Part of this results from the changes in tax codes that make the middle class pay a larger percentage of their income after family support than is true for the wealthy and especially the superwealthy. But even more comes from the redistribution of power away from workers and from the government to the investors and top management class. The Reagan Revolution is building a Latin-American style plutocracy in America by shifting power from the workers and their government to the wealthy and the superrich.
This is bad economics in the first place since it rewards position and class rather than effort, but it also has social consequences as the connection between effort and the reward for that effort is severed.
For all the conservative rant that America should be a nation based on "free enterprise" what has happened in America since the 1960's is that people get wealthy primarily by getting a government contract or a government-protected monopoly. The ideal of the American economy used to be that the people who did the productive work that created wealth were rewarded more for their productivity than were the managers who organized the work, and the investors who merely contributed money to the enterprise were the least rewarded because their effort was the least productive. That's the ideal of a middle class nation. It is the skills and efforts of the middle class that actually produce more and better goods and services, and the efforts of those who merely reorganize those productive efforts should not be rewarded more than the efforts of those who actually do the final productive work of wealth creation.
How do you get the most wealth creation and greatest productivity from a society with a modern economy embedded in it? You provide the greatest reward to those who do the real work rather than to the managers, investors and politicians.
In the last thirty years especially American has changed. The rewards for productive effort have been distributed away from those who actually create the final goods and services towards those with the power and money to decide who gets rewarded and who does not. David Cay Johnston's new book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill) provides numerous examples of how our society now rewards wealth, power and position rather than productive effort.
Contrary to the fictions the Reagan conservatives keep spouting, this redistribution of wealth from the workers and families up to the very wealthy is a political function, not an economic one. Every time a big-box store like Wal-Mart or Costco arranges with local governments to not have to pay local taxes for a decade or more to locate a story in a community, they gain an economic advantage over the local stores which still have to pay those taxes. I used to trade at two local hardware stores where I got good service and advice along with the hardware, tools and parts I needed, but home Depot and Lowe's opened up, cut the prices because of the tax benefits the County gave them, and sucked up the business that had gone to my local hardware stores.
I'm not getting lower prices because now I have to drive ten miles instead of two, and park half a mile from the big box store in a dangerous anonymous parking lot instead of right in front of my local store. I also can't find anyone who can help me figure out how to deal with my plumbing or lawn problem. And oddly enough, the amount of product that Home Depot and Lowe's make is roughly the same as the amount of tax incentive they got the County commissioners court to give them to open in the first place. That money is sucked out of my community into the pockets of those wealthy and powerful enough to get the special government privileges that makes the big-box business model profitable in the first place. So Our community is poorer, we have fewer total jobs and the ones we have pay less than when we had local hardware stores, and the only winners have been the wealthy and politically connected investors. Welcome to the Reagan Revolution - the revolution in which plutocrats, investors and top managers of big business conglomerates are disproportionately rewarded because of the positions they occupy instead of the actual wealth they personally produce.
Rick Perlstein quotes Tom Geoghegan who describes the social and economic results of this failed economic structure in See You in Court: How the Right Made America a Lawsuit Nation :
It took ten years—almost all of the 1990s—for the median family income to get to the same level that it was, in real terms, in 1989. But in 1999, when we got to the same income level we had in 1989, the "median" family had to work six more weeks a year.America became a wealthy and powerful nation because the availability of free land severed the connection between rewarding land ownership and rewarding hard work. Individuals who wanted to get rewarded for their own work merely had to open new land and put their effort into the enterprise.
To keep from falling, the 1999 middle class had to work six more weeks a year for free. Not a few more hours—six more weeks! By the way, maybe it's worth pausing to say this: No wonder our FDP keeps shooting up, if the middle class is being forced to work for free.
But all this unpaid extra labor tends to undermine the Rule of Law.
Why? The economist John Maynard Keynes put it best: "Nothing corrupts society more than to disconnect effort and reward." That's what did in the old Soviet Union: no matter how hard one worked, one could not get ahead of someone who did not work at all. All that is what is happening in the United States, too. Of course, in a certain way our country would seem the very opposite of the Soviet Union. Here, if people don’t' work, they're going to end up homeless. Then again, if they do work, they may end up homeless, too.
That's the point. Like the USSR, we are slowly breaking the connection between effort and reward. And in terms of the Rule of Law, that's a dangerous thing to do. It's dangerous to push the middle class into questioning the fairness of the rules.
The danger is that people in the middle class will begin to see the world as arbitrary and unfair—unpredictable, a matter of luck, a chance of catastrophe around the corner. It does not matter if they work the extra hours. Over 40 percent of American families have less than $5,000 in savings. One bill, a hurricane out of the blue, can blow everything away.
So, quietly and to themselves, people at the median or below have to wonder, as the country becomes fabulously wealthy: Why play by the rules?
I may even understate the case. The disconnect between effort and reward is much greater than it seems. Some families lost income, though they worked harder. But they became wealthier. How? They made money off their homes. But this is not "effort." It's not even savings. It's just something that happened arbitrarily, to me, but not to many others. The moral is: Hard work doesn't pay.
Let's go back to my earlier example. I doubt many people did actually get back to the same 1989 level of income in 1999. Think of pensions. Fewer working people had pensions, though they worked longer. Or they had bigger administrative fees. Think of health insurance. Fewer people had it. Or they had bigger deductibles. They lost out, even with six more weeks of work. Perhaps our moral character can survive one decade of that kind of thing, but it keeps going.
Why is this so dangerous for the Rule of Law? It's simple. If we do not expect the world to be reasonable and fair, then sooner or later we do not demand or expect those qualities from the law, either. We get used to arbitrariness and unfairness. Sometimes we take a certain glee in it—at least when arbitrary things happen to others. Worse, as fewer of us vote, or even watch the news, we experience the legal system not just as arbitrary but as alien. It's something that is imposed on us. We did not consent to it. We didn't vote.
Worse, the more we drop out, the more arbitrary and unpredictable the Rule of Law becomes. The unions, political parties, and other institutions such as the liberal churches helped us shape a certain legal system. When they began to weaken, the law itself begins to change. It became less rational and predictable. It is not just that people now perceive the law as less rational and predictable. It really is.
Maybe the country will survive it. Maybe the less rational and predictable the law becomes, the more people will go along. They will accept it up to a point, as in backward societies, because they will experience the Rule of Law in the same way they experience the world.
When the wealthy landowners tried to get government to tax the new middle class for reasons that did not contribute to their economic success, they used their numbers to change the way government was controlled. The shock expressed by many who had been leaders during the American Revolution when Andrew Jackson took control of the government is clear in history, but the Jacksonian Democrats were people who were used to being rewarded for their effort and weren't going to let a few large landowners (A.K.A. "The Right People") take the rewards away from them.
The fact that the American South with its plantation culture and slavery did not participate in the early stages of the Industrial Revolution (and has yet to get fully with the program) is a clear demonstration of the economic superiority of rewarding the efforts of labor more than land, capital or that strange, mostly ideological economic concept, Entrepreneurship. [Land, Capital and Entrepreneurship are not unimportant economic factors, but the rewards to those who do the final job of creating goods and services are the most powerfully productive rewards in the system. That's what the statement that "a business' most important assets are its workers" really means.]
The reason why laissez faire economics does not work is that it assumes that the social and power structures of society will somehow automatically gravitate to those which produce the best good, services, and social benefits. Unfortunately, there is no automatic pressure or mechanism that makes that true. In fact, in some markets such as a private insurance-dominated national health care system, the assumption that somehow the market will give the best results at the lowest possible cost is clearly false.
America needs to seriously reconsider the reward structure in has in place and that will include, but not be limited to, the tax structure. What social benefit is returned from the super-rich that justifies their failure to pay a greater percentage on their incomes in taxes than those with the least income? The super-rich get proportionately more form society, they should support it proportionately more. Is there any social benefit at all in allowing great wealth to be inflicted on the descendants of wealthy families? Is that not simply an incentive for them to NOT be productive and instead play power politics for the sole purpose of protect their social position?
America has had a three decade experiment with the Reagan Revolution. The Reagan Revolution and the conservative movement that has inflicted in on America has clearly failed our society and our nation. It needs to be rethought and re-worked.
A major element of that rethinking is how work is rewarded. Today it is more likely for most people to become wealthy by hitting the lottery than by the results of their hard work. That is simply wrong, and destructive on any society that is supposedly built on the rule of law and also wants to be an economically productive nation that can compete in the world economy.
Conservative thought is based on the assumption that the nation exists to support business and reward the rich and powerful. Somewhere in the Reagan Revolution the idea that the heart of our nation is its families, and that business and the economy exist to improve life for the workers and their families, not for the CEOs, the investors and the politicians who enable them. Conservative thought and actions have failed America.
It's time for American to return to its roots as a middle class nation not dominated by an aristocracy. Instead, work needs to be properly rewarded and families supported by the economy.