Books for Our Times: <i>Winner-Take-All Politics</i>, by Jacob S. Hacker and Paul Pierson

To ensure a book's long life, authors should pick a big problem that remains unsolved and big. Money in politics, for one. This time, not the money in political campaigns, but the money that secures and exerts power in Washington.
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Sixth in an ongoing series, Books for Our Times.

To ensure a book's long life, authors should pick a big problem that remains unsolved and big. Money in politics, for one. This time, not the money in political campaigns, but the money that secures and exerts power in Washington.

Winner-Take-All Politics, published in 2011 and surveying the ruin of the 2008 financial crash, can serve as a useful diagnosis, if not a roadmap, to the debates in the upcoming 2016 presidential election. With income inequality and the struggles of the middle and working classes cited by Democratic and Republican candidates alike as central to their campaigns (more so to Democrats than to Republicans), this book explains how moneyed interests came to reign supreme and how everything else---the country and the people therein---comes in a distant second. The subtitle is How Washington Made the Rich Richer---and Turned Its Back on the Middle Class.

Authored by two professors of political science---Jacob S. Hacker at Yale and Paul Pierson at Berkeley---this book details the "thirty-year war" beginning in the 1970s when moneyed interests mounted an organized campaign---with the cooperation of politicians from both parties---to secure the policies that ensure that their interests prevail, while also "structuring the economy to shift the risks of their new economic playground downward." It is an odyssey taking us from "Broadland," a place of broadly-shared prosperity in the early post-World War II years, to a place political thinker Robert Frank calls "Richistan," where only the richest prosper.

How is this possible, the authors ask in their introduction: How can a Richistan develop in a democracy? How did we move from a "mixed economy, where fast growth was widely shared," toward a winner-take-all "capitalist oligarchy?"

"If government has played a central part, how could this happen? In a country where public officials must regularly face the judgment of citizens at the polls, how could their efforts come to so persistently favor the very few?"

Hacker and Pierson take the rest of the book to answer this question, casting their tale in the context of "a long struggle rooted in the interplay of American democracy and American capitalism." Through this lens, they focus on the legislation and regulation-writing that lock in advantage and---equally important---the legislative "drift" that does little to reduce that advantage and spread prosperity around.

Enroute, the authors in Part One, "The Winner-Take-All Economy," present the data, showing the stratospheric increase in incomes of the 1%, the "have-it-alls," contrasted with stagnating incomes for everybody else. Graphs usually make my eyes glaze over, but they popped open at the one showing the increase in average household after-tax income 1979-2006, with only an 11% rise for the poorest fifth---and a 256% rise for the top 1%. Likewise the graph showing the plunging tax rates of the rich, thanks to tax cuts, loopholes, evasion. Tax audits on the rich have also plummeted, while---astonishingly---"about the only area where audits have gone up is among poorer taxpayers."

With the middle and working classes suffering stagnating social mobility, vanishing retirement benefits, debt accumulation, also tax audits, the metaphor of a rising tide lifting all boats no longer pertains; instead,

"What if the modern economy looks....more like a system of locks, where those who don't get through the gates are left behind? Yachts are rising, but dinghies are largely staying put.... Indeed, there is reason to suspect that the dinghies are staying put in part because the yachts are rising---that the rich are closing the locks behind them to capture resources that would otherwise have enhanced the living standards of everyone else."

Who are our era's super-rich? Executives and managers in business and finance mainly, notably those in finance, about whom, the authors have little good to say, in light of the '08 crash they largely were responsible for: The financial "innovations" they concocted "proved to be just fancier (and riskier) ways of gambling with other people's money." Moreover---importantly---"most of these 'innovations' could occur only because of the failure to update financial rules to protect against the resulting risk"---drift in action (or inaction). Bailing out this "talent" was the furious taxpayer.

A brief history of the American story is given, from our blessed starting point---land in abundance---to rising industrialism and the Gilded Age, to Progressive reform and Teddy Roosevelt's trust-busting to restrain "unfair money-getting," to the Great Depression and FDR's New Deal, establishing "a new economic order---built on the conviction that the federal government had a responsibility to stabilize the economy, provide economic security and ensure at least a modicum of redistribution from rich to poor."

A brief survey of thought on the perils wealth poses to governance is also given, from Plutarch ("An imbalance between rich and poor is the oldest and most fatal ailment of all republics"), to Hume ("Where the riches are in a few hands, these must enjoy all the power and will readily conspire to lay the whole burden on the poor"), to Montesquieu ("To men of overgrown estates, everything which does not contribute to advance their power and honor is considered by them as an injury"). In the new American republic, Madison feared "the mischief of faction," believing the most common source of faction to be the "unequal distribution of property."

Favorite philosopher of America's economic "winners" is Adam Smith. Their skyrocketing gains are "simply the impersonal beneficence of Smith's 'invisible hand,' the natural outcome of free-market forces," with government having no role at all in wealth-creation. Which, the authors say, is all myth:

"The truth is that most people have missed the visible hand of government.... They have talked about the minimum wage, the Earned Income Tax Credit, short, programs that help those at the bottom. The real story, however, is what our national political elites have done for those at the top, both through their actions and through their deliberate failures to act."

This story is told in Parts Two and Three: How did money-power acquire the politics it needs? Cautioning against looking only at elections and their spectacle, as today's media tend to do, the authors examine the policy-making machinery itself, the unspectacular but vital through-line of lobbying and legislation---"what the government was actually doing" (their italics)---that has resulted in today's "managerist" system, in which managerial elites are in position to extract resources.

Getting granular, the authors propose that this transformation began in the fall of 1972, when the National Association of Manufacturers moved its main offices from New York to Washington. As its head officer observed:

"We have been in New York since before the turn of the century, because we regarded this city as the center of business and industry. But the thing that affects business most today is government. The interrelationship of business with business is no longer so important as the interrelationship of business with government."

Business had experienced setback after setback in the years prior, not only during Lyndon Johnson's Great Society but also Republican Richard Nixon's tenure, when "Washington undertook a vast expansion of its regulatory power, introducing tough and extensive restrictions and requirements on business in areas from the environment to occupational safety to consumer protection."

Getting even more granular, the authors (who characterize themselves as sleuths) trace the galvanizing call to action to a 1971 memo from future Supreme Court justice Lewis Powell, written when he chaired the education committee of the U.S. Chamber of Commerce. In it Powell declared the "American economic system is under broad attack," against which mobilization for political combat was required:

"Business must learn the lesson....that political power is necessary; that such power must be assiduously cultivated; and that when necessary, it must be used aggressively and with determination---without embarrassment and without the reluctance which has been so characteristic of American business.... Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations."

This battle plan has been carried out brilliantly, "a domestic version of Shock and Awe." The metrics impress: In just a decade's time, corporate public affairs offices in Washington grew from 100 to over 500; registered corporate lobbyists grew from 175 to 2,500; corporate PACs increased from 300 in 1976 to over 1,200 by the mid-'80s. The Chamber doubled its membership in that period and tripled its budget. Corporate coalitions formed (Business Roundtable for one); corporate-funded think tanks arose (American Enterprise Institute); corporate PAC giving increased "massively." And growth on all these fronts has been runaway ever since.

Equally impressive are the legislative "products" achieved by corporate lobbying, launching the rich into the stratosphere. The authors go into great detail, naming names and organizational sponsors, to describe tax cut after tax cut after tax cut; the adoption of the capital gains tax (allowing payment at the comparatively low rate of 15%, used especially by those in finance) and the "carried interest" provision "that allows this sweetheart deal"; the gutting of the progressive tax rate; the back-dating of stock-option values, "reset retroactively to provide big gains for executives":

"When the Financial Accounting Standards Board, which oversees accounting practices, tried to make firms report the costs of stock options like other was beaten back by a bipartisan coalition in the Senate galvanized by industry opposition. This is a textbook example of drift."

While Republicans are the principal promoters of these products, Democrats have participated too, feeling forced by the onslaught of corporate money in Washington to "show the love" toward business. Former senator Phil Gramm is cited as a Republican who was a particularly ardent champion of the rich. Calling Wall Street a "holy place," Gramm was key to repeal of the Glass-Steagall Act and the creation of legislation prohibiting regulation of derivatives, both of which enabled much greater risk-taking and much bigger paydays for Wall Street.

But Democrats have been co-enablers of the winner-take-all economy. The savings-and-loan debacle of the '80s was a "thoroughly bipartisan affair," with Democrats joining in to free up the industry of regulation. One of those Democrats, Senator Chuck Schumer, has proved a special friend of Wall Street (which, granted, lies in his district). Schumer was key to passage of the capital gains/carried interest package, supported Gramm's bill to repeal Glass-Steagall, and led bipartisan efforts to sharply reduce the fees Wall Street pays the federal government and to reduce SEC oversight of credit-ratings agencies. While Gramm "was more often the battering ram" for the economic elites, "Schumer, by contrast, was more often the master of drift":

"[Schumer] was the one who made sure that his party---the one most likely to push for serious oversight of Wall Street---remains as friendly as possible to the interest of the captains of finance."

Sadly, Democratic politicians, in tending more to corporate interests, have become less diligent in championing the middle and working classes. The legislative drift allowed by Democrats and by increased use of the filibuster---"the No Deal rather than the New Deal"---has meant billions of dollars of lost revenue for programs to aid Middle America. Middle America has also suffered from the decline of unions and the civic organizations that once were its stalwart defenders, like the American Legion, which successfully mounted a nationwide campaign after World War II to secure the G.I. Bill. Now these organizations focus more on social issues (EMILY's List on pro-choice candidates) than the pocketbook issues so crucial to those struggling in a damaged economy. Little wonder people tell pollsters they do not feel politicians feel their plight; they're right, the authors say.

Meanwhile, the economic elites get all representation they need, and as the authors claim, it matters little who or what party occupy the White House; what's key are whose hands work the levers of government. Contrary to partisan expectation, it was the Republican Richard Nixon who accelerated financial regulation, while continuing LBJ's social program. It was under Democrat Jimmy Carter that the first major tax cuts were passed and the first steps toward financial deregulation were taken. And it was the Democrat Bill Clinton who took financial deregulation to its height, with repeal of Glass-Steagall. Republican Ronald Reagan stands out less for his legislation and more for his anti-union (firing the federal air traffic controllers) and anti-statist stances---"Government is not the solution, government is the problem"---masking the fact that government very much is a capitalist's solution.

What's the solution for Middle America? Organization, organization, organization, urge the authors. To counter the organization of the moneyed interests, Middle America needs to grow the reform organizations that can call on their membership to press for reform in a comprehensive and sustained way. The present winner-take-all economy is not "economic destiny," the authors assert, but a product of politics; thus, the solution is through politics. A very tall order, yes, but the authors harken to the Progressive era of the early 20th century as proof America has reformed itself before.

As for the authors' claim about the irrelevance of who sits in the White House: I take issue, to this extent. Inasmuch as a George Washington visionary has not emerged from Wall Street or the corporate sector since the '08 crash, one who combines business savvy with a humanitarian feeling for Middle America and who could reset the balance more equitably, we could look to a President to craft that rebalance. Even if Middle America attained more degree-certified education, as Hacker and Pierson note, it still would be on the downside from the managerist state; the balance needs resetting. The great experiment of American capitalism and democracy has always borne internal tension; the problem is, there's not tension enough now, all the power lies with the moneyed elites. Who among the presidential candidates could reintroduce that tension, for better equilibrium? Who could persuade Wall Street to preserve, if not the common good, then the American "brand"?

So far, only the Democratic candidates qualify. Bernie Sanders' rapid rise in the polls is due to his full-throated attack on "the billionaires." Hillary Clinton is being pulled left by Sanders, but while she's stomping for Middle America, Clinton's economic policy prescriptions fall short of root-and-branch reform. The Republican candidates still recite the elites' playbook, businessman Donald Trump most bombastically.

For insights helpful to Middle America, Winner-Take-All Politics takes the prize. While the book could benefit from crisper organization (there's some authorial drift; thank heavens for the index), it nevertheless presents all the factual ammunition and clarifying diagnosis of our predicament that any reformer and motivated citizen could need. To a New Day.

Carla Seaquist's latest book, "Can America Save Itself from Decline?: Politics, Culture, Morality," is now out. An earlier book is titled "Manufacturing Hope: Post-9/11 Notes on Politics, Culture, Torture, and the American Character." Also a playwright, she published "Two Plays of Life and Death," which include "Who Cares?: The Washington-Sarajevo Talks" and "Kate and Kafka," and is at work on a play titled "Prodigal."

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