New Part Three - July 24:
Part Two - July 12:
Part One - July 3:
Kevin Phillips is a contributing columnist to the Los Angeles Times and a regular contributor to National Public Radio. Phillips was the chief political analyst for the 1968 Republican presidential campaign, and in 1969 published his landmark book The Emerging Republican Majority. His bestseller The Politics of Rich and Poor was described as a "founding document" of the 1992 presidential election.
James Fallows is The Atlantic's national correspondent and the author of Breaking the News: How the Media Undermine American Democracy (1996) and of Free Flight: From Airline Hell to a New Age of Travel. To learn about his new book and look through an archive of his recent articles, visit jamesfallows.com.
Atlantic Unbound | July 12, 2002
Dialogues with James Fallows
From: James Fallows
To: Kevin Phillips
Subject: The silent crash - Part Two
As I type this dispatch, the opening session of the WorldCom hearing is droning on in the background on C-Span. It adds a certain up-to-the-minute counterpoint to the largely historical analysis in your book. (It also demonstrates how thoroughly congressmen have learned the value of the rare, headline-making televised hearing. Thirty years ago during the Watergate era, fifteen years ago with Oliver North, four years ago with impeachment, and now with the corporate-accounting scandals, the hearings represent the rare chance for ordinary House members to get their faces, names, and words before a national TV audience. Thus the first hour of air time today is used for repetitive, outraged speechlets by the several dozen committee members, while the WorldCom execs sit there like unhappy props. But not as unhappy as they're likely to be when they start taking the Fifth.)
Now, on to Wealth and Democracy. I won't try to sum up for readers all the arguments and evidence you present. In fact, the most important fact to convey about the book may be how ambitious it is. Most discussion about it in the press has concerned your findings on the new inequalities of American wealth. You do have startling data on that subject, which we'll get back to in a minute. But contemporary inequality is only one of the half-dozen major themes in the book. You also spend a lot of time, and provide a lot of charts and tables, on:
As a set-up to some questions, let me pull out a few quotes and observations from the book. Also, I'm sure you'll feel free to correct anything you think I've misunderstood about the main themes you cover.
- Which has mattered more in stimulating economic growth in the long run: governmental policy (tax rates, spending, regulation, wartime contracts, etc.) or technical innovation. In this tech-infatuated age, your answer will surprise most readers. You claim that governmental and social circumstances have usually been more influential than technical leaps.
- What looks similar, and what looks different, when America's history of industrial growth and individual wealth is compared with those of previous great economic powers, including Spain, Holland, and Britain at the respective peaks of their mercantile glory and influence. Here you have an interesting reprise of some of the "declinist" literature that was popular a decade ago but was laughed out of consideration during America's boom of the 1990s.
- The long-wave process through which wealth and democracy have influenced each other. Since even before the time of the American Revolution, you show, the American public has periodically reacted against concentrations of wealth that began to seem excessive. Exactly when that point of reaction comes, and the ways in which the counter-reaction unfolds, vary at different points of history. You do leave us in some suspense about how and when the next wave will begin.
- The amazingly powerful role of simple inheritance in determining the distribution of wealth, even in an American society that is objectively more mobile, and subjectively less comfortable with concepts of inherited "class," than most other cultures. You have a wonderful series of charts of the richest individuals and families, decade by decade—and for any given era, many of the richest people are likely to be the ones whose great-grandparents were tycoons. For instance, of the top ten fortunes in 1982, the beginning of the tech boom, all except two were left over from oil and steel fortunes formed nearly a century before. (The two "upstart" fortunes were #4, Daniel Ludwig, with his shipping empire, and #10, the Newhouse family, with its newspaper and media holdings.) You've talked about the specifically political dimension of inheritance in your recent Nation piece, "Dynasties!".
- The enduring distance between the economic ideology of any given era and the real economic fundamentals of that same period. This is an intriguing parallel between Joseph Stiglitz's argument in his new book, Globalization and Its Discontents, and yours—in that you're both arguing that the pure theorists don't know what they're talking about. The parallel is intriguing because of Stiglitz's training as, yes, a pure theorist.
- The ominous bellwether role of the finance industry over the decades. As you show, the more celebrated stock analysts, stock traders, and financiers in general become, the greater the likelihood that the "real" economy is headed for trouble.
- And lots more. There is plenty for the reader to digest here—frankly, much more than I anticipated based only on reviews of the book.
One question involves the school of thought I was calling "declinist" early on. A dozen-plus years ago, when I was living in and reporting from East Asia, the contrasts between the Asian and Western "models of capitalism" seemed particularly sharp. Especially in manufacturing, companies based in Japan and Korea, with offshoots in China and Southeast Asia, had made tremendous gains relative to American-based firms.
Within half a dozen years, the situation seemed to have turned around completely. In part this was because the American economy corrected many of the most egregious problems that "declinists" were talking about. (The budget deficit became a surplus; America's trade strategy became more aggressive, especially in high-tech products; American automakers went through their quality revolution. Even the savings rate started to budge upward.) And it was also because the Japanese proved amazingly resistant to changing the rigid parts of their system. (It had always punished consumers and the financial system in order to subsidize its manufacturers. This was great for "catchup" but proved too rigid and non-entrepreneurial to keep up during the go-go tech race of the 1990s. Plus lots of other rigidities that one "reformer" after another could not correct.) But there were complications in the picture too—for instance, in most manufacturing segments, Asian-based manufacturers continued to gain world market share through their decade of "failure" in the 1990s. So the American "triumph" may have been less sweeping than most people thought.
But now you are back with a book whose tone recalls some of the "declinists." You say, early on:
This book also profiles the United States as a leading world power at or past its zenith, and does so against the warning backdrop and decline-symptoms of its three predecessors—Britain, Holland, and Hapsburg Spain.
It is hard to think of words more out of sync with the tone of the American press and political rhetoric of the last decade. Can you elaborate on the point, please? At a time when America enjoys a near-monopoly on military power, when the tech industry is American, and when the main objection of foreigners seems to involve the excesses of our might, in what way should we think about "decline-symptoms"? And how, exactly, would you see this concern entering politics?
Now a question about income inequality. The most startling chart in your book may be the one on the "giantizing" of American personal fortunes. In 1790, when the chart begins, the median household income in America was $250—and the richest person in America, Elias Derby, had assets of $1 million, or 4000 times more than the median. By the time of the Civil War, the median income had doubled to $500, and the richest person, Cornelius Vanderbilt, had $40 million—an 80,000-to-1 ratio. With allowances for the shakiness of statistics from that era, we can see the direction of the change. By the 1960s, the richest American, J. Paul Getty, was worth $1 billion, or 138,000 times more than the $7,200 median. In 1992, Sam Walton, with $8 billion, was worth 185,000 times more than the $43,200 median. And at the peak of the tech boom, in 1999, Bill Gates's $85 billion fortune was 1,416,000 times as great as the $60,000 median family income.
Gates is worth only about half that much these days. Still, by historic American standards the difference is astonishing. Let me ask you to expand on your first-round answer about the political, social, and economic consequences of this kind of income distribution. Why, in your view, does it matter? What does history suggest about the next stage of our politics? Will the Democrats use these numbers to run against Bush's tax cut or his attempt to eliminate the "death tax"? Do you expect that the current wave of corporate scandals will lead to discussion of the inequalities you document?
A final question, also about politics. Our two Presidents Roosevelt belonged to different political parties, but both were seen by their aristocratic peers as "traitors to their class." You stress in your book that this kind of treason is an important political constant: "Serious U.S. arousal against abuses of wealth and power has always transcended class lines ... and many of the notable triumphs have been led by persons with sophisticated and affluent backgrounds." So if you extend that logic now, who is our next aristocratic reformer, the counterpart to trust-busting Teddy Roosevelt? John Kerry, whose middle name is Forbes and whose wife is Teresa Heinz? Steve Forbes himself? Or... George Walker Bush?
Over to you, and thanks for this provocative book.
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