Who Stole the American Dream?

IN HIS MAGISTERIAL WORK
A Study of History
, British historian Arnold J. Toynbee tells the story of how civilizations rise and fall through the dynamics of challenge and response. After studying twenty-one civilizations across six thousand years, Toynbee found that the fate of each civilization was determined by
its response to the challenges it faced.

Ancient Egypt rose to enduring greatness, Toynbee reported, by overcoming the challenge of a hostile climate with a sophisticated system of agriculture. In South America, the Mayan and Andean civilizations overcame similar environmental hardships but perished before the challenge of more powerful invaders. Other civilizations collapsed from within. The city-states of ancient Greece fell into fierce competition among themselves over trade and spiraled into decline from fratricidal warfare. Ancient Rome fell victim to what Toynbee called a “
schism in the body social” and a “schism in the soul”—internal divisions that undermined Rome’s unity at the core.

In the twentieth century, America met and overcame the military challenge of mortal enemies—Hitler’s Germany and then the prolonged global challenge of Soviet communism.

Today we face a more complicated and potentially more dangerous challenge—a challenge from within. Like ancient Rome, we are in danger of causing or contributing to our own downfall by having spawned the schisms that Toynbee talked about—schisms in the body politic and in the soul of our society.

Over the past three decades, we have become Two Americas. We are no longer one large American family with shared prosperity and shared political and economic power, as we were in the decades following World War II. Today, no common enemy unites us as a nation. No common enterprise like settling the West or rocketing to the moon inspires us as a people.

We are today a sharply divided country—divided by power, money, and ideology. Our politics have become rancorous and polarized, our political leaders unable to resolve the most basic problems. Constant conflict has replaced a sense of common purpose and the pursuit of the common welfare. Not just in Washington, but across the nation, the fault lines that divide us run deep, and they are profoundly
self-destructive, unless we can find our way to some new unity and consensus.

Abraham Lincoln gave us fair warning. “A house divided against itself,” Lincoln said, “cannot stand.”

Americans sense that something is profoundly wrong—that
we have gone off track as a nation. Many skilled observers write about this, but it is hard to grasp exactly how we arrived at our present predicament or how to respond—how to go about healing America’s dangerous divide. The causes do not lie in the last election or the one before that. They predate the financial collapse of 2008. The timeline to our modern national quagmire lies embedded in the longer arc of our history, and that history, from 1971 to the present, is the focus of this book.

History often has hidden beginnings. There is no blinding flash of light in the sky to mark a turning point, no distinctive mushroom cloud signifying an atomic explosion that will forever alter human destiny. Often a watershed is crossed in some gradual and obscure way so that most people do not realize that an unseen shift has moved them into a new era, reshaping their lives, the lives of their generation, and the lives of their children, too. Only decades later do historians, like detectives, sift through the confusing strands of the past and discover a hitherto unknown pregnant beginning.

One such hidden beginning, with powerful impact on our lives today, occurred in 1971 with “the Powell Memorandum.” The memo, first unearthed by others many years ago, was written by Lewis Powell, then one of America’s most respected and influential corporate attorneys, two months before he was named to the Supreme Court. But it remains a discovery for many people today to learn that the Powell memo sparked a business and corporate rebellion that would forever change the landscape of power in
Washington and would influence our policies and economy even now.

The Powell memo was a business manifesto, a call to arms to Corporate America, and it triggered a powerful response. The seismic shift of power that it set in motion marked a fault line in our history. Political revolt had been brewing on the right since the presidential candidacy in 1964 of Senator Barry Goldwater, the anti-union, free market conservative from Arizona, but it was the Powell memo that lit the spark of change. It ignited a long period of sweeping transformations both in Washington’s policies and in the mind-set and practices of American business leaders—transformations that reversed the politics and policies of the postwar era and the “virtuous circle” philosophy that had created the broad prosperity of America’s middle class.

The newly awakened power of business helped propel America into a New Economy and a New Power Game in politics, which largely determine how we live today. Both were strongly tilted in favor of the business, financial, and corporate elites. Trillions were added to the wealth of America’s super-rich at the expense of the middle class, and the country was left with an unhealthy concentration of political and economic power.

This book will take you inside that decades-long story of change and show how we have unwittingly dismantled the political and economic infrastructures that underpinned the great era of middle-class prosperity in the 1950s, ’60s, and ’70s.

Today, the gravest challenge and the most corrosive fault line in our society is the gross inequality of income and wealth in America.

Not only political liberals but conservative thinkers as well emphasize the danger to American democracy of this great divide. “
America is coming apart at the seams—not seams of race or ethnicity,
but of class,” writes conservative sociologist Charles Murray of the American Enterprise Institute. Murray voices alarm at what he describes as “the formation of classes that are different in kind and in their degree of separation from anything that the nation has ever known…. The divergence into these separate classes, if it continues, will end what has made America America.”

Since the era of middle-class prosperity from the mid-1940s to the mid-1970s, the past three decades have produced the third wave of great private wealth in American history, a new Gilded Age comparable to the era of the robber barons in the 1890s, which led to the financial Panic of 1893 and the trust-busting presidency of Theodore Roosevelt; and to the era of great fortunes in the Roaring Twenties, which ended in the stock market crash of 1929 and the Great Depression.

In our New Economy, America’s super-rich have accumulated trillions in new wealth, far beyond anything in other nations, while the American middle class has stagnated. What separates the Two Americas is far more than a wealth gap. It is a wealth chasm—“
mind-boggling” in its magnitude, says Princeton economist Alan Krueger. Wealth has flowed so massively to the top that during the nation’s growth spurt from 2002 to 2007, America’s super-rich,
the top 1 percent (3 million people), reaped two-thirds of the nation’s entire economic gains. The other 99 percent were left with only one-third of the gains to divide among 310 million people. In 2010, the first full year of the economic recovery,
the top 1 percent captured 93 percent of the nation’s gains.

Americans, more than people in other countries, accept some inequality as part of our way of life, as inevitable and even desirable—a reward for talent and hard work, an incentive to produce and excel. But wealth begets wealth, especially when reinforced through the influence of money in politics. Then the hyperconcentration of wealth aggravates the political cleavages in our society.

The danger is that if the extremes become too great, the wealth dichotomy tears the social fabric of the country, undermines our ideal of equal opportunity, and puts the whole economy at risk—and
more than the economy, our nation itself.
A solid majority of Americans say openly that we have reached that point—that our economy is unfairly tilted in favor of the wealthy, that government should take action to make the economy fairer, and that they’re frustrated that Congress continually blocks such action.

What’s more, contrary to political arguments put forward for not taxing the rich, an economy of large personal fortunes does not deliver the best economic performance for the country. In fact, concentrated wealth works against economic growth. Several recent studies have shown that America’s wealth gap is a
drag on today’s economy. Harvard economist Philippe Aghion cites an accumulation of “
impressively unambiguous” evidence from multiple economic studies documenting that “greater inequality reduces the rate of growth.” A recent International Monetary Fund study came to a similar conclusion—that a high level of
income inequality can be “destructive” to sustained growth and that the best condition for long-term growth is “more equality in the income distribution.”

The opposite has happened in America since the late 1970s. The soaring wealth of the super-rich has brought the unraveling of the American Dream for the middle class—the dream of a steady job with decent pay and health benefits, rising living standards, a home of your own, a secure retirement, and the hope that your children would enjoy a better future.