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The Oligarchy in America Today

David Hurn/Magnum Photos
A parade in Fountain Hills, Arizona

What’s missing too, especially in many of the book’s vignettes about business, is some explicit consideration of counterfactual possibilities. Smith’s argument is that, in one case after another, executives could have made more generous and less self-serving choices instead of the ones they made. But this argument requires an analysis of what consequences would have ensued if those more worker-friendly choices had been made.

For example, Smith tells how CEO Al Dunlap (who proudly styled himself “Chainsaw Al”) slashed payrolls first at Scott Paper and then at Sunbeam. Smith also notes that both companies nonetheless faltered: Scott Paper was acquired by Kimberly-Clark, and Sunbeam went bankrupt. What would have happened at these companies if Dunlap had instead maintained their workforces? Would they have done better? Or simply failed sooner? (Moreover, Smith’s view that these and similar actions at many other companies were a way of systematically favoring shareholders over workers needs to confront the fact that, for American business as a whole, the past fifteen years have been a period of exceptionally poor returns on common stocks. His argument might be that if CEOs had made more worker-friendly choices, stock returns would have been even worse, but he doesn’t say.)

One plausible view is that the two movements in the US income distribution that Smith treats in tandem—the gargantuan increase in the pay of top executives and the stagnation for almost everybody else—have different explanations. At the top, the “U-turn in the ethos of US business leaders” that Smith describes may well have led executives to abandon the restraint of a generation ago and take for themselves whatever the market will bear. (And, importantly, the glaring weakness of corporate governance in the United States—especially the failure of boards of directors to exercise independent judgment and control—means that the “market” will bear a lot.) The stagnation for practically everyone else seems more likely a product of changing technology, globalization, and other such forces, as conventional analysis would suggest. But that’s an economist’s view, not what Smith argues.

The absence of an explicit counterfactual argument weakens some other, more specific aspects of the book’s analysis as well. For example, Smith highlights the shift, throughout much of American business, from traditional defined-benefit pension plans to 401(k) and other defined-contribution plans—a change that he rightly calls “a monumental transformation for the American middle class.” But just what was the transformation? What Smith emphasizes is that the money companies contributed toward the old-style defined-benefit pensions didn’t appear as a deduction from employees’ paychecks, while what employees now contribute to their 401(k) accounts does. Smith interprets this difference to mean that “there was a huge shift in costs from employers to employees.”

It’s possible that this was so. But it’s also possible that under the old-style plans firms viewed what they put into their pension funds as part of their cost of payroll and accordingly paid workers less, so that in effect the employees were really paying all along. (By the same argument, most economists think that over the long run employees end up paying both the part of the Social Security payroll tax that comes out of their paychecks and the employers’ contribution.) If so, then what really matters about the move to 401(k) plans is the shift of risk from firms to their workers, not so much a shift in costs.

There is certainly room to argue the point, and presumably the truth lies somewhere in the middle: wages are lower when firms contribute to pension plans, but probably not dollar for dollar. But the force of Smith’s argument here depends on just where in the middle the truth is, and he offers no discussion of the matter. The same point, with analogous logic, applies to his discussion of the newer move from employer-provided to worker-bought health insurance.

Smith’s case is clearer when it comes to choices in our public policy. No one denies the rightward shift in American economic policy over the last four decades; conservatives hail the “Reagan revolution,” while liberals decry it. Most people understand that, in a political system like ours, changes in policy take place because someone campaigns for them, either publicly or directly with current and would-be officeholders. Most people understand too that much of that campaigning, again both the public part and what we don’t see, costs money that has to come from somewhere. The rightward shift that Smith documents fits squarely within the mold of prior political movements throughout America’s history as an independent republic.

Smith proposes to counter this shift with a new political movement—“a mass movement at the grass roots,” he says, that will amount to “a new populist rebellion.” Who Stole the American Dream? concludes with a ten-point plan to “put a middle-class agenda into law.”

The first eight points, revolving around various aspects of economic policy—rebuilding the nation’s infrastructure (both for the sake of the infrastructure to be built and even more so for the jobs that building it will create), tax credits and other devices to encourage research and manufacturing, middle-class-oriented tax reform, reduced defense spending, and the like—are mostly standard center-left Democratic Party talking points. One can question how effectively the United States can “push China to live up to fair trade,” or whether the tools at our government’s disposal can do much to spur innovation by business. In light of all the jobs that the Pentagon budget creates, not just in the uniformed services and on the Defense Department’s civilian payroll but at weapons manufacturers and military contractors of all varieties, it is also not obvious that a large reduction in defense spending would benefit middle-class incomes and employment. But for the most part the ideas Smith recommends are straightforward and familiar.

The novelty in his agenda—and the part of it that makes important his account of America’s widening inequality as the outcome of a conscious strategy—lies in his final two points: political reforms designed to “rebuild the political center” (for example, open primaries, online voter registration, computerized voting), and a “rebirth of citizen activism” involving “direct political action by millions of ordinary Americans.” Recalling the civil rights movement of the 1960s, and before that the veterans’ bonus marchers of the 1930s, Smith wants his fellow citizens to “show up at town meetings with members of Congress; get out on Main Street and demonstrate for jobs and homes; head for the state capital; take the bus or train to a march on Washington.” His goal is for “average Americans” to

stage rallies and protest marches and put up tent cities on the Washington Mall that make it impossible for Congress and the White House to ignore the needs and demands of ordinary people.

This call to arms raises two questions. First, as Smith acknowledges, America already has what looks something like the kind of political movement for which he’s calling: the Tea Party. It’s of course not what Smith has in mind. “The Tea Party looked like a populist movement,” he writes, “but when its profile emerged, it was not a movement of average Americans.” Smith cites surveys showing that Tea Party members are “predominantly white, male, older, more college-educated, and better off economically than typical Americans” (so far they sound like, say, readers of The New York Review of Books), and that politically they are “far to the right of average Americans.”3 And their agenda is very different from his: “to slash the size of government…without touching tax breaks for corporations and the wealthy.” Smith instead wants what he would consider a genuine populist movement, one that will push what he sees as a true middle-class agenda. Even so, the fact that there is today a growing mass political movement, and that it looks so different from the one Smith seeks, presents a challenge not just to his practical goal but to his analysis of what Americans want.

And second, at the practical level, apart from urging his fellow citizens to attend town meetings and erect tent cities, Smith does not say anything more concrete about who should do what to bring about this “modern political crusade by average Americans.” He is certainly entitled to feel that writing Who Stole the American Dream? is his contribution to that effort. But otherwise he simply assumes that the mere continuation of economic stagnation for the majority of Americans while the well-positioned few claim virtually all the fruits of what modest overall growth we achieve, together with the increasingly sorry spectacle of the dys- functional politics that keeps this process in place, will be sufficient to set off the “new populist rebellion” for which he calls.

For the past thirty years Americans have been told that if we cut tax rates for those at the top, cut benefits for those at the bottom, and eliminate regulation on business, in time we will all benefit. The promise has proved false, not to mention self-serving for many of those who have made it. Between 1980 and 2010, our median family income rose by only 14 percent; for this period as a whole, it fell if we leave aside 1993–2000, when a different approach prevailed. Smith clearly hopes that if “the slow, poisonous polarization and disintegration of our great democracy” continues, and we keep on “sliding into an economic and political oligarchy,” the public will be moved to change course. Evidence of such stirrings, alas, remains to be seen.


The ‘Dominant Power in Washington’ November 22, 2012

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    For a detailed examination of the Tea Party’s supporters, based on survey data as well as interviews, see Theda Skocpol and Vanessa Williamson, The Tea Party and the Remaking of Republican Conservatism (Oxford University Press, 2012). 

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