Politics of Poverty

How attacks on government have made us less prosperous and more unequal

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A new book details how pitting government against economic prosperity has made us all worse off.

The decades-long, and intensifying war on government—which has coincided with slow economic growth, increasing inequality, and stagnant wages for too many Americans—has also gone hand in hand with the weakening of the “mixed economy,” argue Jacob Hacker and Paul Pierson, in their new book, American Amnesia: How the War on Government Led Us to Forget What Made America Prosper.

Ever since Ronald Reagan declared that “government is not the solution to our problems; government is the problem” and the rise of the neoliberal “Washington Consensus” in the 1980s, some politicians and economists have argued that “big government” hinders the innovative and productive powers of the free market, diminishing economic growth. Thus, the ideological rise of “market fundamentalism” has been politically aided and abetted by right-wing attacks on “big government” and its supposedly excessive intervention in the economy through regulations and spending on investments in public goods and safety-net programs.

No question: There is much to criticize about government, politics, and the economy in present-day America. Yet, much of the current dysfunction is more of a result of, rather than a cause for, the loud chorus proclaiming that government should do little and that the road to riches is paved with a “free market,” free from the alleged shackles of government.

Unfortunately, such notions of a small-government, with unfettered markets leading to broadly shared prosperity, have turned out to be as real as the Tooth Fairy.

As government regulations were loosened or dismantled and government investments in science, education, infrastructure, and social welfare were cut or constrained since the 1980s, wages have stagnated for about half of the workforce between 1979 and 2013 and average real GDP growth since 2000 has plunged to less than half of what it was in the quarter century after World War II. At the same time, US poverty rates remain stubbornly high, as millions of workers are paid wages too low to lift them out of poverty, and most recent national income growth has gone to the top 1 percent.

By comparison, from World War II until the mid-1970s, economic growth was much more robust and broadly shared—remember JFK’s “rising tide lifting all boats” line?—when government worked in concert with business and labor. These were the glory days of the mixed economy, when wages steadily increased for the vast majority of workers, poverty was rapidly declining during the 1960s, productivity and growth rates were high, and business boomed.

Real US GDP Growth

Source: US Bureau of Economic Analysis
Source: US Bureau of Economic Analysis

“To get and keep prosperity, you need strong, effective government as well as dynamic competitive markets,” Hacker said. “You need a “mixed economy” in which the strong thumb of government and nimble fingers of the market each play a vital role.”

However, as Hacker and Pierson, political scientists at Yale University and the University of California Berkeley respectively, point out, such collaboration was true at many points in US history. Hacker and Pierson point to Adam Smith and Alexander Hamilton—whose ideas about a strong central government supporting economic development and providing “extraordinary aid and protection” to level the economic playing field are getting a boost from Lin-Manuel Miranda’s hit Broadway musical. Much of US growth has been spurred by government’s support for K-12 and higher education, scientific research, roads, ports, and airports, Social Security and other programs to reduce economic insecurity, ensuring safe food and workplaces, preserving lands, and setting standards for cleaner air, and countless other investments and rules to establish more truly competitive markets and opportunities for business and individuals alike.

The list is long. For example, Pierson noted that the statue of Abraham Lincoln at UC-Berkeley honors him not for ending slavery but for creating land-grant public universities. When big corporations became too powerful in the late 19th century, Progressive Era reforms introduced antitrust and labor reforms. After the Depression, the government created a modicum of economic security with Social Security, the minimum wage, and collective-bargaining rights. And after World War II, the GI Bill helped create a highly skilled, college-educated workforce, the Interstate Highway System vastly expanded transcontinental commerce, Defense Department and National Institutes of Health research laid the groundwork for computers, modern jets, the Internet, and biomedical innovations that have added trillions of dollars of productive life for Americans.

The mixed economy worked especially well from FDR to Nixon, thanks to broad support from most Democrats and Republicans, labor and much of the business community. From the vantage point of 2016, it may seem like fantasyland, but in 1945, Eric Johnston, the president of the US Chamber of Commerce, called this consensus an “established and useful reality,” resulting in “employment at wages assuring a steadily advancing standard of living.”

In recent decades, this coalition has unraveled as the idea of a fruitful partnership between public and private sectors was turned on its head to juxtapose the two as bitter enemies. “Government” became the bad guy. Public investments, social welfare, regulations, and taxes have been relentlessly disparaged by the right wing, as well as by financiers and a new generation of business leaders who have made short-term “shareholder value” their priority. According to Hacker and Pierson: “Our society is paying the price — falling behind the pace of social improvement not just of our own past, but also of other affluent democracies today.”

Despite fervid anger toward government, the Zeitgeist again may be changing in the wake of the 2008 financial collapse and growing recognition of extreme inequalities. Hacker and Pierson are hopeful that the mixed economy—one with a strong democratic government—once again can triumph and set the United States on a course toward greater and fairer prosperity.

“It was precisely because the United States created a mixed economy roughly a century ago that we escaped the widespread poverty, bad health, and limited education of our ancestors,” Hacker and Pierson said. With the less-than-mixed economy of recent decades, we have seen poverty, inequality, and poorer health outcomes increase and educational opportunities decline.

I’d say it’s worth another shot.

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