Deal Breakers (Page 2)

In recent years, of course, the situation has reversed itself. The wealthiest 0.1 percent of Americans were five times richer in 2005 than they were in 1973. Median household income over the same thirty-five-year period had grown 16 percent--mostly as a result of more women entering the labor force; male wages fell over the same period. The result is that the wealthiest people in our society live in a world markedly different--in its daily texture and its horizons of possibility--from the world inhabited by everyone else. Most economists explain this rising income inequality in terms of market forces: the rise of international trade, globalization and an influx of immigrants have all hurt the bargaining power of working-class people while enhancing returns to the educated and skilled.

But Krugman, while assessing the relative impact of immigration and trade on the wages of working-class people, bucks the norms of his profession and argues instead that the primary reasons for the decline of the more egalitarian society of mid-twentieth-century America are political. There was nothing inevitable about the rise of that "middle-class" suburban, mass-consumption economy in the postwar period; it was made possible only by high income taxes and strong labor unions. Today, we are returning to the economic institutions of the last Gilded Age. The tax system is now less progressive than it has been in decades, and the proportion of the private-sector labor force represented by unions has declined to its lowest level since before the New Deal. It should be no surprise, therefore, that our society is becoming as divided by class as it was then.

Krugman argues that the conservative movement is in large part responsible for this rise in economic inequality. The legislation that had seemed so radical in the 1930s--like Social Security and the National Labor Relations Act--had by the '50s become "the very definition of political moderation," accepted by Republicans and Democrats alike. The sole Republican President between 1932 and 1968 was Dwight Eisenhower, who expanded Social Security and the minimum wage and wrote to his conservative brother Edgar that anyone who wanted to cut back labor laws and unemployment insurance was "stupid" and politically suicidal. But a small number of conservative activists, backed by antiunion businesses, sought to undermine this consensus by supporting candidates and legislation that would dismantle the welfare state, labor unions and the New Deal. And that group was able to prevail, Krugman argues, because the power of the right is historically different from that of the left. Where the civil rights movement and the labor movement depended on the active participation of millions of people, the strength and longevity of the conservative movement have come from the small number of wealthy activists like Joseph Coors and Richard Mellon Scaife who have contributed to its support over the years. Its electoral victories have not reflected popular support for the laissez-faire program as much as the cynical willingness of Republican campaign operatives to win votes by exploiting racism--such as when Ronald Reagan attacked "welfare queens" in 1976 and gave a 1980 campaign speech about states' rights near Philadelphia, Mississippi, where three young civil rights workers were murdered in 1964. "The legacy of slavery, America's original sin, is the reason we're the only advanced economy that doesn't guarantee health care to our citizens," Krugman writes.

The Conscience of a Liberal excels when Krugman is giving his trademark crisp, clear surveys of the economic literature. He isn't really writing history, and as a result, his sketch of the evolution of the conservative movement sometimes seems offhand and overly schematic. But his argument that inequality has political causes nonetheless resonates throughout the book. We can, he insists, make collective choices about how unequal we want our society to be. He calls for the revival of an "unabashedly liberal program of expanding the social safety net and reducing inequality--a new New Deal." Although he advocates universal healthcare (especially single-payer)--in part on the grounds that it would be far more effective than our current system of private insurance, in which Americans pay more than people in other developed countries for healthcare that is far worse--his underlying reasons for wanting to revive the New Deal go beyond the economist's questions about growth or efficiency. Universal healthcare, labor unions and policies that reduce inequality all cut against the idea that some people deserve one way of living--elite universities, million-dollar cars, Hamptons mansions, medical concierges when traveling the world--and others the opposite: crumbling schools, decrepit subways, crowded apartments, no healthcare at all. Rather than generating baroque myths about the superhuman greatness of CEOs alongside morality tales about the character failings of the poor, minimum wages and progressive taxes create a society capable of honoring the truth that people really are created equal.

Krugman writes in the tone of a mild-mannered, reasonable professor, rarely getting flustered as he goes about calmly disarming his intellectual opposition. Jonathan Chait, by contrast, opens his book with an apology for sounding a bit like an "unhinged conspiracy theorist." You can imagine him shaking his fist or slamming his computer keyboard as he denounces the "tiny coterie of right-wing economic extremists," some of whom are "ideological zealots, others merely greedy, a few of them possibly insane." But in truth, Chait explains, he isn't a radical at all. He's just a displaced moderate (he gets a little sentimental about the "modern Republicans" of the Eisenhower era) who has found the center pulled out from under him.

The Big Con is at its best whenever Chait skewers the conservative intellectuals who popularized supply-side economics, which he sees as the obsession of today's Republican Party. The basic idea of supply-side theory is that economic growth is determined almost entirely by the incentives entrepreneurs and investors have to create wealth, especially tax rates. But there is no academic consensus around the idea that there really is a close correlation between tax cuts and growth. The theory owes its popularity, Chait argues, to its promotion by a few economic cranks.

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