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  Over the last three and a half decades, middle-class families continued to spend, the breakdown of the basic bargain notwithstanding. Their spending was at first enabled by the flow of women into the workforce. In the 1960s, only 12 percent of married women with children under the age of six were working for pay; by the late 1990s, 55 percent were in the paid workforce. When that way of life stopped generating enough income, Americans went deeper into debt. From the late 1990s to 2007, the typical household debt grew by a third. As long as housing values continued to rise, it seemed a painless way to get additional money. Eventually, of course, the bubble burst. That ended the middle class’s remarkable ability to keep spending in the face of near-stagnant wages.

  The puzzle is why so little was done during those years to help deal with the subversion of the economic power of the middle class. With the continued gains from economic growth, the nation could have enabled more people to become the kinds of problem solvers and innovators that could summon higher pay—starting with early childhood education, better public schools, expanded access to higher education, and more efficient public transportation. The nation might also have enlarged safety nets—by having unemployment insurance cover part-time work, by giving transition assistance to those moving to new jobs in new locations, by creating insurance for communities that lost a major employer. And we could have ensured that our workforce and their families were healthy by making Medicare available to anyone. Big companies could have been required to pay severance to American workers they let go, and train them for new jobs. The minimum wage could have been pegged at half the median wage, and we could have insisted that the foreign nations we trade with do the same so that all citizens could share in gains from trade. We could have raised taxes on the rich and cut them for poorer Americans.

  But starting in the late 1970s, and with increasing fervor over the next three decades, government did just the opposite. It deregulated and privatized. It cut spending on infrastructure as a percentage of the national economy and shifted more of the costs of public higher education to families. It shredded safety nets. And it allowed companies to bust unions and threaten employees who tried to organize. Fewer than 7 percent of private sector workers are now unionized. Meanwhile, as I’ve noted, the top income tax rate was halved to 35 percent, and many of the nation’s richest were allowed to treat their income as capital gains subject to no more than 15 percent tax. Inheritance taxes that affected only the topmost 1.5 percent of earners were sliced. Yet at the same time sales and payroll taxes—which are more painful to those with modest paychecks—were increased.

  Most telling of all, Washington deregulated Wall Street while insuring it against major losses. In so doing, it allowed finance, which until then had been the servant of American industry, to become its master, demanding short-term profits over long-term growth and raking in an ever-larger portion of the nation’s profits. By 2007, financial companies accounted for more than 40 percent of American corporate profits and almost as great a percentage of pay, up from 10 percent during the Great Prosperity, the three decades after World War II when the middle class expanded and prosperity was widely shared.

  Some say the regressive lurch occurred because Americans lost confidence in government. But this argument has cause and effect backward. The tax revolts that thundered across America starting in the late 1970s were not so much ideological revolts against government—Americans still wanted all the government services they had before, and then some—as revolts against paying more taxes on incomes that had stagnated. Inevitably, government services deteriorated and government deficits exploded, confirming the public’s growing cynicism about government’s doing anything right.

  Others say we couldn’t have reversed the consequences of globalization and technological change. Yet the experiences of other nations, like Germany, suggest otherwise. Since the mid-1990s, Germany has grown faster than the United States, and the gains from that growth have been more widely spread. While Americans’ average hourly pay has risen only 6 percent since 1985, adjusted for inflation, German workers’ pay has risen almost 30 percent. At the same time, the top 1 percent of German households takes home only about 11 percent of all income—the same as in 1970. And although in 2012 Germany was hit by the debt crisis of its neighbors, its unemployment was still below where it was when the financial crisis started in 2007. Germany has done it mainly by focusing like a laser on education (with regard to math scores, German students continue to extend their lead over American students) and by maintaining strong labor unions.

  The real reason for America’s Great Regression starting in 1981 has been political, not economic. As income and wealth became more concentrated in fewer hands, American politics reverted to what Marriner S. Eccles, a former chairman of the Federal Reserve, described in the 1920s, when people “with great economic power had an undue influence in making the rules of the economic game.” With hefty campaign contributions and platoons of lobbyists and public relations spinners, America’s executive class has secured lower tax rates while resisting reforms that would spread the gains from growth to more Americans.

  But it’s unlikely that the plutocrats can retain their political clout forever. So many people have been hit by job losses, sagging incomes, and declining home values that Americans will eventually become mobilized. The question is not whether but when. Perhaps the Occupier movement marks the beginning. Americans have summoned the political will to take back our economy before, in even bleaker times. As the historian James Truslow Adams defined the American dream when he coined the term at the depths of the Great Depression, what we seek is “a land in which life should be better and richer and fuller for every man.”

  WHY BIG CORPORATIONS WON’T LEAD THE WAY

  Republicans want to rely on big American corporations to solve our economic problems and to reduce the size and scope of government. But the prosperity of America’s big businesses has become disconnected from the prosperity of most Americans. Without a government that’s focused on more and better jobs, we’re left with global corporations that don’t give a damn. And American corporations are increasingly global, with less and less stake in America.

  According to the Commerce Department, American-based global corporations added 2.4 million workers abroad in the first decade of this century while cutting their American workforce by 2.9 million. Between 2009 and 2011, the thirty-five biggest U.S. companies added 113,000 American jobs but almost three times that many jobs (333,000) abroad, according to a survey by The Wall Street Journal. Nearly 60 percent of their revenue growth came from outside the United States. Apple employs 43,000 people in the United States but contracts with over 700,000 workers abroad. It makes iPhones in China both because wages are low there and because Apple’s Chinese contractor can quickly mobilize workers from company dormitories at almost any hour of the day or night.

  American companies aren’t creating just routine jobs overseas. They’re also creating good high-tech jobs there and doing more of their research and development abroad. The share of research and development spending going to their foreign subsidiaries rose from 9 percent in 1989 to almost 16 percent in 2009. The National Science Foundation (NSF) warns that the United States is quickly losing ground in research. China’s share of global research and development now tops ours. One big reason, according to the NSF, is that American firms nearly doubled their research and development investments in Asia over the last decade.

  That’s because China has a national economic strategy designed to make it the economic powerhouse of the future. China wants to create the technologies and the jobs of the future, and it has been pouring money into world-class research centers designed to lure American corporations along with their engineers and scientists. The Chinese are intent on learning as much as they can from American corporations and then going beyond them—as they already have in solar and electric-battery technologies. They’re also pouring money into education at all levels. In the last dozen years they’ve bu
ilt twenty universities, each intended to become the equivalent of MIT. American corporations are happy to play along because China has the biggest consumer market in the world, to which every American company wants access.

  At the 2011 summit between the Chinese president, Hu Jintao, and President Obama, China agreed to buy $45 billion of American exports. President Obama said the agreement would create more American jobs, but in fact it would create more profits for American companies and relatively few new jobs for Americans. Nearly half of the deal was for two hundred Boeing aircraft whose parts would be manufactured all over the world. The rest involved agricultural commodities that don’t require much U.S. labor (because American agribusiness is highly automated) and chemical and high-tech goods that are even less labor-intensive. American corporations signed up for deals with China involving energy and aviation manufacturing, but much of the work would be done in China.

  American companies don’t care, as long as the deals help their bottom lines. An Apple executive told The New York Times, “We don’t have an obligation to solve America’s problems. Our only obligation is making the best product possible.” He might have added, and showing profits big enough to continually increase our share price. If Apple or any other big American company can make a product best and cheapest in China or anywhere else, then that’s where it’ll do it. I don’t blame the companies. American corporations are in business to make profits and boost their share value, not to create good American jobs. That’s the form of capitalism we practice, in contrast with China’s “state-run” capitalism.

  The real problem is that American firms also have huge clout in Washington. They maintain legions of lobbyists and are pouring boatloads of money into political campaigns. After the Supreme Court’s decision in Citizens United v. Federal Election Commission, there’s no limit. (That ruling allows corporations to give unlimited amounts of money to candidates.) Their clout would extend into the Obama White House. The president’s own Council on Jobs and Competitiveness would be chaired by Jeffrey Immelt, CEO of GE, and comprise CEOs of other big American corporations.

  But the indifference if not outright opposition of big American corporations to higher wages and better jobs in America hobbles the development of a national economic strategy to generate both. GE, for example, has been creating more jobs outside the United States than in it. A decade ago, most of GE’s employees were American; today, the majority are non-American. Fifty-three percent of GE’s $150.2 billion in revenue in 2011, from all sources, came from abroad (up from 35 percent only a decade before). And like other major corporations, GE has been shifting more of its research to China. In 2011 it announced a $500 million expansion of its research and development facilities there on top of a $2 billion initial investment. GE’s joint venture with Aviation Industry Corporation of China, to develop new integrated avionics systems (which presumably will find their way into Boeing planes), will be based in Shanghai.

  It should come as no surprise that the President’s Council on Jobs and Competitiveness called for lower corporate taxes and fewer regulations. It also called for repeal of the anti-corporate-looting provisions enacted by Congress in 2002 in response to the Enron fiasco, arguing that they impede growth and hiring. But lower corporate taxes and fewer regulations won’t bring good jobs to America. They might lower the costs of production here, but global companies can always find even lower costs somewhere else around the world. America’s corporate elite also wants China to raise the value of its currency so that everything it buys from us is cheaper and everything we buy from it is more expensive. But even if our currencies were better balanced, China would still come out ahead. We’d have more jobs because our exports would be more attractive in world markets, but those jobs would summon fewer goods from around the world. A lower-valued dollar makes everything else we buy from the rest of the world more expensive, so we in effect become poorer.

  Global corporations will create jobs wherever around the world they can get the best return—either where wages are lowest or where productivity is highest or both. America can’t and shouldn’t try to compete on the basis of low wages; that’s a recipe for a continuously declining standard of living. Global companies will create good, high-wage jobs in the United States only if Americans are productive enough and clever enough to summon them. Yet the sad truth is that a large and growing portion of our workforce is handicapped by deteriorating schools, unaffordable college tuitions, decaying infrastructure, worsening health and rising health-care costs, and diminishing basic research. All of this is putting us on a glide path toward even lousier jobs and lower wages. And we have no national plan to reverse any of this.

  Instead of a national economic strategy to make these investments in our people, we have a hodgepodge of tax breaks and corporate welfare crafted by American-based global corporations to maximize their profits. They’ll do and make things in China and give the Chinese their know-how when that’s the best way to boost the corporations’ bottom lines, and they’ll utilize research and development wherever around the world it will deliver the biggest bang for the dollar. Meanwhile, deficit hawks in Congress are cutting publicly supported research and development. And cash-starved states are cutting K–12 education and slashing the budgets of their great public research universities.

  China has a national economic strategy designed to create more and better jobs. We have global corporations designed to make money for their shareholders. No contest.

  THE CONTINUING CLOUT OF THE STREET

  Wall Street, meanwhile, has been using its lobbying power to water down regulations emerging from the Dodd-Frank financial reform law of 2010. The Street says Dodd-Frank is overkill. The reality is just the opposite: Dodd-Frank is too weak.

  The European debt crisis, for example, isn’t a problem for America’s real economy. Whatever happens to Greece or other deeply indebted European governments, America’s exports to Europe will not dry up. In any event, those exports are small relative to the size of the U.S. economy. If you want to find the real reason for concern in the United States about what’s happening in Europe, follow the money. If Greece defaults on its debts, Italy and Spain—the next weakest borrowers—will have to pay higher interest rates on their own debts, pushing one or both of them to the brink. A default by either Italy or Spain would have roughly the same effect on our financial system as the implosion of Lehman Brothers in 2008—that is, financial chaos. It could easily pummel German and French banks, to which big Wall Street banks have lent a bundle. The Street has also bet on or insured all sorts of derivatives—in effect, bets placed on the outcomes of other trades—emanating from Europe, on energy, currency, interest rates, and foreign exchange swaps. If a German or French bank goes down, the ripple effects are incalculable.

  The oracles of Wall Street said they weren’t worried, because most of the Street’s exposure to European banks was insured through “credit-default swaps” that would offset any losses. Wall Street’s amnesia was breathtaking. Just four years before, AIG nearly collapsed because it couldn’t make payments on its swap contracts that were supposed to insure big Wall Street banks against losses on their bets. American taxpayers had to bail out AIG as well as the big banks. One of the many ironies surrounding Wall Street’s equanimity in the face of the European debt crisis was that some badly indebted European nations (Ireland is the best example) went deeply into debt in the first place by bailing out their banks from the crisis that began on Wall Street. Full circle.

  You don’t have to be an Occupier to conclude the Street is still out of control, rigged to benefit the biggest players (including the Street’s biggest banks) at the expense of everyone else. In the summer of 2011, after Groupon selected Goldman Sachs, Morgan Stanley, and Credit Suisse to underwrite its initial public offering, the trio valued Groupon at a generous $30 billion. Subsequent accounting and disclosure problems showed this estimate to be absurdly high. But the banks didn’t care a whit. The higher the valuation, the fatter their fees.
When Facebook was about to go public in the spring of 2012, the big banks thought the initial price was too high, given what they thought the company would be earning in the future, and they shared their assessment with their major customers. But small investors didn’t get the word, and as Facebook’s shares tumbled, they lost money.

  Or consider the collapse of MF Global, a Wall Street firm that gambled in financial futures, bet wrong on sovereign debt, and lost between $1.2 billion and $1.6 billion of its customers’ money. Those funds were supposed to have been held separately, but MF Global and other firms trading futures contracts have few safeguards to protect customer money and don’t even have to inform customers about where their money is.

  The near meltdown of the Street in 2008 seems to have had no effect on the Street’s subsequent behavior. Look at the fancy footwork by Bank of America (BofA) when hit by a credit downgrade in the fall of 2011. BofA avoided higher charges by simply moving the risky derivatives that had triggered the downgrade from its Merrill Lynch unit to a retail subsidiary flush with insured deposits. The subsidiary has a higher credit rating because those deposits are insured by the Federal Deposit Insurance Corporation (that is, you and me and our fellow citizens). Result: BofA improved its bottom line, at the expense of American taxpayers.

  Wasn’t this supposed to be illegal? Didn’t we learn a thing from the debacle of 2008? Apparently not. In May 2012, Jamie Dimon, chairman and CEO of JPMorgan Chase, the nation’s largest bank by assets, announced the bank had lost $2 billion to $3 billion in trades because of excessively risky bets that were “poorly executed” and “poorly monitored,” the result of “many errors,” “sloppiness,” and “bad judgment.” But not to worry, said Dimon. “We will admit it, we will fix it and move on.”