101 of 106 people found the following review helpful:
5.0 out of 5 stars
Adds New Insight to Understanding the Middle Class' Economic Decline, November 12, 2007
Kuttner believes that the ultimate test of a democracy is whether it is possible for the people to throw out the governing party. He believes we are close to losing our democracy through domination of politics by big money, decline in participation by ordinary people, and the assault on basic constitutional liberties - as well as rigged rules and stolen elections. Meanwhile, our government has been failing to contain Islamic extremism, using foreign threats to undermine liberty at home, squandering global goodwill and our natural environment (the latter is close to reaching a point of no return), and jeopardizing our solvency.
Kuttner then goes on to present the usual statistics showing how wealth has become much more concentrated within the hands of a few over the last few decades. He goes on, however, to also explain why the middle-class' fate has been worse than most other statistics have portrayed. The bottom 80% own just 10.7% of the total value of stocks - including that contained in their pensions - not the large portion that their numeric participation might suggest.
At the same time, government statistics understate inflation. Housing prices doubled between 1996 and 2006, but the imputed rent figure used in the CPI increased only by one/third - thus, the true inflation rate should be stated as 4.2%/year, not the 2.2% reported. Similarly with improvements in product quality that may not be useful to most - eg. faster and faster computer that are used only for Internet and word-processing, never-ending new features on cell-phones - thus, further understating inflation's effect.
According to "The Two Income Trap" median wages and costs of necessities for families in the early 1970s vs. the early 2000s shows the earlier single-earner had more to spend, despite wives generally not working. Their current prevalent employment also eliminates the margin of security earlier families had - the ability for the wife to work if the husband was unable; thus, greater risk and rates of bankruptcy. (During the same period the chance that a family suffered a 20% drop in income in any year tripled, per Jacob Hacker.)
Continuing, families over the most recent decades have also lost much in health care coverage (both the number covered, and the quality of that coverage) and pension benefits. The latter often occurred via management making unrealistic projections of pension fund income, looting the "excess" funds, then canceling the benefit via bankruptcy or simple declaration when the stock market came back to earth.
Debt loads vs. incomes nearly doubled from 70% in the 1970s to over 130% today. Similarly, equity in homes has fallen to about 52%, from 85% in the mid-1950s (peak year). Withdrawals accounted for 9% of total disposable income by late 2005, and interest-only mortgages accounted for over half those taken out in 2004-2005.
Kuttner's primary interest lies in understanding why the average citizen has not risen up at the ballot box to reverse these happenings. He sees that Republicans have become so successful at tax-cutting (and deficit deepening) that Democrats are economically neutered by being reduced to balancing the budget. The bad news, however, is that Kuttner's explanations for voter apathy are not very compelling. Regardless, tax loads are shifting towards the middle-class - during the LBJ era corporations paid 4% of GDP in taxes, and now it's just over 1%. Social Security, at the same time, has become a regressive tax - 6.2% for those earning the minimum wage, vs. 0.03% for executives at $2 million/year.
As for Republicans' belief that the most successful in today's economy have earned their wealth, Kuttner notes that it more often is the result of abuse of power - crony boards of directors, tax-encouraged financial engineering (eg. hedge-fund managers), and others reaping the benefits of lobbyists - not "the market." (Examples of the latter: 1)Carlos Slim, the world's richest man, obtained most of his wealth through monopoly rights obtained to Mexico's telephone market through his friendship with the then President. 2)Similarly, Russia's plutocrats obtained great wealth through advantageous purchases obtained through helping then-President Boris Yeltsin. 3)CEO options (14% illegally back-dated, per one study) compensation is now about 9 times that from salaries + benefits + bonuses. 4)Other non-market facilitators of unearned wealth include lax enforcement of SEC regulations (encouraged by Congress), "independent" auditors colluding with management to rig books and ignore problems, government-arranged bailouts for investors in Mexico, Russia, Long-Term-Capital-Management, and sub-prime mortgages, and analysts serving as stock touts to bring underwriting business to their firms.)
Kuttner is not alarmed by "unfunded liabilities" associated with Medicare and Social Security. He points out that we will undoubtedly continue to spend billions/year in the future on the military, but nobody sees that as an unfunded liability. He proposes saving Medicare by expanding it to cover everyone - universal health care has lower overheads and pure Medicare costs (excluding the privatized portion) have risen slower than than the privatized portion.
On the important topic of "free trade," Kuttner is an exception to most economists, pointing out that the U.S. originally built its strong manufacturing sector behind high tariff walls, as did China, Japan, and Korea, and concluding that our manufacturing sector is now near collapse. He sees the coming devaluation as reducing out standard of living.
Finally, Kuttner sees both Republican and Democrat leaders tied to big business and continuation of the same problematic policies that enrich those at the top while undermining the remaining 80%. At the same time, too many voters fail to become informed and vote (pressures of two-income family) and are distracted by issues such as patriotism and homophobia.
Bottom Line: A very informative and important book, despite the author having obvious pro-regulation and social spending biases!
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21 of 23 people found the following review helpful:
4.0 out of 5 stars
The prognosis for the average American worker is mighty dim indeed!, December 26, 2007
Take a look around at the economic and political landscape in this country as we enter 2008 and it is really quite difficult to be optimistic about the prospects for the average American worker. You see most of us are not real estate developers, financial speculators or political insiders. Furthermore, while entrepreneurial opportunities still do exist in this nation not everyone is cut out to own their own business. Sadly, as more and more good paying jobs move overseas increasing numbers of Americans find little alternative but to work in offices, retail stores and in various other service industries for lower wages and fewer benefits than were available to workers just a generation ago. Yes, the sad truth is that despite impressive gains in productivity over the past quarter century the standard of living for most average workers has been steadily declining. At the same time the cost of the essentials such as housing, health insurance and sending your child off to college has skyrocketed. But be comforted by the fact that the cost of consumer electronics continues to come down! Looks an awful lot like bread and circus to me! So just what is going on here? In "The Squandering of America" author Robert Kuttner surveys the current political and economic landscape and serves up a pretty frank portrait of just what has been happening to workers in America. And frankly, unless changes are forthcoming in the near term all of us are probably in for a very rough ride.
In "The Squandering of America" Robert Kuttner points out time and again that many of the prerequisites for financial disaster are already in place. First and foremost there is too much money in the hands of too few people. Secondly, the repeal of the Glass-Steagall Act in the early 1990's paved the way for the rampant and irresponsible financial speculation that we have witnessed over the past 10 or 15 years. Kuttner also points to hedge funds and private-equity firms as major culprits in this deepening crisis. The author also accuses the leaders of both the Republican and Democratic parties of selling out the American worker for the benefit of Wall Street. The American government simply looks the other way as unfair trade practices shift more and more good jobs overseas to the delight of the speculators. It seems that our trade policy lacks the necessary focus and consistency that would protect Americanjobs and the interests of most of the American people in general.
Although Kuttner fails to mention his name in the book, Pat Buchanan was absolutely right when he warned us all of the folly of entering into NAFTA and GATT. Throughout the book Kuttner drives home his major point that a managed form of capitalism that reigns in some of these excesses is far preferable to the lassez-faire variety that has emerged in this country over the past 20 years. I found a good many of his arguments to be quite compelling.
Just in case you are still not convinced that there is a serious problem mushrooming among working class Americans I thought I would quote a portion of a paragraph from page 284 of "The Squandering of America". This passage seems to sum up the situation quite succinctly. "The middle class today has many of the same economic vulnerabilities as the working poor: the risks of losing jobs, pensions, incomes and health insurance; rising costs of college tuition and home ownership relative to income. With the middle class increasingly subject to economic vulnerabilities that used to be limited to the working poor, a class politics championing the bottom 80 or 90 percent is just what is needed." Now the elites in this country would have us all believe that these declining living standards are all our fault. I think most of us instinctively know better. The fact of the matter is that the deck has been stacked against most working Americans by unfair trade agreements as well as egregious financial speculation. The decline of living standards for most working Americans has been a slow but painful process that shows no signs of abating any time soon. If we are to reverse this situation it is up to the American people to educate themselves about these issues and demand change. Reading "The Squandering of America" would be a great way to quickly get up to speed on many of these important issues. While I certainly do not buy all that Robert Kuttner proposes in this book I think that the issues addressed here need to be part of a great national discussion about where this nation is heading. An important book! Highly recommended!
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24 of 30 people found the following review helpful:
5.0 out of 5 stars
Toward a More Broadly Shared Prosperity, December 15, 2007
Over the past three decades America's GDP has nearly doubled and unemployment remains fairly low. And if one listens to the evening financial news - other than, say, Lou Dobbs - we hear the chorus singing the praises of free-market capitalism. Robert Kuttner, co-founder of The American Prospect and the Economic Policy Institute, tells us these facts by themselves do not tell the whole story. Most of the economic gains have gone to the top 10%, and more yet to the top 1%. The median American family, however, has suffered a decline in living standards in the last 30 years. And most of the new jobs created in the last 10 years have been on the low-wage end.
A number of new books have appeared recently on the widening income gap. (Robert Reich's
Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (Borzoi Books) and Paul Krugman's
The Conscience of a Liberal are but two examples.) As in the books by Reich and Krugman, Kuttner points out that the income gap was the narrowest between the 1930's and the 1970's. This was a time of "managed capitalism." After the Depression and World War II people turned to government to solve their problems and the government did rather well. It created many of the institutions that regulated and guarded against the excesses of free-market capitalism. It created social insurance programs such as Medicare and Social Security which are now considered indispensible.
Kuttner argues that around 1980, with the election of Ronald Reagan, political power shifted from ordinary citizens to financial elites. The financial deregulation that followed has created many of the subsequent speculative excesses such as the savings and loan crisis, the dotcom bubble, the housing bubble, Worldcom and Enron. One need only look at the current subprime loan problems - a cause of the housing bubble - as an example of unregulated capitalism. Left to their own devices, lending institutions and borrowers will gladly agree to 1 or 2 percent "teaser" loans just to get the deal done. When they reset at higher and unaffordable rates presumably other creative financing schemes would be hatched. It was not forseen that housing prices would fall and no new schemes would be available. Do we need laws to protect us from ourselves? Apparently so. Free-market capitalists argued that the market would eventually sort things out, but they never realized it would actually put the entire market at risk.
Kuttner argues that if banks had been properly regulated such loans would never have been allowed. He is nostalgic for the days when a bank examiner went into a bank to look at its portfolio of loans to see which ones were not performing. That was then. Today loans are packaged and securitized in such elaborate and arcane ways that no one really knows how to regulate them or calculate the damage when there are massive defaults. Everyone seems to be clueless as to what to do next.
I tend to agree with Kuttner that a more managed form of capitalism is required. Not just in finance, but also in foreign trade. Chapter 8 on Trade and the National Interest was very good. Running $700 billion annual trade deficits may be good for corporate interests, but it doesn't do much for our national interests. We need fair trade not free trade. Other countries are eating our lunch in the name of free trade. Freetraders will tell you that the imbalance is natural, but that is naive.
I tend to disagree with Kuttner on the need for stronger unions. The globalization train has left the station, and unions will only be an obstacle to employment. (Look at our domestic auto industry: the non-union workforce is growing and well-paid. The union workforce is shrinking and asking for unrealistic benefits.) Instead we need universal healthcare and universal 401Ks that provide the benefits that unions traditionally provided.
"Managing capitalism" is a very tricky proposition - and very foreign to American ears - for no one has yet figured out how to do it. Too much or too little regulation can kill the market and the prosperity that it brings. Kuttner is calling for just the right amount of regulation that will once again narrow the income gap and bring about the broader-based prosperity that we had during the postwar years.
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