwidowsandorphans.AnemployeeofGoldmanSachs,aNewYorkinvestmentbankknownasthe“FabulousFab”willbeintroducedinclassaspartofanexplanationbyauthorMichaelLewisofthedynamicsofthefinancialcrisiscausedbythemeltdowninthesubprimemortgagemarketanditscontinuingnegativeconsequencesforrealizingtheAmericandream.Thefollowingchartfromanarticleentitled“TheInequalitythatMatters”byTylerCowenillustratestheMagnitudeofcontinuinginequality.