Failing to Grasp the American Dream

By Dominic Pino

Thursday, January 25, 2024

 

Ours Was the Shining Future: The Story of the American Dream, by David Leonhardt (Random House, 528 pp., $32)

 

In the introduction to his new book about the American dream, David Leonhardt writes, “The economy is not as complicated as it sometimes seems or as experts often make it appear.” Leonhardt, a journalist at the New York Times, writes that though the economy is complex, he also believes that “the biggest forces guiding the economy are accessible to people who do not have any formal training in the subject.”

 

The rest of the book demonstrates that he does not really believe that to be true.

 

If most people can understand the basics of economics, it should follow that they can be trusted to make most of the economic decisions in their lives. But almost everywhere Leonhardt looks in the American economy, he sees the need for someone else to step in between individuals and their choices — preferably someone who agrees with Leonhardt.

 

Unions are necessary to increase workers’ power, Leonhardt writes. Left to themselves, workers will be trampled by businesses. Voluntary unionism, or the “open shop,” is merely “an effective rhetorical tool because it seemed to offer workers a choice.” Leonhardt instead supports some form of sectoral bargaining, in which unions have industry-wide collective-bargaining powers.

 

By and large, American businesses can’t be trusted to make good decisions. Leonhardt admires a few businessmen from the past, such as George Romney of American Motors and Paul Hoffman of Studebaker, who pursued forms of mid-20th-century corporate social responsibility. But in general, Leonhardt thinks of businesses and businessmen as tax-dodgers who, left to their own devices, pursue short-term gains at the expense of long-term prosperity.

 

To solve that, he thinks the government should take a greater role in directing investment. Private investors are too profit-oriented for Leonhardt’s liking. “The government can make these investments because it can take the long view,” he writes. Based on the historical examples of the computer industry and defense spending, he believes that government investment can spur economic growth and the invention of new products.

 

Hoffman is one of Leonhardt’s good guys because he “became an evangelist for a corporate America that was less self-interested and more concerned with the national interest.” Along with leaders of other major corporations, he formed the Committee for Economic Development, which Leonhardt argues represented a new corporate consensus that shifted away from laissez-faire in favor of closer cooperation with government and labor. Romney and other top executives at the time “viewed themselves as a benevolent elite,” and CEO pay was not as far out of proportion with the median income as it is today.

 

Leonhardt writes from the left as an admirer of the New Deal and believes that the progressive movement has lost its way by focusing too much on campus politics. To give you an idea of where he sits on the left wing of the political spectrum, he writes “White” and “Black” with capital letters but uses “Latino,” not “Latinx.” He thinks America had it just right in the period after World War II until the 1960s, when both parties were run by moderates who forged a consensus on economic policy. Unions were powerful, businesses were consolidated, and both were close to government.

 

Leonhardt calls what he wants “democratic capitalism.” If he simply meant that he wants democracy and capitalism, that would be one thing, but he has something more specific in mind. He says capitalism is clearly better than socialism but that it needs some help. To Leonhardt, democratic capitalism is “a system in which the government recognizes its crucial role in guiding the economy.”

 

When the government doesn’t guide the economy, that’s “rough-and-tumble capitalism.” Leonhardt presents democratic capitalism and rough-and-tumble capitalism as opposites, but “democratic” and “rough-and-tumble” are not opposites. In fact, democracy is a pretty rough-and-tumble system of government, and voters sometimes demand that government step back.

 

But Leonhardt presents moves toward less government control as big-business plots that overturned the big-government will of the people. The best example is his discussion of the Wagner Act: That 1935 New Deal law supercharging unions was democratic capitalism, but the Taft-Hartley Act of 1947 amending the Wagner Act was the big-business backlash.

 

He never mentions that in the aftermath of World War II, millions of workers went on strike, creating massive disruptions in the economy. Voters were sick of the overpowered unions and, for the first time in 14 years, elected a Republican majority to the House and Senate. The Taft-Hartley Act was the fruit of this popular backlash and became law despite Harry Truman’s veto and a union-bankrolled national campaign calling it the “slave labor act.”

 

Leonhardt chronicles some business-backed efforts to stop unionization, such as the Citizens’ Alliance in the 1930s in Minnesota. But because of the Wagner Act, millions of Americans had received the most effective form of anti-union education possible: personal experience with a labor union. Leonhardt himself acknowledges that he was “frustrated” with the New York Times union he was a member of, saying its leadership “seemed more interested in getting their own paychecks and reaching retirement than helping their members.”

 

Most American workers feel similarly about unions. Today, only 10 percent of workers are unionized, and the unionization rate has continued its decline from its zenith in the 1950s no matter which party has been in power. Even at organized labor’s height, about two-thirds of American workers were not union members.

 

Like many other journalists, Leonhardt refers to recent Gallup polling that shows popular opinion of labor unions around a record high, but he doesn’t report that the same poll asked respondents whether they personally would be interested in joining a union. In 2022, 58 percent said they were not interested at all. Only 11 percent said they were extremely interested. People think unions are a good idea — in the abstract, and for someone else.

 

The Reagan Revolution definitively broke the bipartisan economic consensus Leonhardt approves of and ushered in an era of “rough-and-tumble capitalism” that we are still living through today, in his telling. Reagan was pretty up front about his plans to cut taxes and regulations, and, in response to the malaise of the 1970s, voters gave him a mandate in 1980. They liked what they saw in his first term, and 49 of the 50 states went for Reagan four years later.

 

But that wasn’t democratic capitalism, because Leonhardt disagrees with it. He points to the ’80s as the time when income inequality began to take off. He favorably cites work on rising inequality by economists Thomas Piketty and Gabriel Zucman that many economists have started to question.

 

Phillip Magness of the Independent Institute and Vincent Geloso of George Mason University have written papers over the past several years challenging the rising-inequality hypothesis. In 2022, Phil Gramm, Robert Ekelund, and John Early wrote a book calling rising inequality a “myth.”

 

The study that is now catching economists’ attention, published in the December 2023 issue of the Journal of Political Economy, is from Gerald Auten of the Department of the Treasury and David Splinter of the Joint Committee on Taxation. They used the same data Piketty, Zucman, and others have used and found that the share of after-tax income going to the top 1 percent of earners has hardly changed since the 1980s.

 

According to a cover story for the Economist in April 2023, Americans aren’t just making more money than people in other developed countries; they are pulling away. In 1990, U.S. average income, adjusted for purchasing power, was 24 percent higher than in Western Europe and 17 percent higher than in Japan. Today, it’s 30 percent higher than in Western Europe and 54 percent higher than in Japan. The poorest U.S. state, Mississippi, has a higher average income than France, and “a trucker in Oklahoma can earn more than a doctor in Portugal.”

 

Leonhardt, and many others, would downplay those numbers by saying U.S. inequality rose as well, which he argues has damaging societal effects that the statistics miss. But if, as more research is showing, inequality hasn’t risen by nearly as much as Leonhardt and others believe, that significantly undercuts his argument that the American dream is failing.

 

Walter Williams would often say that good economics is applied common sense. Most people really can grasp basic economics on their own. Placing more economic decision-making in the hands of powerful union bosses, genteel businessmen, and all-knowing bureaucrats is not the American dream. That’s David Leonhardt’s dream.