Winner-Take-All Politics

Winner Take All Politics

According to Jacob S. Hacker and Paul Pierson, co-authors of Winner-Take-All Politics: How Washington Made the Rich Richer—And Turned Its Back on the Middle Class, economic inequality in the United States is not in the eye of the beholder. It is real, most apparently in the “real economy,” and it is present, most conspicuously, in the yawning gap between the poor and the middle class, and the very well off. It is a result, the authors say, of the rich—and superrich—pulling away from the rest of us over the last thirty years. The arc of this latter-day gilded age began in the late 1970s when government policies moved away from a broad-based economy that distributed goods up and down the ladder toward an economy that benefited the few at the expense of the many, resulting in an economic transformation that would be unrecognizable to the post-World War II generation. In 2007-2008, the financial sector of the economy imploded—the worst economic downturn since the Great Depression. The implosion hardly touched the rich, but nationwide millions of Americans suffered from the wreckage it caused: increasing unemployment, stagnating wages, rising home foreclosures, personal bankruptcies, extreme debt, and inadequate—or no—health insurance. Falling median incomes, declining net worth, and 12.8 million people unemployed as of March 2012—nearly 43 percent without a job for twenty-seven weeks—speak to the sharp erosion in economic security for a large swath of Americans: “The 99 percent” made famous by Occupy Wall Street in 2011. Such is the economic transformation toward a winner-take-all economy that has conspired to make the first ten years of the 21st century a lost decade for many Americans.

When the occupiers of the Occupy Wall Street movement pitched their tents in cities around the United States, they were decrying the skewed economic rewards for the top one percent, and they garnered global attention in a matter of months. Economists and political scientists who study the problem of rising inequality, however, could have told you that inequality has been brewing in this country for the last thirty years. In Winner-Take-All Politics, a bar graph comparing “The Top 1 Percent’s Share of National Income” in the early 1970s shows that the United States was pretty much on par with other affluent countries. Thirty years later, however, “the United States is now at the top of the advanced industrial pack, with regard to both the level (16 percent) and the increase (virtually a doubling) of the top 1 percent’s share of income.” In 2010, the top 1 percent of taxpayers (those above $352,000) took home 93 percent of the additional income created in the United States since 2009, a rise of 11.6 percent for each household, or just over $1 million. The superrich (0.01 percent or about 15,000 households) took home 37 percent of these additional earnings, a rise in income of 21.5 percent, or an average income of $23.8 million. Compare this to the bottom 99 percent, who received an “$80 increase in pay per person in 2010, adjusting for inflation.” Or this: Since 2009, 88 percent of national income growth has gone to corporate profits, while just one percent has gone to wages. It seems that Americans, on the whole—at least until the Occupy Wall Street Movement forced people to listen—have been silent about the problem of inequality. There are a number of reasons for this silence: They lack credible information that would help them understand economic forces and guide them to make wise decisions in their personal lives; they perceive, rightly, that their government enacts policies and legislation that are not in their best interests; they believe that their voice and their vote do not matter, especially if they are poor or even middle class, a fact confirmed by surveys; or they drop out of the national conversation because they believe democracy does not work for them. When the financial crisis of September and October 2008 caused a near-collapse of the economy, Americans faced the harsh reality that all was not well in America—although the housing bubble and personal debt overload had been blinking red signs of trouble ahead. After the Bush administration stepped in to save the market, and thus the economy, through its “Troubled Relief Asset Program,” (TARP), the American people who lost everything discovered they would be on their own.

How could this happen in America? To get to the answer, Hacker and Pierson “strip away the aura of economic destiny surrounding runaway inequality” and argue inWinner-Take-All Politics that inequality is within human control. When Paul Paulson, President Bush’s treasury secretary, asserted in 2006 that inequality “ ‘is simply an economic reality, and it is neither fair nor useful to blame any political party,’” he was only reiterating the dominant perspective among many economists and politicians: What does politics have to do with it—the economy, that is? According to this view, government policies and legislation are not responsible for an “economy that has delivered so much to the fortunate” but “has worked much less well for most Americans.” Blame is placed elsewhere, and elsewhere is anywhere but the political arena. Presently, the technology revolution of recent years is faulted for the major upheavals in America’s economy. According to this perspective, the technology revolution has transformed a low-tech economy into one “driven by global, universal pressures.” In this flat world, “educational achievements and workplace skills are economic destiny, and deep economic cleavages based on those achievements and skills are all but inevitable.” Because most workers have not kept “pace with the growing skill demands of a global knowledge economy,” they have been left behind in this new global economy. Whereas liberal economists “call for massive investments in education to give more people a shot at entering the winner’s circle,” conservative economists argue that tax cuts and deregulation will “unleash the competitive economy still further” and, at some point, “the gains will ‘trickle down.’” Although Hacker and Pierson do not dismiss technological change as an important factor in a changing economy, they argue that it did not cause the winner-take-all economy. According to Hacker and Pierson, neither the usual suspects—“globalization, skill shifts, technological transformation, economic change”— nor the antidotes liberals and conservatives prescribe will sufficiently answer two questions on the minds of many Americans: First, “How have corporate managers—who, along with Wall Street bigwigs, make up more than half of the top 0.1 percent—ascended from pay levels twenty to thirty times that of a typical worker to levels two to three hundred times as great?” Second, “And why, over a generation in which most Americans have experienced modest economic gains, have politicians slashed taxes on the rich even as the riches of the rich have exploded?”

You might think from the outset that a book written by two political scientists—Hacker, the Stanley B. Resor Professor of Political Scientist at Yale University, and Pierson, the John Gross Professor of Political Science at the University of California at Berkeley—who depend on credible evidence to buttress their argument, including from graphs, charts, figures and lots of comparisons between numbers and percentages, would be a slog for readers whose familiarity with economic terms and analyses is, at best, from a course in micro- or macroeconomics they took in college. In Winner-Take-All Politics, Hacker and Pierson do not shy from crunching numbers and using charts and graphs to support their arguments. After all, they have to maintain their reputations in the academic world, and they cannot risk writing a book for the general public that is sloppily researched or argued, particularly one whose premise conflicts with the parameters of debate set by many economists and politicians. The good news is this: Winner-Take-All Politics, while not the easiest book you will ever read, is not difficult either. The authors state the premise in the clearest of terms: It’s the politics of the last thirty years that has transformed the American economy and made the rich richer at the expense of the middle class and the poor. The premise is cogently argued and supported throughout 306 pages with evidence that is transformative, especially for readers who are unaware that politics can alter the dynamics of a capitalist economy through policies and legislation. There will be many, however, who will continue to believe that the economy is a force of nature—that politics has little to do with it—and they will not accept the following claim Hacker and Pierson make in their introduction: “Since around 1980, we have drifted away from that mixed-economy cluster, and traveled a considerable distance toward another: the capitalist oligarchies, like Brazil, Mexico, and Russia, with their much greater concentration of economic bounty.” (Yes, they use this descriptive term—“capitalist oligarchies.”) Hacker and Pierson have received enormous attention and praise since their book was published in 2010, but, no doubt, they have received their share of disapprobation. They anticipated the critics upfront and structured Winner-Take-All Politics to show why and how their premise is true and valid.

How do Hacker and Pierson succeed? First, they include you, the reader, in their discussion, telling you what they are going to do and how they are going to do it. For example, in the Introduction, they write that Winner-Take-All Politics “offers a very different diagnosis” than offered by many economic diagnosticians. It is a diagnosis “rooted in a very different sort of exploration,” and the exploration entails “uncovering buried clues that point to culprits beyond the usual suspects most analysts have fingered.” These clues lead to truths that “share little in common with the familiar nostrums about the natural course of the American economy,” and “they replace the certainty of a false economic diagnosis with discomforting conclusions—along with a new set of puzzles—about how, and for whom, American politics works.” As investigators digging deep into the substratum of the American landscape, Hacker and Pierson arrive at an inauspicious conclusion: “Step by step and debate by debate, America’s public officials have rewritten the rules of American politics and the American economy in ways that have benefited the few at the expense of the many.”

Second, the co-authors divide Winner-Take-All Politics into three parts that provide a guide for the reader, and they subdivide each major part into headings that announce the subject and discussion to follow. In “Part I: “The Puzzling Politics of Winner-Take-All,” Hacker and Pierson “crunch the economic numbers” that “get to the heart of what has happened to our economy over the last generation.” In this part they begin to build their case that American politics altered the balance between American democracy and American capitalism that reached a tipping point in the latest economic crisis. In “Part II: The Rise of Winner-Take-All Politics,” Hacker and Pierson take the reader on a journey through the 1970s—“the forgotten decade of American political history” when the big shifts in political movements took place. Their discussion in Part II puts to rest the myth that the 1960s caused major political transformations in our country, including the culture wars and partisan rancor. Not so, say the co-authors. Finally, in “Part III: Winner-Take-All Politics,” Hacker and Pierson take you into the heart of the world of winner-take-all politics to show not only “how Republicans and Democrats have both responded, in different ways, to the political pull of America’s superrich,” but also to argue that politicians have circumscribed the power of the middle class in the political arena to favor the wealthy and the marketplace. It is also in Part III that they present a more balanced and judicious appraisal of President Barack Obama than he has received from many commentators. Hacker and Pierson recognize “the daunting challenges that President Obama has had to grapple with in the latest and most epic battle in the thirty-year war,” and they give the President some slack for the troubles he inherited.

When Hacker and Pierson investigate the scene of the winner-take-all economy in Part I, they do not cite as culprits the widening gaps between skilled and unskilled workers or between those who have college degrees and those who do not. Rather, they posit “that the real mystery is the runaway incomes” of “those on the very highest rungs of the economic ladder,” and how “they have managed to restructure the economy to shift the risks of their new economic playground downward, saddling Americans with greater debt, tearing new holes in the safety net, and imposing broad financial risks on Americans as workers, investors, and taxpayers.” Unraveling this mystery—“the rise of the winner-take-all economy”—is central to the co-authors’ establishing the validity of their premise, and they point to three clues as evidence.

The first clue is the increasing hyper-concentration of income at the very top, exemplified by the fact that since 1974 “the share of income earned by the top 1 percent has increased from around 8 percent…to more than 18 percent in 2007,” and if capital gains (investments and dividend income) are included, “the share of the top 1 percent has gone from just over 9 percent to 23.5 percent.”

The second clue is the sustained hyper-concentration at the top since around 1980. In a graph they provide titled “The Richest 1 Percent’s Share of National Income, 1960-2007,” you can see that during the Kennedy/Johnson presidencies the income of the 1 percent remained steady at 10 percent and declined slightly during the Nixon/Ford era. It climbed slightly in the Carter administration and then began to climb steeply in the Reagan presidency (with a downward dip in 1986). It dipped and then climbed slightly during the first Bush administration, and then it took off and climbed steeply during Clinton’s presidency. President George W. Bush inherited a very rich 1 percent; their fortune began to decline after 911, but not for long. Beginning in 2005, it climbed to an unprecedented high of 23.5 percent in 2007. Clearly, the winner-take-all economy is a long-term trend.

The third clue is the limited gains of the non-rich over the last generation and the widening gap between the top and the bottom. Hacker and Pierson state: “In an era in which those at the top reaped massive gains, the economy stopped working for middle- and working-class Americans.” The question becomes: Did middle- and working-class Americans “really benefit from the winner-take-all economy?” Hacker and Pierson’s answer: Not much. In fact, the latest figures from the website of the Congressional Budget Office for after-tax household income show that between 1979 and 2007 “the share of income going to higher income households rose,” with most of the income going to the top 1 percent of the population, “while the share going to the lower households fell.” For example, income grew 18 percent for the bottom 20 percent, while income for the top 1 percent grew an eye-popping 256 percent. There is no trickle down here. Hacker and Pierson call it the “trickle-up” scenario in which “the rich are getting fabulously richer while the rest of Americans are basically holding steady or worse.” The latest figures from the CBO show that “the bottom went nowhere, the middle saw a modest gain, and the top ran away with the grand prize.”

Why all this attention to the hyper-concentration of income at the top? Why focus on income? Why not consider social mobility, workplace benefits, consumption, and wealth? Hacker and Pierson will have none of that and debunk each one in turn. First, the fictional rags-to-riches story of Horatio Alger, a man who picked himself up by his bootstraps and achieved the American Dream in the 19th century, is a persistent myth that continues to beguile Americans. In fact, Hacker and Pierson write: “Over a typical decade…just under four in five people stay in the same income quintile or move a single quintile up or down.” Second, employer-based benefits, such as pensions and health insurance, are less generous than they were in the 1970s. For example, in 2011, 16 percent or 49.9 million people had no health insurance, up from 13.1 percent in 2000. Third, whereas the rich have discretionary income (gross income less taxes and expenses) to save and invest, the poor and middle class experience stagnated wages and decreased benefits coupled with increased living expenses, thus limiting opportunities to save. Consider that the affluent turn this discretionary income into wealth, and in 2004 averaged a “net worth of nearly $15 million.” In that same year, the bottom 40 percent of households held a net worth of $2,200. So much for the conservative ‘trickle down’ argument that the gains of the rich positively impact lower income levels, allowing the economy as a whole to be more productive and competitive and help everyone up and down the ladder. As Hacker and Pierson state: “When we expand our view beyond income to take in the broader canvas of the winner-take-all economy, the argument for thinking that the gains of America’s top-heavy economic growth ‘trickled down’ becomes even weaker. This is not just a story of relative income erosion. The fallout of the winner-take-all economy has reached broadly and deeply into the security of the middle class–and, as recent events reveal, the entire American economy.”

It behooves Hacker and Pierson to exhaustively crunch the numbers in Part I, because the evidence they present must show unequivocally that Americans now live in a country in which wealth is hyper-concentrated at the top in a winner-take-all economy. This they accomplish superbly. Further, they must lay the groundwork in Part I for “a systematic accounting of the full range of things that American public officials have done (or, in some cases, deliberately failed to do) to propel the winner-take-all economy”— the core argument in Winner-Take-All Politics that Hacker and Pierson flesh out in Parts II and III. The groundwork they lay in Part I entails refuting the skeptics who refuse to see how politics have helped the rich get rich—and richer. Thus, Hacker and Pierson show how and why the skeptics are wrong in letting politics and policy off the hook.

One, the skeptics “miss the strong evidence that government is doing much less to reduce inequality through taxes and benefits at the very top of the income ladder”—in other words, politicians actively abet the rich.

Two, the skeptics presume “that if government and politics really matter, then the only way they can matter is through the passage of a host of new laws actively pursuing the redistribution of income to the top.” Not true, Hacker and Pierson argue. Passing legislation is not the only way to “…reshape how an economy works and whom it works for.” What do Hacker and Pierson propose that is not called legislation? “Drift.” Its two major features? A lack of transparency and a specific negligence on the part of politicians who practice it. This thing called “drift,” Hacker and Pierson state, is the “systematic, prolonged failures of government to respond to the shifting realities of a dynamic economy.” Accordingly, “drift” plays a big role in how politics has created an unfair economic and political system, especially when political leaders do not heed “fast-moving economic changes” and do not get ahead of them. “Drift” happens in two stages, Hacker and Pierson explain: “First, large economic and social transformations outflank or erode existing policies, diminishing their role in American life. Then, political leaders fail to update policies, even when there are viable options, because they face pressure from powerful interests exploiting opportunities for political obstruction.”

Here is a hypothetical example of what Hacker and Pierson mean when they write about “drift.” When the economy fell apart on Wall Street, it hit Main Street like a tsunami and the housing market went bust. Millions have either foreclosed on their homes or are now living in houses that are underwater. Suppose some legislators in Congress want to help their constituents stay in their homes. They sponsor a bill in both the Senate and the House that includes a provision to reduce the principal on the mortgages that are underwater. Many of their colleagues, in the beginning, are willing to vote “yes,” but the CEOs of banks and other mortgage lenders, who have garnered favor with these politicians through political donations, are breathing down their necks to vote “no.” Caught in a vise between distressed homeowners—the middle class and the poor—and CEOs who are fiercely opposed to such regulation (their profits as well as their multimillion dollar annual incomes would suffer), the legislators are not going to vote yes if they are going to lose that pot of money for the next election. The bill languishes on the desks of its sponsors. This kind of inaction “is a huge and growing part of how policy is actually made in the civics brawl room that is contemporary American politics,” write Hacker and Pierson. It is the “passive-aggressive form of politics” and central to understanding how we have arrived at an economy that is unequal, unsustainable, and unjust.

Three, skeptics maintain “that the only way government can change the distribution of income is through taxation and government benefits.” Hacker and Pierson call this view “extraordinarily blinkered,” primarily because the government “has enormous power to affect the distribution of ‘market income,’ that is, earnings before government taxes and benefits take effect.” For example, beginning in 1970, both Republicans and Democrats have voted to cut estate taxes and corporate income taxes, now at 15 percent, while corporations and the rich have found ways to evade paying high rates on their capital gains and earnings through partnerships, tax havens, and lawyers who know the loopholes and use them to their great advantage. When Mitt Romney released his tax form during the 2012 Republican primary presidential campaign that showed he had paid a meager 13.9 percent on millions of dollars he collected in investment income—not wages—he caused a media storm. An example of a corporate executive who has taken advantage of government policy that favors the top 1 percent, Romney has amassed a fortune that workers who collect wages can only dream of. What has the government done or not done that has bestowed such largess on CEOs like Romney? Cue Hacker and Pierson: “Government has been a bystander as market forces benignly played out.” As in not standing in the way of CEOs’ pay “accelerating toward three hundred times typical earnings,” mainly in the form of stock options or deferred compensation or guaranteed-benefit pensions, or CEOs beating back “the sorts of reforms that would have put the most effective checks on managerial autonomy,” such as giving shareholders the power to hold CEOs’ feet to the fire. Or in financial regulatory reform that would mean some fairness to the average taxpayer and amend the balance between business and the ordinary citizen.

At the present time, regulatory reform is on the minds of legislators who know which side their bread is buttered on. They are chipping away, bit by bit, at the Dodd-Frank Act of 2010, the broad regulatory overhaul of the financial system and an important achievement of the Obama administration. Former Speaker of the House Newt Gingrich, a 2012 Republican primary presidential candidate, claims the reform bill creates “corrupting Washington controls over the biggest banks,” and he wants to repeal it, precisely the inverse action that Hacker and Pierson have so lucidly argued against, for good reason. They write: “When markets operate in damaging ways, the natural temptation is to turn to politics to correct the imbalance. And yet market participants have strong incentives to resist government regulation and democratic intervention. What’s more, they usually have considerable resources to do so. Without strong protections of political equality, without firewalls between the market and democracy, those who have the most power in the market may also have the most power in politics, undermining the basic ideal on which democracy rests.” (An example of such deregulatory action was the repeal in 1999 of the decades-old Glass-Steagall Act that separated banks and securities firms.) When the financial system developed new financial instruments in the last decade, such as mortgage-backed securities that got sliced and diced and sold to investors, there were no government policies governing these derivatives to prevent the financial system from collapsing as it did in 2007 and 2008. Regulators did not (or would not) “update rules to address rapidly evolving financial realities,” with the net effect that the playing field had been “tilted in favor of those with power, connections, lack of scruples, and the ability to play the profitable but systematically risky new game.” Hacker and Pearson call this delinquent “updating” a typical example of “drift” that hurts ordinary citizens and threatens the balance between democracy and capitalism. When Congress lopsidedly favors the rich, ordinary citizens lose.

The March 29, 2012, passage of the JOBS bill (“Jumpstart Our Business Startups Act”) by both the Senate and the House is a recent example of how businesses use their power to get what they want in Congress. The bill will roll back regulation on corporate financial disclosure and upend some of the regulations put in place after the Enron scandal. Unions, pension funds, consumer advocacy groups, and the AARP fought its passage, and Mary Shapiro, chairwoman of the SEC, warned that the bill would make it easier for companies to cheat investors. Jack Reed, the Senator from Rhode Island, criticized it as ill-advised: “Hasty deregulation has repeatedly been the source of financial crises—the savings and loan crisis, the Enron-era crisis and the Great Recession of 2008, to name a few…. I believe history will judge this misnamed bill quite harshly.” Senator Reed voted no after his own rewritten bill failed to gain traction. In the end, the House accepted several Senate amendments that assuaged to some degree the voices against the bill. However, the bi-partisanship character of the JOBS bill speaks to the deregulatory mindset of the 112th Congress, and, according to its critics, the bill is a recipe for future economic failure. Gail Collins, the New York Times columnist, quipped recently: “When it comes to deregulating business, all of the worst ideas in the modern history of Congress have been bi-partisan to the core. People, when you see Republicans and Democrats together, holding hands and talking about unleashing the magic of the marketplace, hide your wallets.”

How did it happen that politicians have chosen to side with the power players, the rich and superrich, instead of middle-class taxpayers, the bulk of which bailed out the financial sector in 2008? This is the question Hacker and Pierson begin to answer in Part II. The date is 1978 when the winner-take-all economy began to emerge, not in the 1960s when the “great ‘bulge’ of government activism” swept through the government, “roughly from 1964 to 1977.” Remember the 1960s and 1970s? The activism of that period began during the presidency of Lyndon B. Johnson, (November 1963-January 1969) who signed into law some of the most noteworthy legislation ever passed in the United States: the Civil Rights Act of 1964; the Voting Rights Act in 1965; the Medicare Amendment Act to the Social Security Act in 1965; Medicaid; Head Start; and the Elementary and Secondary Act of 1965. Richard Nixon continued this activist precedent when he became president (January 1969-August 1974), and, as Hacker and Pierson tell it, actually “oversaw the most rapid increase in domestic spending since the New Deal. He signed on to a huge expansion of Social Security, as well as the creation of a national food stamps program. Nixon also approved the transformation of Old Age Assistance into a much larger and fully national Supplemental Security Income program.” In addition, it is worth noting, President Nixon also signed into law “huge extensions of national regulatory policy” that created “the Environmental Protection Agency (1970), the Occupational Safety and Health Administration (1970), the National Traffic Safety Commission (1970), the Consumer Product Safety Commission (1972), and the Mine Safety and Health Administration (1973).” By the standards of the Tea Partiers today, Nixon would be called dirty names, possibly a socialist, certainly a left-wing liberal.

In telling the tale of the emergence in 1978 of the “thirty-year war,” Hacker and Pierson do not skimp on details. After the stretch of activist government in the 1960s and early to mid-1970s that reset the nation’s domestic priorities, President Jimmy Carter and large Democratic majorities in the House and the Senate failed to capitalize on those accomplishments. Hacker and Pierson write: “1977 and 1978 marked the rapid demise of the liberal era and the emergence of something radically different. Tax reform: defeated. A new consumer protection agency: defeated. Election Day voter registration: scuttled before reaching the floor of the House. Health care reform: defeated. A proposal to tie the minimum wage to the average manufacturing wage to prevent its further erosion: defeated. An overhaul of outdated labor relations laws: successfully filibustered in the Senate despite the presence of sixty-one Democrats and a Republican minority containing some genuine supporters of organized labor….” In every one of the aforementioned proposals, ordinary Americans would have gained both political clout and economic advantages, but “…the precursors of the Reagan revolution were already visible.” In 1978, Congress passed a tax bill that cut the capital gains tax deeply and benefited the wealthy, and it raised payroll taxes that cut into paychecks and hurt workers. Of this legislation Hacker and Pierson write: “These two initiatives…marked the beginning of the pronounced reversal in federal tax policy…. The United States began its long, dramatic move away from the established practice of using taxes as an instrument for tempering market-generated inequalities associated with the outsized earnings of those at the top,” and “the thirty-year war” toward a winner-take-all economy was in motion. As if that momentum toward unequal taxation were not enough, President Carter and the Democratic Congress saw value in the argument “that excessive regulation had become a serious curb on growth”; although the regulatory action was narrow, “the deregulatory stream” caught on “to become an ever-widening attack on the very idea of economic regulation.” It is nobody’s idea of a wonderful world when the “deregulatory stream” reached its tipping point in 2007 and 2008, and the winner-take-all economy brought down everyone with it, including middle-class democracy.

Loss of power for middle-class democracy is a major theme in Winner-Take-All Politics. Because it threatens the very health of a democratic society, Hacker and Pierson return to this theme again and again. They write: “Behind the declining responsiveness of Washington to those outside the winner’s circle is a complex tale of battered unions, distracted public interest groups, politically ascendant evangelicals, unmoored voters, and a compromised, and increasingly endangered, news media. The conclusion of the tale, however, is simple: ordinary citizens have lost the cues and clout that made their voices so loud amid the civic universe that reigned when the GI Bill passed” in 1944. To locate the “cues” and deliver the “clout,” citizens must pay close attention to public policy, and in particular, economic policy, such as the distribution of income and “the structure of ‘private’ markets that determine the economy’s winners and losers.” Most people think electoral politics is the name of the game, but Hacker and Pierson argue that public policy, as opposed to electoral politics, is “the grand prize of political conflict.” It is “politics as organized combat,” a contest between organized groups, and it will determine who the winners and losers are in 21st century America. “To influence the exercise of government authority in a modern democracy,” Hacker and Pierson stress, “generally requires a range of formidable capabilities: the capacity to mobilize resources, coordinate actions with others, develop extensive expertise, focus sustained attention, and operate flexibly across multiple domains of activity. These are the attributes of organizations, not discrete, atomized voters.” Organizations influence policy, “the substance of governance.”

The organizations that arose in the early 1970s and matured in the 1980s and 1990s are the forerunners of the powerful political operations in play today. The story of “organized combat,” the co-authors relate, began when “…the unexpected liberalism of Nixonland turned into the unexpected conservatism of Carterland.” Industries and businesses were stung by the powerful regulatory agencies of the Great Society, and they had little or no influence individually. In 1971, Lewis F. Powell, Jr., a Republican corporate lawyer and future Supreme Court Justice, issued a memo —“Attack on American Free Enterprise System”—that got the ball rolling. He asserted in the memo that because “ ‘the American economic system is under broad attack,’” business must learn how to use political power, cultivate it, and mobilize it through united and national organizations. After Watergate, Democrats won in a landslide and business was on the defensive. Fear and panic among Republicans ensued, but not for long. Hacker and Pierson describe the business landscape as seen through the eyes of Justice Powell and others: They “recognized that business had hardly begun to tap its potential for wielding political power. Not only were the financial resources at the disposal of business leaders unrivaled. The hierarchical structures of corporations made it possible for a handful of decision-makers to deploy those resources and combine them with the massive but underutilized capacities of their far-flung organizations. These were the preconditions for an organizational revolution that was to remake Washington in less than a decade—and, in the process, lay the critical groundwork for the winner-take-all politics.” The organizational counterattack included hiring lobbyists “to craft an appropriately broad political defense,” joining forces in coalitions, and increasing the number of corporate PACs.

What were these organizations? Who was behind them? What purpose did they serve? And what effect did they have on politicians, labor, and the middle class? The Chamber of Commerce, the National Federation of Independent Business, and the Business Roundtable were among the first in the business industry to expand their membership by learning the ropes of public interest groups, such as Ralph Nader’s Public Citizen, and using “the emerging tools of marketing and communication” and buying into grassroots campaigns. (See Barack Obama, 2008, for how to use social media technology in a presidential campaign.) Businesses not only increased their contacts with key legislators who were receptive to their concerns, but they also increased their donations. “Bundling,” a form of collective giving or coordinated donations, became a common practice, and it served as a conduit to fund candidates, to change the vote of a specific legislator, or “to shape the broader political climate.” Thus, the new era of campaign finance began. Businesses became fundraising machines to influence legislators, and wealthy, economic conservatives—Joseph Coors, John Olin, and Richard Scaife—funded conservative think tanks to shift “public opinion and policy in a conservative direction.” In 1973, they helped to found the Heritage Foundation, a more partisan think tank than its traditional counterparts, the American Enterprise Institute and the Brookings Institution. Its mission: “ ‘…to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.’”

Outmatched by the clout of these newly powerful business organizations and wealthy think tanks, labor unions, which had defended the middle class and had been “…on the front lines of every major economic battle of the mid-century,” began to find themselves on the losing side of politics and the economy. The year 1978 not only signaled a new direction for an economy that had been broadly-based and respectful of middle-class needs, but it also indicated a new state of affairs for labor unions. It was not pretty: A coalition of business organizations used their collective strength to defeat a major labor reform bill that “would have streamlined and accelerated NLRB decision-making and increased penalties for violators.” For labor unions, the reform law was a make-or-break moment; its failure would ensure a huge loss for them and a big win for business and industry. In the words of Hacker and Pierson: “The fate of labor law reform would reveal the true balance of political power. Passage would represent union triumph in an intense battle of wills, and watchful political observers would absorb the lesson for future conflicts.” The bill went down in a stunning defeat, after the Business Roundtable, the Chamber of Commerce, the National Association of Manufacturers, and a coalition of small businesses outspent labor 3-1 and “…flooded Congress with eight million pieces of mail and filled the halls with angry small-business owners from every state and district.” Douglas Frazer, leader of the United Auto Workers wrote prophetically at the time: “ ‘I believe leaders of the business community, with few exceptions, have chosen to wage a one-sided class war…against working people…and even many in the middle class of our society. The leaders of industry, commerce and finance in the United States have broken and discarded the fragile, unwritten compact previously existing during a past period of growth and progress…. The fight waged by the business community against that Labor Law Reform bill stands as the most vicious, unfair attack upon the labor movement in more than 30 years…. Our tax laws are a scandal, yet corporate America wants even wider inequities…. The wealthy seek not to close loopholes, but to widen them by advocating the capital gains tax rollback that will bring them a huge bonanza….’”

Frazer wrote the above words thirty-two years ago, when the winner-take-all economy was beginning its long trek toward dominance, and the unions were beginning to lose their power and authority. Declining union representation in the country today, and the increasing number of right-to-work states—twenty-three, half of them in the South—in which employees do not have to join or pay dues to a union, greatly restrict workers’ clout in the halls of power and directly affect their ability to organize. Labor unions continue to be vulnerable to the huge amount of money the Republican Party can amass to influence legislation that affects workers. Recently, however, labor unions have realized some extraordinary victories: in Ohio, where unions helped to repeal a bill to limit collective bargaining backed by Republican Governor John Kasich; in Wisconsin, where they organized a recall of Republican Governor Scott Walker after he supported a bill limiting collective bargaining for most public employees (the Wisconsin Government Accountability Board announced on March 30, 2012, that a recall election will be set for June); and in Minnesota, where the fight over a controversial right-to-work constitutional amendment continues well into 2012, an election year.

Perhaps the labor unions have had enough of the winner-take-all economy and is now fighting back, after a long siege. Perhaps the middle class and blue-collar workers will support them. It does not appear, however, that the country, on the whole, is ready for the labor unions to come roaring back anytime soon. The country is more divided than ever; conservative issues, especially social and cultural ones, play well in many parts of the country; and many Americans vote against their own best economic interest. It is the latter situation that Hacker and Pierson’s analysis of “the unmoored voter” seems right: “The rise of winner-take-all inequality has disadvantaged the vast majority of Americans, and none more so than those on the lower and middle rungs of the economic ladder.” The reasons: the decline of organizations that represent moderate-income Americans; the voting gap between the top and bottom of the economic ladder; money in politics; and most important, the average voter’s knowledge of economic realities as vastly inadequate to address the problems of inequality in American society. They state: “In a world of declining citizen organizations, in which political elites invest huge amounts of time and money to shape how Americans think about issues, most Americans find it very hard to link their broad economic concerns to the contours of specific policies.” For example: When Americans were asked in 2007 how much they think a CEO of a national company makes in a year, they answered half a million dollars—way off the mark. A CEO of an S&P company earned over $14 million in 2007. In 2010, the chief executives of America’s 500 biggest companies earned a total compensation of $4.5 billion, an average of $9 million each. The highest paid CEO earned a whopping $102 million in salary and bonuses. Who was he? Not a familiar name on Main Street, but he is the top guy on Wall Street: Stephen Hemsley of United Health Group.

Not only do many Americans not link their own economic interests to specific policies, they also misperceive what policies of the government are in their best interest. In the recent economic downturn, more and more people who have never asked for help from the government are now relying on the safety net the government provides in the form of unemployment benefits, the earned income tax credit, food stamps, and Medicaid. Many of these people live in regions where they elect politicians who want to pass a federal budget that will cut deeply into these programs. Recently, Paul Ryan, Republican Representative from Wisconsin, presented to Congress a budget for 2012 that would privatize Medicare, cut $3.3 trillion from low-income programs ($810 billion through 2022 from Medicaid alone) over ten years, and, at the same time, cut taxes for the rich. Why would those who benefit from such government programs vote for politicians who support such a budget—one that obviously favors the rich over the poor and middle class?

In a recent column in the New York Times, Paul Krugman quotes a survey that was recently conducted by a Cornell professor, in which “44 percent of Social Security recipients, 43 percent of those receiving unemployment benefits, and 40 percent of those on Medicare say that they ‘have not used a government program.’” The gap between their perception and fact is astounding, but Krugman concludes the following: “Presumably, then, voters imagine that pledges to slash government spending mean cutting programs for the idle poor, not things they themselves count on.” Unfortunately, these citizens do not live in the heyday of civic and political organizations that gave “them knowledge and leverage and might….” If there were such organizations in 2012, would these same Americans who rely on government-sponsored programs, such as Medicare, Social Security, Medicaid, then vote for politicians who have their best interests at heart? Would they join with other like-minded people to fight for the government programs and benefits that have helped them survive in a troubled economy? What would it take? Think tanks for the common man and woman? Stronger labor unions? A re-do of the Republican and Democratic parties? A re-do of Congress?

You cannot listen to the news, watch television, read the newspapers, or go online without becoming aware of the winner-take-all economy and the winner-take-all politics about which Hacker and Pierson write so persuasively. This winner-take-all mindset thrives on a cynicism that benefits a small but powerful stratum of America’s society, empowered by an equally powerful group of men and women in politics. By the time you get to Part III of Winner-Take-All Politics, you will have become a knowledgeable student of how things have changed for the ordinary American since the mid-20th century: how changes in the tax code have benefited the rich; how politicians’ inaction hurts ordinary citizens; how labor unions have lost in number and strength; how deregulatory policy has fed into financial crises; how lobbyists’ hold on Washington has become big business; how conservative organizations have supercharged the Republican Party; and how money, lots of it, has greased the wheels of many a politician, advocacy organization, think tank, and lobbying firm. (See Citizens United v. Federal Election Commission, January 21, 2010, United States Supreme Court landmark decision). The policies of the government from around 1978, according to Hacker and Pierson, have made quite a difference in the lives of millions of Americans, whose financial outlook at the present time is tenuous. You could ask: If government had enacted policies that were directed more broadly toward the middle class and the poor over the last thirty or forty years, rather than facilitating the lives of the rich and superrich, could the partisan divide in American society, exploited by the mass media, and realized, most notably, in Congress, have been avoided? Is it worth wondering what our society might have looked like had politicians sincerely worked in a bi-partisan way to ensure that Americans have, in fact and reality, an equal opportunity to climb the ladder?

In Part III of Winner-Take-All Politics, Hacker and Pierson show how politics, during “the thirty-year war,” have contributed to making America an unequal society. Although the political journey to where we are today has been a complicated one, with some roads successfully taken and some roads blocked, it begins with the political parties—“…the great gatherers and coordinators in America’s fragmented polity….” Throughout the 1980s, the Republican Party out-organized and out-spent the Democratic Party, as it built up the Republican National Committee into an organizational powerhouse, and, as Hacker and Pierson write, it “…developed in tandem with rising business power—and with the first stirrings of the winner-take-all economy.” In the early 1980s, Democrats were on the defensive: They did not have the money or resources the Republicans had, and the business community was more assertive than ever. Their reaction to this threat was to reach out to corporate donors in a way they had never done before. Both parties and individual legislators began to play the business game with equal effect, and both supported business interests in their own ways. In 1985, Democrats formed the business-friendly Democratic Leadership Council whose economic agenda included free trade, a strong business climate, and deficit reduction. Also, a powerful faction of the Democratic Party helped their Republican allies by acceding to or cosponsoring “Republican initiatives to support the emerging winner-take-all economy.” The change toward a more business-friendly agenda in the Democratic Party throughout the 1980s, the co-authors claim, resulted in the Democrats’ losing “the capacity to create either an effective economic message or viable legislative coalitions for populist policies,” while at the same time, in Congress, “…a new version of economic conservatism—grounded not on fiscal rectitude but on tax cuts for those at the top and deregulation on an ever-widening scale—was gaining strength….”

As Democrats were reaching out to business and finance, Republicans were filling the halls of Congress with legislators who rejected the New Deal and spearheading a new conservatism—the new conservatism of Newt Gingrich’s “Conservative Opportunity Society.” In 1990—Hacker and Pierson call it another watershed year—“…a new Republican party had gradually been taking shape, as an older generation of political moderates and fiscal conservatives gave way to an insurgent generation of hard line conservatives and tax-cutters.” The drama between the economic conservative Gingrich and the more moderate President George H.W. Bush led to this: “Gingrich’s new-line Republicans reversed the priority between fiscal conservatism and tax cuts: Reducing tax cuts was paramount—a priority to be advanced at every opportunity. Even more important, they pushed for an energized and cohesive party dedicated to a radical restructuring of government’s role to unleash the winner-take-all economy. The baby steps of the 1980s were ready to give way to something more ambitious,” namely, the expansion of the pre-tax real income of the top 0.01 percent. For the Republicans, high-end tax cuts was the name of the game. The co-authors describe the Republicans’ new, extreme economic agenda: “Over more than two decades, both the geographic and organizational bases of the party shifted in ways that reinforced its commitment to an extreme economic platform. Eisenhower, Nixon, and more ambivalently, even Reagan, had felt obliged to accept the New Deal while picking battles with Democrats elsewhere. Now many Republicans revealed a thinly veiled desire to do more than combat LBJ’s War On Poverty. Their ambitions included repeal of huge swaths of not only the New Deal but the Progressive Era: no Social Security, no effective minimum wage, no progressive taxation, no support for employer-provided health care, almost no financial regulation. They sought, in short, to re-establish the policies of the Gilded Age to mirror the emerging Gilded Age economy,” and their mantra became: “ ‘Nothing is more important than cutting taxes on the wealthy, period.’” The economic conservative wing of the Republican Party got their wish in 2001 for a “Gilded Age economy” when, under President George W. Bush’s administration, an across-the-board tax cut was enacted (which meant in practice that the highest tax brackets would reap the most gain), along with the elimination of the estate tax and limits on itemized deductions for those at the top. Then, in 2003, the rich were awarded another prize: steep cuts in capital gains and dividends taxes. The result: The richest 1 percent of Americans received “ a staggering $38,500 per household per year when all the tax cuts took effect.” And “the average taxpayer in the bottom 80 percent of the income distribution….”? $600.

As the Democratic Party tilted “to the moderate right on economic matters” during the presidencies of Bill Clinton and George W. Bush, “many of the party’s elected officials…lost their capacity to deliver legislative victories on lunch-pail issues,” Hacker and Pierson write, “and on critical struggles related to the spectacular expansion of Wall Street, powerful Democrats chose to fully support the new economic order.” While leaders of the Republican Party played offense, those of the Democratic Party played defense—they “drifted,” embracing rather than fighting the winner-take-all economy. There were several reasons for their shifting alliances, but the main one was this: They had to be responsive to business, which could pay their way in Congress, and to lobbyists, who were unrelenting in their advocacy and appeal. As the Democrats secured a de-regulatory agenda for Wall Street, however, the trade-offs for the ordinary citizen were less social expenditure for education, health care, energy independence, and infrastructure. Hacker and Pierson describe this “drift” as Democrats positioning themselves to the right on economic issues: They sat back and did nothing, or did not intervene, as the Republicans promoted tax cuts and deregulatory legislation. They embraced dubious loopholes and subsidies, and they listened to lobbyists on behalf of market insiders. Hacker and Pierson do not tire of explaining how “drift” immunizes politicians from blame: “As economic change undercut existing public policies designed to limit inequality and insecurity, Washington’s dominant response was to do nothing. Since the Democratic Party was where we would expect some kind of response to come from, its failure to act is a central part of winner-take-all politics.” As a result of their inaction or “drift,” Democrats could not form legislative coalitions to push through meaningful reform; they could not hold their members together against a radicalized GOP; they could not prevent their opponents from using the ubiquitous filibuster; and they could not prevent their colleagues from becoming “Republicans for a Day.” What was pushing on the party from the outside? Not labor, not mass membership federations, not voters, not organized advocates for the middle class.

Cut to 2008 when “the United States faced a full-fledged financial calamity rooted in the winner-take-all economy. A financial system built to induce high-stakes gambles fell like a house of cards when the housing bubble burst. As credit seized up, the stock market collapsed. Home foreclosures skyrocketed, consumers closed their wallets, and unemployment began a rapid rise.” Enter President Barack Obama, who announced the following initiatives soon after his inauguration: “…a huge economic stimulus plan, a major revision of federal spending priorities, near-universal health care, a massive overhaul of the financial regulation, and ambitious climate change legislation….” These initiatives, Hacker and Pierson point out, “…were meant to mend some of the most serious distortions of the winner-take-all economy.” Obama would need not only large Democratic majorities in Congress, but Democrats who stuck together—his ambitious agenda would most certainly face aggressive pushback from “the biggest beneficiaries of the winner-take-all economy.” Within weeks of his inauguration, it became clear that President Obama’s legislative agenda was going to confront an increasingly rightward-moving Republican Party and a slightly rightward-moving Democratic Party. The parties were primed to butt heads. Obstruction, delay, and “No” were the watchwords in the 111th Congress, so much so that not one Republican supported President Obama’s health-care bill—the Affordable Care Act—when it passed in March of 2010. Now, two years later, the Affordable Care Act is facing its most parlous test as the United States Supreme Court has heard arguments for and against the constitutionality of the law, in particular, against the “mandate,” which seems headed toward the dustbin of history, given the tenor of the exchange. Striking it down would deal a blow to President Obama’s major legislative accomplishment, but it would also increase the number of uninsured millions beyond the 17.1 percent of people who have no health insurance today. (The United States Supreme Court will issue its ruling in June.)

The Affordable Care Act has been only one of President Obama’s major initiatives that have hit the wall of opposition from business, lobbyists, politicians, and a loud citizenry. Financial regulation, climate change legislation, immigration overhaul, the Consumer Financial Protection Agency—you name it: All stopped in their tracks or watered down. The Employee Free Choice Act, a labor bill that Hacker and Pierson call “one of the few initiatives that might have had broader political significance by shifting the balance of organized power” in Washington never had a chance even to get started on a legislative track. What happened? Millionaires and billionaires piled on the money in a “formidable organizational force” that coalesced into attacking President Obama and abetting his declining poll numbers with negative ads, anti-Washington rhetoric, and partisan anger. Things got even worse for President Obama when the Republicans won the House of Representatives in the 2010 mid-term election, and the majority of the 100 newly elected freshmen class were even more socially and economically conservative than the incumbents. Hacker and Pierson describe the political landscape in 2010: “For decades, winner-take-all politics has posed extraordinary and increasing obstacles to concerted government action on behalf of the middle class—even under the most favorable of political circumstances…. In a context of polarized parties—one of which categorically rejects the idea that government should provide a meaningful check on the marketplace—disenchanted, disengaged, and disorganized voters, the Senate with its malapportionment and filibuster, and, everywhere, tenacious and well-resourced lobbyists, the number of ways for reformers to screw up is beyond counting. That those pushing for reform won historic, if incomplete, policy victories on behalf of the middle class is to their lasting credit. The 2008 election made a genuine difference. But the partial and politically costly nature of those victories revealed it would take more than an election to pry up the poisonous roots of winner-take-all politics.”

The problem of inequality in a democratic society will not be solved overnight, as it has become entrenched in government policies over the last three decades. It is going to take a powerful, sustainable, and intentional reform movement to change the future direction of our country toward one that is more equitable and sustainable. In Winner-Take-All Politics, Hacker and Pierson sound the alarm: Economic inequality is neither healthy for a democratic society nor is it what democracy is supposed to be about—“responding to problems that affect broad majorities.” In the last century, the New Deal and “the long 1960s” (1964-1977)—two great reformist periods— were “moments of political renewal” that “generated major public initiatives designed to address excesses, inequities, and failures associated with government’s inability to keep up with rapid social and economic change. In each case, a dynamic democracy tempered and civilized a dynamic capitalism.” During those periods, equilibrium was maintained so that a balance between democracy and a mixed capitalist economy benefited the vast majority of the population. Since the late 1970s, however, the firewall has collapsed between governance and the economy. The pressure on the system has been enormous, from business coalitions to Wall Street lobbyists to medical industry players; they have been and continue to be organized and ready to do battle against any sign of political resistance to their agenda. The two major political parties—the party of lower taxes, deficit reduction, and limited government, and the party in tension with itself, unable to sustain a solid coalition to back serious reform efforts—have proved themselves incapable of collectively governing to provide “basic economic security, a healthier environment, legal protections from predation in pursuit of profit, and the needed social investments—from decent roads to good schools—that would lay the foundation for further opportunity.”

Hacker and Pierson do not flinch in their analysis of America’s winner-take-all politics, nor do they fail to show how the balance between capitalism and democracy is off kilter. Reform, they acknowledge, will be difficult, maybe even impossible, in such a polarized environment, but they emphasize that it is absolutely necessary if mid-20th century “middle-class democracy,” one that “rested on mutually reinforcing economic and political conditions” is to be revived. Making government more responsive to the middle class “would not be just a political achievement; it would reshape the economy.” Although the reforms of the Obama administration—the stimulus package, a progressive budget, overhaul of student loans, health-care act—have made a difference, they do not reduce the power of the winner-take-all economy. Hacker and Pearson call for a strategy of this sort to make a serious and long-lasting impact: Take the “broken political system” and reshape it “…to reduce the capacity of entrenched elites to block needed reform; to facilitate broader participation among those whose voices are currently drowned out; and to encourage the development of groups that can provide a continuing, organized capacity to mobilize middle-class voters and monitor government and politics on their behalf.”

Leveling “the playing field of American politics” is not a choice but an imperative for every citizen if middle-class democracy is to revive and flourish in the 21st century. We can thank Hacker and Pierson for caring enough to show us why in Winner-Take-All Politics.

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