Down the road to catastrophe?

December 02, 2007|By Glenn C. Altschuler | Glenn C. Altschuler,[Special to The Sun]

The Squandering of America

How the Failure of Our Politics Undermines Our Prosperity

By Robert Kuttner

Alfred A. Knopf / 352 pages / $26.95

Before Jeremiah was a bullfrog, he was a prophet. Walking through the streets with a wooden yoke around his neck, he warned the Jews of Jerusalem that if they did not mend their evil ways, the Babylonians would besiege and burn their city. "You will go to them," God told Jeremiah, "but they will not listen to you." Ordered to "pray no more for his people," the "broken-hearted prophet" died in exile.

The founding co-editor of the liberal monthly The American Prospect, columnist for The Boston Globe and former economics correspondent for The New Republic, Robert Kuttner must feel like Jeremiah. He has not yet been jailed, stoned or thrown into a pit to die. But neither has he been able to convince his fellow Americans that if they don't wrest control of politics from financial elites, regulate private markets and tend to the natural environment, the United States is "at risk of a 1929- scale catastrophe"- or something worse.

In The Squandering of America, a sequel to Everything for Sale, which appeared in 1997 at the height of "irrational exuberance" on Wall Street, Kuttner tries again. Learned and lucid, this jeremiad begins by reminding Americans that since the 1970s, economic inequality has accelerated, incomes have stagnated or declined for the vast majority of workers and the cost of health care, homes and higher education has skyrocketed.

Acknowledging that markets need some space, Kuttner insists that they also must be kept in their place. A managed form of capitalism is more efficient, more just and more stable than any other alternative.

But, Kuttner warns, as long as the moneychangers call the shots in Congress and the White House, enlisting Republicans and all but a few Democrats in the ideology of deregulation and globalization, the nation's "real economy" - and our democracy - will remain "hostage to a casino of financial speculation."

Kuttner demonstrates that markets are not "spontaneous creations of nature." Laissez-faire is a myth. Economic "realities" depend on customs and laws, including the definition and protection of private property, the creation of corporations as legal "persons," the designation of "natural" monopolies and the parameters surrounding "free trade." The laws governing capitalism can augment or attenuate concentrations of wealth, support or smash labor unions, subsidize or starve a military-industrial complex, facilitate or forbid immigration.

The risky businesses of arbitrage, technology transfer and international trade, Kuttner indicates, are often brought into being by statutes. A loophole in the Investment Company Act of 1940, for example, allowed wealthy private investors to put their money anywhere they wished, with no registration or disclosure requirements and no limits on borrowing. Thus, the "hedge fund" was born. While banks can not be leveraged beyond 10 of 12 borrowed dollars for every one of their own, Long Term Capital Management produced annual yields of about 40 percent with a 100-1 ratio - until it collapsed in 1998.

"Deregulation," Kuttner implies, is as much a political as an economic term. It covers a multitude of sins. Financial elites do not hesitate to tap government resources when they need them. Bill Clinton's bailout of Mexico is a classic instance of a welfare program for banks. But elites then use deregulation as a club to "privatize" electric power, airlines, telecommunications, postal services and prisons, with Social Security and Medicare in the on-deck circle.

Kuttner didn't "set out to write an alarmist book." But he has done just that. America, he's convinced, is trapped in a vicious cycle: If citizens had more faith in government, political leaders might be bolder - and vice versa. There's no easy way out. Like Jeremiah, Kuttner asks people to learn what they already know - something is seriously wrong with American society - and stop believing that nothing anyone does in Washington ever makes a difference for ordinary citizens.

And he prays for insurgent politicians - the heirs of Sen. Paul Wellstone, the late Minnesota Democrat - to articulate a few clear, bold, progressive ideas and recapture the Democratic Party from the likes of Robert E. Rubin. Believing, with Bismarck, that Divine Providence protects idiots, drunkards, children and the United States of America, Kuttner is cautiously optimistic about 2008, the last chance, perhaps, for the nation to avoid becoming "a democracy in name only." If that happens, even Jeremiah might be forgiven if he threw in the towel.

Glenn C. Altschuler is the Thomas and Dorothy Litwin professor of American studies at Cornell University.


"The potential of our economy to underwrite a society of broad prosperity is being sacrificed to financial speculation. The winnings are going to a narrow elite, jeopardizing not only our broad prosperity but our solvency. In less than a decade, our government budget, gutted by tax cuts, has shifted from endless projected federal surpluses to infinite deficits. Our trade imbalances and financial debt to the rest of the world have grown from a modest concern to levels that could produce a crash."

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