American Amnesia: How the War on Government Led Us to Forget What Made America Prosper Kindle Edition

American Amnesia: How the War on Government Led Us to Forget What Made America Prosper. Jacob S. Hacker and Paul Pierson. 2016.

The first half of the Twentieth Century was characterized by economic extremes that included marked inequality at the turn of the century, severe economic collapse with the Great Depression, and recovery by enormous, debt-fueled World War II spending. This was followed from the 1940s to the 1970s by a brief Goldilocks just-right period when a mixed economy (democratic capitalism) not only made the US rich by providing robust growth but also avoided increased inequality by sharing gains at all levels of income. The mixed economy that made this possible was a combination of market forces to generate growth and government action to correct for the many predictable market failures that result from misalignment of investor’s self-interest and the public interest.

A key component of the success of the mixed economy was bipartisan support for the active role of government, including from the leading Republicans and business leaders of the day, such as Eisenhower, Nixon, GE’s Owen Young, and GMs Charlie Wilson. These leaders supported collective bargaining, extensive social insurance, a reasonable social safety net, provision of crucial public goods, and interventions tackling market failures. Government activity during this Goldilocks period included redistributive progressive taxation, heavy investment in education and infrastructure, dominant investment in basic science and computer science, administration or oversight of social insurance, regulation of business and finance, and much more.

Government action contributed enormously to the strong economic growth of this period. Increased productivity is the source of the growth of per capita GDP, and technical change is the source of most increased productivity (88% 1909-49). Most of the basic science that led to this technical progress during the period was funded by government. The US Defense department created the internet and provided funding and the biggest early market for many high tech items like computer chips and integrated circuits. The US government funded 18 of the 25 biggest advances in computing technology in the critical years of 1946-65, and 60-70% of university computer science and EE research in the 1970s to the 1990s. Government funding of infrastructure and education also contributed substantially to increasing productivity. The federally funded interstate highway system alone increased productivity by one-third in the late 1950s and one-fourth in the 1960s.

Government actions to prevent or cushion the effects of many market failures were a major source of capitalism’s legitimacy during the years of the mixed economy and created a non-socialist alternative to harsh laissez-faire systems. Even Friedrich Hayek in The Road to Serfdom saw no reason “why the state should not be able to assist the individual in providing for those common hazards of life against which, because of their uncertainty, few individual can make adequate provision….The case for the state’s helping to organize a comprehensive system of social insurance is very strong.” Hence, where markets failed to do so, government worked to prevent increasing inequality, provided collective goods, regulated against externalities like pollution and excessive financial risk, protected consumers and investors from corporate predation and their own myopic behavior, and provided social insurance.

So, what happened? What kind of American amnesia allowed the strong growth, widely shared gains, and decreased national debt (from 129% to 30% of GDP) of the mixed economy of the 1940s-1970s to be discarded in favor of weaker growth, gains almost entirely to the rich, and markedly increased national debt (from 30% to 100% of GDP) with market liberalism? Unfortunately, inflation and stagnation of the 1970s provided the opportunity for powerful economic interests to pursue tax cuts and deregulation to increase their fortunes by pressing for the shift to market liberalism. In retrospect, this shift did little to address the causes of the economic turmoil of the 1970s. The inflation was related to the 1973-4 OPEC oil embargo, Johnson’s earlier guns and butter spending, and Nixon’s loose monetary policy prior to reelection. The stagnation was related to slowing of post-war expansion, greater competition from recovering trading partners, and Carter’s appointment of Paul Volker to control inflation by raising interest rates.

The right wing extremist libertarian Koch brothers, Charles and David, played a leading role in creating this antigovernment shift that targeted the mixed economy. Beginning in the 1970s, they brought together many of the nation’s wealthiest families into a rich people’s movement with a political infrastructure that rivals—and in some ways surpasses—that of the GOP itself. This organization now includes hundreds of nonprofit foundations that funnel hundreds of millions of dollars of tax-free, untraceable “dark money” to massive campaign contributions and lobbying. This system was enhanced by financing the legal campaign that led to the Citizens United decision to remove limits for corporate donations to these foundations and PACs.

The Koch network also invested heavily in intellectuals, university institutes, think tanks, and right wing media to shape public opinion. The Koch’s secretive semiannual donor summits raised $889 million for the 2016 elections and were attended by many right wing billionaires, media celebrities, politicians, and even two Supreme Court justices. Enormous sums were also raised by allied but separate groups like Karl Rove’s PAC American Crossroads, which had a budget of $3oo million for the 2012 elections.

Business leaders and associations were also captured by this right wing antigovernment wave. A widely circulated 1971 Lewis Powell memo (from the corporate lawyer and later Nixon Supreme Court justice) was a very influential blueprint for extensive transformation of US politics, academia, and media to serve right wing business agendas. The Chamber of Commerce switched course from relatively nonpartisan business advocacy to open collaboration with the GOP and extreme policies when Thomas Donohue became president in 1997. The chamber registered $1.1 billion in lobbying outlays from 1998 to 2014 and also spent additional large sums on Republican campaign contributions and efforts to influence the nation’s legal system. Of course, corporations also make direct political expenditures. From 1998 to 2014, FIRE (finance, insurance, and real-estate) alone spent $6 billion on lobbying and $3.8 billion on campaigns.

The Chamber now essentially engages in political money laundering when it disguises the self-serving nature of donations from corporations and the superrich by redirecting them without attribution to their real targets. Donohue said, “I want to give them all the deniability they need.” For example, the health insurance industry silently transferred $102 million by this route to fight health care reform while negotiating publicly with the Obama administration. Many of the nonprofit foundations of the Koch network, such as Donor’s Trust and Freedom Partners, do the same thing. For example, three-fourths of $558 million donated for climate change denial was untraceable due to use of these conduits (Jane Mayers, Dark Money).

The third leg of this attack on the mixed economy was the transformation of Republicans from a center right party that believed in compromise for fair governance of multiple constituencies to a radical right party that created dysfunctional government to obtain total victory for one constituency only—the rich and powerful. From 1994 on, the more a tax fell on the wealthiest Americans, the more important it was to cut it—particularly the estate, dividend, and capital gains taxes and the top marginal tax rate.

During this time Republicans purged their ranks of many of their own moderates, routinized filibustering to block all majority party initiatives, provoked repeated government shutdowns, impeached President Clinton, resorted to mid-decade gerrymandering, systematically attempted to disenfranchise voters unlikely to vote for the GOP, refused to raise the debt ceiling to finance spending already appropriated, and blocked appointments of many federal judges and all appointments for some statutorily established bodies. Republican appointees to the current Supreme Court (before the death of Scalia) are four of the six and one of the ten most conservative in the last seventy-five years.

Why would Republicans want to move so far to the right? To begin with, the Republican base is becoming older, whiter, more rural, and more male. Before the 1960s, conservatives were divided between Democrats in the South and Republicans elsewhere. The Civil Rights Act of 1964 changed that. Within a generation, southern conservatives changed from Democrats to Republicans at least partly from racial antipathies easily pandered to by ostensibly race-neutral language conveying racially charged messages. Other catalysts for Republican transformation are Christian conservatism, polarizing right-wing media, and growing bankrolling by business and the wealthy. Key components of the well-funded right-wing propaganda machine include Rupert Murdoch’s Fox News, built by Roger Ailes, a former consultant to Republican candidates, and conservative talk radio that dwarfs on-air minutes of liberals by more than 10 to 1.

The two major figures within the Republican Party for its transformation were Newt Gingrich and Mitch McConnell. Gingrich’s strategy was to make bipartisan government dysfunctional to create misdirected voter anger against it and shift control to his antigovernment Republicans. In a 1988 speech, he said, “This war has to be fought with a scale and a duration and a savagery that is only true of civil wars.” His PAC sent out tapes to Republicans telling them how to demonize Democrats, including by a long list of “contrast words”: betray, corrupt, sick, decay, incompetent, disgrace, traitors, pathetic, obsolete. McConnell knew that voters would punish and reward politicians for events they have no control over, including failure of their opposition to play by the norms. Hence, he worked to deny even minimal Republican support to Obama by unprecedented use of the filibuster, procedural delay, and protracted bad-faith negotiation. Supporting roles are described for several other Republicans, including Tom DeLay, John Boehner, Paul Ryan and organizers of the Tea Party.

Parties that become too extreme on the major issues of the day are supposed to lose. So why are Republicans winning even as middle of the road voters remain moderate? Turnout favors the GOP, whose affluent and elderly are more likely to vote than younger and minority Democrats, some of whom experience GOP-directed voter suppression. The increasingly rural base of the GOP is favored in all federal elections. With two senators per state, the smaller rural states with one-sixth of the population control one-half of senate seats. This same pattern contributes to the rural bias of the Electoral College, for which states are assigned one vote for each senator and for each congressman. After the 2014 election, Democrats had won the majority of votes for all seated senators but had only a 46 to 54 minority of seats. In the last five presidential elections (one after this book was written), Democrats won the general election four times but the presidency only twice because of the Electoral College. For the House of Representatives, Democrats won 51% of the vote but only 46% of seats in 2012 due to gerrymandering and higher percentages of Democrats packed into urban districts.

According to Mann and Ornstein (It’s Even Worse Than It Looks), the first step in dealing with dysfunctional government and the overthrow of the mixed economy is to understand the origins of the problem. Seeing Republicans and Democrats as equally at fault superficially suggests objectivity, but it’s an abdication of responsibility. As they wrote:

"However awkward it may be for the traditional press and nonpartisan analysis to acknowledge, one of the two major parties, the Republican Party, has become an insurgent outlier—ideologically extreme; contemptuous of the inherited social and economic policy regime; scornful of compromise; unpersuaded by conventional understanding of facts, evidence, and science; and dismissive of the legitimacy of its political opposition. When one party moves this far from the center of American politics, it is extremely difficult to enact policies responsive to the country’s most pressing challenges."

Unfortunately, the prospect of sensible reform of our political dysfunction is likely to depend on a series of GOP electoral defeats. When conservative business leaders like the Koch brothers invested in Cato, Heritage, AEI, and other intellectual weapons of the right, they were playing the long game. When Gingrich and McConnell developed a strategy to tear down American government to build up GOP power, they were playing the long game. Those who believe we must rebuild a mixed economy for the Twenty-first Century need to play the long game, as well. Americans must remember what made America prosper.

America’s “mixed economy,” in which the private sector and the government each do what they do well has been the key to the most successful economy in history. The nation pulled together in the second world war and that was followed by a few decades of phenomenal growth in the private sector and an expansion of public programs that were beneficially complementary to the private sector. The private sector performs better when the government is functioning well.

In recent decades the balance of the mixed economy has tipped, largely due to the infusion of antigovernment ideology into our politics. Instead of cooperating in perpetuating what has worked well, we have become highly polarized with control being assumed by the plutocracy whose primary tool has become government obstructionism. By suppressing the government role in public programs and regulation we are seeing a deterioration in incomes, retirement plans, health care affordability, infrastructure maintenance, and a failure to improve our education systems, just to mention a few.

A well balanced mixed economy works for everyone - individuals and families, and businesses. It even works well for the plutocracy, although it would slow, though not eliminate, the transfer of wealth from hard working American families to the billionaires at the top. Libertarians who live in the Ayn Rand fantasy world (Hard Randians) would continue to complain, never quite understanding the important complementary role that government does play in making this a better society for all of us.

On reading “American Amnesia” you will understand why we have to abandon the politics of polarization and join together in supporting the appropriate roles of markets and our government in incentivizing a properly balanced mixed economy that in the past had served us so well. It can do so again.

More Americans need to become informed, involved citizen activists. Unfortunately, it now requires two or more full-time incomes to support a modest lifestyle that includes a roof over one's head and food on the table. Who has time to become either informed or involved in politics? Hence the biggest mouth, the loudest, most annoying and usually least competent lout in the room (or on the political stage) wins. Need proof? President Trump. Not even Barnum and Bailey could withstand that level of competition!

With Republicans frothing at the mouth to pull the pillars of every governmental agency to rubble, this book serves as an important reminder of how America gained its success: a strong government investment in public institutions and research that supplemented private enterprise and protected consumers. This is not an argument in favor of "big government," rather this book makes a firm argument that, after decades of ideological reactionary assault, we have forgotten that a strong government harnesses and focuses the private economy; that government and private market aren't at war with each other, a government creates a private market. Its best analogy is that Americans must treat the private market like a hand's nimble fingers and the government as the strong but less skillful thumb. A hand of all fingers would be wild and uncontrolled while being all thumbs would be clumsy and inefficient. A proper combination of agile fingers with a strong, protective thumb gives America its most balanced and optimized economy. Forgetting the advantages and protections of government will lead to greater economic turbulence, inequality, fraud, and vulnerability. I would be wary of pulling a building down if you don't want to be caught in the rain.