Abstract
In a manner remarkably similar to the decade of the 1920s, inequality soared for over three decades prior to the crisis of 2008, provoking in both instances financial crises and severe macroeconomic dysfunction. The 1930s depression witnessed a strong egalitarian political reaction to the laissez-faire ideology that had justified the inequality-generating institutional changes of the 1920s, resulting in a New Deal that launched four decades of institutional change that considerably improved general welfare and lessened inequality. The Grand Recession and its wake, by contrast, has not put that same ideology seriously into question, malaise becoming expressed predominantly in a form of rightwing populism, behind which inequality continues to explode. Why such radically divergent reactions to severe hardship? This chapter explores three foremost reasons for why ideology legitimating inequality survived practically unscathed during the later crisis: First, the crisis beginning in 2008 proved to be less severe, in part due to wiser public policy responses. Second, the welfare net that developed in the wake of the earlier crisis softened the degree of hardship accompanying the later crisis. And third, the elite’s command over ideology had become more sophisticated and thus capable of surviving the later crisis essentially intact.
A society which reverences the attainment of riches as the supreme felicity will naturally be disposed to regard the poor as damned in the next world, if only to justify itself for making their life a hell in this.
(R. H. Tawney 1926, 222).
The class which has the means of material production at its disposal, has control at the same time over the means of mental production, so that… the ideas of those who lack the means of mental production are subject to it.
(Karl Marx 1845, 172).
The United States, despite its formally democratic character, is firmly in the hands of a moneyed oligarchy, probably the most powerful ruling class in history.
(Robert McChesney 2014a, 58).
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Notes
- 1.
Melvyn Dubofsky notes that “The Great Depression and the New Deal had wrought a veritable political revolution among American workers. Masses of hitherto politically apathetic workers, especially among first-generation immigrants and their spouses, went to the polls in greater numbers” (1986, 212).
- 2.
The impact of tax rates on inequality is clear. OECD countries in which taxes have been cut most on high incomes have witnessed the greatest increases in income accruing to the very wealthy (Deaton 2013, 212). Piketty also notes that “…the resurgence of inequality after 1980 is due largely to the political shifts of the past several decades, especially in regard to taxation and finance” (Piketty 2014, 20).
- 3.
As Chicago School economist John Cochrane has put it, “When inflation came in the nineteen-seventies, that was a major failure of Keynesian economics” (Cassidy 2010, 31). As early as 1980, Robert Lucas wrote that “At research seminars, people don’t take Keynesian theorizing seriously anymore; the audience starts to whisper and giggle to one another” (Lucas 1980, 19).
- 4.
Home-grown domestic terrorism also characterized this period. In 1972, there were 1900 domestic bombings. Notable terrorist groups included the Weathermen, the Black Liberation Army, and the Symbionese Liberation Army (Burrough 2015).
- 5.
Relative success appears not to have been due to the lesser severity of the 2008 financial crisis. Ben Bernanke avowed at the Financial Crisis Inquiry Commission hearing: “As a scholar of the Great Depression, I honestly believe that September and October of 2008 was the worst financial crisis in global history, including the Great Depression” (Financial Crisis Inquiry Commission 2011, 354).
- 6.
Although official unemployment reached 25% in 1933, more recent estimates claim it was closer to 50% (Gans 2014, 56).
- 7.
The ideology of “government as the problem” has been so successful that a huge percent of Americans do not even recognize very substantial benefits they receive from government. For instance, Paul Krugman points out that 40% to 44% of those who receive Social Security, unemployment benefits, and Medicare claim that they “have never used a government program” (2012).
- 8.
Production workers earned $9.26 an hour in inflation-adjusted dollars in 1972. Forty-four years later, in 2016, they earned $9.20 (Cassidy 2017).
- 9.
No mortgage executives were held accountable and mortgage companies were permitted to foreclose on homeowners instead of being forced to modify loans or reduce balances. About nine million households lost their homes. At the end of Obama’s presidency, 63.7% of households owned their own homes, the lowest since 1965 (the peak was 69.2 in 2004) (Jackson 2017). Black households were especially impacted. By 2014, almost half of their wealth had vanished (Heideman 2017), a crushing blow given that net median white household wealth is 13 times higher than for blacks (The Economist 2016).
- 10.
The wealthy were generally spared the pain of the crisis. By the end of Obama’s second year, the S&P 500 stock index had risen almost 60%, recovering most of its losses after its 2007 peak. By the end of his second term, it had gained 166%.
- 11.
The labor-force participation fell from 65.7% to 62.8% (half of the decline due to demographics) during the Obama years, the lowest in four decades, while the median jobless rate was 7.7%, higher than during any post-World War Two administration (Jackson 2017).
- 12.
Obama did not engage in reaching out to Americans through television (as had Ronald Reagan) to draw support for his policies and thereby skirt-around and bring pressure upon Congressional members. It should be noted that a conservative coalition opposing Roosevelt’s projects formed in 1934. However, Roosevelt became increasingly supportive of workers as the Depression dragged on. In his presidential campaign of 1936, he advocated a wealth tax. He also advocated marginal income tax rates as high as 79%, stiffer inheritance taxes, and greater taxes on corporate profits. He attempted, unsuccessfully, to make guaranteed employment a part of the Social Security Act. He was also not reticent in his attacks on the rich, referring to them in his presidential address of 1936 as “economic royalists,” an “autocracy” that sought “power for themselves, enslavement for the public” (Kennedy 2001, 227–82).
- 13.
During the 2016 election campaign, Donald Trump received the greatest support in those counties with the highest levels of economic distress, as well as where the mortality rates were highest from alcohol, drug abuse and suicide (Burns 2018).
- 14.
The election of Jimmy Carter in 1976 shifted the Democratic Party rightward, where it has since stayed, despite Bernie Sanders’ attempt to take it back to the politics of FDR, Harry Truman, JFK and Lyndon Johnson, during whose administrations, wealth inequality decreased. It was especially Bill Clinton who dragged the party further to the right with his campaign pledge to end welfare “as we know it.” During the administrations of Carter, Clinton, and Obama, wealth inequality increased (Studebaker 2016).
- 15.
Ganesh Sitaraman writes that “The defining feature of the 2016 election was the strength of anti-establishment candidates who channeled popular discontent with elites and with the current functioning of American politics. In the primaries, Senator Bernie Sanders received more than 12 million votes, Donald Trump received more than 13 million votes, and Senator Ted Cruz won more than seven-and-a-half-million votes. Together, explicitly anti-establishment candidates took more than 30 million primary votes, out of around fifty-six million cast” (Sitaraman 2017, 271).The Public Religion Research Institute conducted a poll in June 2016 and found that 49 percent of voters agreed with the statement “Because things have gotten so far off track in this country, we need a leader who is willing to break some rules if that’s what it takes to set things right” (cited in Galston 2018, 74).
- 16.
Democrats as well as Republicans are dependent on the rich and the corporations they own. In the 2014 elections, for example, about 32,000 individuals — 0.01 percent of the population —accounted for 30 percent of all political contributions (Olsen-Phillips et al. 2015). With few exceptions, contributions from individual firms are given equally to Republicans and Democrats. Corporations hedge their bets, investing in politicians of all stripes to ensure that, no matter who is elected, they will have access. Politicians almost always respond to the will of their contributors, not constituents (Bonica et al. 2013)
- 17.
In an infamous 2012 campaign speech, Mitt Romney claimed that 47% of the country constitutes a “taker class,” paying little or nothing in taxes, but expecting taxes on the productive classes for free health care, food, housing, etc. Many workers buy into this view. Catherine Rampell reports that “Across rural America, the Rust Best, Coal Country and other hotbeds of Trumpism, voters have repeatedly expressed frustration that the lazy and less deserving are getting a bigger chunk of government cheese” (2016).
- 18.
Some conservatives have attempted to propagate a view that fairness is “hostile to capitalism, destructive of national security, and dangerous to liberty” (Woodward 2012, B6).
- 19.
Other evidence also suggests the greater extent to which Americans hold individuals responsible for their own fates. For instance, Alesina, Glaeser, and Sacerdote have found “an extremely strong relationship in the United States between supporting capital punishment and opposing welfare” (2001b, 242).
- 20.
Matt O’Brien writes that today’s Republican Party is composed of three different wings. The first is Wall Street that puts up the money to get their leaders elected. The second wing is middle-class professionals who are attracted to tax cuts. The third wing is the white working class who are sold the argument that their woes are due to immigrants, free trade, welfare cheats, and many of whom are attached to cultural issues such as right to life, etc. (O’Brien 2017).
- 21.
Behavioral economists are finding that people systematically make decisions that are against their own interests, driven more by emotions than economic reason. In What’s the Matter with Kansas? (2005), Thomas Frank provides wide-ranging evidence for this view.
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Wisman, J.D. (2020). Why did the Great Recession Fail to Produce a New New Deal in the USA?. In: Bowden, B., Muldoon, J., Gould, A.M., McMurray, A.J. (eds) The Palgrave Handbook of Management History. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-62114-2_46
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