The Price of Civilization: Reawakening American Virtue and Prosperity (38 page)

24.
Goldman Sachs settlement: Patricia Hurtado and Christine Harper, “SEC Settlement with Goldman Sachs for $550 Million Approved by US Judge,” Bloomberg News, July 21, 2010. Goldman Sachs 2009 income: Goldman Sachs website. Countrywide: Alex Dobuzinskis, “Mozilo Settles Countrywide Fraud Case at $67.5 million,” Reuters News, October 15, 2010. Angelo Mozilo net worth: Kamelia Angelova, “Worst CEOs Ever: Angelo Mozilo,” Business Insider, June 8, 2009.

Chapter 3: The Free-Market Fallacy

1.
Jeffrey Sachs and Michael Bruno,
Economics of Worldwide Stagflation
(Cambridge: Harvard University Press, 1985).

2.
Adam Smith,
An Inquiry into the Nature and Causes of the Wealth of Nations
(Oxford: Oxford University Press, 1993), Book 1, Chapter 2.

3.
Specifically, once the market equilibrium is reached, there is no possible further adjustment of resources (for example, as mandated by the government) that could raise living standards for some part of the population without at the same time making some other part worse off. This notion of efficiency is called “Pareto efficiency.”

4.
Friedrich Hayek,
The Road to Serfdom
(Chicago: University of Chicago Press, 1944), p. 36.

5.
Smith,
An Inquiry into the Nature and Causes of the Wealth of Nations
, Book 5, Section 1.

6.
Efficiency should be measured in terms of goods and services of true value to consumers. A rise in the gross national product (GNP) is not enough to prove that efficiency is higher, since GNP may include market transactions that don’t really raise well-being (such as those based on fraud, pollution, or a decline in nonmarket services such as leisure time).

7.
Pew Research Center for the People & the Press, “Trends in Political Values and Core Attitudes: 1987–2009,” May 21, 2009.

8.
Forbes
, “The World’s Billionaires,” 2011.

9.
The army, police, prisons, and courts constitute the so-called night watchman functions of government. Pure libertarians champion a night watchman state, one that limits its activities to the core tasks of protecting private property, personal security, and national security.

10.
Gallup Poll, “Views of Income Taxes Among Most Positive Since 1956,” April 13, 2009.

11.
Pew Research Center, “Trends in Political Values and Core Attitudes: 1987–2009,” p. 43.

12.
The main exceptions in history are when one ethnic, racial, or religious group leaves another to perish.

13.
See responses to similar questions and topics in Benjamin Page and Lawrence Jacobs,
Class War: What Americans Really Think About Economic Inequality
(Chicago: University of Chicago Press, 2009).

14.
Only a small proportion of poor children today will make it through college unless there is a drastic change in U.S. social and education policy. The disadvantages confronting poor children are too powerful and too many. Poor children grow up with poor neighborhoods, poor health, and poor schools, with parents of low educational attainment who cannot adequately help their children to succeed in school, and in the case of minorities, with the low expectations by the rest of society and with continuing discrimination and racism.

The end result is a startlingly strong correlation in America between the parents’ educational attainment and income and their children’s educational attainment and income. Households that have made it through college and to affluence are likely to raise their children to a bachelor’s degree and to affluence as well. Households in poverty and with low parental educational attainment are likely to bequeath their poverty to their children as well, despite every desperate effort to avoid that fate. According to careful studies carried out by the OECD, and shown in the figure on the next page, the United States actually has the lowest social mobility within the entire OECD, as indicated by the highest correlation of education levels of parents and children. This is a stunning fact, since it runs counter to the long-held supposition that the United States is the land of social mobility and opportunity for all.

15.
Some may object to considering the marketplace a contrivance as opposed to a natural phenomenon reflecting humanity’s intrinsic propensity to “truck, barter, and trade” (in Adam Smith’s famous phrase). Yet when we consider that the modern marketplace is not based on bartering but on sophisticated monetary institutions and financial markets, commercial law, corporate law, intellectual dispute settlements, and state enforcement of contracts and protection of property, we can conclude that markets today are the product of complex legal and institutional design as well as underlying economic motivations to trade.

Source: Data from Organization for Economic Cooperation and Development, “Economic Policy Reforms, Going for Growth: OECD 2010.”

Chapter 4: Washington’s Retreat from Public Purpose

1.
Franklin D. Roosevelt, Second Inaugural Address, January 20, 1937.

2.
Ronald Reagan, First Inaugural Address, January 20, 1981.

3.
Bill Clinton, radio address, January 27, 1996.

4.
This great reversal of government after the 1960s is not a unique event in American history, according to historians. Arthur Schlesinger, Jr., among others, argued persuasively that America tends to experience waves of alternating public activism and retreat. In the 1870s to 1890s, for example, the great national industries—railways, steel making, oil, meatpacking, retailing by catalogue—first came into existence on a continental scale. Government stood in the shadows as the robber barons took the stage. The Gilded Age was born. Then came the reaction, first by the prairie populists who, like the Tea Party, railed against the depredations of Wall Street; next came the Progressives, who more systematically rolled out a series of reforms designed to rein in corporate abuses of the new national giants. The Progressive Era began to wane in the 1910s, and was swept away by the probusiness decade of the 1920s, when America longed to return to normalcy after World War I. The Roaring Twenties, the prelude to the Great Depression, had strong similarities
to the years leading to 2008: very rapid financial innovation, soaring inequalities of wealth and income, a culture of financial speculation, real estate booms fueled by easy credit, and then finally a financial crash.

5.
Unless otherwise noted, all proceeding budget data are from the Office of Management and Budget Historical Tables.

6.
This allocation starts only in 1962 in the Office of Management and Budget Historical Tables (Table 8.2).

7.
U.S. Census Bureau, “Population Division: Historical Census Statistics on the Foreign-Born Population of the United States: 1850–2000.”

8.
U.S. Census Bureau,
Income, Poverty and Health Insurance Coverage in the US: 2009
, Tables B1, B2.

9.
The chart below shows total revenues, defense and nondefense spending as a percentage of GDP.

10.
During the early 1970s, the post–World War II monetary arrangement, known as “dollar-exchange standard,” came undone. From 1946 to 1971, the U.S. dollar was pegged to gold at $35 per ounce, with foreign central banks outside the United States enjoying the guaranteed right to convert their dollar reserves into bullion at the guaranteed price. Nixon closed the gold window (the gold-to-dollar conversion) on August 15, 1971, as the United States was being drained of its gold reserves. At the core of the crisis was overly expansionary monetary policy tied to the overheated U.S. economy, which itself was tied to the expanded costs of the Vietnam War. The United States could not both expand the money supply and honor the redemption of dollars into gold at a fixed price, so it gave up on the latter. The breakdown of the dollar-exchange standard led to modern history’s first peacetime era of major national currencies unlinked to either gold or silver. The result, for several years, was high inflation, partly as national central banks adjusted to their newly established freedom of maneuver, and the lack of a clear monetary anchor. By the 1980s, the world’s central banks had adjusted to the new era of flexible exchange rates and had brought inflation rates back down. Yet by the time this happened, conservative politicians and free-market ideologues were insisting that the burst of inflation during the 1970s was proof of the incapacity of government to manage the economy.

Source: Data from Office of Management and Budget Historical Tables (Tables 1.2, 3.1, and 8.4).

Many factors contributed to soaring oil prices. Partly the soaring oil prices reflected the overheated monetary conditions described. Another element of the high oil prices was the surge in oil demand relative to supply that resulted from years of rapid global economic growth. A third element was politics. The Arab nations gained control over their oil reserves in the early 1970s as supply conditions tightened and as postcolonial geopolitics unfolded. The rise of OPEC alone would have boosted oil prices in the period. Yet the Arab countries temporarily went one step further by launching a boycott of Western markets following the 1973 Arab-Israeli War. All in all, the decade was marked by high and unstable oil prices, and profound macroeconomic instability as a result.

11.
Judith Stein,
Pivotal Decade: How the United States Traded Factories for Finance in the Seventies
(New Haven: Yale University Press, 2010).

12.
At a key moment, Democratic senators from the Sunbelt contributed to the defeat of a prolabor bill in 1978, with Florida senator Richard Stone explaining that the prounion measures would “impede the progress of the sunbelt to attract jobs” (ibid., pp. 188–89).

13.
Ibid., p. 193.

14.
See Table 17.1 of the Office of Management and Budget Historical Tables.

15.
See Table 3.1 of the Office of Management and Budget Historical Tables.

16.
See Table 3.2 of the Office of Management and Budget Historical Tables.

17.
Ibid.

18.
International Energy Agency, Data Services.

19.
For the change in income inequality, most recent data are for 2008. For the national poverty rate, earliest available data are for 1959. For earnings of full-time male workers, most recent data are from 2009.

20.
Emmanuel Saez and Thomas Piketty, data set for “Income Inequality in the United States, 1913–1998,” updated July 2010.

Chapter 5: The Divided Nation

1.
I have categorized the Sunbelt and Snowbelt as follows: The Sunbelt: Alabama, Arizona, Arkansas, California, Florida, Georgia, Louisiana, Mississippi, New Mexico, North Carolina, Oklahoma, South Carolina, Texas, and Virginia. The Snowbelt: Connecticut, Illinois, Indiana, Iowa, Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Rhode Island, South Dakota, Vermont, and Wisconsin.

2.
Larry Dewitt, “The Decision to Exclude Agricultural and Domestic Workers
from the 1935 Social Security Act,” U.S. Social Security Administration, 2010.

3.
Lyndon Johnson knew that he was delivering the South to the Republican Party when he signed the Civil Rights Act of 1964 and the Voting Rights Act of 1965. On signing the Civil Rights Act, he supposedly turned to an aide and declared that he had delivered the South to the Republicans for a generation. It is a testament to his moral courage that he nonetheless acted so boldly.