Evil Geniuses: The Unmaking of America: A Recent History (25 page)

I know that many people in finance think authors and critics and second-guessers like me are parasites. Undoubtedly even more of them consider individual Americans dependent on direct government assistance to be parasites. As William Simon made his midlife career switch in the late 1970s from Wall Street drone and U.S. treasury secretary to right-wing foundation president and leveraged buyout wizard, he was frank on exactly this topic. “The ‘ethics’ of egalitarianism must be repudiated,” he wrote, because “achievers must not be penalized or parasites rewarded.”

*1
The financial industry spends about half a billion a year on Washington lobbying, about a million dollars per member of Congress. Only the healthcare industry spends more.

*2
It all started going bad for taxpayers and many homeowners when, as of 2007, one of the big three, Moody’s, began revising its ratings downward on 83 percent of the approximately $1 trillion worth of mortgage securities to which it had given its very top rating just the year before.

*3
Milken’s bank, Drexel Burnham Lambert, paid him the equivalent of $2.3 billion between 1984 and 1987 alone. When he pleaded guilty to securities fraud in 1990, he choked up and said his crimes were “
not
a reflection on the underlying soundness and integrity” of junk bonds. After he snitched, his ten-year prison sentence was reduced to two, and according to
Forbes,
he’s still worth $3.7 billion. When President Trump granted him an official pardon in 2020, the White House issued a statement praising “his innovative work” that “democratized corporate finance.”

*4
Shares of stock that are sold to the public (thus the term
public company
) are also called equities.
Private
equity dealmakers, in addition to buying up all of a public company’s shares on the open market (turning that company “private”) in order to have their way with it before selling stock to new public shareholders, also invest in privately owned companies that they eventually sell to individual shareholders or all at once to another company.

*5
The two winners who cashed the final $0.13 checks were Adnan Khashoggi, a shady Saudi wheeler-dealer whose wealth was at that moment shrinking from a few billion to a few million dollars, and Donald Trump, whose first casino bankruptcy occurred a year later.

*6
Instead of using excessive debt to buy, dismember, and quickly resell a single existing company, in this instance KKR used excessive debt to acquire publications (and then Internet start-ups) and keep them. Before buying
Inside,
for instance, Primedia bought the site About.com for the equivalent of $1 billion—but two years afterward all of Primedia was worth only a third of that. When KKR finally ditched the whole business in 2011 after two decades, it was one of its biggest disasters.

*7
In 1986 a certain right-wing leveraged-buyout pillager donated enough millions to persuade the university to rename its MBA program the William E. Simon Graduate School of Business.

*8
The co-authors were Michael Jensen and William Meckling. Jensen moved on to Harvard Business School in the 1980s, where he remains. Weirdly and fittingly, since the 2000s he has co-written two dozen scholarly papers about leadership with Werner Erhard, the founder of est, the creepy therapeutic and motivational training business of the 1970s and ’80s that trained devotees to be righteously selfish and rude. Erhard’s biographer, an est devotee, was another influential right-wing American economist—and co-wrote F. A. Hayek’s final book,
The Fatal Conceit: The Errors of Socialism,
in the 1980s.

*9
Stock buybacks aren’t performance-
enhancing
drugs, because those actually make athletes run faster and hit baseballs farther.

*10
Another epic irony: although Charles Koch is responsible for horrific damage—by promoting right-wing political economics and climate change denial, and by corrupting government with profits from his fossil fuel company—Koch Industries is a model of responsible old-fashioned corporate governance: as a private company, not beholden to Wall Street or investor hysteria, it has no public shares to buy back, so it reinvests almost all its profits in the company and holds on to the companies it acquires.

*11
Americans have started to realize the fakery, shifting more and more of their investments into funds that simply buy the whole market, but half of stock mutual funds are still under “active” management.

Not every way in which our political economy has gotten worse for most Americans during the last forty years was entirely the result of swinish policy choices on behalf of finance and big business and the well-to-do. Some changes were global and more or less unstoppable, in particular concerning how and where jobs could be done—that is, workers in poor countries and machines in this country were doing more and more of the work which for a century Americans had been well paid to do.

After the amazingly prosperous three-decade run following World War II, by 1980 the economies of almost every developed country were growing more slowly. During the 1950s and ’60s, the U.S. economy had grown by as much as 3 percent per year per person. Then during the 1970s, ’80s, and ’90s, growth shifted into a slower gear, averaging only 2 percent per person per year. One way of thinking about that change is that after the three postwar decades of exceptional expansion, the rate of growth in America and the rest of the rich world returned to normal, about where it had been for more than a century. At that more ordinary speed, the U.S. economy took twenty-three years to double in size instead of just seventeen—unfortunate but not necessarily disastrous.

Governments elsewhere in the rich world figured out how to adapt, adjust, and share the pain of slower growth in their own globalizing, automating economies. In America, however, as a result of the new right-wing, favor-the-rich, big-business-rules charter, only the well-educated and well-to-do continued to get bigger pieces of our more slowly growing economic pie. And not only did the
size
of the pieces of pie served to the unlucky American majority stop getting bigger, the
quality
of those relatively skimpy pieces got worse: jobs and healthcare and retirements became more insecure, cities and regions were left to wither, college education became much less affordable, and upward mobility was a longer shot than ever.

I’ve relied on the metaphor of an American economic pie to convey how only the luckiest few kept getting served good, larger pieces as it grew. But that may be another metaphor that’s too benign for how the economy changed starting in the 1970s and ’80s. It’s more like this: after surviving the Depression and winning the war, Americans cruised along together for almost four decades in glorious sunny weather that seemed like it would go on forever—then we hit rough seas, and suddenly the first-class passengers, saying they hoped everyone else could join them later, grabbed all the lifeboats for themselves and sped off to their own private luxury ship anchored in a safe harbor.

Joseph Schumpeter was a brilliant economist at Harvard in the first half of the twentieth century who approved of entrepreneurs but also thought capitalism would eventually be replaced by some kind of democratic socialism—not through workers’ uprisings but by means of a subtle, nonviolent process. The “perennial gale of
creative destruction
” would drive this evolution of advanced economic systems, he wrote (without italics) in 1942, right after the Depression, “the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.”

I feel sorry for Schumpeter, who died in 1950, because three decades after his death, with the rise of new-fangled old-fashioned free-market mania, he got famous when that phrase was revived and reduced to a meme, repeated endlessly to explain and justify the sudden obsolescence of blue-collar production workers (and then the lesser white-collar workers). “Creative destruction” was popularized in a way Schumpeter hadn’t meant it, as a celebratory sorry-suckers catchphrase for the way rootin’-tootin’ Wild West American capitalism permanently
is,
where the rich and tough and lucky win and losers lose hard. In the 1980s the term and its distorted meaning were enthusiastically embraced by the right and accepted with a shrug by college-educated liberals whose livelihoods didn’t look likely to be creatively destroyed anytime soon by competition from computers or foreigners.

We liberals had heard of Schumpeter, and we knew a bit about the industrial revolutions at the turns of the previous two centuries. My professor in the 1970s, Daniel Bell, had predicted this difficult turn more than two decades earlier in a book called
Work and Its Discontents: The Cult of Efficiency in America.
Thanks to automation, he said, “many workers, particularly older ones, may find it difficult ever again to find suitable jobs. It is also likely that small geographical pockets of the United States may find themselves becoming ‘depressed areas’ as old industries fade or are moved away.” We college-educateds were instructed to take it as a truism that painful transitions like these were just how history and economic progress inevitably unfolded, and that after a difficult patch—for the actual, you know,
workers,
in what we started calling the Rust Belt—things would eventually sort themselves out.

That long view, however, tended to omit the history that had made the previous industrial revolutions come out okay in America—the countervailing forces that took a century to build, all the laws and rules and unions and other organizations created to protect citizens and workers and keep the system reasonably fair and balanced. It was exactly that web of countervailing forces that, at exactly that moment, was being systematically weakened.

The fraction of all American workers employed in manufacturing peaked in the 1950s, but the actual
number
of those jobs had held steady through the 1960s and ’70s. In 1980 manufacturing workers’ salaries and benefits still provided the livings for a third of all Americans. But then came this latest wave of creative destruction, and that was that. The collapse of the steel industry came right around 1980—spectacularly, because most of us hadn’t seen it coming, and steel plants were so gigantic, and geographically concentrated, each one the economic foundation of a town or city or whole region. Those were well-paid union jobs that had seemed secure. In and around Pittsburgh during the 1980s, unemployment rates at their lingering height—15 percent, 20 percent, 27 percent—were the same as the rates all over America during the Depression of the 1930s (and once again in 2020).

It wasn’t just the steel industry that was undone, of course. Almost 3 million U.S. manufacturing jobs disappeared in just three years. In 1980 one of the huge textile company Parkdale Mills’s plants in South Carolina employed 2,000 people—but by the 1990s, thanks to more efficient machinery, that factory was producing just as much fabric with only 140 employees, 93 percent fewer workers. That’s an extreme case but a microcosm of what was starting to happen throughout manufacturing. By the end of the century, U.S. factories were producing two-thirds more things than they had in 1980, but they were doing so with a third fewer workers.

And when new machines couldn’t do the work more cheaply than people, then people in poor countries could become our slavish machine equivalents as never before. Starting in the late 1980s and especially the 1990s, more and more of our manufacturing work was done in China and other poor countries. Between 1990 and the early 2000s, the annual value of things made in China and bought by Americans increased twelvefold. Many millions of U.S. factory jobs were “offshored” during the 1990s and early 2000s, many of them to China. From 1980 until now, the fraction of Americans working in factories shrank by two-thirds, from more than one in four workers to fewer than one in twelve.

The new jobs to which laid-off workers moved, during and after the 1980s, tended to be much worse than the ones they’d had. A massive study by economists of “high-tenure workers laid off then from distressed firms” in Pennsylvania—including steelworkers—found that years after they lost those jobs, their incomes remained much lower. For instance, the average Pennsylvania worker whose job disappeared in early 1982 had been earning the equivalent of $53,000 a year, but six years later he or she was earning only $34,000 in today’s dollars. That $19,000-per-year reduction in average earnings was as if they’d all been involuntarily transported back in time to the 1940s, those three decades of accumulated American prosperity instantly erased.

As I explained earlier, for centuries new technologies had kept making it possible for each worker to produce more stuff, and it was that, improving productivity, that allowed economies to grow, and more people to live well. For the last century and a half, from the late 1800s on, productivity in America increased most years by 2 percent or more. There were ups and downs in the trend line, of course—dramatically down during the Great Depression, exceptionally up for some years right after World War II. Along the way, new technologies made some jobs uneconomic and unnecessary. But because of the grand economic bargain we had in America to bring everyone along through those ups and downs and changes, to share the increasing wealth,
everyone’s
standard of living increased over time, slower some years, faster other years, but always in sync. During the three postwar decades, U.S. productivity doubled, and the size of the U.S. economy doubled, and the average American’s share of the economy doubled. Then, from the late 1970s through the ’80s, we experienced a subpar slough, a fifteen-year period when productivity increased by just 1 to 2 percent a year instead of 2 to 3 percent.
^*1

As so many switches flipped, nobody would see the full effects until decades later. The productivity of workers and economic growth both continued going up, albeit more slowly, almost doubling since the 1970s. But for the first time,
most
Americans’
incomes
essentially flatlined for forty years. Instead of everyone, rich and middle and poor, all becoming more prosperous simultaneously, only the incomes of a lucky top fifth kept rising as they had in the past. Around 1980, the Great Uncoupling of the rich from the rest began.

It wasn’t just that serious salary increases started going only to a small group of fortunate workers. The share of money that went to
all
employees,
rather than to corporate shareholders and business owners, also became smaller. Until 1980, America’s national split of “gross domestic income” was around 60–40 in favor of workers, but then it began dropping and is now approaching 50–50. That change amounts to almost $1 trillion a year, an annual average of around $5,000 that each person with a job
isn’t
being paid. Instead, every household in the top 1 percent of earners has been getting $700,000 extra every year. It undoubtedly has been the largest and fastest upward redistribution of wealth in history.

This historic Great Uncoupling, in which America’s economy grows but most Americans don’t get fair shares of the growth, was the result of the public and private policy choices described in this book and hundreds more. I don’t think most of the people who engineered and benefited from the remaking of the political economy consciously intended for most of their fellow citizens’ incomes to stagnate forever. Driven variously by ideology and selfishness, big business and the rich wanted more wealth and power for themselves, but surely most wouldn’t have
objected
if everyone’s boats had kept rising together after 1980, if the middle-of-the-pack family earning $50,000 then was now earning $100,000 instead of $55,000.

But there’s the disingenuous rub. It’s as if I’d abandoned my wife and children and thereafter gave them as little money as I could get away with legally, but said sincerely that I hadn’t
intended
to make their lives so difficult but, you know,
sorry
. Because the major drivers of America’s economic transformation after 1980—from low taxes to the laissez-faire unleashing of business to reflexive opposition to new social programs to the crushing of organized labor—guaranteed the massively unfair outcome. And while perhaps the CEOs at the Business Roundtable in the 1970s didn’t explicitly say their mission was to make their employees much more insecure and thus more compliant and cowering—by laying off thousands at a time, phasing out pensions, moving factories overseas, and eliminating competitors—that’s what happened.

The shocking cataclysm in America’s big, iconic heavy industries, steel and cars, along with the longer-term slowing of economic growth generally, created a chronic widespread dread and anxiety about the economic future. The economic right and big business
used
that confusion and fear to get free rein to achieve their larger goals.
Times are tough! Government can’t save you! Adapt or die!
But then when the acute crises passed and the economy stabilized in the late 1980s and ’90s, and productivity and economic growth returned to their long-term historical norms, the norms of
fairness
were
not
restored. The system that had been reengineered to better serve big business and the rich remained in place.

Because I’m an American who graduated college and as an adult haven’t been paid to do physical labor, I’ve never thought of myself as a
worker
. It’s too bad, I think, because since the 1960s that linguistic distinction has reinforced the divide between people who do white-collar and blue-collar work. We’re nearly all workers, rather than people who live off investments. Looking back now, probably the single most significant cause
and
effect of the big 1980s change in our political economy was the disempowerment of workers vis-à-vis employers.