Free Aftershock: The Next Economy and America's Future by Robert B. Reich

rich helped push through legal changes that enabled them to accumulate even more income and wealth—including tacit permission to bust unions, slash corporate payrolls, and reduce benefits; lower taxes for themselves; and deregulate Wall Street. With so much of their wealth depending on the performance of the stock market, they especiallywanted to free up the Street to put greater pressure on companies to perform—for example, by making it easier for investors to mount “leveraged buyouts,” pay with high-risk (junk) bonds, pump up the profits by firing workers, and then dump the company back on the market at a higher price. The plan worked. The Dow Jones Industrial Average took off, rising tenfold between 1980 and 2000. (To be sure, the market’s meteoric rise also boosted the values of middle-class pensions, which were now dependent on the stock market rather than guaranteed to pay out a certain sum each month. But the average market holdings of middle-class Americans remained tiny compared to those of wealthy Americans.)
    The rich and powerful also had substantial influence “in conditioning the attitude taken by people as a whole toward [the] rules,” as Eccles wrote in describing the pre-Depression years. They generously financed think tanks, books, media, and ads designed to persuade Americans that free markets always know best. Ronald Reagan, Margaret Thatcher, Alan Greenspan, Milton Friedman, and other apostles of free-market dogma reiterated a simple story: The choice was between a free market and big government. Government was the problem. Free markets were the solution.
    But how could the public have been so gullible as to accept this story? After all, America had gone through a Great Depression, suffering the consequences of an unfettered market and unconstrained greed. Even Marriner Eccles, business tycoon and chairman of the Federal Reserve Board, saw that left to its own devices, the market concentrates wealth and income—which is disastrous to an economy as well as to a society. America had also experienced the Great Prosperity, which depended so obviously on public improvements, safety nets, and public investment. Now that the basic bargain was coming apart once again, the need for them was even greater.
    One way to understand the paradox is loss of generational memory. While the trauma of the Great Depression echoed in the memories of people who came to adulthood in the 1930s (and who carried its lessons into the 1940s and ’50s), their children became adults during the Great Prosperity, and took it for granted. And their grandchildren, born during the Great Prosperity, had no actual, palpable memory of their grandparents’ experience of a fallible and unreliable market offset by a strong and reliable government. When this last generation became adults (from around the end of the 1970s onward), all they recalled was the failure of government and the apparent success of the market. This made them particularly susceptible to the seductive rants of the free marketeers, who wanted to blame government for the economy’s failings.Moreover, they had no clear memory of a society whose members were all in it together. They witnessed instead an economy in which, increasingly, each of us was on his own.

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How Americans Kept Buying Anyway: The Three Coping Mechanisms
    Americans also accepted the backward swing of the pendulum because they mitigated its effects. Starting in the late 1970s, the American middle class honed three coping mechanisms, allowing it to behave as though it was still taking home the same share of total income as it had during the Great Prosperity, and to spend as if nothing substantially had changed. Not until these coping mechanisms finally became exhausted in the Great Recessionwould the underlying reality become evident. (And not until the federal government ended its stimulus and the Fed tightened the money supply would that reality be exposed as more enduring than the Great