In the past year and a half numerous articles have been written about how the novel coronavirus pandemic in the United States has highlighted the different economic situations of racial minorities, the poor, the middle class, and the economic elite. In the mainstream press one finds article after article about how life will change after the pandemic and how the pandemic has caused many to reevaluate their own lives. Despite the changing expectations, largely from the middle class, daily tracking of the spread of Covid-19 infections has clearly indicated that Black and Hispanic neighborhoods have been especially hit hard by the virus in the United States compared to their percentage of the population. After a year into the pandemic, governors across the country have felt the pressure to relax the economic restrictions on businesses as forty million citizens have been unemployed. The economic strain has been, and continues to be, overwhelming for a majority of Americans. It is clear that the vast majority of Americans do not have the economic resources to weather continued unemployment in the face of the continued danger to their health the virus represents. Many, perhaps most, would rather take their chances with the virus. As of this writing more than 650,000 have died, and the Delta variant of the virus is creating new surges of infection and crises in treatment capacity around the United States. Yet much of the U.S. population is slow to be vaccinated even though vaccinations are free and widely available.
To more than the casual observer the inequalities of the U.S. economy have been apparent for some time. According to the Federal Reserve Report on the Economic Well-Being of U.S. Households in 2018, almost 40 percent of American adults would not be able to pay a $400 emergency with cash, savings, or credit card (Board of Governors of the Federal Reserve System). As reported in Forbes Magazine, a survey by CareerBuilder finds that 78 percent of Americans live paycheck to paycheck (Friedman). Fifty-six percent of Americans save $100 or less per month. Twenty-five percent have no savings for retirement. Fifty-five percent of American heads of household over the age of sixty-five have no savings for retirement. According to GoBankingRates, 58 percent of Americans have savings of less than $1000. And the diagram below indicates that 32 percent have no savings at all (Cameron).
Additional statistics are available to suggest that the economic well-being of the American public is not nearly so good as that advertised by and during the Trump administration. Thus, it is not difficult to see why Americans are economically stressed during a pandemic that continues with no clear end in sight.
The important question for the long term is “How did the economic situation in the United States get to its present state?” Some might blame the Trump administration for its incompetence in facing the Corona-19 virus as the major contributing factor to the poor economic state of the U.S. economy. Although the poor performance of the Trump administration might be a contributing factor, it is minor when compared to the long term economic developments that have occurred over the past fifty years.
For a more cogent response to how we have arrived at such a state of affairs, I think we do much better by looking at Steven Brill’s book, Tailspin: The People and Forces Behind America’s Fifty-Year Fall – and Those Fighting to Reverse It. Brill identifies the people and the changes in socio-economic structure over the last 50 years that answer the major questions dealing with the current state of social, economic, and political affairs in the United States.
Steven Brill is a 1975 graduate of Yale Law School. He is also a journalist and entrepreneur. The author of numerous books and articles about the United States economy and social structure, he is also the founder of The American Lawyer as well as the moving force behind several television projects (Wikipedia, “Steven Brill (journalist).” Brill readily admits in the opening pages of Tailspin that he is a member of the privileged class as the result of his education and the associates it afforded him. Tailspin, however, is in part an act of repentance for Brill, as he exposes the underside of the U.S. social structure established largely by the privileged class of which he became a member.
Brill’s point of departure in Tailspin is to suggest that the major significant division in United States society today is not between the political right and left as many of his contemporaries would suggest, but rather between the protected and the unprotected. The protected is that extremely small segment of society that really does not need government services except for public infrastructure and national defense. In this group are the financial elite who are financially and legally secure without external assistance. The unprotected, in contrast, are the rest of us who use government protections, public schools, and legal protections afforded by banking regulations, contract law, and civil rights legislation. Brill writes:
The unprotected need the government to provide good public schools so that their children have a chance to advance. They need the government to provide a level competitive playing field for their small businesses, a fair shake in consumer disputes, and a realistic shot at justice in the courts. They need the government to provide a safety net to assure that their families have access to good health care, that no one goes hungry when shifts in the economy or temporary setbacks take away their jobs, and that they get help to rebuild after a hurricane or other disaster. They need the government to assure a safe workplace and a living minimum wage. They need mass transit systems that work and call centers at Social Security offices that don’t produce busy signals. They need the government to keep the political system fair and protect it from domination by those who can give politicians the most money. They need the government to provide fair labor laws and to promote an economy and a tax code that tempers the extremes of income inequality and makes economic opportunity more than an empty cliché (Brill 10-11).
The protected, in contrast, need almost none of these governmental services and protections. They have structured the financial and legal systems to their advantage and to the disadvantage of the unprotected. This division of U.S. society has solidified over the last fifty years. Brill explains how this happened.
Brill recounts the financial, legal, and cultural changes in both law and finance that have made the current situation possible. Starting with economist Milton Friedman’s edict in 1970 that companies are responsible to their stockholders and not to their employees, Brill explains that prior to Friedmans’s influence many corporations were run by “old boy” networks that often included positive externalities such as social responsibility, environmental impact, and concern for employees into their business calculations. Friedman, and those who followed him, asserted that such externalities were not the concern of corporations, but rather the bottom line was profit and the value of the company stock. Thus, primary responsibilities for corporate CEO’s were to their stockholders, and not to their employees, nor even to the consuming public.
Next Brill takes the reader on a historical tour of the development of the financialization of the American economy. The tour includes the development of junk bonds, mortgage-backed securities, credit default swaps, and synthetic default swaps. On the legal side of the issues, Brill discusses the legal history that led up to the Citizens United vs. Federal Election Commission (2010) that declared corporations persons with free speech rights, thus allowing corporations to spend unlimited amounts on political campaigns. The end result is an economy with enormous income and wealth inequality. Brill notes that in the 1950’s the financial industry accounted for only 9 percent of the U.S. economy and manufacturing accounted for some 33 percent. At present the financial sector accounts for 30 percent, while manufacturing accounts for only 12 percent. An immediate upshot of this shift in income and wealth generation is that the U.S. middle class that was employed to produce, handle, and ship manufactured products has now been replaced by the employees of the financial sector who constitute only 3 to 4 percent of the labor force. While middle class incomes have stagnated for the past fifty years, the incomes of the financial sector employees have skyrocketed.
Other developments over the past fifty years chronicled by Brill include the demise of labor unions, the abuse of due process by corporations who delay legal proceedings for years, the globalization of trade, the disastrous trade deal for U.S. labor concluded by Bill Clinton with China, the development of a dysfunctional democracy including the failure of constitutional checks and balances, the tendency of social media to polarize politics, the development of bureaucratic inaction and incompetence, and why nothing works.
Brill also details the development of “moats” that isolate the protected class from accountability. These include banks that are too big to fail and financial leaders who are too big to jail. Other topics in this arena include arbitration clauses that limit corporate liability, anti-price bargaining legislation for Medicare to protect the pharmaceutical industry, the income tax code that is designed to protect the rich, and the elimination of the Glass-Steagall Act and the erosion of the Dodd-Frank Act designed to regulate the banking industry.
Because arbitration clauses have become ubiquitous, they deserve a special mention. For every consumer commodity purchase made these days, there comes with the purchase an agreement by the consumer not to initiate or participate in any class action suit against the manufacturer due to defects in the item or due to faulty manufacturing processes. The clauses can be found in cell phone contracts, automobile contracts, washers, dryers, televisions, and on and on. In the past, consumers might initiate or join a class action suit against the manufacturer demanding recompense for a defective product. Since the 1970’s that has not been possible due to changes in consumer contract law under the Reagan administration. So, for example, if Apple or Samsung sells a defective cell phone that will cost the buyer $100 to fix, the consumer now has the option to enter into an arbitration process to recoup the cost of the repair. Arbitration, like most legal processes, will require hiring an attorney to represent the consumer in the arbitration hearing. That expense might be as much as $2,000 and perhaps more. Moreover, the chances of winning compensation against a large corporation are not good as corporate attorneys have likely studied every angle of a possible claim against the corporation. The rational consumer has little choice but to absorb the loss and save the cost of an attorney. If the defective cell phone feature affects one million consumers, the corporation has protected itself against a $100,000,000 loss.
The vast majority of the buying public are not lawyers and probably do not realize the consequences of the contract they sign to purchase commodities if something goes wrong with the purchases they make. Moreover, it is nearly impossible nowadays to find an appliance or major consumer item whose purchase does not include an arbitration clause that limits the consumer’s ability to recoup a loss caused by a defective purchased item.
Turning our attention now to banking, the Banking Act of 1933, better known as the Glass-Steagall Act, was passed in the first year of the Franklin Roosevelt administration, largely in response to the Great Depression that began with the crash of the stock market in 1929. The Act did two major things to restore confidence in the American banking system. The first was to separate the activities of commercial banks and investment banks. Prior to the stock market crash, it had become common for investment banks to use the funds of commercial banks for risky investments. The merger of main street and Wall Street banking has not fared well for the economy. The situation in the 1920’s was somewhat similar to that which preceded the banking collapse of 2008-2009.
The other major measure of the Glass-Steagall Act was the establishment of the Federal Deposit Insurance Corporation (FDIC). This measure was advocated by the commercial banks of the nation as a means to restore confidence in the banking system. Although opposed by major banking interests, the FDIC was included in the Act with investments up to $2,500 originally insured per participating bank.
While the separation of commercial and investment bank activities seemed a worthwhile project, investment banks complained that their inability to access the funds of commercial banks for investment activity put them at a competitive disadvantage, especially when compared to the international banking environment. Consequently, the investment banks sought loopholes in the law to continue their prior banking practices. In 1961 Citibank acquired the investment firm of Solomon-Smith-Barney without regulatory consequence. By the time of the Clinton administration, it appeared that Glass-Steagall was all but dead. Thus, in 1999 the Financial Services Modernization Act of 1999 was passed and signed into law by President Clinton. Also known as the Gramm-Leach-Bliley Act, this legislation effectively abolished the Glass-Steagall prohibition of the merger of commercial and investment banking activities in the United State. The separation of main street and Wall Street was thus abandoned.
In 2010, in the wake of the financial crisis of 2008, the U.S. Congress passed the Wall Street Reform and Consumer Protection Act. Better known as the Dodd-Frank Act, the legislation addressed several of the concerns that economists felt had contributed the most to the economic crisis. Among these was the Volcker Rule that limited the financially risky activity of commercial banks, thus reestablishing some of the rules of the Glass-Steagall Act. Dodd-Frank also established the Consumer Protection Financial Bureau. Originally conceived by now-Senator Elizabeth Warren, the Bureau enforced new legislation protecting the assets of consumers through new rules and regulations placed on banks and credit card companies. The Act also placed new regulations on the purchase of derivatives and their use by investment banks that had used bundled real-estate transactions as funding for large amounts of derivative investments prior to the economic collapse of the national real-estate market.
The future of the Dodd-Frank Act is uncertain. During the Trump administration, several attempts were made to weaken the consumer protection parts of the bill by the Republican-led Congress. It remains to be seen if the Act will withstand the assaults upon it by those representing the interests of large investment banks and Wall Street.
Brill’s summary of these and other measures that disadvantage the citizen consumer indicates the creation of a society expressing much less faith in government than fifty years ago. In the words of Robert Putnam as discussed in Bowling Alone, social capital has declined substantially in the United States since the 1970’s. There is much less sense of belonging and of social and political efficacy than before. The presidency of Donald Trump did much to polarize the nation politically. The Republican Party has seemingly lost its bearings and no one quite knows what it stands for anymore. A civic malaise has replaced any sense of civic solidarity in the United States. One commentator has remarked that the United States is now just a place of business. The civic virtues that earlier supported the national political myth have been lost to large segments of the population. One wonders whether those who participated in the January 6, 2021 attack on the Capitol building of the United States realized their violation of sacred ground as understood by those who opposed their actions.
Notwithstanding the formidable obstacles described by Brill to restoring a more genuine democracy, he concludes on an optimistic note, indicating a number of resources available to citizens who wish to change the existing social and economic structure. Since the publication of Brill’s work in 2018, several developments should be noted that stifle optimism on these matters.
First, it appears that the Republican Party has lost its bearings and is now the party of Trump. A large segment of the population now holds allegiance to a political party without any genuine principles. Second, the U.S. Supreme Court appears to be staffed by conservatives who will take the Court and the country in a reactionary direction. Third, The reluctance of U.S. energy corporations to move quickly toward a renewable energy base does not bode well for a successful campaign to control and reverse climate change. Fourth, the economic future of the middle and lower social classes in the United States does not appear encouraging. And fifth, the Congressional Republican response to the events of January 6, 2021 in which the U.S. Capitol was attacked by an unruly mob of protesters speaks volumes about the impossibility of bi-partisan governance in the near term.
We may ask if the new administration in Washington, D.C. will be able to change the current path. The Democratic Party is divided between the moderates and the progressives. Moreover, they only have a majority of one in the Senate. It may be that Brill’s cautious optimism for the future will materialize. My own reading, however, is that under our existing legal and constitutional structure, the future for a genuine democracy any time soon appears bleak.
Board of Governors of the Federal Reserve System. “Federal Reserve Report on the Economic Well-Being of U.S. Households in 2018-May 2019.” Federal Reserve, May 2019, https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-preface.htm.
Brill, Steven. Tailspin: The People and Forces Behind America’s Fifty-Year Fall – and Those Fighting to Reverse It. 1st ed., New York, Knopf Doubleday Publishing Group, 2018.
Cameron, Huddleston. “58% of Americans Have Less Than $1000 in Savings, Survey Finds.” Yahoo, GoBankingRates, 15 May 2019, https://www.yahoo.com/now/58-americans-less-1-000-090000503.html.
Friedman, Zack. “78% of Workers Live Paycheck to Paycheck.” Forbes, 19 January 2019, https://www.forbes.com/sites/zackfriedman/2019/01/11/live-paycheck-to-paycheck-government-shutdown/?sh=640248334f10.
Putnam, Robert. Bowling Alone: The Collapse and Revival of American Community. New York, Simon and Schuster, 2000.
Wikipedia. “Steven Brill (journalist).” July 21, 2021. https://en.wikipedia.org/wiki/Steven_Brill_(journalist).