Companies were allowed to slash jobs and wages, cut benefits and shift risks to employees (from you-can-count-on-it pensions to do-it-yourself 401(k)s, from good health coverage to soaring premiums and deductibles). They busted unions and threatened employees who tried to organize. The biggest companies went global with no more loyalty or connection to the United States than a GPS device. Washington deregulated Wall Street while insuring it against major losses, turning finance--which until recently had been the servant of American industry--into its master, demanding short-term profits over long-term growth and raking in an ever larger portion of the nation's profits. And nothing was done to impede CEO salaries from skyrocketing to more than 300 times that of the typical worker (from thirty times during the Great Prosperity of the 1950s and '60s), while the pay of financial executives and traders rose into the stratosphere.
It's too facile to blame Ronald Reagan and his Republican ilk. Democrats have been almost as reluctant to attack inequality or even to recognize it as the central economic and social problem of our age. (As Bill Clinton's labor secretary, I should know.)The reason is simple. As money has risen to the top, so has political power. Politicians are more dependent than ever on big money for their campaigns. Modern Washington is far removed from the Gilded Age, when, it's been said, the lackeys of robber barons literally deposited sacks of cash on the desks of friendly legislators. Today's cash comes in the form of ever increasing campaign donations from corporate executives and Wall Street, their ever larger platoons of lobbyists and their hordes of PR flacks.
The Great Recession could have spawned another era of fundamental reform, just as the Great Depression did. But the financial rescue reduced immediate demands for broader reform.
Obama might still have succeeded had he framed the challenge accurately. Yet in reassuring the public that the economy will return to normal he has missed a key opportunity to expose the longer-term scourge of widening inequality and its dangers. Containing the immediate financial crisis and then claiming the economy is on the mend has left the public with a diffuse set of economic problems that seem unrelated and inexplicable, as if a town's fire chief deals with a conflagration by protecting the biggest office buildings but leaving smaller fires simmering all over town: housing foreclosures, job losses, lower earnings, less economic security, soaring pay on Wall Street and in executive suites.
Much the same has occurred with efforts to reform the financial system. The White House and Democratic leaders could have described the overarching goal as overhauling economic institutions that bestow outsize rewards on a relative few while imposing extraordinary costs and risks on almost everyone else. Instead, they have defined the goal narrowly: reducing risks to the financial system caused by particular practices on Wall Street. The solution has thereby shriveled to a set of technical fixes for how the Street should conduct its business.
What we get from widening inequality is not only a more fragile economy but also an angrier politics. When virtually all the gains from growth go to a small minority at the top -- and the broad middle class can no longer pretend it's richer than it is by using homes as collateral for deepening indebtedness -- the result is deep-seated anxiety and frustration. This is an open invitation to demagogues who misconnect the dots and direct the anger toward immigrants, the poor, foreign nations, big government, "socialists," "intellectual elites," or even big business and Wall Street. The major fault line in American politics is no longer between Democrats and Republicans, liberals and conservatives, but between the "establishment" and an increasingly mad-as-hell populace determined to "take back America" from it.
When they understand where this is heading, powerful interests that have so far resisted fundamental reform may come to see that the alternative is far worse.
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