Posted: April 16, 2007
political party divided against itself can stand, actually, for a long, long time. The Democratic Party has been of two minds about populism for more than a century. It likes the populist's righteous anger on behalf of the common man and against the rich and powerful. At the same time, the party is nervously aware that populist anger has rarely stayed confined to this politically acceptable target; it has a dismaying tendency to erupt in religious fundamentalism, xenophobia, anti-Semitism, or racism. Worst of all, populism's targets can include liberal reformers, as when George Wallace stirred up crowds in the North and South with rhetoric about "overeducated, ivory tower folks with pointed heads looking down their noses at us."
As they head into the 2008 elections, the Democrats are preparing to give populism another whirl. In his second presidential campaign John Edwards is reprising the themes he road-tested during his first, when he talked about "two Americas," one that "does the work, the other that gets the reward." In January the Democratic congressional leaders selected Virginia's newly elected senator, Jim Webb, to give the party's response to President Bush's State of the Union address. The speech won rave reviews from the party's journalistic constituency. Articles in the New Republic, the Nation, and the American Prospect immediately touted Webb as a candidate for vice president or even president in 2008, despite the fact that he had never held elective office before 2007. Newsweek's Jonathan Alter praised the "muscular" and "tough-minded liberalism" Webb displayed, saying "it pointed the way to a revival for national Democrats."
The Democrats knew what to expect from Senator Webb's speech, having followed his campaign and devoured his article in the Wall Street Journal a few days after his election. "America's top tier has grown infinitely richer and more removed over the past 25 years," he wrote. This "ever-widening divide" between the rich and the rest has engendered a "sense of entitlement...bordering on hubris" among the elite, including "an overt lack of concern for those who are falling behind." Meanwhile, "the average American worker is seeing a different life and a troubling future," marred by "stagnant wages and disappearing jobs."
Coping with the Situation
Webb expressed the resentment central to populism, the belief that any economic story with victims must also have villains, ones who can be found in country clubs and boardrooms. This anger at the rich and big corporations reflects the belief that accumulating great wealth is indecent, an activity that pits people against one another, annihilating hopes for a society bound together by cooperation and fraternity. It was voiced by William Jennings Bryan, who told the Democratic convention in 1896 that America needs a leader like Andrew Jackson to stand "against the encroachments of organized wealth." Forty years later, Franklin Roosevelt campaigned for reelection as the nemesis of the "forces of selfishness and of lust for power" that had "created a new despotism."
Populism is, furthermore, deeply skeptical about the claim that capitalism's inequality and competitiveness is redeemed by its productivity. "Trickle-down economics didn't happen," wrote Senator Webb. In the same spirit, President Roosevelt said that freedom and opportunity should not be "a license to climb upwards by pushing other people down."
FDR's choice of words captured the 1930s' zero-sum pessimism. Outside the Roosevelt Administration, populists like Francis Townsend, Huey Long, and Upton Sinclair offered sweeping plans to redistribute wealth, attracting thousands of enthusiasts whose support FDR wanted and whose extremism he feared. Inside the administration, many New Dealers embraced the idea that America would have to learn to make the best of a "mature economy." "We are more or less through the heavy task of equipping the continent with giant capital expenditures," the economist Alvin Hansen wrote in 1939. Another economist who held several important posts in the administration, Lauchlin Currie, wrote that same year, "The economic crisis facing America is not a temporary one. The violence of the depression following 1929 obscured for some time the fact that a profound change of a chronic or secular nature had occurred." FDR himself consistently said that his goal was to raise national income to "ninety or one hundred" billion dollars; the figure in 1929 had been $87 billion.
The New Dealers were anything but gloomy about discovering that America was stuck on an economic plateau. To avoid the ruinous consequences of cut-throat competition for shares of stagnant markets, a mature economy would require comprehensive government regulation and planning. The New Dealers thought that America's economic prospects were somber, but that they had lots of good ideas for coping with the situation.
The modern populists think that both the economy and inequality will continue to grow, but can't hide the fact that they don't know what to do about it. Democrats have complained about the asymmetry of the modern economic expansion since it began. In 1984 Walter Mondale told the Democratic convention that "the help-wanted ads are full of listings for executives, and for dishwashers—but not much in between." Twenty-two years later, Senator Webb told the country the same thing: the middle class "is losing its place at the table," as both workers and white-collar professionals see their jobs disappearing.
Beyond the Middle Class
It's hard to understand how the middle class can spend a quarter-century disappearing without...well, disappearing. In fact, the middle class is shrinking only in the sense that a growing portion of the population is, in economic terms, moving up from it, instead of falling down and out. Newsweek's Robert Samuelson scrutinized the Census Bureau's figures on household income in 2004, concluding, "They certainly don't indicate that, over any reasonable period, middle-class living standards have stagnated. Mostly, the middle class is getting richer." In 2003, according to Samuelson, 15% of U.S. households had pre-tax incomes over $100,000, and another 29% received between $50,000 and $100,000. In 1990 the comparable figures were 10 and 30% (using constant 2003 dollars). In 1980, they were 6 and 29%.
"When I graduated from college," Senator Webb told his television audience, "the average corporate CEO made 20 times what the average worker did; today, it's nearly 400 times." Webb graduated from Annapolis in 1968, so has obvious personal reasons to choose that year as reference point. (He may also have political reasons to exaggerate the pay gap between today's executives and workers; the Economist argues that a better measurement is 120, not 400.) But 1968 was also a significant moment in American economic history, near the end of the long economic boom that began after World War II.
The soaring prosperity of that era was, of course, a massive refutation of the "mature economy" hypothesis. Several ironies are at work here. First, Democrats who had advised Americans to accept the reality of an economy that would never grow again pivoted quickly to claim credit for the boom, priding themselves especially on the adept Keynesian management of aggregate demand. Second, instead of celebrating the higher standard of living afforded to millions of Americans by the strong economy, many Democrats spent the 1950s deriding the Affluent Society's conformity and sterility, before spending the 1960s condemning the middle class's racism and callousness.
Arthur M. Schlesinger, Jr., conveyed both ironies when he complained, after Dwight Eisenhower defeated Adlai Stevenson in 1952, "Having been enabled by Democratic administrations to live like Republicans, the new suburbanites ended up voting like Republicans." Stevenson himself, according to Michael Barone, was "the first leading Democratic politician to become a critic rather than a celebrator of middle-class American culture," a candidate whose reply to a supporter who enthused that all thinking Americans were for him was, "Yes, but I need to win a majority." By 1965 the Nation's editors were all but pining for a new Depression: "The affluent tend to be mindless, shut off from reality, lost in a surfeit of silly possessions and sillier pursuits."
The final irony is that the postwar expansion, disdained by so many Democrats when it was going on, looms as a golden age in their rhetoric today. It has become the good boom—broadly encompassing, relatively egalitarian, congruent with expanding the New Deal framework. By contrast, the prosperous era that began in August 1982—when the Dow Jones Industrial Average closed below 777, one-sixteenth of its current level—is the bad boom. The "top tier" of speculators and corporate thieves has grown "infinitely richer," while growing numbers of Americans must work three fast-food jobs just to scrape together enough to pay the cable bill.
Instead of buttressing an ideology of managed prosperity, as the good boom did, the bad boom rests on the resurgence of capitalism as both a fact and a belief system. Globalization brings millions of additional producers and consumers into the market, thwarting government efforts to regulate economic activity. Ronald Reagan and Margaret Thatcher commended capitalism as both liberating and productive, which is bad enough; but it is the Soviet Union's demise that manifested most dramatically socialism's collapse. This collapse rendered pragmatic liberalism utterly incoherent: what is the point of clinging to the "vital center," if this means steadfastly splitting the difference between a viable alternative and a hopeless one?
The glowing reminiscence of the good boom is as unreliable as the mature economy theory that assured Americans such an expansion would be impossible. The chief mistake is wishing to recreate the roaring '50s and '60s by turning some dials on the economic policy machine. Senator Webb warned his Wall Street Journal readers that "political unrest" is sure to follow once American workers realize "that there are (and were) clear alternatives to the policies that have dislocated careers and altered futures." He does not, however, disclose what those clear alternatives are (and were), an omission supporting Jonathan Alter's claim that the "problem with the populist theme is that Democrats have no real remedies for the effects of globalization on the middle class."
Good Booms and Bad
Clarity begins by acknowledging that the quarter-century of extraordinary prosperity after World War II was the result of that era's extraordinary circumstances. To the long list of economic advantages America had enjoyed throughout its history, the war added a huge new one: the unprecedented devastation inflicted on the other warring nations. Unlike them, mainland America suffered no air attacks, witnessed no battles, and endured no civilian casualties.
America's economic preeminence in the postwar world was the inevitable result. "With 7 percent of the world's population in the late 1940s," wrote James T. Patterson in Grand Expectations (1996), a history of the postwar United States, "America possessed 42 percent of the world's income and accounted for half of the world's manufacturing output. American workers produced 57 percent of the planet's steel, 43 percent of electricity, 62 percent of oil, 80 percent of automobiles." These enormous advantages were highly durable. The American Challenge, written in 1967 by Jean-Jacques Servan-Schreiber, argued that it was urgent for Europe to emulate America economically, in terms anticipating the books and articles in the 1980s that warned Americans of the need to emulate Japan. The American Challenge sold 600,000 copies in France and another 2.5 million copies in the rest of the world.
Postwar America saw the zenith of what Michael Barone has called "Big Unit America." In it, Big Government forged accommodations between Big Business and Big Labor to produce Big Prosperity. Or, as Arthur Schlesinger, Jr., wrote happily in the foreword to The American Challenge, America prospered as "a highly organized economic system, based on enormously large units, nourished by an industrial-academic-governmental complex and stimulated, financed and guided by the national government."
Possessing the biggest industrial machine in the world, America's overriding imperative during the good boom was to keep it running. "Corporate recruiters flocked to the campuses," wrote Patterson, "sometimes making reservations a year ahead to be sure of having a place to interview." Workers without bachelor's degrees prospered, too. The day after leaving high school (not necessarily by graduating), a young man could go to the employment office at the factory where his father or uncle worked, sign up for an assembly line job, and look forward to securing a place in the expanding middle class. This sense that Americans could just climb on the escalator was the most distinctive feature of the good boom. Today, even for workers who are objectively better off than their parents, individual economic standing feels far more tenuous, fueling populist resentments about the bad boom.
In the '50s and '60s, the demand for labor strengthened the union movement; companies preferred concessions to strikes, confident they could make up the cost of increased wages and benefits through increased sales. Today's populists mistake this consequence of the good boom for a cause. As Noam Scheiber wrote in the New Republic, "even powerful industrial unions have proved little match for the forces of globalization and technological change. The heavily unionized German manufacturing sector has lost about 25 percent of its jobs since 1991." Hopes that protectionism can bring back the economy of 1968 are equally unrealistic. America's textile industry is "one of the most protected in the country," says Scheiber. "Yet, over the last decade, it has been hardest hit by international competition, shedding about half its jobs."
During the good boom, pervasive competitive pressures were held in abeyance. By the late 1960s, however, Western Europe and Japan had largely recovered from the war and East Asia was becoming a commercial and industrial power. Profit rates for American manufacturers subsequently were cut nearly in half, from 24.6% in the 1960s to 13% in the '80s, according to the economic historian Robert Brenner.
During the bad boom, intense pressures to secure increasingly evanescent competitive advantages have created a global hiring hall. The increased supply of workers bidding to sell generic labor inputs drives down their price. If a bolt can be tightened on an assembly line in Juarez or a customer service phone call answered in Bangalore, Americans are going to find it harder to sell those services at the same price; or to argue that the superior quality of domestic bolt-tightening and call-answering justifies a higher price.
By the same token, competition has bid up the price of labor inputs that make a unique and significant contribution to profitability. If employing even a marginally better chief executive or bond trader can generate millions of dollars of extra profits, the demand for such talents is going to elevate their price. As one would expect in an age of globalization, this new correlation of economic forces is not a uniquely American phenomenon. The Economist recently reported that all modern nations "have displayed the same pattern: widening gaps between managers and workers...."
Do No Harm
None of these considerations impresses Senator Webb. "Incestuous corporate boards regularly approve compensation packages for chief executives and others that are out of logic's range," he wrote—the entirety of his explanation for growing inequality. It's an assertion that not only ignores most of the relevant facts, but is wrong about the one it pinpoints. If incestuous boards were the problem, executive pay ratios should have been considerably higher during the good boom, when the boardroom was a much cozier place, than today when "boards can be in no doubt that the chief executive's pay will...be subjected to minute scrutiny," in the Economist's words.
The first step toward wise policy in an age of highly competitive, market-driven prosperity is to abandon selectively informed nostalgia for the good boom. The second is for politicians and commentators to follow the Hippocratic maxim to do no harm. Policies impeding the market forces that have bequeathed our current prosperity would certainly diminish it. To be sure, there are sensible reforms that can improve the fluidity of labor markets while promoting workers' ability to enhance their skills and protect their health insurance and pensions. But when it comes to policy-making, "populist" has been a reliable synonym for "boneheaded." Andrew Jackson's triumph was the destruction of the Bank of the United States, which destabilized American monetary policy for 80 years until the creation of the Federal Reserve in 1913. William Jennings Bryan's free silver nostrum would have been disastrously inflationary and would have isolated America's economy from the rest of the world. The nation's military vulnerability in the 1930s was exacerbated by the work of the Senate's Special Committee Investigating the Munitions Industry. According to Stanford historian David M. Kennedy, the committee spent two years voicing, but never vindicating, dark suspicions that America had fought against Germany in 1917 for no purpose higher than to make the world "safe for Wall Street bankers and grasping arms manufacturers...the financiers and munitions-makers who harvested obscene profits from the war."
Under the circumstances, then, the fact that Senator Webb and the resurgent Democratic Party populists have no remedies for the problem of globalization is hardly a shortcoming. The real danger to American prosperity will occur when they start devising some.