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The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity

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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!

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!

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'sThe 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.

This is a powerful enlightening book for those who have chosen to remain oblivious to our country's plummet. The only problem I have with it is the mistaken belief that the ballot box will help. It should be realized that voting is also now a commodity and under the control of the same 1 percent who have squandered America. Also, in understanding the "big business" machine, more needs to be said about the largest corporation in the world, Big Pharma. In Gangi's book, "Forget the Cures, Find the Cause," she delves into ways to "cure"some of these problems and reverse the current by taking charge ourselves, and not voting for those we think will be in charge of change.

Economists and policy prognosticators often make warnings only to watch them come true years later; leaving them jumping up and down hoping for an interview and the chance for a satisfying "told you so!" One must therefore suspect that somewhere someone really likes Robert Kuttner, whose book "The Squandering of America" comes just as the sort of free market driven melt down of which he warns is actually transpiring. Had Mr. Kuttner's book appeared a year earlier, many would have dismissed him as mad as he swam against the tide of anti-regulation/free market dogma which flows so freely through our economics and politics, amidst the melt down of the US mortgage market with its devastating potential, he seems nothing short of prophetic.

Mr. Kuttner, offers powerful arguments as to why proper regulation of markets far from damaging prosperity, leads to greater stability and wider dispersion of benefits. Indeed, he does a fine job comparing the economic melt down of the Great Depression, with much of its root in the near religious belief in the power of "self correcting markets" and the same mantras often repeated today, with similar results. As a case on point, Mr. Kuttner offers the unregulated derivatives market, with its increasingly complex instruments that few understand, of dubious economic benefit to any but a select few but with danger for the economy as a whole. As evidence for the potential of more regulated markets, he gives a good analysis of the economies of the EU, with their stable growth and more even benefits.

To be sure Mr. Kuttner's book is not without flaws. In the case of airline deregulation I not only disagree with his assessments, but think it distracts from the more central issue of the danger to the economy as a whole of unregulated financial markets - the former means less leg room and no food when I fly to the coast, the latter puts our economy one hedge fund collapse away from potential ruin. I also think Mr. Kuttner's understanding of politics is, at best, naïve and he fails to understand the complex motivations of middle class American voters who often vote against their clear economic interest.

Those interested in a deeper understanding of Mr. Kuttner's arguments can look to the work of the Nobel Prize winning economist Joseph Stiglitz, with his brilliant writings on trade and deficits. That said, Mr. Kuttner has made a valuable contribution to a discussion that American citizens need to be having.

Re-issued this November with a new preface, the author predicted a huge failure in the stock market, just before Wall Street took a huge nosedive and Congress planned its largest bailout ever. The author originally wrote warning of economic conditions in 1997, and the market fell in 2001-02.

Kuttner contents that the tremendous stock swings have not been due to Federal regulations, which he says are virtually nonexistent, but rather to the fundamentalist rightward swing that our politics and politicians have taken in the last eight years.

He writes extensively of Wall Street's history, saying that an unfettered market encourages insider trading and favoritism, and that the combination of laissez-faire government and big-bank and broker greed have given us an economy where credit card debt is soaring, with ordinary citizens no longer able to afford adequate health care, new homes or college educations for their children.

Kuttner backs everything up and writes how conditions today are ominously like those of 1929 just before the crash and the Great Depression. He says the country will need a return to some kind of stock market regulation-and he ties this to a return to basic American freedoms. Nor is he optimistic that this will happen soon. He cites scientific studies which show that while costs of such things as health care, education and housing have risen tremendously, middle/lower class real wages and earnings have stagnated at a level they had thirty years ago. Only the top 10 percent of this country got richer, he says, and the highest returns went to the top one percent of that.

With massive grassroots ` voting in this recent presidential election, it looks like most of the country is searching for a dramatic change in the way it does business and politics. It will give Kuttner's theories a unique test in the coming four years, to see if America can pull itself out of foreign fiscal debt, stop American jobs going overseas, and recapture those lost freedoms. Otherwise, he doesn't hold out much hope. It's a big order to ask of anyone.

The book's figures and studies support its contentions and will provoke a firestorm of debate among people who want to know "what went wrong."

Armchair Interviews says: The author is a political analyst, was a regular columnist with Business Week, a graduate of Oberlin College, and co-founder of The American Prospect magazine.

I have read several books which attempt to explain the current economic situation in the U.S. and around the world. Robert Kuttner's book, Squandering of America is the best of the bunch. Published in 2007, before the crisis hit, the book is precient in it's analysis of the changes that have taken place in the U.S. economy over the past thirty years and how the changes have resulted in a shift in the economic balance of power. He believes that this shift has produced an economy controlled largely by so called free market economic elites who have used political power to diminish contravailing forces that traditionally kept them in check. The result according to Kuttner, is an atmosphere of deregualtion, deunionization, and increasing inequality of incomes and opportunity. Kuttner also offers an analysis of how these changes have affected the world and discusses what he thinks might be done to rectify the situation. If you are interested in an overall view of our eocnomic problems from a Keynesian point of view this is the book for you.

In this hard-hitting (naming names), but profoundly human book, Robert Kuttner analyses the reasons why the US is very close to losing its democracy, not just by rigged rules and stolen elections, but by the domination of politics by big money, the decline of political participation by ordinary people and the assault on basic constitutional liberties (using foreign threats to undermine freedom at home).

Economics
The squandering of America is the result of the deliberate dismantling of a managed form of capitalism, guaranteeing broadly diffused prosperity, better economic efficiency and higher stability in the system. The dismantling was called free markets and free trade (better dirty free trade, because agricultural products are untouchables).
For R. Kuttner, rightly, free trade sacrifices the general interest for the self-interest of economic elites (`the class solidarity of insiders'). It resulted in a chronic structural trade deficit (making the US totally dependent on foreign banks), a collapse of the US manufacturing grid and the destruction of good wage contracts.
Free markets are not better, because they are in no way reliable for providing (full) employment, decent wages, education, health care, clean air and water, economic stability, safety and the honesty of financial agents.

Finance
Financial deregulation increased inequalities, reduced economic efficiencies and increased economic risks.
Extreme swings in retail gas prices, stealing of pension funds by take-over `artists' or disbursing 250B$ in fees for mutual fund managers between 1997 and 2002 while millions of investors suffered a net loss, can hardly be seen as financial efficiency.
As Robert (!) Triffin in the 1960s correctly predicted the fall of the dollar, Robert Kuttner predicts now a serious decline of the dollar and the general US living standard.

Government policies
The conservative recipe of cutting domestic spending, of hugely increasing military outlays and cutting taxes for the wealthy, diminished vastly opportunities (education), security (jobs, health care) and living standards for the vast majority of the population. The resulting huge budget deficits were to be `solved' by cuts in social spending.

Politics
Money is the prime political currency in the US. Politics are there to serve the money holders, not democracy. The Bush II Administration spent more effort on suppressing voting than on expanding it.
However, the ultimate test of a democracy is whether it is possible to throw out those in power. For R. Kuttner, the answer is YES. Therefore, real democracy should be revived. Mass quiescence is indeed a great convenience and a splendid political success for financial elites.

Robert Kuttner's brilliantly argued book is a must read for all those wanting to understand (and influence) the world we live in.

American commentator Robert Kuttner has written a very fine study of the USA's economy, an analysis that applies to Britain too. He proves that capitalism is now in absolute decline: its failure to invest in updating the USA's manufacturing industry is causing huge unemployment and cutting most Americans' living standards, education, health care, savings and pensions.

He shows how markets do not allocate resources efficiently, or efficiently deliver investment, health care, education, research or energy, or accurately price real assets. Most bank business used to be lending to firms, adding value; now only a tiny bit is - most is extracting fees and adding risk.

Finance capital reigns, living off speculation, `the fraudulent enrichment of financial insiders', stock manipulation, self-dealing, margin loans and short selling. Accountants charge for advice on how to cheat the Revenue. Corruption is the system.

Kuttner notes `the speculative, destabilizing, and ultimately deflationary influence of private capital flows'. Finance capital creates huge public deficits, the related national debt and ever-greater international borrowing. He describes finance capital's `cynical strategy of permanent structural deficits'. Tax cuts, not welfare costs, cause budget deficits. Wall Street puts `fiscal discipline' first, that is, ever more tax cuts for itself, ever deeper spending cuts for the public.

He warned, before the latest crisis began, "All the elements of a severe downturn are in place, and ... their common genesis is financial deregulation and speculation."

On globalisation, he observes, "the earlier limits on trade and on immigration had protected American workers from pressures to cut wages for either foreign or immigrant workers willing to perform the same work for less." But, "Once trade barriers fall, the sheer number of worldwide workers seeking employment depresses prevailing wages." Globalisation globalises low wages, weak unions, privatisation and de-regulation.

He proposes instead progressive taxation, social investment, worker representation and economic regulation. This populism is popular: most Americans want wealth distributed more equally, most want higher taxes on the rich. He argues for policies to benefit what he calls `the working middle class', 90 per cent of the population. We in Britain also need a democratic class politics, aimed at defeating the `financial elite'.

As a Japanese observer of all the current economic meltdown and political euphoria in the U.S. since the summer of 2007, I should have read this much earlier. I would even imagine that I could be translating this into Japanese now. The only regrettable part for me is a rather simplistic generalization of Asian countries, especially Japan and China, a mistake which is too often made by Westerners in general.