Magazine

Oh, for the Good Old Days


The Squandering of America:

How the Failure of Our Politics

Undermines Our Prosperity

By Robert Kuttner

Knopf; $26.95

(Readers'

Reviews below)

Editor's Review

The Good An analytical look at recent economic and political trends from a populist viewpoint.

The Bad A bit of a slog to get through.

The Bottom Line A passionate broadside for restoring middle-class prosperity and reviving democracy.

Imagine an America where Big Business and Big Government work closely together. Tough regulation prevents banks, investment banks, insurance companies, securities dealers, thrifts, and other financial institutions from competing with one another for business. Barriers at the border restrain global competition and immigration. And unions wield power within companies and in the corridors of Washington. Surely, such "managed capitalism" is a recipe for economic stagnation, no?

Hardly. The U.S. economy, wages, and incomes flourished from 1948 to 1973, a period of managed capitalism when a rising tide did lift all boats. The modern middle class came of age during the 1950s and '60s. But those days are long gone now—a fact lamented by Robert Kuttner, co-editor of The American Prospect magazine and a former BusinessWeek columnist, in The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity.

This volume is unapologetically and proudly progressive. Still, it isn't yet another screed proclaiming the decline of the world, or at least of the country, during the Bush years. Instead, it's a deeply sober, highly analytical, historically informed look at economic, financial, and political trends over the past half-century. (Little wonder it's also something of a slog to wade through.) Kuttner is an intelligent voice for that wing of the Democratic Party eager to reject bipartisanship, middle-ground politics, open borders, and the Washington Consensus and embrace a populist agenda that is anti-Wall Street, anti-free trade, anti-deregulation, and pro-union.

While the author favors managed capitalism, his bugaboos are Wall Street and the global capital markets. Kuttner has nothing good to say about modern finance. In his scenario, speculators hollow out companies for a quick buck, conspire to fleece investors, and make enormous bets through hedge funds that put the global financial system at risk. He blames a deregulated and unleashed financial sector for America's rise in inequality, a weakened public sector, the decline of labor, and the waning of citizen involvement. He agrees with John Maynard Keynes' famous statement that "when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done."

The author's emphasis on how politics affects economic outcomes is spot-on. He's right that the rise in income inequality and job insecurity in recent decades has been greatly influenced by political power and political decisions. The trends he highlights are deeply disturbing, including the erosion of pension coverage and the swelling ranks of Americans without health insurance.

Yet his nostalgia for old economic ways and his deep distrust of Wall Street don't amount to a persuasive solution. Managed capitalism had more drawbacks than he admits. For instance, Kuttner downplays the devastating impact that inflation had on the system in the '70s. Perhaps more important, he glosses over how much the managers of Industrial America had become risk-averse as they lost market share and profits to Japanese, German, and other overseas rivals. Like them or not, it took innovators such as Rupert Murdoch, Craig McCaw, and Michael Milken to challenge a potentially catastrophic mindset.

To be sure, there's no shortage of abuse now, from Enron to subprime. Yet the capital markets remain a remarkable institution for communicating through price changes all kinds of information. The more pervasive the financial markets, the more investors will find and fund profitable ideas—and flee from failed management strategies. With the benefit of hindsight, it's also apparent that the financial markets' "shock absorbers" are one reason the 2001 recession was so shallow. The reverberations from the downturn in economic activity largely showed up in the global capital markets rather than in the real economy of jobs and incomes.

Kuttner has written a passionate broadside for restoring widespread prosperity to the middle class and reviving a dispirited democracy. That his argument isn't completely convincing doesn't mean his ideas aren't worth grappling with during the coming campaign for the White House.

By Christopher Farrell


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