The Great Recession could have spawned another era of fundamental reform, just as the Great Depression did. But the financial rescue reduced immediate demands for broader reform. Obama might still have succeeded had he framed the challenge accurately. Yet in reassuring the public that the economy would return to normal, he missed a key opportunity to expose the longer-term scourge of widening inequality and its dangers. Containing the immediate financial crisis and then claiming the economy was on the mend left the public with a diffuse set of economic problems that seemed unrelated and inexplicable, as if a town's fire chief dealt with a conflagration by protecting the biggest office buildings but leaving smaller fires simmering all over town: housing foreclosures, job losses, lower earnings, less economic security, soaring pay on Wall Street and in executive suites.
Legislation to improve America's healthcare system illustrates the paradox. Initially, the nation was strongly supportive. But the president and Democratic leaders failed to link healthcare reform to the broader agenda of widely shared prosperity. So as unemployment rose through 2009, the public understandably focused its attention on the loss of jobs and earnings, to which healthcare appeared tangential. Consequently, the nation was not as actively supportive of reform as it needed to be in order to weaken the hold of Big Pharma and private health insurers, who demanded that any so-called reform improve their bottom line. The resulting law is fodder for the right, because it won't adequately control future costs and requires Americans to pay more for health insurance than they would have had the deals not been made.
Much the same has occurred with efforts to reform the financial system. The White House and Democratic leaders could have described the overarching goal as overhauling economic institutions that bestow outsize rewards on a relative few while imposing extraordinary costs and risks on almost everyone else. Instead, they defined the goal narrowly: reducing risks to the financial system caused by particular practices on Wall Street. The solution thereby shriveled to a set of technical fixes for how the Street should conduct its business.
Even the disaster in the Gulf of Mexico could have been put into the larger frame of how giant corporations use their influence to capture regulators and impose risks and costs on the broader public, and the central importance of public health and environmental safety to widespread prosperity. But here again, the administration and Democratic leaders failed to connect the dots. The disaster morphed into a technical question of how to plug the gusher and a policy discussion of how best to regulate deepwater drilling.
If nothing more is done, America's three-decade-long lurch toward widening inequality is an open invitation to a future demagogue who misconnects the dots, blaming immigrants, the poor, government, foreign nations, "socialists" or "intellectual elites" for the growing frustrations of the middle class. The major fault line in American politics will no longer be between Democrats and Republicans, liberals and conservatives. It will be between the "establishment" and an increasingly mad-as-hell populace determined to "take back America" from them. When they understand where this is heading, powerful interests that have so far resisted reform may come to see that the alternative is far worse.
A virtual pendulum underlies the American political economy. We swing from eras in which the benefits of economic growth concentrate in fewer hands to those in which the gains are more broadly shared, and then back again. We are approaching the end of one such cycle and the start of the next. The question is not whether the pendulum will swing back but how it will swing—whether with reforms that widen the circle of prosperity or with demagoguery that turns America away from the rest of the world, shrinks the economy and sets Americans against one another.
None of us can thrive in a nation divided between a small number of people receiving an ever larger share of the nation's income and wealth, and everyone else receiving a declining share. The lopsidedness not only diminishes economic growth but also tears at the social fabric of our society. The most fortunate among us who have reached the pinnacles of economic power and success depend on a stable economic and political system. That stability rests on the public's trust that the system operates in the interest of us all. Any loss of such trust threatens the well-being of everyone. We will choose reform, I believe, because we are a sensible nation, and reform is the only sensible option we have.
Also in This Forum
Dean Baker, "The Right Prescription for an Ailing Economy"
Katherine Newman and David Pedulla, "An Unequal-Opportunity Recession"
Orlando Patterson, "For African-Americans, A Virtual Depression—Why?"
Jeff Madrick, "American Incomes: Soaring or Static"
Matt Yglesias, "A Great Time to Be Alive?"