Evil Geniuses: The Unmaking of America: A Recent History (39 page)

*1
Shortly after publishing those papers, one of the economists left academia for finance, where he specializes in managing hedge fund investments.

*2
Weirdly, when it comes to calculating Americans’ total income, the government uses very different sets of books kept by two different divisions of the Commerce Department. Back in 1980, the two figures were close, but now one pegged it at about $11 trillion in 2019 and the other at about $19 trillion. When you divide up the smaller number into equal shares, the average household gets $90,000 instead of $140,000. Among other things, the larger number includes the value of employees’ fringe benefits, private pensions, Medicare, Medicaid, and other government payments and tax credits, as well as an estimate for hundreds of billions of off-the-books income. For this exercise, I used the larger figure, because it seems to reflect reality better. Of course, in any real-life version of this fantasy, payments would be adjusted up and down depending on the size of the household and how many adults and children each one had, and so on.
It’s an illustration of how rich the country is, not a plan.

During a Democratic primary debate in 2015, with Hillary Clinton and Bernie Sanders the only Democrats who had a chance, Sanders was asked by the moderator if calling himself a socialist was politically wise. Well, he replied, he thought the United States “should look to countries like Denmark, like Sweden and Norway, and learn from what they have accomplished” with their economies.

In response, Clinton made the excellent point that “what we have to do every so often in America is save capitalism from itself” and “rein in the excesses of capitalism so that it doesn’t run amok and doesn’t cause the kind of inequities we’re seeing in our economic system.” Unfortunately she also took a cheap and effective rhetorical shot that became the night’s memorable line: “We are not Denmark. I love Denmark. We are the United States of America.”

I think political arguments concerning the definition of socialism are mostly a waste of time. And given both the confusion over the word and its baggage—the USSR was the Union of Soviet
Socialist
Republics, Venezuela is run by its United
Socialist
Party—I do think it is unwise for a U.S. presidential candidate to call himself a socialist.

But nobody that night five years ago pointed out the key fact: Denmark and Sweden and Norway are all thriving
free-market capitalist economies
.
^*1
The citizens of each have saved capitalism from itself by reining in the natural systemic excesses so that it doesn’t run amok and cause extreme inequities—just as they’ve also saved socialism from itself so that it doesn’t run amok and smother individualism and entrepreneurial energy.

Of course the United States differs from the Nordic countries, it’s vastly more populous and ethnically diverse, but that doesn’t mean their versions of capitalism don’t offer excellent models. We are not Denmark—but nor are we Turkey, Mexico, Costa Rica, Chile, or South Africa, the only more economically unequal societies than the United States in the OECD, the organization of the world’s three dozen most developed countries. We’re also not Canada or the other countries of western Europe that practice capitalisms that are plainly superior to our current model.

So far I’ve explained how we screwed up our system by badly rejiggering the decent one we had, giving much bigger shares of America’s wealth and power to the rich and big business. But to complete the case, I need to provide some glimpses of real-world paths not taken. American exceptionalism is an idea usually used by Americans to congratulate ourselves for a history that makes us
special,
better than anyone. But the transformation of our political economy the last few decades makes us differently exceptional, a city upon a hill in Bizarro World.

From the 1970s through the ’90s, all developed countries faced basically the same big new economic conditions—slower economic growth, products manufactured much more cheaply by workers in poorer countries, especially China, and things produced more efficiently using much better, smarter machines. The age-old historical pattern of wages rising right along with productivity got out of sync in other countries as well as the United States. Inequality got worse all over the rich world—but at the end of the day only a
bit
worse everywhere except America. Because in most other rich countries, the people used politics to soften the blows, share the pain, adapt together. They governed themselves responsibly.

As the Nobel economist Joseph Stiglitz says, although “since the mid-1970s the rules of the economic game have been rewritten” all over the world to “advantage the rich and disadvantage the rest,” the rules went much “further in this perverse direction in the U.S. than in other developed countries—even though the rules in the U.S. were already less favorable to workers.”

In the late 1970s and ’80s, the rest of the developed world pulled into a right lane, but mostly kept heading in the same basic direction on the same modern highway we’d all been traveling together since the Great Depression and World War II, course-correcting as they proceeded. America, however, badly oversteered, beginning in the 1980s, and took a very sharp right turn. As a result, we’ve been forced to bump along a crappy and dangerous old road, ruining our car and injuring most of the passengers and veering off farther and farther from the main highway.

From 1980 to 2015 in western Europe, the share of national income that went to the half of people below the median dipped from 24 to 22 percent—while in America the share going to the nonrich half has plummeted from 20 to 12 percent. Meanwhile the income share going to the richest western Europeans, the top 1 percent, has crept up from 10 to 12 percent—while in America it doubled to around 20 percent. In a recent cover story by the reasonable British conservatives at
The Economist
questioning the extent of the global rise in inequality, they stipulated that they were giving a pass only to Europe and the U.K., not the United States—that in exceptional America, workers have indeed been screwed and wealth inequality has indeed become extreme.

I described how it’s become harder than it ever used to be for Americans who grow up on the lower economic rungs to climb upward. It’s also now lots harder in the United States than it is in other rich countries—and also even unlikelier for children born into wealth in America to slide downward as adults. A study from 2010 of social mobility, using as a metric sons’ incomes compared to their fathers’ in eight western European countries and Australia and North America, found that Denmark, Norway, Finland, and Canada are the most mobile by a lot; the United States was third from the bottom. A 2018 World Bank study ranked each of the world’s countries by its fraction of younger citizens who are Ragged Dicks—that is, Horatio Alger types born into the economic lower half who made it to the top quarter before they’re old. Among the fifty countries at the bottom of the two hundred, those with the least economic mobility, are forty-six developing countries and, between Indonesia and Brazil, the United States. American society has half the economic mobility of the countries near the top.

The U.S. economy since 1980 has grown as much as or more than those of most of our rich-country peers, although not all—Sweden, for instance, has continuously grown faster than America for the last thirty years. But while the
average
U.S. income and GDP per capita have risen as fast as or faster than incomes in Europe’s economies, in exceptional America the more real-life-relevant
median
income—the amount of money going to the person who earns more than the poor half and less than the rich half—has hardly budged for decades. Meanwhile, since 2000 in Canada and the U.K., for instance, the median income has gone up 20 percent or more, and by similar amounts in Europe. Whether this or that country’s economy has grown faster or slower than America’s, they have
shared
their national prosperity. Boats have risen together.

In Denmark the share of all household income that goes to the top quintile of citizens, the upper-middle class and the rich, is about 60 percent of what their American counterparts get, while the share going to the poorest fifth is 60 percent more than the poorest Americans get. The poverty rate in the United States is half again as high as in Canada and the U.K., twice as high as in the Netherlands and France, and three times as high as in Finland, Iceland, and the-country-we-are-not, Denmark.

Then, of course, there’s healthcare. In this area, we are absolutely exceptional. The other highly developed countries have a wide mix of systems—privately and/or publicly employed doctors and hospitals, public and/or private insurance—but in all those other countries,
everyone
gets covered, coverage isn’t linked to particular jobs, most of the costs are paid by government, and the total costs are considerably lower. Until the 1980s, healthcare spending in those countries and in the United States were in the same ballpark, but now most of them spend only half or even a third as much per person as we do. In every international ranking of healthcare quality, the United States is low, from twenty-eighth to thirty-seventh place. Until the 1980s too, life expectancies for people in all the rich countries were increasing right in line, but now people in the other countries live three to five years longer on average than Americans.
^*2
According to the health-efficiency index compiled by
Bloomberg News,
which combines longevity and healthcare spending into a single metric for almost every country, the United States is second from the bottom, better only than Bulgaria.

Unlike with healthcare, public colleges and universities in the other rich countries probably don’t provide better educations than those in the United States. But just as with healthcare, they spend half as much as we do, and the tuitions they charge are a fraction of the U.S. average or—in a third of the countries, including the Nordics—free.

They manage to afford all that; we could afford it, too, especially given our higher GDP per person. The United States spends less on ourselves through government at all levels than do 90 percent of the most developed countries—only Chile, Mexico, and Ireland spend less than we do. And a main way they manage this is by doing something else that the United States doesn’t do: taxing the
sale
of all goods and services—not just a sales tax paid by consumers at the checkout counter, but a tax collected at each step along the way, from the bauxite mine to the aluminum smelter to the Foxconn iPhone factory to Apple to you, as each buyer adds value to the product-in-progress and sells it. Every developed country except the United States collects such a value-added tax. If we were to impose a VAT even at the low Swiss rate, which is only half or a third of the rates charged elsewhere in Europe, it would generate around $500 billion a year for us to spend however we wanted.

But it’s not just that these other countries tax and spend quite a bit more to increase fairness and enable their citizens to live better, longer lives. They’ve also stuck to various norms and principles concerning business that we began to abandon forty years ago. In the 1980s and ’90s, following the U.S. lead, most rich countries liberalized their economies, selling off government-owned railroads, airlines, energy, and telephone companies to private owners. However, they also kept a reasonable balance between fair and laissez-faire in the ways that America abandoned.

The U.S.-spawned dogma of shareholder supremacy, requiring executives to obsess over stock prices to the exclusion of almost everything else, is less extreme in Europe. The ratios of CEO pay to the pay of average workers in other countries are more reasonable—in Canada and Germany, for instance, they are half what they are in the United States. Moreover, the balance of power between workers and employers elsewhere is much more like it was in America before the 1980s. For starters, because people in other countries don’t get their health insurance through their employers, the employers have less leverage over them. Every developed country but one also requires employers to give new parents paid leave that ranges from a few months to a year or more, an essential adaptation to the modern era of working women that America hasn’t made.

And in other developed countries, organized labor has not been crushed. In Canada almost a third of workers are represented by trade unions, the same as in all developed countries on average—fewer than in the 1970s but equal now to the fraction in America back then, before the crushing, and three times the U.S. unionization level now. This is another way we are not Denmark or Sweden or Finland, where
two-thirds
of workers are represented by unions. The flip side of Denmark’s very comfortable social welfare cushion, however, is its very light government regulation of firings and layoffs. The Nordic social contracts more or less guarantee jobs but no
particular
job. For an average Danish family of four with a single breadwinner who loses their job, the household income six months later is 90 percent back to what it was before the job loss. Their American counterparts six months later have an income only 30 percent of what it had been.

Then there’s antitrust. In his 2019 book
The Reversal: How America Gave Up on Free Markets,
the NYU economist Thomas Philippon, who emigrated to the United States from France in 1999, tells a remarkable
Freaky Friday
story of transatlantic political economics since then. As I described in the last chapter, we let our big businesses get
too
big, let them use their size and power to kill off competition and raise prices excessively. Meanwhile Europe by the turn of this century remade itself economically to be more like the United States used to be, enforcing robust competition to make prices lower and service better. “Because the EU has adopted the US playbook,” including antitrust enforcement, “which the US itself has abandoned,” Philippon writes, the “prices for the same goods and services” have become much lower in Europe. Mobile phone and Internet service, for instance, cost Europeans half as much as they cost Americans.

In fact, the reversal between Europe and the United States extends beyond antitrust enforcement and what companies get away with charging people to use the Internet. And so, inevitably, we must consult Tocqueville. Decades before big modern corporations were invented, prompting American democrats to invent antitrust law to restrain them, back at a time when income was divvied up much more equally in the United States than in Europe, he noted that while “there are rich men,” in America, “the
class
of rich men does not exist; for these rich individuals have no feelings or purposes in common.” In the 1830s there were “members, but no body” of the American wealthy, and furthermore “money does not lead those who possess it to political power.” A century and a half later, of course, we have the Business Roundtable and Charles Koch’s network of power-seeking billionaires and a Congress that our capitalist class lavishly underwrites.