Since 2016, there has been a raging debate about the main causes of Donald Trump’s shocking victory. On one side are journalists, political scientists and others who believe that racial resentment was the overwhelming reason that Trump won. On the other side are people (including me [see this article]) who believe this story is too simplistic and that, while race played a big role, economic factors [such as rising inequality] did too.
In a new book, Steven Pearlstein of The Washington Post has a chart that reminds me of this debate. The chart contains two lines, the first measuring income inequality and the second measuring political polarization between the two parties in Congress. Both start in 1967 and go until almost the present. And both lines rise sharply, in close proximity: As inequality increases, so does polarization.
Why? The new class of the superwealthy have pushed (mostly Republican) politicians to support ever more extreme policies to protect their wealth, like tax cuts, deregulation and the undermining of labor unions. The result, Pearlstein writes, is “a self-reinforcing dynamic in which concentrations of economic and political power feed off each other.” Democrats, for their part, have responded by opposing many of these pro-wealthy policies.
“But,” Pearlstein explains, “it’s not just the politicians who have been affected. Rising income inequality has also changed the attitudes and behavior of American voters, sowing resentment, fanning prejudice and eroding the sense of shared values, shared purpose and shared destiny that once held the country together.”
One of the groups that’s struggled the most over this period of rising inequality is the white working class. Incomes and wealth have stagnated for many workers, of all races. But while nonwhite workers have benefited from the reduction (but by no means the elimination) of racism during the past half-century, whites have not. This combination helps explain why the recent trends in health and life expectancy are worse for working-class whites than for any other major demographic group.
If anything, it would be surprising if these trends did not affect political views. Sure enough, they seem to have done so. Over the same period that working-class whites have endured stagnation, they have shifted to the right. Many have abandoned the vision that Democrats have long offered — one of “shared values, shared purpose and shared destiny” (to use Pearlstein’s phrase) for the middle class, working class and poor.
Trump turbocharged this shift. He did so by running a campaign that was both more economically populist and more overtly racial than any other recent Republican had. The two themes played off each other, as Andrew Cherlin of Johns Hopkins University notes [here]. “Those who try to distinguish between the explanatory power of stagnant wages and a declining industrial base on the one hand, and anxieties about the ascent of minority groups on the other, miss the point,” Cherlin has written. “These are not two different factors but two sides of the same coin.”
The last week has again highlighted that racism is central to Trumpism [here]. His closing campaign message is white nationalism. But his racism has found an audience partly because of the deep economic frustrations that many Americans feel. It’s one of the oldest and saddest themes in history: Frustration breeds bigotry.
Pearlstein’s book is called, “Can American Capitalism Survive?”, and it is full of much more wisdom. It’s the capstone of decades of his reporting and writing on the subject. The chart on inequality and polarization appears on page 161. ~ David Leonhardt
Here are some wonderful quotes about capitalism, inequality, and economics by Professor Steven Pearlstein:
“A decade ago, 80 percent of Americans agreed with the statement that a free market economy is the best system. Today, it is 60 percent, lower than in China.”
“Another part of our disquiet reflects a nagging suspicion that our economic system has run off the moral rails, offending our sense of fairness, eroding our sense of community, poisoning our politics and rewarding values that easily degenerate into greed and indifference. The qualities that once made America great—the optimism, the commitment to equality, the delicate balance between public and private, the sense that we’re all in this together—no longer apply. It has got to the point that we are no longer surprised when employees of a major bank sign up millions of customers for credit cards and insurance they didn’t want or even know about, just to make their monthly numbers.”
“In fact, corporations are free to balance the interests of shareholders with those of customers, workers or the public, as they did routinely before the 1980s, when companies were loath to boost profits if it meant laying off workers or cutting their benefits. Legally, corporations can be formed for any purpose. Executives and directors owe their fiduciary duty to the corporation, which is not owned by shareholders, as widely believed, but owns itself (in the same way that nobody “owns” you or me).”
“…[Worker] pay set by markets is also subjective, reflecting the laws and social norms under which markets operate. The incomes earned by workers who planted tobacco — and those who owned tobacco plantations — changed considerably after slavery was abolished, and again after laws protecting sharecroppers were enacted, and again when minimum-wage laws were passed, and again when farmworkers won the right to unionize. Changes to trade law, patent law and antitrust law also alter the distribution of income. While it is probably better to rely on markets rather than government to set pay levels, that doesn’t mean that the way the markets set pay is a purely objective assessment of economic contribution or that redistribution is theft.”
“Evidence suggests that there is also a point at which high levels of inequality begin to deliver less economic growth, not more — and that the United States has passed that point, according to research by the International Monetary Fund. That’s partly because more-unequal economies tend to have oversize and overcompensated financial sectors that are more prone to booms and busts.”
“…rising income inequality erodes the trust people have in one another and their willingness to cooperate. As the political economist Francis Fukuyama has written, this “social capital” lubricates the increasingly complex machinery of market economies and the increasingly contentious machinery of democracy. Countries with more social capital tend to be healthier, happier and richer.”
“While the United States has made great strides in removing legal barriers to equal opportunity, at least half the difference in income between any two people is determined by their parents, either through inherited traits like intelligence, good looks, ambition and reliability (nature), or through the quality and circumstances of their upbringing and education (nurture). As our society has become more meritocratic, we’ve simply replaced an aristocracy based on title, class, race and gender with a new and equally persistent aristocracy based on genes, education and parenting. Unless we are prepared to engage in extensive genetic reengineering, or require that all children be brought up in state-run boarding schools, we must acknowledge that we can never achieve full equality of opportunity.”
“Thirty years ago, in the face of a serious economic challenge from Japan and Europe, the United States embraced a form of free-market capitalism that was less regulated, less equal, more prone to booms and busts. Driving that shift was a set of useful myths about motivation, fairness and economic growth that helped restore American competitiveness. Over time, however, the most radical versions of these ideas have polarized our politics, threatened our prosperity and undermined the moral legitimacy of our system. (A recent survey found that only 42 percent of millennials support capitalism.)”
“…confidence in the superiority of the American system has badly eroded. A global financial crisis that started in Asia and spread to Russia and Latin America shattered the Washington consensus. Americans have lived through the bursting of two financial bubbles, struggled through two serious recessions and toiled through several decades in which almost all of the benefits of economic growth have been captured by the richest 10 percent of households. A series of accounting and financial scandals, a massive government bailout of the banking system, the inexorable rise in pay for corporate executives, bankers and hedge fund managers—all of these have generated widespread resentment and cynicism. While some have prospered, many others have been left behind.”
“We are both outraged and resigned when yet another corporation renounces its American citizenship just to avoid paying its fair share of taxes to the government that educates its workers, protects its property and builds the infrastructure by which it gets its products to market. While we may have become desensitized to these individual stories, however, collectively they now color the way we think about American capitalism. In less than a generation, what was once considered the optimal system for organizing economic activity is now widely viewed, at home and abroad, as having betrayed its ideals and its purpose and forfeited its moral legitimacy.”
“Although this book is a critique of the free market ideas and conservative ideology that have recently shaped American capitalism, it also demands that liberal critics think harder about what is required for a just and prosperous society. Those who never miss an opportunity to complain about the level of inequality have rarely been willing to say what level, or what kinds, of inequality would be morally acceptable. Does it really offend our moral intuitions that billionaire hedge fund managers are pulling away from millionaire lawyers and doctors? Is it relative income and economic standing we really care about, or will gains in absolute income and mobility satisfy our concern? What if rising inequality in rich nations is part of a process by which billions of people in poor countries are lifted out of poverty—shouldn’t we welcome that?”
Additional quotes about capitalism, inequality, and economics can be researched by accessing the free and unsurpassed Wisdom Archive, here on Values of the Wise.