books such as The Virtue of Selfishness and Atlas Shrugged, Ayn Rand, the high priestess of free-marketeers such as Alan Greenspan, championed the notion that by doing what is best for yourself, you end up doing what is best for everyone. But, as put into practice by corporate America over the past thirty years, that equation has been flipped upside down. It turns out that an unregulated free market is sooner or later corrupted by fraud and excess. In other words, it isn’t free at all. In fact, it’s as fixed as a street-corner game of three-card monte. And the interests of the elites have become disconnected from the public interest.
In the three decades since the Reagan Revolution, Americans have been preached to from pulpits far and wide the holy word of unregulated markets as the true path to a higher standard of living. As part of the new religion, we were converted from citizens to consumers and taught a catechism about how the market—not “equality of conditions”—was the foundation of our country. Along the way, the social contract—especially the subsections protecting workers, poor people, and our air, water, and oceans—was fed into a shredder. Starting with the New Deal, we began constructing a social safety net to help the most vulnerable among us. But who needed a safety net when the laws of supply and demand were there to protect us, when the trickle-down theory would provide sustenance for us all?
The missing tenet in this new free-market fundamentalism was the recognition, central to capitalism, that businessmen have responsibilities above and beyond the bottom line. Alfred Marshall, one of the founding fathers104 of modern capitalism, in an address to the British Economics Association in 1890, called it “economic chivalry.” He explained that “the desire of men for approval of their own conscience and for the esteem of others is an economic force of the first order of importance.” There is a reason Adam Smith’s105 free-market gospel, The Wealth of Nations, was preceded by his Theory of Moral Sentiments. He knew that economic freedom could not flourish without a firm moral foundation.
But that moral foundation is by no means inevitable. The “approval of their own conscience” and “the esteem of others” have gotten a lot cheaper in recent years. We see the results of capitalism without a conscience all around us: the pollution of our environment, workers being injured or killed, the sale of dangerous products, the shameless promotion of risky mortgages for overvalued homes, and the wholesale loss of millions of jobs and trillions in savings.
The collapse of communism as a political system sounded the death knell for Marxism as an ideology. But while unregulated, laissez-faire capitalism has been a monumental failure in practice, the ideology is still alive and kicking. You can find all manner of free-market fundamentalists still on the Senate floor or in governors’ mansions or showing up on TV trying to peddle deregulation snake oil.
Given how close we were in 2008106 to the complete collapse of our economic and financial system, anyone who continues to make the case that markets do best when left alone should be laughed off his bully pulpit.
Despite the fact that many banks, car companies, and so on would be defunct without government intervention, the free-market fundamentalists continue to live in denial, trying to convince the world that if only left alone, free markets would right themselves.
Free-market fundamentalism didn’t fail because our leaders didn’t execute it well enough. In fact, during his time in office (until the economic house of cards finally collapsed at the end of his presidency), President George W. Bush and his team did a bang-up job executing a defective theory. The problem isn’t just the bathwater; the baby itself is rotten.
William Seidman, the longtime GOP economic adviser who oversaw the savings and loan bailout in 1991, cuts to the chase: “[The Bush] administration made107 decisions that allowed the free market to operate as a barroom brawl instead of a prize fight. To make the market work well, you have to have a lot of rules.” Even Alan Greenspan108, whose owl-eyed visage could adorn a Mount Rushmore of free-market capitalists, finally saw the light, telling a House committee in October 2008 that he “made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.”
Many, including Bush 43, lay the blame on a few rotten apples: “Wall Street got drunk109,” he said. Maybe so, but who made the Bush years a nonstop happy hour and kept serving up the drinks?
Of course, Republican leaders were not the only ones drinking the free-market Kool-Aid. It was also chugged by New Demo crats such as Bill Clinton. He came into office knowing it was the economy, stupid, then proceeded to oversee a presidency focused on the soaring Dow Jones industrial average, even as the number of Americans living in poverty stubbornly refused to dip below thirty-two million110, and the number of Americans unable to make ends meet without the aid of a soup kitchen or food bank hit twenty-six million111—with more homeless children112 than at any time since the Great Depression. Yet the Clinton White House’s messaging was like a twenty-four-hour Boom Channel: All Prosperity, All The Time.
In those go-go years, even being downsized could, in the eyes of the free-market evangelists, be turned to your advantage. In early 1996, after forty thousand AT&T workers113 were pink-slipped, future Mad Money host (and Jon Stewart whipping boy) Jim Cramer, then still a hedge-fund manager, wrote a piece that landed on the cover of the New Republic. Head-lined “Let Them Eat Stocks,” the article found a silver lining in the dark cloud of the massive layoff, proposing that the fired workers be given stock options. “Let them participate in the stock appreciation that their firings caused,” Cramer gushed. Cue Eric Idle’s “Always Look on the Bright Side of Life.”
Four years later, Bush v. Gore ushered in the CEO president and his CEO VP. They promptly threw open the White House doors to their corporate cronies from Enron and Halliburton114 and declared open season on the interests of the average American. The Enronization of our economy was under way.
THE RICH GET RICHER
The Reagan years ushered in the era of the widening income gap. The rich grew considerably richer while the real income of everyone else, from the poor to the middle class, either slid back or, at best, leveled off.
In their paper on long-term change in the U.S. wage structure, economists Claudia Goldin and Lawrence Katz of Harvard and the National Bureau of Economic Research reported, “From 1980 to around 1987115, wage in equality increased in a rapid and monotonic [i.e. steady] fashion. Those at the top grew most rapidly, those in the middle less rapidly, and the bottom the least of all. . . . [These] wage structure changes have been associated with a ‘polarization’ of the labor market with employment shifting into high-and low-wage jobs at the expense of middle-wage positions.”
By the late 1980s, due to changes in technology, outsourcing, and the loss of manufacturing jobs, the middle class was sputtering. Even as productivity rose, the wages of the average worker remained flat.
In 1995, the midway point116 between the Reagan Revolution and today, John Cassidy penned an article in the New Yorker entitled “Who Killed the Middle Class?” Cassidy had his readers imagine a lineup composed of every American, arranged from poorest to richest. The individual exactly in the middle—the median—was arguably the most middle-class person in the nation. That man or woman, in September 1979, was earning (in constant, inflation-adjusted dollars) $25,896 a year. In September 1995, that same man or