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News Report on Public Confidence
in the State of the Nation
2013
The Future of American Democracy Foundation
Book Excerpts
From the book The American Dream vs. The Gospel of Wealth: The Fight for a Productive Middle-Class Economy by Norton Garfinkle (Yale University Press, October 2006).

Reviews of the book
“We can choose to chart a wiser economic path by starting with the principles that have inspired Americans from the beginning: Sticking with fiscal discipline, rewarding hard work, investing in our people, and growing a strong middle class. In The American Dream vs. The Gospel of Wealth, Norton Garfinkle addresses these important economic issues, issues that should be addressed at all levels of government and our society if we expect to maintain the American Dream for future generations.”
- Senator Hillary Rodham Clinton

The American Dream vs. the Gospel of Wealth: The Fight for a Productive Middle-Class Economy is the most important book I've read in years. Thoughtful, clear, readable, and insightful, it is a remarkable account of how reactionary politics and regressive supply-side economics have produced an America that is no longer working for all Americans. But this is no hand-wringing polemic. Garfinkle has identified and diagnosed the virus that has been loosed on the American Dream, but he also summons us to fight back—with the ideas and values that may yet redeem in our time the Declaration of Independence and Lincoln's vision of government "of, by, and for the people."
- Bill Moyers

"This fascinating guided tour of America's past reminds us of the moral dimension of economic policy - which used to loom large, but which lately has been submerged. Garfinkle's book may help bring it back."
- Alan Blinder, Princeton University, former Vice Chairman of the Federal Reserve Board

"This book is clearly written, without jargon, and Garfinkle does a very good job of linking macroeconomic arguments with their political and moral implications."
- Ian Shapiro, author of The Moral Foundations of Politics

"A dramatic description of contemporary economic issues and their origin in the continuing struggle between the true American Dream inspired by Lincoln, Wilson and the two Roosevelts...and the Gospel of Wealth, identified in the 19th century with Social Darwinism and more recently with Harding, Coolidge, Hoover, Reagan and George W. Bush in particular. In its intelligence, historical understanding and felicity of style, Garfinkle's eminently readable volume is in the best tradition of American historical literature."
- Richard D. Heffner, Rutgers University

Summary
In recent years a clearly defined economic philosophy has taken hold in the United States--one that emphasizes supply-side tax cuts, minimal government, reduced regulation, and enhanced economic rewards for investors as the keys to prosperity.

The rise of this philosophy has coincided with the emergence of a “winner-take-all” economy, where the 20 percent of highest-income households in the U.S. now absorb half of the nation’s total yearly income, while many ordinary wage-earners experience deepening income stagnation and increased job insecurity.

This marks a sharp departure from a post-World War II U.S. economic consensus that had as its central goals the strengthening of the American middle class increasing employment and fostering equality of opportunity for all citizens. The book argues that the latter consensus provided the foundation for America’s great post World War II prosperity.

Drawing on both historical analysis and data-based research, The American Dream vs. The Gospel of Wealth shows how Americans today confront a choice between two fundamentally different economic visions for American society--one vision based on “the America Dream,” which focuses on strengthening the incomes and economic security of the middle class and ordinary wage-earners without restricting the ability of successful businessmen to gain wealth-- and another vision based on “the Gospel of Wealth,” which seeks to ensure that the few most economically successful citizens reap maximum rewards through an increasingly regressive tax structure. Each vision claims to provide the basis for maximum economic growth and maximum benefit to all Americans.

The book traces the American Dream tradition of economic thinking through the administrations of Abraham Lincoln, Theodore Roosevelt, Woodrow Wilson, and Franklin D. Roosevelt. It shows how a contrary “Gospel of Wealth” tradition developed during America’s late nineteenth-century Gilded Age, only to re-emerge in the administrations of Warren Harding, Calvin Coolidge, and Herbert Hoover, and more recently in the administrations of Ronald Reagan and George W. Bush.

The book shows how modern “supply-side” approaches to tax cuts have their philosophical roots in assumptions born of the Gospel of Wealth tradition of the late nineteenth century. The book also provides extensive data to show that the main premise of the Gospel of Wealth economic philosophy--that disproportionate economic rewards for the rich will “trickle down” to the benefit of the rest of the population--is contradicted by the historical performance of the American economy. It argues that “demand-side” approaches to economic policy have been consistently more successful than supply-side approaches in fostering investment, employment, and economic growth.

The American Dream vs The Gospel of Wealth argues for the clear superiority of “demand-side” approaches to economic policy on economic as well as moral and political grounds--and shows how a demand-side approach to the economy can work to preserve the middle-class basis of American democracy.

Public Policy Implications

President Bush’s former chief economic advisor Lawrence Lindsey wrote in the Wall Street Journal on Friday October 13, that “Mr. Bush has every reason to be proud of his tax cuts.” Lindsey went on to say “economic historians will credit the tax cuts as having been a model of the successful application of economic theory to the real world.”

As an economic historian, it is clear to me that nothing could be further from the truth. Mr. Bush’s tax cuts did not produce the above average economic growth that he and Mr. Lindsey claim. Since 1951, economic growth in the United States has averaged 3.2%. The Bush Administration has produced only 1 year of above average economic growth since taking office. After a sharp decline of economic activity during the first year of the Bush Administration there was no fast bounce back. Economic growth was only 1.6% in 2002, 2.5% in 2003, 3.9% in 2004, 3.2% in 2005 and is currently expected by most economists and half the CEO’s of our major corporations to grow less in 2006 and 2007. By contrast, economic growth was above the long term average in 6 of the 8 years of the Clinton Administration.

Employment is critical to the growth of the economy. Most economists believe that 150,000 new jobs are needed every month to provide for new entrants into the labor force. But the Bush Administration has presided over an economy that has produced less than 50,000 new jobs per month in the 6 years since taking office.

By contrast under the 8 years of the Clinton Administration the average monthly job increase was 240,000. So far the Bush Administration has produced less than 4 million new jobs in almost 6 years. The Clinton Administration produced 23 million new jobs in 8 years.

Why this difference? The best answer is that the Bush program is based on a faulty supply-side theory of economic growth.

The President and his advocates repeat over and over again that tax cuts for the wealthiest families produce substantial business investment. The President’s on-going argument is the wealthiest families typically own their own businesses and cutting their taxes produces substantial increases in total business investment and economic growth. The reality is very few wealthy families own their own businesses and the families who do, account for less than 10% of total business investment. Tax cuts for the wealthiest families have very little impact on growth in investment, employment and GDP. My new book The American Dream vs. the Gospel of Wealth: The Fight for a Productive Middle-Class Economy documents that in the 54 Year period from 1951-2004, only 2 of the 18 years with the highest GDP growth had low marginal income tax rates. By contrast there were substantial increases in aggregate consumer demand in 15 of those 18 years. In our incentive based economy, it is not surprising that American companies generally increase production only when there is an increase in demand for their products. The substantial increase in aggregate consumer demand during the Clinton Administration delivered not only high growth in employment and GDP but also high growth in investment, averaging 9.9% per year compared to only 1.1% during the 4 Bush years after the recession of 2001. And this high investment level in the Clinton years occurred during a period in which the top marginal income tax rate increased from 31% to 39.6%.

So if high economic growth has not been produced during the Bush Administration, what has been the real effect of the radical Bush tax cutting program? The major effect of the Bush tax cuts has been to increase the disparity between the wealthiest Americans and the middle-class. More than half the benefit of the Bush tax cuts went to the wealthiest 12% of families. The Wall Street Journal reported on October 12 that average CEO pay is estimated to have grown to be 369 times as much as the amount earned by the average worker while “the average U.S. paycheck has barely kept up with inflation in recent years”. Meanwhile, corporate profits have soared.

During the last year of the Clinton Administration the Federal Government had a surplus of $256 billion. Since then, the Bush Administration has shown continuous deficits running as high as 413 billion in fiscal year 2004 and 319 billion in 2005. Instead of a program to build a surplus to address the looming crises in Social Security and Medicare, the Administration is now patting itself on the back for running future deficits of only 200 – 250 billion dollars a year. And they are attributing this “accomplishment” to their tax cuts that helped cause the deficits in the first place. The reality is that middle-class and ordinary workers have received few if any benefits from the Bush tax cuts. By contrast, tax cuts for corporations have produced the highest profit margins in decades and tax cuts for the wealthiest Americans have produced the highest personal income in generations.

The President and his supporters tell us that taxes paid by corporations and wealthy individuals have produced large increases in government tax revenues. But this is because the corporations and wealthy individuals have had enormous increases in their before tax income. After they pay taxes at the low rates initiated by the Bush Administration, their after tax income still leaves the corporations and the wealthiest Americans well ahead of the game while the middle-class and average workers get little if any benefit. And the Federal Government continues to run enormous deficits that will have to be paid back by our children and grandchildren.

Selected excerpts:
Introduction
Americans today confront a choice between two fundamentally different economic visions for America. The historic vision of the American Dream is that continuing economic growth and political stability can be achieved by supporting income growth and economic security of middle-class families without restricting the ability of successful businessmen to gain wealth. The counterbelief, based on the Gospel of Wealth, is that providing maximum financial rewards to the most successful businessmen is the way to maintain high economic growth to benefit all Americans. Both visions claim to support the goals of maximum economic growth and maximum benefit for the society as a whole, but they present radically divergent programs to achieve these goals. One approach claims that the engine of economic growth can best be sustained by a progressive tax system that supports the purchasing power of middle-class Americans. The other claims that the engine of economic growth can best be sustained by a regressive tax system that increases the wealth of the highest income families to support business investment. This book draws on the historic record and a detailed analysis of economic data to demonstrate that the middle-class American Dream not only supports the democratic ideals of our society but also provides the best path to maximum economic growth.

As the new millennium dawned in 2000, the American economy presented an extraordinary portrait of success. For the previous four years, Gross Domestic Product (GDP) had grown at an average real rate of 4.2 percent, a figure well above the 3.2 percent average for the post–World War II era. Unemployment, at 4.2 percent, was well below the postwar average. Inflation was minimal. Yearly growth in business investment was at levels not seen since the 1960s. Indeed, to find a similar run of robust economic growth, low unemployment, low inflation, and high business investment, one would have to go back to the mid-1960s--and back then, inflation was showing signs of increasing. To top it off, by the end of 2000, the federal government had produced surpluses for three consecutive years--a minor miracle, not seen since the late 1940s. Moreover, federal surpluses in the multibillions were projected as far as the eye could see. From 1993 through 2000, the U.S. economy created over 23 million new jobs, an average of more than 2.9 million a year. Americans were enjoying an unprecedented level of prosperity. Government’s fiscal house was in order. The federal government was not only able to pay down trillions in accumulated debt; it had money left over to help cope with looming crises in Social Security and Medicare.

But all this was to end.

First came the inevitable. In March 2000, an inflated tech stock market crashed, setting the stage for the onset of a recession a year later. Then came the policymakers. President George W. Bush came to office in 2001 with a minority of the popular vote, a razor-thin electoral vote margin, and a radical plan to slash federal taxes. Tax cuts, the president and his advisers said, were the key to increasing investment. Tax cuts were the key to increasing jobs. Tax cuts were the key to getting the economy back on a pathway of growth. Between 2001 and 2003, the Bush administration pushed through major cuts in the income tax, the estate tax, corporate taxes, and taxes on dividends and capital gains. By 2004, the administration’s tax cuts had trimmed over $200 billion from the federal government’s annual revenues, with most of the money going to those in the top 12 percent of the income scale.

Yet the results were not what the president and his advisers predicted. First to disappear were the projected federal surpluses. From a surplus of $256 billion in 2000, the federal budget went to a deficit of $413 billion in fiscal year 2004 and $319 billion in 2005. The number of new jobs created fell far short of economists’ estimates of the minimum of 150,000 per month needed to accommodate new entrants to the labor force. Indeed in the five years of the Bush administration from 2001 to 2005, the economy created only 31,000 new jobs per month compared to 240,000 per month during the eight years of President Bill Clinton’s administration. The promised business investment boom was slow to materialize. Business investment growth during the first five years of the Bush administration averaged only 1.2 percent per year compared to 9.9 percent per year during the Clinton presidency. From the combined standpoint of employment, business investment, and real GDP growth, the Bush administration presided over one of the slowest recoveries of the post–World War II era. During these five years of the Bush administration the average annual GDP growth of 2.6 percent was considerably lower than the average annual growth of 3.7 percent during the eight Clinton years. Annual employment growth was anemic at 0.3 percent compared to 2.4 percent during the Clinton years. And even in 2005, three years into the recovery, GDP growth was only 3.5 percent and employment growth remained anemic at 1.5 percent.

After five years of their ambitious tax-cutting program, in other words, the central claim of Bush and his advisers--that tax cuts would create a fundamentally new economic environment that fostered historically high rates of investment, job creation, and growth--had not panned out. At the same time, having added nearly $2.3 trillion to the national debt in the brief span of five years, the administration was still confronted with an array of urgent spending requirements--billions for homeland security following the terrorist attacks of September 11, 2001, a protracted and costly military occupation of Iraq, substantial relief and reconstruction costs after Hurricanes Katrina and Rita, and burgeoning oil prices--all destined to take their continuing toll on both the federal budget and the U.S. economy.

The crowning irony was that the sustained boom of the 1990s had been ushered in by a major tax increase during the Clinton administration while the Bush tax cuts produced nothing of the kind.

What rationale could the Bush administration have had for wreaking such havoc on the federal finances? Why insist on deep tax cuts, especially in the post–September 11 era, when security spending was bound to explode and costly disasters awaited right around the corner? How would major tax breaks for the highest-income earners work magic on an economy that had already been growing for several years at faster-than-historical rates--under a progressive tax structure that produced healthy federal surpluses? Why was the Bush administration content to throw away federal surpluses when huge unfunded liabilities for Social Security and Medicare loomed on the horizon, to say nothing of a dizzying array of immediate security, defense, and disaster needs?

The answer lay in the doctrine of supply-side economics, which thoroughly permeated the thinking of Bush and his economic advisers. Supply-side economics was the conservative answer to the demand-side economics that dominated U.S. policymaking from the end of World War II until 1980. To a large degree, economic debate in America for the past quarter century has centered on the conflict between these two economic visions. The health of both our economy and our democracy will be decisively affected by which of these two visions prevails in the future.

Drawing on historical analysis and data-based research, this book shows how Americans today confront a choice between two fundamentally different economic visions for American society, each of which claims to support maximum economic growth and a fair and equitable basis for American democratic society. One vision, based on the America Dream, supports a progressive tax structure that enables the government to implement programs to strengthen the income and economic security of the middle class and ordinary wage earners without restricting the ability of successful businessmen to gain wealth. The second vision, based on the Gospel of Wealth, seeks to ensure that the few most economically successful citizens reap maximum rewards through an increasingly regressive tax structure.

The data analyzed in this book clearly indicate that regressive tax policies based on a Gospel of Wealth supply-side theory are not helpful to economic growth, while progressive tax policies based on demand-side theory can provide a continuing spur to economic growth consistent with the economic and political vision of the American Dream.

Two Theories, Three Questions
Every important economic policy has three kinds of consequences: factual, moral, and political. In effect, in evaluating economic policy, we have to ask three questions: (1) Does it work? (2) Is it fair? and (3) Will it sustain the democratic structure of our society?

Today our debate tends to focus almost exclusively on the first question, at the expense of the other two. It was not always so. A generation ago, most Americans would have instinctively understood the relevance of all three questions--factual, moral, and political. That is because public views of government economic policy were shaped by memories of the Great Depression. The Great Depression brought dramatic policy failure on all three levels. When the economy nosedived after the Great Stock Market Crash of 1929, the federal government literally did not know what to do. By and large, the federal government stood by almost helplessly as unemployment rose to catastrophic levels, eventually as high as 25 percent.

Most Americans became convinced of three things: that the government under President Hoover did not know what it was doing, that the fate meted out to ordinary workers and their families was patently unfair, and that unemployment and spreading poverty threatened the very basis of American democracy.

After the economy recovered in World War II, Americans were still thinking within this framework. Demand-side economics, inspired by economist John Maynard Keynes became a kind of unofficial economic policy for the nation in the postwar years. Keynes’s key innovation was to shift the focus of economists from production, or supply, as the engine of economic growth to the importance of consumption, or demand. The main lesson economists drew from Keynes was that government could restore growth to an economy suffering from high unemployment by engaging in deficit spending to expand “aggregate demand.” Expanded demand would get the economy moving again, provide customers for business, give investors a reason to invest, and bring down unemployment.

By the beginning of President Dwight Eisenhower’s administration in 1953, demand-side economics had become the basis for a bipartisan consensus. The post–World War II economy was understood to be “Everyman’s economy.” By broad social consensus, the purpose of the economy was to provide economic opportunities as well as a measure of economic security for ordinary workers and their families. Government was understood to have an active role--indeed, a responsibility--in this process.

The demand-side consensus constituted the basis of an economy that saw a remarkable growth of the American middle class. It was an economy in which ordinary workers in ordinary jobs could expect to better their conditions, own homes and automobiles, send their children to college, and retire in relative security. It was an economy in which the vast majority of citizens had a stake. It was an economy that promoted a strong faith in democracy.

Supply-side economics in the 1980’s created, in effect, a mirror image of demand-side theory. The real engine of growth in an economy was not demand, said the supply-siders, but rather supply. Supply-siders believed that demand-siders had put too much emphasis on the issue of fairness and in the process they had neglected job 1--which was to make the economy grow. One could engineer fairness, the supply-siders believed, only at the expense of economic growth. The government had been trying too hard to control the economy; now the government had to learn to obey the laws of economics. If the laws of economics brought lower wages or greater income inequality, so be it. The important thing was to ensure growth. That meant getting government out of the way. Government should not be worrying about how economic goods were being distributed; it should not be worrying about ensuring an everyman’s economy or building up the middle class. It should simply get its hands off business and the economy and let business and the economy generate growth. The most important way for government to get its hands off the economy was to lower taxes, especially on the highest earners, the most productive citizens who would invest their increased revenue in their own businesses. Many supply-siders claimed that such tax cuts would so powerfully unleash the forces of supply that the tax cuts would not even produce a deficit: they would pay for themselves.

The Republican candidate Ronald Reagan made supply-side tax cuts the center of his presidential campaign in 1980, and once in office President Reagan implemented the supply-side program full-bore, pushing through the largest tax cut in history, including a deep reduction in the top marginal income tax rate--eventually cutting the top rate down from 70 percent to 28 percent.

By the end of the Reagan administration, however, few mainstream economists regarded the supply-side tax cut “experiment” as a success. In the first place, the tax cuts had obviously not “paid for themselves” (almost no mainstream economist expected they would). The Reagan administration’s taxing and spending policies produced the largest peacetime federal deficits in American history. Nor did the cuts in taxes for the highest-income earners bring the promised investment boom. In the seven years following the 1981 tax cut (1982–88), growth in new business investment averaged a weak 3.1 percent.

It was one thing for supply-siders to claim to emphasize the factual dimension of economic issues at the expense of the moral and the political questions. That was simply a debating posture. It was another thing to actually have a factual basis for their claims. Absent such factual support, it is interesting to ask why supply-side economics made such a powerful comeback under President George W. Bush.

The Way Forward
Today we are at a crossroads. Not only has the supply-side program failed to deliver the promised higher levels of investment and faster-than-historical rates of economic growth. It has once again produced outsized deficits. It has intensified already burgeoning income inequality. And it has gone hand in hand with an economy that year after year has brought sluggish employment growth, stagnant wages, increasing job insecurity, and millions of citizens slipping below the poverty line. The federal government is in debt up to its ears, and so are many Americans, as ordinary citizens max out their credit cards and borrow against their home equity in a desperate effort to maintain a middle-class standard of living in an economy apparently no longer defined by a commitment to support such a living standard.

What kind of nation are we? and what kind of a nation do we seek to be? The promise of the American economy and the promise of America itself have always been closely bound up together. Do we want to be the kind of country in which, as an old song from the 1920s went, the rich get richer, and the poor get poorer? Or do we want to be the kind of country we set out to be at the end of World War II, committed to an economy that provides for the common good, offers ready entry to the middle class, supports a middle-class standard of living, and provides generous opportunities for all? When the richest nation in the world has to borrow hundreds of billions to pay its bills, when its middle-class citizens sit on a mountain of debt to maintain their living standard, when the nation’s economy has difficulty producing secure jobs or enough jobs of any kind, something is amiss.

Two opposing ideas compete today as they have through much of our history for the support of all Americans. One is the American Dream, inspired by President Lincoln and carried forward by Presidents Theodore Roosevelt, Woodrow Wilson, Franklin Roosevelt, and Bill Clinton. The other is the Gospel of Wealth, developed in the second half of the nineteenth century and carried forward in the twentieth century by Presidents Harding, Coolidge, and Hoover and more recently by Presidents Ronald Reagan and George W. Bush. The implementation of one or the other of these ideas has had and will have major economic, moral, and political consequences for the future of American democracy.

Early in the twenty-first century, much of the debate between the two ideas has focused on the economic consequences of supply-side economic policies that are central to modern proponents of the Gospel of Wealth versus demand-side economic policies that are central to modern proponents of the American Dream.

The findings of my empirical study, discussed in chapter 8, should put to rest the notion that there is an inherent conflict between economic and tax policies that spur economic growth and policies that contribute to a fair and balanced democratic society. The win–win conclusion is, demand-side economic policies not only increase the ability of all Americans to improve their living standards, but also provide positive support for the economic, moral, and political objectives of American democracy.

Disregarding the evidence that demand-side economic policies provide the best support for our economy, the administration of George W. Bush has taken the strongest steps in more than fifty years to change the direction of economic policy to Gospel of Wealth, supply-side programs. During the Bush administration, there has been a growing acceptance of the idea that it is fair for some Americans to start life with inherited millions, while others begin dirt-poor. Under Bush, America has been evolving into what the economists Robert H. Frank and Philip J. Cook called a “winner-take-all society.” The top 20 percent of households are taking in half the income of the entire nation. Salaries of chief executive officers are over five hundred times those of the ordinary production workers in their corporations. Investment bankers and business executives collect tens of millions of dollars in bonuses and severance and retirement packages, while American soldiers who risk their lives to ensure the safety of prosperous and poor alike can barely make ends meet.

President Bush has deliberately increased the winners’ share of the takings, cutting top marginal income tax rates, reducing taxes on dividends and capital gains, and even undertaking to eliminate the estate tax--a measure self-consciously designed by Progressive Era political leaders to prevent America from degenerating from a democracy of political equals into an aristocracy of wealth.

In contrast to the supply-side winner-take-all tax structure, a progressive tax structure based on demand-side principles would help to sustain virtuous economic cycles in which steadily increasing consumption leads to continuing growth in production and increasing employment income for most Americans, which then sustains increasing growth in GDP. Henry Ford succinctly summarized the essential understanding of demand-side virtuous economic cycles when he said, “If you don’t pay the people enough money, they can’t buy the cars.”

In contrast to the positive evidence supporting properly executed monetary policies and demand-side fiscal policies, there is no evidence that supply-side tax cuts for the wealthiest taxpayers during the Reagan and George W. Bush presidencies actually increased investment and growth. Neither empirical research nor the historical experience of supply-side tax cuts provides evidence for this claim. Indeed, the evidence is that very little of the money put in the hands of the wealthiest taxpayers ended up as investment in their businesses or sustained growth in the economy. Moreover, the distributional effects of the Bush tax cuts provided a windfall for the rich while eliminating revenues that are needed, first, to pay the government’s bills, second, to begin to address the anticipated problems of Social Security and Medicare for an aging population, and, third, to provide the federal government with the resources needed to deal with new national defense obligations and natural disasters such as Hurricanes Rita and Katrina.

The Future of American Democracy
It is fortunate for the future of American democracy that the data supporting the economic growth case for demand-side economics is strong while there is no significant evidence to support supply-side economic policies. The additional benefit of demand-side economic policy that supports growth in personal consumption for all Americans is its contribution to a fairer and more stable American democratic society.

History teaches us that the future of any democracy depends on a thriving middle class. This is true in both an economic and a political sense. From the standpoint of economics, middle-class consumer spending is the primary engine of economic activity and growth. Sustaining the incomes--and therefore the spending--of the middle class is essential to sustaining the growth of the economy as a whole. It is the key to the virtuous economic cycle. From the standpoint of politics, in a democracy the existence of a large, vibrant middle class is crucial to political stability. The middle class acts as a buffer, softening the age-old struggle between the haves and the have-nots. It is through the middle-class dream that Americans come to share common aspirations--aspirations that help to mute the differences in wealth, culture, race, and ethnicity that might otherwise threaten to tear a democracy apart. To survive, a democracy must also be a community--a society bound by shared values.

From the standpoint of morality the public needs to believe that America operates on the principle of fairness. Americans must view their government as pursuing policies that are fair to all citizens, and not hopelessly skewed to those who, by dint of their wealth, can command greatest control over government policy and the distribution of society’s resources. If, under the influence of supply-side economic policies, income inequality continues to grow--with a few at the top, many at the bottom and ever fewer in the middle--it will be increasingly difficult to sustain the belief that Americans share a common destiny that outweighs the differences that divide us. The belief in fairness will wither, and with it the sense of democratic community.

To build a future based on the American Dream, we need to remind ourselves that the American success story has always been about more than mere individualistic economic striving. America has succeeded because the nation came together at critical moments in our history to support common programs to serve the common good. These programs were informed by core values held in common by most Americans, values which were originally defined by the Declaration of Independence, the Constitution, and the Bill of Rights and have since been elaborated and sustained by our shared history.

What kind of a nation are we? what kind of a nation do we seek to become? and what kind of world do we seek to create? Are we a nation always ready to defend ourselves, yet dedicated to principled action in the international realm? Are we still a people, as we once were, committed to economic opportunity for all and compassionate toward the least fortunate among us? or are we a society that now disproportionately rewards the big winners and leaves ordinary citizens to fend for themselves? Are we still the America of the great “American century” or are we being transformed into something quite different--no longer the strong and benevolent nation that once stood as a “shining city on a hill”?

The most disappointing feature of the current era has been the absence of a powerful vision--one that fully recognizes the importance of the American legacy. To date, efforts to design new programs for the future have largely focused on tactics rather than substance. They have been uninformed by a commanding vision--a larger idea of America of the kind that inspired us throughout American history. We must rekindle such a vision of America, if the American democracy we have come to know and love is to survive and prosper in the new century.

The stakes are high. In a very few years, our once-revered nation has come to be perceived across the globe, by majorities in nearly every country surveyed, in a negative light.

At home, meanwhile, we witness an unremitting challenge to programs crafted over decades that helped to build and sustain the middle-class basis of American society. From the 1930s through the 1960s, American political leaders of both parties shaped policies designed to extend economic opportunity, protect against economic insecurity, and above all to make a middle-class standard of living accessible to most Americans. These policies included a progressive income tax; Social Security; unemployment insurance; federal support for education in the form of the GI Bill, student loans, and vital millions for research; policies to foster widespread home ownership; and programs such as Medicare, Medicaid, and Food Stamps to provide a minimum hedge against sickness and hunger among the least fortunate members of our society. All these measures worked together to create the America we know: a dominantly middle-class society, with great opportunities for economic advancement, a proper measure of compassion for the least fortunate, and a shared American dream.

But now we face a contrasting doctrine that disparages the progressivity of the tax code, desires to change the firm commitment to Social Security, and views health care for the least fortunate among us as something our affluent society cannot afford. New tax cuts have transformed a multibillion-dollar federal surplus into multibillion-dollar deficits. And now the deficit has become a weapon “to starve the beast”--the new parlance for a comprehensive plan to undo the efforts by both parties, over many decades, to use government policies to sustain a fair, prosperous middle-class society. The belief that government has little responsibility to care for common needs, and the claim that government is largely incompetent to accomplish common purposes--such has become a major ideology of our time. Yet such assertions not only fly in the face of decades of historical experience during the great American century: they also disarm and disable us as we face the challenges of the future.

An extremely individualistic vision is precisely the wrong prescription for the foreign and domestic issues that loom before us. We need to overcome the historical forgetfulness that besets contemporary policy debate--the lack of appreciation for the vital role that well-crafted government policies have played in creating the America most of us grew up in. And we need to change the short-term focus of contemporary policy debate. To build a confident American democratic future, short-term, politically expedient policies must be replaced by wise and strategic long-term solutions. Addressing these issues will require cooperative action of the kind that only effective government policy can provide.

One thing is clear: Americans must understand the profoundly different directions in which policies based on the Gospel of Wealth and policies based on the American Dream will take them. Political leaders seeking to serve the common good must reawaken our understanding of the true American Dream and remind us again of what Lincoln meant when he expressed the profound hope that “government of the people, by the people, for the people, shall not perish from the earth.”

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The American Dream vs. the Gospel of Wealth:
The Fight for a Productive Middle-Class Economy
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