The Vanishing Middle Class: Prejudice and Power in a Dual Economy

by Peter Temin

The conventional story is that the American colonies broke away from the autocratic English government to form an independent democratic country.

We had something close to democracy in the interval between these different oligarchies in the middle-class economic growth after the Second World War, but it did not last very long.

Democracy appears to be unstable in the United States because of the legacy of slavery. Voting was conceptualized in the new country as a privilege, not a right. Until we shake that conception, we will have trouble sustaining a durable democracy.

In order to change the fundamental nature of American voting, we need to restructure many levels of government.

What would such a policy for all the people look like? One way to summarize the role of a democracy is as a promoter of security, which can be seen also as a reducer of risk. Living is a process that involves many risks, ranging from bankruptcy to illness and beyond. The government is in the best position to offer people insurance because it can compel people to join in the insurance process, it has a perfect credit rating since it can tax and print money, and it can monitor people at risk. The government has to want to offer security and insurance, and a democratic government responsive to its citizens will want to do so.

Government is needed here to compel all companies to carry workers’ compensation. If it were voluntary to offer this insurance, companies would try to compel workers to take jobs without compensation.

the system is not set up as an investment made by individuals for their own retirement, but by an intergenerational bargain in which current workers pay for the retirement of the last generation in the expectation that future workers will pay for their retirement.

Like workers’ compensation, Social Security is done best by the federal government, which can assure workers both that all eligible workers will pay into the system and that these funds will be used to pay their benefits.

Medicare and Medicaid provide medical care to individuals who qualify for these programs. As in the previous examples, the cost of illness is socialized, so that the cost is not borne entirely by the sick person. These programs are set up as insurance systems, and the government allows every eligible person to ask for help. This help is financed by taxation, and the cost is borne by everyone who pays taxes.

Medicare for older people is run by the federal government; Medicaid for poor people is run by states.

The Affordable Care Act that President Obama signed into law in 2009 was approved by the Supreme Court in 2012 with the caveat that states could opt out of the part that was run through an expansion of Medicaid. Many states chose to deny the expansion of Medicaid to their residents even though the federal government would pay all the costs for the first few years and most of the costs thereafter. The states that opted out of the free extension of Medicaid were clustered in the South, reflecting again the racecraft involved in such decisions on compensation of care.

Part of the anger against the Affordable Care Act, popularly known as “Obamacare,” is because its benefits are seen in racist terms by some critics as gifts from one black man—who happens to be the president—to the black population.

Another reason for the anger is that Obamacare raised taxe...

An autocratic government would reduce taxes greatly. More precisely, it would greatly reduce or even eliminate taxes on rich people and large business firms.

Essentially all government revenue would be raised from the low-wage sector.

Since the autocratic government would try to balance its budget, government services would be cut back significantly.

The regulatory state that has been constructed since the Great Depression would be starved into impo...

The Securities and Exchange Commission, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Environmental Protection Agency, and other checks on autocratic decisions in governance and finance would disappear.

Social Security and Medicare would be phased out; Medicaid would be funded entirely at the state level.8 Education also would be financed and controlled entirely at the state level.

No federal funds would flow to the states, and no centralized direction would come to the states.

The federal government would restrict itself to a few functions: national defense (interpreted broadly), federal prisons, the Federal Reserve System.

The dual economy that we live in today is governed largely by the FTE sector, one-fifth of the population. That is an oligarchic government we know from our own experience.

The political history of the United States can be summarized in these terms as follows: From the signing of the Constitution to the Civil War, the country was divided by slavery into two parts. There were experiments with democracy in the North, but oligarchy was maintained in the South where slaves could not vote—or even get an education. From the Civil War to the First World War this condition more or less continued. African Americans voted in some states, but the experiments with opening the vote to women in the North had ceased. The inequality of income at the end of the nineteenth century meant that rich people dominated politics by the various avenues open then. After the war, women got the vote, and the franchise opened up somewhat. African Americans, however, still were denied the ability to vote until the Civil Rights Movement of the 1960s. With that stimulus, the United States came close to being a democracy for half a century until the Supreme Court gutted the 1965 Voting Rights Act in 2013. Inequality increased between those dates, and the Investment Theory of Politics teaches us that the effectiveness of the ordinary voters decreased as rich people and large businesses began to influence elections. It may not be misleading to say that the effectiveness of democracy has been decreasing over time since the initiation of the American dual economy in 1971, and democracy has now given way to a new oligarchy or, to be more specific, a plutocracy.

The process became visible in the 1990s when Congress, dominated by the adolescent FTE sector, shut down the government over a dispute with President Clinton and then voted to impeach him. It was even more dramatic in the resolution of the 2000 election to choose Clinton’s successor. The election was close, but it did not end up in the House of Representatives as the Constitution anticipated. Instead it ended in disputed votes in the state of Florida, whose governor was the brother of the Republican candidate George W. Bush. Governor Jeb Bush did not recuse himself, as a judge would have done, but instead worked to certify his brother’s election. Then the Supreme Court, in Bush v. Gore, 531 US 98 (2000), ruled that there should be no recounts and therefore George W. Bush would be president. The chief justice was William Rehnquist, appointed to the Supreme Court by Richard Nixon in 1971 (confirmed in 1972). The memory of democracy assured that this political decision by the Court was accepted peacefully, but the excesses of the process stimulated a literature on how to make sure that people could vote and their votes would count. This literature assumed that public policy would work to restore democracy, while public policy increasingly has worked to restrict influence to an ever richer and more select plutocracy.

How much difference did this controversial conclusion to Bush v. Gore make? It is hard to conjecture what might have been, since we know only what was and have to guess about possible alternatives. Parts of domestic policy might have been more or less similar, as Clinton had approved the 1994 crime bill that confirmed and may have encouraged mass incarceration. But Bush reduced taxes while invading Iraq, creating federal budget deficits similar to those run by Reagan. The invasion of Iraq and the ideological handling of the aftermath was one of the causes for the formation of ISIS that plagues Europe and America today.

The ability of democratic voters to change the leadership of the House of Representatives is very limited; plutocrats—the 1 percent—have sharply hampered their access.

President Obama nominated Merrick Garland, a federal appeals court judge, to the Supreme Court in March 2016, a month after the sudden death of Justice Antonin Scalia, who was personally connected with many rich and conservative people and the leader of five conservative justices who often voted together to make conservative decisions. The refusal of the Senate to process Obama’s nomination of federal judges and particularly a Supreme Court justice nominee in 2016 indicates that we are moving in the direction of an autocratic government.

The president nominates judges, and the Senate is directed to provide advice and consent for the president’s nominee. The Senate also had held back confirming many of Obama’s candidates for federal district court judges, a breach of its constitutional duty

There were only six cases in which the Senate sought to transfer a sitting president’s appointment power to a successor. These exceptions were confined to cases where the president was appointed rather than elected or where the nomination came after the election of his successor. Neither of these conditions was present in 2016; the Senate’s actions were without historical precedent and risk politicizing the Supreme Court in a way that threatens the very foundation of our government.

“Whoever has the gold rules.” And nothing is new under the sun. Augustus, the first Roman emperor, kept the form of the Roman Republic intact while wielding autocratic power; the Koch brothers and their friends could do the same.

Police in the United States have become paramilitary organizations. The Pentagon gives them surplus military equipment, and the police use the same equipment in the United States that the military used in Iraq.

Militarization and racism make a destructive and often lethal combination.4

Immigration similarly has become militarized.

The War on Drugs is the center of the push to destroy black and brown communities through mass incarceration.

Mass incarceration began in 1973, shortly after Nixon’s introduction of the War on Drugs. The economic disturbances of the 1970s were described in chapter 2; they led to an apparent rise in crime, although the reports may have only shown better crime measurement. Urbanization was increasing, the Great Migration had brought many African Americans into the North, and baby boomers born in the years after the Second World War were becoming young adults—the prime age to commit crimes.

The response to these economic and social disturbances was determined by Nixon’s New Federalism and Reagan’s reduction of funding for social programs. The alternative was to get tough with crime, to punish rather than prevent crime, to incriminate instead of educate. This approach was started in New York with the Rockefeller Drug Laws of 1973. It was followed by Nancy Reagan’s appeal to “Just say no” to drugs and by Clinton’s 1994 drug law that increased incarceration at the same time it gave funds for prevention. This toughness appeared justified in the face of the heroin, cocaine, and crack cocaine epidemics in succeeding decades of the late twentieth century. And it focused the anger of working whites at their economic troubles and social disruptions on African Americans in the form of white rage.6

African Americans are far more likely to be incarcerated than other population groups, and the New Jim Crow is an important part of the complex of measures designed to keep African Amer...

“law-and-order politics grew out of reaction to the gains of the civil rights movement and anxieties about rising...

States pay about $50 billion a year to support prisons. They pay about $75 billion for higher education. If the cost of prisons were cut in half, leaving the cost of incarceration still above the cost in almost all other countries, states could spend far more on state colleges and universities. Tuition costs are about $40 billion a year; they could be reduced by two-thirds. This change would sharply reduce the growth of student debt chronicled in chapter 4.

While one in three black men goes to jail, one in six Latino men also goes to jail. The rate for white males is one in seventeen,

Whites and blacks use drugs at the same rate, but blacks are far more likely to be charged and convicted on drug charges than whites. Blacks are more than three times as likely to be arrested for marijuana possession, although whites and black use marijuana at the same rate. Marijuana arrests increased during the decade before 2010 and now account for over half of all drug arrests.

Blacks are about 15 percent of the national population and 40 percent of the total number of prison inmates, making blacks three times as likely as whites to end up in prison.

whites in the low-wage sector have as low levels of social capital as blacks. They are the majority of inmates, and our judicial system keeps low-wage whites down as well as operating as a new form of Jim Crow.

Three-quarters of today’s imprisoned drug offenders did not have any serious history of violence before their drug conviction.

Half of them are in very low criminal history categories, but the average expected time served for drug offenses is close to ten years.

We want dangerous people to be removed from harming us, but we lack a good method of distinguishing who is dangerous.

Criminals are not regarded as people who have done bad things, but rather as bad people.

Just as racecraft condemns people with dark skins to punishment, the belief in criminal mentalities condemns people to jail and continued punishment after they are released.

Two prison firms dominate the expanding business of private prisons. Both firms were started in the 1980s, perhaps by entrepreneurs who realized that the decline in state revenues from the New Federalism and the rise in prison expenses from the War on Drugs would create an opening for privatization.

The private prison firms communicate their interest in more prisoners to state legislators in various ways: by campaign contributions, personal relations, and lobbying.