Wisconsin Public Television University Place Hilldale Lecture  Jacob Hacker Has American Politics Betrayed the Middle Class?  October 21, 2011 UP641  cc >> We are very honored today to have Jacob Hacker of the Yale Department of Political Science with us to speak on the subject, "Has American Politics Betrayed the Middle Class?" I can think of no more important question than this, the year of the Wisconsin Idea. Many of you in this room, I'm sure know that the original Wisconsin Idea gave rise to the great wave of progressive reform in the late 19th and early 20th centuries, and know these core ideas were the progressive income tax, the abolition of monopoly, and the control of "predatory wealth," and the idea that no advancement of human welfare or progress could take place without a minimum living standard and strong labor rights. As we all know, these issues have been settled for about 100 years here in Wisconsin. Hopefully, we'll learn a little bit more about that. We want to thank the Hilldale Fund for their support of this lecture, and our sponsoring departments and programs, including the School of Journalism and Mass Communication; the LaFollette School of Public Affairs; the Departments of Community and Environmental Sociology; Gender and Women's Studies; Political Science; and Sociology; as well as the program in Civil Society and Community Research in the School of Human Ecology; and the Center for Communication and Democracy. I also want to take this opportunity to thank Wendy Swanberg, PhD candidate in the School of Journalism and Mass Communication, whose work has made this lecture possible. She's in the back of the room. [applause]  And also the staff of the Social Studies Divisional committee, whose great work has also helped us make this possible. Jacob Hacker is the Stanley B. Resor Professor of Political Science at Yale University. He's also a resident fellow at the Center for the Study of American Politics. 

He's the director of the Institution for Social and Policy Studies. He is an expert on the politics of U.S. health and social policy. And across a national perspective, he most notably promoted a proposal during the healthcare reform to create a public health insurance option, competing with private health communities. [applause]  I guess we won't expect too much hostile questioning. [laughter] Hacker is the author of five books, given my age, I'm not too happy about that. [light laughter] Including The Great Risk Shift, which is a fine book, a wonderful book. I urge all of you to read it, which argued before the crash of 2006, that much of the burden of inequality has been shifted onto the American middle class. His most recent book, written with Paul Pierson, is Winner Take All Politics: How Washington Made The Rich Richer And Turned Its Back On The Middle Class. He's developed a new economic security index, which I'm looking forward to learning more about. It has received extensive attention, and Jacob is a frequent media commentator, often testifying before Congress. 

It is with great pleasure and honor that we welcome Jacob Hacker. [applause]  >> Jacob Hacker: Thank you so much. It's an honor to be here, and it's really a pleasure to be in this space. What a beautiful setting for this conversation. I'll try to match the setting with some dynamism, and not too much depressing news, because I know that at this point in our nation's politics, it's easy to get extremely distraught about what's happening. But I want to try to offer, both embracing, I think, a realistic vision of what's gone wrong, but also some idea about what could be done to make politics better. Now, it's a little intimidating for me to come up here, not so much because of the size of the crowd, I understand you guys are a little bit favorable to the public insurance option, that's always good to hear, but because I'm following in the heels of a Nobel Laureate. But I'm not too intimidated on that front, because a few months ago, I gave a talk to which the warm-up speaker was President Barack Obama. [laughter] So, at this point, I'm pretty capable of dealing with that, being the disappointing speaker. In fact, at that talk, I told people, you know, me and President Obama have a lot in common. 

For example, we've both write books. One difference, of course, is his books actually sell a lot of copies. So I will note that if you want to double my book sales, you can purchase a copy over here. [laughter] And I will be signing it. But in all seriousness, we academics don't often get a kind of respect. and so it's easy to make these self-deprecating jokes. I was reminded of that when I was starting out as a new assistant professor at Yale. I received what at first seemed a glowing evaluation. It said, "Professor Hacker, if I had just 15 minutes to live, I want to spend it in your class, because that way, it would seem like an hour." [laughter] Okay, so I've been told by Lew that I should speak for about 40 minutes. I'll try make that 40 minutes seem like 40 minutes. 

At the risk of using up any more of my valuable time, I want to thank one more person. Wendy, of course, deserves a thanks for putting this together. Lew, thank you for that kind introduction. Thanks to the Hilldale Fund for having me out. Thanks to Social Studies. Isn't it fun that something you learned, you know, you did in fifth grade-- I actually was a Social Studies concentrator at Harvard, so I had a warm glow when I saw that Social Studies was one of the sponsors here. Also, I'm now a director of an institution, so I realize just how hard it is to get two programs to agree on anything. So to get Sociology and Political Science to agree to have me out is probably an achievement. But I also want my co-author, Paul Pierson, who's listed right here. His was very much a key project. 

I just spoke with Paul a few minutes ago. He wished me the best. He's in Berkeley, California. I said I'd really love to have you here in Wisconsin speaking today, and he goes, well, what's the weather right now? [laughter] I said never mind. Never mind! So, I'm going to talk today about two gaps. The first gap we've been hearing more and more about, thanks to the Occupy Wall Street protests, the other 99%, the gap between the richest of Americans and the rest. A gap that has been growing over the last generation, and which I'll argue has been deeply caused by changes in our politics and what government has done over that generation. But I also want to talk about another gap. This is the gap that will lead to my conclusion at the end, my prescription, if you will. That's the gap between expectations between when President Barack Obama came into office and the reality of four very difficult years. 

It doesn't matter which side of the partisan aisle you are on. It doesn't matter whether you are liberal or conservative. You can't but watch what's played out with the debt ceiling today, with the fight over the deficit, with the struggle to even act in the face of the worst economic crisis since the Great Depression and not feel that our politics is dysfunctional. We didn't need the Occupy Wall Street protest to remind us of that, or to remind us that the common thread in this dysfunction, a concern that's shared by the tea party and Occupy Wall Street, is the degree to which it seems like our government has basically been taken over by Wall Street in recent years. We don't need those reminders to tell us that. But I think it's worth remembering just how common the sense of despair is, and cynicism, and how different it is from how Americans felt about their government at mid-20th century, or about how they felt during the ferment of progressive reform that Lew alluded to earlier. There was a poll done in 2010 that asked Americans a simple question. Do you think that the federal government has helped the following groups a great deal? Then there was a list of groups. Wall Street and financial institutions. Do you think the federal government has helped Wall Street financial institutions a great deal? 53% of Americans said, you betcha, yes. 

What about large corporations? Well, 44% of Americans said they thought that large corporations had been helped a great deal. Then the pollster asked about that group that's supposed to be the lone star of American politics, the middle class. Does anyone want to hazard a guess what percentage of Americans asked in this survey said that they felt the federal government helped the middle class a great deal? >> 12. >> 17. >> Two! [laughter] You cannot be too cynical. Two percent. When you can get people to agree, almost two percent of Americans at least, to agree to almost anything, that two percent could well have been around the error of people who didn't understand the question, right? [laughter] That's a pretty remarkable fact. After all, we are a middle class country. When the great sociologist, Werner Sombart, came to the United States, he said that Socialism had no chance here, because of this sense of strong allegiance to the middle class, the idea that we were all prosperous and together, that we all were part of the American dream, he said, on racks of roast beef and apple pie, Socialist utopia is floundering. This idea, right, of prosperity, of forward progress, of education and hard work leading to achievement of the American Dream, of a piece of the American pie, that idea is at the heart of the American experiment. 

So what is he saying, that people feel today, that that experiment has gone awry, and why do they feel that way? Well, I want to argue that they feel that way because they have to, that the promise of America, the promise of our economy, that those who worked hard and played by the rules would get ahead, that there is alongside, an equality, an opportunity, and fairness in our policies, that our democracy is not overrun by money, that that promise is being broken. I want to show you that. Then, as I take you away from the pessimistic despair that often results, and try to lift you up with a vision of how our politics could be changed. It's obviously not going to be a vision that's going to take us out of this room into the promised land, but which will show, I think, that the common way that we understand the transformation of our economy is much more pessimistic than it is than what I'm going to offer today. Often, what we're told is that rising inequality is, as Henry Paulson put it, simply an economic reality. It's neither fair nor useful, I'm continuing his quote, to blame either party. Well, of course, right? We know who Hank Paulson thought was being unfairly and uselessly blamed for rising inequality. But notice what he said. It's simply an economic reality. It's a fact. 

That's a view that actually was held, and continues to be held by many economic analysts and pundits. On this view, globalization, technological change, de-industrialization, these are vast economic forces, against which we've had really no recourse but to try to help those left behind with education or some minimal social supports. I want to tell you a different story. I want to start that story with someone who I think embodies, epitomizes what's gone wrong with our economy. His name, and you may recall him, is Sandy Weill. Yes? No? So, Sandy Weill, the head of Citigroup, was interviewed in 2007 by the New York Times. The New York Times' interviewer asked him to reflect on the last 25 years, in which he has become fabulously rich, so rich that at the time, he was giving a bunch of money to philanthropic causes within New York. Here's what Sandy Weill said. People are going to look back on the last 25 years and say, this has been and incredibly unique period of time. We didn't rely on somebody else to build what we built. 

This is 2007, before Citigroup became a ward of the state, before Sandy Weill became a joke. Sandy Weill was reflecting on his self-made qualities in this great era of prosperity. So let me tell you something about Sandy Weill, about what he did, what sits on his office wall. When he was head of Citigroup, up on his wall there was a plaque. It was about four feet wide, apparently. It was the equivalent of a stuffed lion's head. It was glass on wood. And on the glass was etched a picture of Sandy Weill. And below that picture it said, "Sandy Weill, shatterer of Glass-Steagall." [audience reacts] Now, for those of you who don't get the inside financial baseball, this play on words that was so funny for Wall Streeters. Glass-Steagall was the depression era rule that set up a wall between financial institutions on the one hand, that were placing casino-like bets in the wild financial markets, and the sort of staid banking activities that were supposed to be protected from this reckless financial speculation. 

And Glass-Steagall was overturned in 1999 by a law that was passed by both House of Congresses, as all laws are, and signed by, yes, President Clinton. Glass-Steagall was not the cause of the financial crisis, but it was a capstone of a whole series of financial laws that essentially transformed Wall Street over 25 years, from a relatively stable and a not particularly lucrative place to work, okay, into the epicenter of America's winner take all economy. No other industry developed such capacity for creating outside rewards for its --, and no other industry, as we learned, had such an ability to privatize gains and socialize the losses that resulted. The reckless financialization of the economy that occurred, occurred because, in important part, because of changes in government policy. We know that, because leading the charge against Glass-Steagall was none other than Sandy Weill. So he didn't rely on somebody else to build what he built, he went out there and he did it himself, by fighting to repeal the depression-era law that prevented the kind of reckless financial conglomerates that he would soon head. Now, I don't want to pick on Weill too much. I mean, I do, but that wouldn't be a very interesting talk. Rather, I'm going to suggest that there's a larger lesson in this story. We tend to assume that what's happened to our economy, or at least we thought this before the downturn, that it was all these natural forces beyond individual control. 

What I want to do is step back and just look at what happened. How is Sandy Weill's story like the story of what happened to our economy? Well, for one thing, when we talk about inequality, we miss the extent to which what we're talking about really is the pulling away of the very rich from the rest of America. This is not a story about the gaps on the ladder, the rungs on the ladder moving apart across the board, it's a story about huge amounts of concentration at the very top, levels of concentration we have not seen in this country since before the Great Depression, and in fact on some dimension, we have never seen before since we have evidence, when we started collecting this evidence in the early 20th century with the development of the income tax. So, that top-heavy inequality raises a puzzle, right? Well, why? Why did it happen? I'll show you that the common answers to the puzzle of why inequality has risen don't work very well for understanding the super rich have pulled away from the nearly rich. This is not about the educated getting ahead from the uneducated. It's not about those who stuck through college doing better than those who dropped out. This is about a very small slice of Americans pulling dramatically away from the rest. It's about the other 99% losing ground to the top one percent, and even the top 1/10 of one percent, and the top 1/100 of one percent, men like, and I'm going to bring up another Paulson, John Paulson. John Paulson was, of course, the hedge fund guru who made billions, and at one point was the most highly compensated person in the United States. He didn't do as well this year. 

You may have seen that his funds lost on average, about 40% of their value. So lamentably, I think they'll only make about $600 million this year. Paulson was recently in the news, talking about the Occupy Wall Street protests. He said, instead of vilifying our most successful businesses, we should be supporting them, encouraging them to remain in New York City and continue to grow. So, another Paulson arguing that we should not be seeing this as a negative development, in fact these are important jobs that our economy has created. So I will talk about what's happened to the economy, why the Paulsons, John not Hank, have done so well, and how government policy has played a crucial role in that. Then I want to turn to the fundamental question. Well, if, as I show you, and as I believe you will be convinced, that if governmental policy has played an important role in this story, why, right? I mean, democracy may not be good at a lot of things. We don't often think that democracy is always the best way to deal with foreign negotiations, for example, but one thing democracy is supposed to be very good at is representing the interests of majorities of citizens. When lots of people, say 99% of people are losing out to a very small slice, you would think that democracy would respond And why hasn't it? In fact, why has it, instead of pushing back against rising inequality, piled on? That's the question I want to focus on after I talk a little bit about the trend. 

Then finally, I want to talk about what can be done. Because I think behind the diagnosis of what's gone wrong, are some prescriptions that you may not have thought as much about amid this acrimony that we now have around the debts and redistribution. What I'll argue is two things. First, a lot of what's happened, happens before government steps in at all to redistribute income. So all the talk about, on the one hand, the rich were not paying enough in taxes, on the other hand, those lucky duckies, those that the Wall Street Journal talks about, those 40% of Americans who pay no federal income taxes, who actually pay huge amounts in payroll taxes, and sales taxes, and state excise taxes. Those debates miss entirely an important part of what I'll talk about, which is so much of this is happening before government actually redistributes income. It's pre-distribution, and we have to pay attention to that. In many ways, our market has been structured against the middle, even before government steps in to try to level the playing field with government re-distribution, or not. Then, the second that I think draws out of this, is that this is fundamentally a story about a transformation of our government over the last generation. Then it's an organizational story, it's not an electoral story. 

In fact, the story begins in the late 1970s, when democrats had the White House, Congress and they had a dominant role in the Supreme Court. It begins in 1978, not 1981. And not, by the way, in 1972, when Nixon was in power. It begins because of a fundamental transformation in how Washington works and for whom, but carries through in subsequent decades. Until we see that, and until we recognize that there's a need for an organization on the other side, the kind of organization that's stirring that, with the Occupy Wall Street protest, we're not going to have an effective response. So I said that I would start with the story of what's happening with rising inequality. I should warn you, I'm a sucker for statistics. My defense against this is, once I heard Bill Moyers say this is the mark of an educated man, to be deeply moved by statistics. [laughter] And I should note, I'm not the only one who feels that way. Of the Occupy Wall Street protests-- Oh, wait, I have to show you one thing, because Madison, I thought, okay-- I apologize for not showing this sooner. 

I've gotten lots of feedback on the book, some of it positive, some of it quite negative. But the best feedback I got was from the journalist Thomas Frank. You may know him. He wrote, What's the Matter with Kansas? He was in the Madison capitol during the protests, and he sent me a very rough, grainy picture that was taken with his cell phone. It is a copy of the cover of our book, with the following statement below it, "Excellent book. Tells how our government was stolen over the last 30 years." I consider this the best blurb I have ever received. [laughter and applause] Okay, so, and I was just going to say, I'm not the only person who believes that educated people should be deeply moved by statistics. This is actually a sign from the Occupy Wall Street protest. It's Congressional Budget Office data. You can really see where this is going, where you'll have one group of protesters with Office of Management budget figures, and the other one with Congressional Budget Office figures. 

How will we ever get along? [laughter] But anyway, I show it because I want to show you exactly the same data, in slightly different form, in a version that's in my book, an animated version of what's in my book. This basically sums up the core argument about what's happened to our economy. Okay, so you go back to 1979. And by the way, this is Congressional Budget Office data. I mentioned that already. It includes federal taxes, all public benefits, even in-kind benefits like Medicaid, and private benefits, such as employer-provided health benefits and pensions. So this is basically household income after you count up everything, with a few small exceptions. Go back to 1979, let's take a trip back in time. In 1979, there were clear differences between the top and the rest. As you can see here, each of these are the --, at the bottom, 20%, the second, 20%, up to the 80th and 99th percentile, then I've broken out the top one percent. 

You can see the top one percent, the average incomes in the top one percent are around $300,000 a year, and that compares with an average among the middle fifth of around, I can't really see it here, but it's around $45,000 a year, or $44,000 a year. So let's fast forward to 2007. This is the moment when I feel like I should get a lift, like Al Gore had with Inconvenient Truth, and get up there and point to it. [laughter] So now, we're in 2007. In 2007, we have the top one percent, the average income of the top one percent is $1.3 million. And the middle fifth has seen its income rise from around $45,000 to around $55,000. So what this translates into, in percentage terms, and this is all adjusted for inflation, of course, is about a 25% increase for the middle fifth, and a 281% increase for the top one percent. I'll just stop there for a moment. Think about how remarkable this is. What does this mean? It means, if you look at the numbers, that about 40% of all the gains in household income over this period went to the top one percent. 

That's after you take into account government benefits, after you take into account Medicaid, after you take into account federal taxes. That 40% that went to the top one percent is more than went to the bottom 80% combined. That's actually understating how concentrated the gains have been, because it's really the top slices of the top one percent that have dramatically pulled away. Say, take the top 1/10 of one percent. The top 1/10 of one percent has seen, and its average pre-tax income in 2007 is about $7 million, that top 0.1% has seen its share of income quadruple the last 30 years. In 2007, that top 0.1% was earning about, was taking in about one in eight dollars. One in a thousands households earning about one in eight dollars, which was the highest level we've ever seen. We have these statistics back to the beginning of the income tax in 1913. We've never seen it that high. That top 0.1%, who makes up that top one percent? Well, it's not, as you might think, sports celebrities and entertainment stars. 

They're certainly a lot of people who are entertainment stars who make that kind of money, but there just aren't a lot of entertainment stars relative to that one in a thousand. About 60% of the top 0.1% are executives. And about 20% or so, so one-third of that 60% are financial executives. So when you talk about the top one in a thousand households, we're really talking about people who have made their money as executives or off of real estate. That's important to keep in mind. Now, it'd be one thing if this development occurred as low class Americans were continuing to get ahead, and you can see that there was a 25% gain in income after adjusting for inflation. What you can't see is that virtually all of it, about two-thirds, was due to the fact that middle class families were working more hours, okay, because there is much more likely to be two earners in the workplace, and those individuals earners are working more hours. What you also can't see is that this is probably the most favorable picture you can draw, right? Forget about the hours. Think about what else is happening over this period. People are less likely to have secure health insurance. 

People do not have the prime benefit pension plans. Well, you might say, people are more likely than they used to be to climb into the pot. Wrong. Actually, over this period, every study we have suggests that social mobility, moving up the income ladder has either been stable, or declines. Studies across nations suggest that the United States has less upward social mobility, intergenerational upward social mobility, your father to son, than almost any other nation. They've looked at many nations. We're basically at the bottom of the pack. Over this period, we went from being a world leader in college completion, that is, we had the most educated population, thanks to the GI bill, to being about 14 for 15 among rich democracies. In other words, this is really just the tip of the iceberg. The middle class got clobbered over this period in far more ways than just falling behind relatively to those at the top. 

Now one thing I said already, and I just want to reiterate, if this is the pattern, if it's the bottom 99% falling away from the top one percent, then the story that this is all about education is just not going to get us very far. It's also pretty hard to argue that this is inevitably a result of globalization, technological change, when the United States turns out to be very distinctive in this regard. So, there's now a comprehensive top income database for a large number of rich democracies, and I just want to give you a sense of how much different the United States looks compared to other countries that are similarly globalized, similarly computerized as we are. Okay, so go back to 1973, these countries look relatively similar. The share of income going to the top one percent is around 6%-8% in all of them, a little higher in France, Germany, Italy, and the Netherlands-- Now let's fast forward to the last year of the data. You can see here the United States is not the only country that's seeing increases in the share of income going to the top. In fact, most countries have seen some increase. It's very modest, perhaps not even statistically significant for France, Germany, Italy, and the Netherlands. But notice that the countries that have seen the most substantial increase are countries that are most like us, and that are following similar patterns of policy. That is, Australia, Canada, New Zealand and UK, and even they are far behind us. 

So we have transformed as a country. We've gone from being relatively similar to other countries in terms of the shared income going to the very top, to being radically different. And it's worth noting that this is just income. If you look at wealth inequalities, they are far more stark over that same period that 40% of income gains went to the top, about 80% of wealth gained. So we're talking about a transformation of our society, as I said, the standard view is that this was just an economic change. For one thing, that's hard to sustain when you look at this figure, right? Something different is happening in the United States than has happened in other countries. I think it's even more difficult to sustain when you start to unpack the story of what happened to the top one percent. That's what I want to do quickly here. I've mentioned already financial deregulation. I'll talk a little bit more about it in a moment. 

But I think the most obvious place to begin is a subject that we've been talking about a lot in America right now, and that is taxes. Warren Buffet, after all, has suggested that he pays a lower tax rate than do the people who work for him. He is right. The reason he is right, is because over the last generation, we've seen a massive decline in the progressive nature of our tax code, not a decline across the board, but at the very top. It used to be that rich people paid very different rates. If you were super rich, say in the top 1/10 of one percent, you would pay a much higher rate than if you were, say, modestly rich, and you were just in the top one percent. You can see for all these groups, the rates have gone down. They've gone down mostly at the very top, that's because of declining corporate taxes, capital gains taxes. The most egregious example of this, as you probably may be aware of, is the carried interest provision. It helps John Paulson. 

The carried interest provision says that hedge fund managers can pay the capital gains tax rate on their income. Their income, by the way, are on the range of $20 million to $30 million for some of the top hedge fund managers. So they only have to pay a 15% tax rate on their income, because it's treated as if it's capital gains, even though it's not their money that's under control. It's totally egregious. Almost everyone who's looked at it, who is independent, knows that this is not the right way to treat these massive incomes, and yet it's managed to survive. It's managed to survive because it's been defended by very powerful lobbyists, and by key senators, most notably Chuck Schumer, of New York, who was a very committed liberal on many other issues, but on this issue, is a very committed to preserving Wall Street's prerogatives. So, tax cuts for the very rich are an obvious part of this story. I just want to make clear, they make a much bigger difference than you might think from listening to some of the rhetoric. Oh, there's not that much money at the top. Or, the top one percent is paying X percent of total taxes. 

This is the effective average rate they're paying. What this says that as even as they got massively richer, they're paying a much lower rate on their income. The top 400 taxpayers, we can actually collect, for those 400 taxpayers, their federal income taxes. As late as the mid-1990s, that average effective overall income tax to the top 400 taxpayers was around 30%. In 2007, it was 16.5%, okay. So we've seen, essentially, over a period in which the gains at the top have exploded, an almost 40% cut in federal income taxes for that one group. That's not a small amount. That's worth about $46 million, for every taxpayer in the top 400. Okay, so tax policy is part of the story, but I mentioned financial deregulation. I just want to make a general point here. 

The market is some natural pre-governmental reality. The rules of the game that are set up for industrial relations, for corporate governance, and for financial regulation make an enormous difference in how the market distributes rewards in the first place. Financial de-regulation is obviously one example. The implosion of the American unions has been very much shaped by changes in government policy, governing how unions form and what powers they have. But here's another example that people are less familiar with, that's CEOs, right? There have no effective power weights to CEOs as they've been pushing up their pay from peer benchmarking, through hiding their pay through various forms of camouflage, to the point where CEOs are making hundreds of millions of dollars in some cases, though average CEOs are making tens of millions of dollars, even when they're not performing well. It's because the compensation boards that are paying them are highly compliant. The accounting standards are broken. So why does that maintain? I want to bring in a third argument. It's not just about how the market is made. It's also when the market is not policed. 

So when it comes to corporate CEOs, back in the 1980s and '90s, there were a number of efforts to try to reign in the use of capital gains to tighten the accounting standards, and all of them were bought, basically, behind the scenes by powerful politicians doing the bidding of these provisions. Many of them were republicans, but not all of them. Some were democrats, as well. My favorite story on this is at one point, the SEC Chair Arthur Levitt went to Phil Graham, the chair of the Banking Committee and said he wanted to pursue tighter accounting standards, this is prior to Enron, and Phil Graham looked at him and said, "Unless the waters are freezing with the blood of investors, I don't want you engaging in any regulatory flights of fancy." So a crucial part of the story, right, is the failure of government to act, to try and update rules as the market basically transforms before it. This is a very important lesson. I've mentioned the importance of focusing on how government shapes the distribution of income even before redistribution takes place. We should also pay a lot of attention to the way in which government policy needs to be able to keep pace with transformations of the market that are putting people at risk, or leading to these kind of vast inequalities. So that's the fundamental question, why would government in a democracy be so beholden to the demands and claims of those at the very top. After all, we tend to think of government as working very much in the interest of the broad majority, right, because that's where the votes are. I want to argue that our focus tends to be on elections. 

But we should really be paying attention, as well, to organizations. The story of what happened over the last 30 years is of an organizational revolution that as I mentioned, began in the late 1970s, with the mobilization of corporate groups and interests and conservative activists to construct powerful new sub-pressures on politicians for campaign finance and for lobbying, to really pull them away from the broad majority on many issues. This happened in 1978. As early as 1978, there were big cuts in the capital gains tax, labor law reforms that would've helped reverse the slide of unions were killed in a filibuster, but it's accelerated dramatically since then. And one part of the story that I think we tend to forget is the dramatic shift in how the government works, in particular how the Senate works. We spoke a lot about growing polarization, but this polarization has taken a particular form. First of all, over this period, this filibuster has been transformed. It used to be that the filibuster was this rare, rare weapon that was used by minorities trying to block legislative changes.  And yet, filibusters were enormously uncommon back in the early 20th century. In fact, here I have filibusters, these are cloture votes and filibusters back to the early 1920s. 

So the filibuster, remember, is a procedure that allows legislation to be blocked unless 60 senators can overcome the filibuster with a cloture vote. The founders, it should be noted, did not believe that these kind of routines for super majority rules were a good idea. Hamilton was very concerned about it, but of course, he believed in granting the executive power, so you can kind of figure that that's why he was really worried about handing off so much power to the Senate. Madison, as well, said that we should never have super majority requirements outside of special instances. That would be reversing the fundamental principle of free government. The filibuster, remember, was not in the constitution, right, it was just a rule that was adopted by the Senate, and a rule that did not bind very much before recent years. Look at this. That's the last few years, right? The filibuster has transformed politics so that the rule of 60 prevails on almost all issues except for the budget. This makes it enormously difficult to address those kind of market changes or economic crises in a way that is necessary, given the transformation that's taken place. But organization is really at the root of this transformation. 

The lobbyists, the development of powerful interest groups pushing back against labor, and pushing for the kinds of changes that I've been talking about, is the story of the last 25-30 years. It's taken place alongside at a time when some of the broad based civic organizations that once gave voice to the economic concerns of middle class Americans. Don't get me wrong, I understand there are a lot of progressive groups out there. But are progressive groups focused on righting economic issues? Not so much. In fact, if you think about it, organized labor is probably the one group that has consistently been concerned about those issues. So as it has lost ground, it has also meant that there's been a big back of many of these issues. On the other side, of course, lobbyists have had an enormous field day. Now, lobbyists and these groups do care about elections. They'd rather have sympathetic politicians in office. But for them, elections are kind of the training ground, they're the season for changing policy. 

There's a great quote that I heard the other day from David Cook. You may not have expected me to say something like that. [laughter] Here's what Cook said, "Our main interest is not participating in campaigns, our main interest in policy." Right? So these billionaires who are trying to push policy in a much more conservative direction, they want to win elections, but more important, they want to change policy on the ground. And lobbyists, which get far more dollars devoted to lobbyists, far more money devoted to lobbying than to campaign finance, are trying to do the same thing. If you look over the last 30 years or so, lobbying has exploded, right? From about $400 million in 1983, to around $400 billion in recent years. This is a fundamental transformation of the Washington ecosystem. It's a transformation that has had different effects on each party, right? It has changed Washington in general, so that both parties have had to adapt, and adapt in different ways. Republicans have moved to the right, right? They see themselves as masters of this new universe. Democrats have been cross pressured, right? They need to raise funds, at the same time they want to try to appeal to traditional supporters. This is a common view, but I think you can see this much more clearly in the patterns of polarization that we've seen than is often assumed. 

I took these numbers that have been put together by two political scientists, Poole and Rosenthal. They basically tried to figure out where each member of Congress was based on their roll call votes. Using this, you can basically construct an index of liberalism or conservatism. They can be used to compare over time. So I went back to the early 1970s, and I traced it forward to 2010. What this says is, what's the change in the liberalism in the case of democrats, or conservatism in the case of republicans, of the average House democrat, Senate democrat, Senate republican, and House republican. Okay, House democrats have become about 22% more liberal. Senate democrats, about 30% more liberal, right, and you can understand why, with the decline of conservative southern democrats, since the south has gone into republican hands. What about Senate republicans? About 73% more conservative. House republicans? Well, I don't need a chart for that, okay? [laughter] So when people say that politics is polarized, they rarely note that it is not equally polarized. 

The conservative wing of the republican party has taken over, basically, and it has become a much more conservative party overall. Now this center of gravity on these political debates have shifted dramatically to the right. Just so you know, there is very little evidence that that's where Americans are on these issues. In fact, all over, I would suggest, that people are pretty much where they were 15 or 20 years ago on most of these issues, on average. So, what we have today, essentially, is a system in which money talks, and in which organized might talks. But in which middle class voters' views are often neglected. You don't have to take my word for this. Look at the key fights we've had over the last few years. The deficit has never been a top priority in most voters when it's compared with dealing with the economic crisis, and yet, it has consistently been trumping measures to try to reverse this economic slide that we're in, in Washington. Similarly, the number one policy for reducing the deficit that voters endorsed is higher taxes on those on the top. 

Even in the 2010 election exit polls, it was a majority of voters who came out in 2010 said that they would like to see the tax cuts for the very richest, those tax cuts for the very richest to expire. And yet, no action was taken on either of those fronts. This kind of agenda disconnect is nothing new. This is the story of the last 35 years. It is breeding a kind of cynicism and despair about American politics that I think is at the heart of many of the reactions against what's happened on both sides of the partisan aisle. In my view, it is public cynicism, public distrust that is far more pervasive, powerful, and dangerous to our collective governance, than public conservatism. Right now, people to do not feel Washington can make a difference, because of a vicious cycle that's occurring. And unless there is real movement to show that politics can be used for positive purposes, to reverse some of these slides, I feel that Americans will lose a kind of fundamental, we'll lose fundamental faith in our democracy. I said I wouldn't end on a negative note, so I want to try to shift to a few final remarks that will hopefully be a little more uplifting. One thing that I want to emphasize is that if the standard diagnosis is that this is due to the challenge of China, that this is due to the massive technological change, that this is due to globalization, that this is due to the inevitable losses that are going to be felt by people who don't have an advanced degree in the 21st century, then you there's very little that our government can do, except for maybe mop up after the mess. 

But if I believe, this is fundamentally about a set of policies that have meant that a prosperous nation that has invested in its common good in the past, has basically lost its way, and has pursued policies that systematically skew the market, and then skew government policies and respond to the market in ways that disproportionately favor the top. If you believe that, then there is scope for change, right? It's a difficult challenge. It's a catch-22, because the only way you can fix a broken political system is to work through it. Walter Whitman once said that democracy has to pick itself up by its own bootstraps. That's the challenge we face today. But it's a far more realistic challenge to face than the idea that we're somehow going to close our borders to globalization, or reverse the technological change that has brought such wonders to us in so many areas over the last generation. So that, to me, is the challenge. If my diagnosis was right, and this is about organization, then the Occupy Wall Street movement is one of the best developments that we've seen since the election of Barack Obama. Why? Because it's bringing these issue to the fore, right? My favorite slogan in this is that it's bringing these issues to the fore, and it's bringing them to the fore in a way that's integrated, right? It's saying this is a movement that speaks to you. I believe fundamentally that most Americans, while they may have differing views about inequality, do not believe that our democracy should be overwhelmed by the inequality of the market and the powers, especially of economic interest. 

That is the bedrock principle of American democracy, whether you are rich or poor, or middle class, whether you're on Wall Street or Main Street, you should have equal potential to influence what the government does. That was ideal that was embodied in the Declaration of Independence. That is the ideal that animated the civil rights movement. That is the ideal that animated the women's rights movement. It is this basic idea that there should be flood walls between our market and our democracy, that the wonders of the market can be appreciated without letting economic power spill over into the political perversion we have. We have a democracy for many, not an all about the few. It is those bedrock beliefs that I think will be at the core of the movement to restore the fundamental balance of our democracy, and I hope that today, with this conversation, I've given you a little bit of optimism and a little ground for argument in that larger struggle. Thank you very much. [applause]