Best tool against inequality: antitrust enforcement? (of two kinds?)

[Update, 10/28: An updated version of Einer Elhauge's article is available here.]

The Wall Street Journal reports today that activist shareholders, who force management and operational changes in public companies to boost "shareholder value," are increasingly enlisting large mutual fund companies as allies and thus winning more battles. Their aims generally: "share buybacks, cost-cutting and asset sales."

That boost to shareholder activism, taking place over the last decade, recalls a theory of what's driving growing economic inequality recently advanced by Harvard law professor Einer Elhauge. According to Elhauge, increased consolidation of public company ownership by institutional investors like BlackRock, Vanguard, Fidelity, and State Street leads to a phenomenon called "horizontal shareholding," in which these mega-investors own major stakes in all the major players in a given industry and thus provide incentives to those companies to collude rather than compete -- or more exactly, to act in ways that boost share prices across the industry rather than relative to their competitors.

Elhauge's analysis is prompted by the fact that "the increasing share of stock held by institutional investors...has grown from 34% of all stock in 1980 to 67% of all stock in 2010." He links that rise to the often-cited drop in the percentage of corporate revenue going to wages and capital investment:

Hillary's short history of inequality is too short

A few weeks ago, I contrasted Elizabeth Warren's critique of income inequality in America with Obama's. The critiques are substantively similar, laying primary responsibility for the widening wealth and income gaps on Republican tax, labor and regulatory policy and citing similar stats showing that virtually all productivity and output gains over the last several decades have gone to the wealthiest. But Warren is more laser-focused on Republican and Wall Street malfeasance: Obama acknowledges contributing causes as diverse as global competition and domestic racism. And interestingly, where Obama cites four stats to illustrate the growing gap, Warren concentrates her fire with one pair:

Since 1980, how much did the 90% get of income growth in this economy -- from 1980 to 2012, the 90% got zero. None. Nothing.

Zero. None. Nothing. You could hang a campaign on that, no?

Now what about Hillary Clinton, who officially kicked her campaign off with a speech on Roosevelt Island yesterday?

Molly Ball points out quite rightly that Clinton is being credited with a more full-throated populism than she voiced:

Obama and Warren: A contrast in rhetorical styles

Over the years, I've on several occasions been moved to summarize Obama's economic master narrative. Here's one more pass:

America has at various key points in its history committed itself to investments in shared prosperity and to widening the circle of opportunity to groups previously excluded. These include Lincoln's investment in railroads and infrastructure, FDR's in social welfare and education, and Eisenhower's in the interstate highway system.  In the Reagan years -- or in some speeches, in the Bush Jr. years -- the country took a wrong turn and the gains of economic growth started going disproportionately to the top. Many feel "the American dream is slipping away."  Fortunately, democracy gives America the capacity for self-correction, and his election and re-election bespeak a renewed commitment to shared prosperity and investments that will foster sustainable growth. It's a seductive narrative, highly idealized, but with enough acknowledgment of weakness and injustice to make it credible.

Lord knows I've been a longtime admirer of Obama's rhetoric -- of  the nuanced understanding of cause and effect he takes pains to articulate, of his Lincolnesque view of American history as a continuous, never-completed drive to fulfill the promises expressed in its founding documents, of his embrace of incremental, nonlinear progress. It's been often noted that he doesn't do sound bites, or leave us with memorable single phrases. I've argued before that Obama works both above and below the level of the single phrase: below, with musical, repetitive phrasing, and above, with conceptual clarity and coherence.

This is all by way of too-long introduction to the fact I heard Elizabeth Warren speak at the American Prospect birthday fundraiser on May 13, and her rhetorical strengths are..different from Obama's. Telling broadly the same economic story as Obama has been telling these past eight years, of investments in shared prosperity derailed by the Reagan Revolution, her narrative line was simpler -- and cleaner.

The conversation shifts toward wages

If I may indulge myself in a quick note at a busy time: today's lead NYT editorial marks a kind of watershed to me.  Aptly titled Picking Up the Tab for Low Wages, it begins by noting the divergence between productivity gains and wage gains since the 1970s and then alleges a primary cause:

These dynamics are not inevitable. Low-wage employers, in particular, pay low wages because they can and the main reason they can is that Congress has failed, over decades, to adequately update the minimum wage and other labor standards, including rules for overtime pay, employee benefits and union organizing.

Does inequality make us more conservative? Maybe, but so does liberal policy enactment

Thomas Edsall cites disturbing research indicating that as inequality has grown in the U.S. over the last forty years, Americans' support for policies that redistribute wealth has shrunk. Specifically, more recently, support for universal healthcare has declined over the period in which the ACA was debated, passed and enacted:

The erosion of the belief in health care as a government-protected right is perhaps the most dramatic reflection of these trends. In 2006, by a margin of more than two to one, 69-28, those surveyed by Gallup said that the federal government should guarantee health care coverage for all citizens of the United States. By late 2014, however, Gallup found that this percentage had fallen 24 points to 45 percent, while the percentage of respondents who said health care is not a federal responsibility nearly doubled to 52 percent.

This shorter term shift is unsurprising.  As I've noted before, Henry Aaron and Gary Burtless calculated in early 2014 that the ACA would directly distribute income only to Americans in the lower 20-25% of the income distribution. Data recently published by HHS bears this out: 68% of the 11.6 million private plan buyers on the ACA exchanges have incomes below 200% of the Federal Poverty Level -- and all 12 million beneficiaries of the ACA Medicaid expansion have incomes under 138% FPL. We all stand to benefit if the ACA really is helping to control healthcare cost growth, as from the certainty of available (and, in periods of low income, affordable) insurance -- pre ACA, a third of the population in a three-year period suffered periods of uninsurance. Large portions of the population also suffer periods of poverty. But the perception that the ACA right now is primarily benefiting the poor is grounded in reality.

Obama soft-focuses our domestic ills

I usually find Obama interviews, especially long ones, reassuring. His understanding of issues is nuanced and multi-tiered. But his responses to Ezra Klein's questions about domestic issues and trends struck me as disappointingly unfocused, or off-focus, on several fronts. For example:

1. Asked about the causes of growing inequality, he back-loaded labor law:

Now, there are a whole bunch of reasons for that [stagnant middle class wages]. Some of it has to do with technology and entire job sectors being eliminated — travel agents, bank tellers, a lot of middle management — because of efficiencies with the internet and a paperless office. A lot of it has to do with globalization and the rest of the world catching up. Post-World War II, we just had some enormous structural advantages because our competitors had been devastated by war, and we had also made investments that put us ahead of the curve, whether in education or infrastructure or research and development.

Reagan Revolution rollback

Here's how Matt O'Brien, the Washington Post/Wonkblog economics reporter, characterizes Obama's new tax proposals:

The state of the union is pretty good, actually, but President Obama has an idea to make it better: taxing Wall Street and the super-rich to make middle-class work even more worthwhile. It's Piketty with an American accent.

Okay, that's a little bit of an exaggeration, but not a huge one. Obama's State of the Union, you see, will call for $320 billion of new taxes on rentiers, their heirs, and the big banks to pay for $175 billion of tax credits that will reward work. In other words, it's fighting a two-front war against a Piketty-style oligarchy where today's hedge funders become tomorrow's trust funders. First, it's trying to slow the seemingly endless accumulation of wealth among the top 1, and really the top 0.1, no actually the top 0.001, percent by raising capital gains taxes on them while they're living and raising them on their heirs when they're dead. And second, it's trying to help the middle help itself by subsidizing work, child care, and education.

Stepping back, it's amazing the extent to which Thomas Piketty's tome Capital in the 21st Century, published in the U.S. in January 2014, has focused the U.S. policy debate on income inequality. Some economists have been talking about rising inequality since the 1980s, but Piketty and his colleague Emmanuel Saez have more recently put the spotlight on the very top -- the top 1%, .1% and .01% (they first published major findings pointing that way in 2003, but post-crisis updates have been making news in recent years). The book put the trends on the front pages. Now Democrats, after a rather disastrous pause to protect red-state senators in the 2014 election, are putting inequality front and center in their policy proposals.

Tax code progressivity isn't everything. But the top line matters

"Don't soak the rich," Edward D. Kleinbard admonishes U.S. policymakers in today's Times. Countries with less progressive tax systems than the U.S., which tax everyone more and spend more on social services and other public goods, do a better job of reducing inequality (and fostering citizens' welfare) than the U.S. does. Lower income citizens get disproportionately more value from government spending, and an adequate tax base must be broad-based.

I take the point -- made with equal force two days ago by Vox's Cathie Jo Martin and Alexander Hertel-Fernandez [update: Mike Konczal and Matt Bruenig both demonstrate the alleged US progressivity is an illusion -- see below]. But there's a counterpoint. The U.S. may have a more progressive tax system and skimpier social welfare than the wealthy countries of Europe -- that's a longstanding reality. But all these countries have moved in the same direction over the past thirty years, and all have suffered widening income inequality. Here's Thomas Piketty's explanation:

Piketty: U.S. sold its middle class birthright for a mess of Reaganite pottage

The main thesis of Thomas Piketty's Capital in the Twenty-First Century is that the accumulation of wealth in the hands of a few is subject to a kind of gravitational pull. That's what the long-term data tells Piketty. But there's a second core thesis: that gravitational pull can be countered by social policy. Markets, he asserts, are a social construct: prices and wages do not magically align themselves with intrinsic worth.

In practice, the invisible hand does not exist, any more than “pure and perfect” competition does, and the market is always embodied in specific institutions such as corporate hierarchies and compensation committees (p. 332).

In Chapter 8, Piketty traces "the explosion of inequality in the U.S. after 1980." In Chapter 9, he homes in on the explosion in compensation of top executives in the U.S. -- mirrored to a somewhat lesser extent, throughout the Anglosphere, and to a lesser but still pronounced degree, through Continental Europe, Japan, and emerging economies:

The central fact is that in all the wealthy countries, including continental Europe and Japan, the top thousandth enjoyed spectacular increases in purchasing power in 1990– 2010, while the average person’s purchasing power stagnated (p. 320).

Bringing a fire extinguisher to a flood

A few days ago,  a friend sent me a 297-word graduation speech by economics Nobel laureate Thomas Sargent, delivered in 2007, that's been making the rounds. The speech consists of twelve precepts, delivered with economists' economy, that have been hailed as a distillation of "everything you need to know about economics," as Ezra Klein -- too fond of such sweeping overstatement since launching Vox -- put it.

The piece rubbed me the wrong way, not because its precepts are not true, but because their uber-message seems out of step with our slow-growth, post-meltdown, austerity-hog-tied economy. The upshot, as Josh Barro summarizes it this morning, is that there's no free lunch. The two bullet points that bugged me in particular  were these:

4. Everyone responds to incentives, including people you want to help. That
is why social safety nets don't always end up working as intended.

5. There are tradeoffs between equality and efficiency.

To take the second first: sure. But as we've learned in the last few years, there's also tradeoffs between inequality and efficiency. When the top 1% grab 95% of the fruits of growth, they tend to 1) use their outsized capital unproductively, increasing their rents, 2) hollow out their customer base, and 3) extend their control over the political system, eroding checks on their own power and ensuring their further corruption.

The moral (and economic and social) equivalent of war, revisited

William James' prescient 1910 essay The Moral Equivalent of War was written in part as a rebuttal to pre-World War I theorizing about the role of war in human society that to post-world-war eyes look rather shocking:

Other militarists are more complex and more moral in their considerations. The Philosophie des Krieges, by S. R. Steinmetz is good example. War, according to this author, is an ordeal instituted by God, who weighs the nations in its balance. It is the essential form of the State, and the only function in which peoples can employ all their powers at once and convergently. No victory is possible save as the resultant of a totality of virtues, no defeat for which some vice or weakness is not responsible. Fidelity, cohesiveness, tenacity, heroism, conscience, education, inventiveness, economy, wealth, physical health and vigor — there isn't a moral or intellectual point of superiority that doesn't tell, when God holds his assizes and hurls the peoples upon one another.

James did not dismiss such views out of hand. Asserting, "The war-party is assuredly right in affirming and reaffirming that the martial virtues, although originally gain by the race through war, are absolute and permanent human goods," he wondered how humanity might martial those virtues in less destructive ways. And as I noted in The Moral Equivalent of Warmongering, Steinmetz's sentiments maintain a persistent half-life in in common attitudes, expressed via boomer-bashing and other (eternal) moralizing that excoriates those who have concerned themselves mainly with peacetime pursuits.

Today it's not acceptable to suggest that war is a consummation devoutly to be wished. But Ian Morris, in War! What is it Good For?* has updated the argument that war has so far been a major spur of human development -- not only technological, a reality impossible to ignore -- but social and political as well.  In effect, it seems Morris argues (I haven't read the book yet -- excuse the blogger's license) that war has taught us peace. From David Crane's review in The Spectator:

If only Obama would say what he's never stopped saying. If only he would do what he's done.

Perhaps inevitably, at every political stress point liberals knock themselves out urging Obama to say precisely the things he's been saying nonstop since he first appeared on our horizon. The latest to succumb to the temptation is Michael Tomasky:

...politically I don’t think fairness is enough. Average Americans care about fairness, but not really all that much. People who have incomes comfortably above the median but who still aren’t rich are going to suspect that fairness means something is coming out of their hide. What they do care about, though, is growth. Everybody from Bill Gates to his janitor wants the economy to grow. So the case for these programs that Obama needs to make consistently going forward is not the case for their fairness, but the case that these policies, and not tax cuts for the wealthy or more draconian domestic budget cuts or less regulation, will promote growth.

Yup, if only Obama would say something like "in America, our prosperity has always risen from the bottom-up" and make the case that prosperity is not sustainable when inequality is rising. As he did in Raleigh, NH in June 2008:

We've done this because in America, our prosperity has always risen from the bottom-up. From the earliest days of our founding, it has been the hard work and ingenuity of our people that's served as the wellspring of our economic strength. That's why we built a system of free public high schools when we transitioned from a nation of farms to a nation of factories. That's why we sent my grandfather's generation to college, and declared a minimum wage for our workers, and promised to live in dignity after they retire through the creation of Social Security. That's why we've invested in the science and research that have led to new discoveries and entire new industries. And that's what this country will do again when I am President of the United States.

 And in Georgetown in April 2009:

The long and the short of income inequality

Ezra Klein made a splash a few days ago by arguing that Obama is wrong to call rising inequality the defining challenge of our time, asserting that jobs should take precedence: "Growth simply isn't producing enough jobs. This is a more severe and more urgent problem than inequality.

Today, Paul Krugman counters that inequality that the president was right -- first because stagnant incomes may have contributed to the debt crisis and are now depressing consumer demand, but more fundamentally, because the wealthiest have converted their disproportionate economic power into disproportionate political power, corrupting the country's ability to address its policy challenges.  The  the super-0rich, Krugman charges, triggered the financial meltdown by building a bipartisan consensus for financial regulation -- and have crippled the recovery by demanding austerity.

Klein's binary choice between addressing unemployment or austerity seems fundamentally mistaken to me, I would supplement Krugman's analysis with research by Peter Turchin (thanks, T. Greer), who has identified very long-term cycles of expanding and contracting inequality, and tied them chiefly to the supply of labor:

Obama portrays a nation at risk in bid to reset national agenda

Obama gave a great speech today, focused on reversing rising income inequality, which he called "the defining challenge of our time." It's been a dispiriting autumn, and as Obama's returned to the bully pulpit in recent days I've thought that maybe I'm past getting keyed up as he cranks up the rhetoric.  But he didn't do that. He offered new thinking and reframed our political discourse. He expanded and refocused the narrative he's been developing throughout his political career.

The outlines of that narrative were familiar. Throughout its history, the United States has thrived because it's periodically widened the circles of opportunity, extended the means to pursue happiness to previously excluded groups, made new investments in shared prosperity. Around 1980, though, the country took a wrong turn, and the American dream is fraying.  As president, he will channel popularly willed recommitment to shared prosperity.

This time around, though, there were several differences. The stylized, compressed precis of U.S. history that's an Obama speech staple was focused more sharply on economic turning points.  The wrong turn of the last 30-plus years was ascribed in large part to global economic forces, in a sense depoliticized. The faith that political action will right the ship was tempered by a warning that rising inequality, unchecked, could take us to a point of no return.

Finally, an economic argument that sustainable prosperity depends on reversing the widening wealth gap was more fleshed out than ever before. I have never read a presidential speech that cited as many economic studies.  Those studies and a battery of stats were deployed to make several key points: that inequality is at an historic high point; that the U.S. lags other wealthy countries in economic mobility; that those born in poverty in the U.S. today are likely to remain locked in; that poverty is not just a "minority" problem but touches more than half of Americans at some point in their lives; and that rising inequality is a drag on growth.

That sixties suburban sweet spot revisited -- again

A disturbing new study based on census data, previewed by the New York Times, shows how the rise in income inequality has literally changed the landscape in America:

In 2007, the last year captured by the data, 44 percent of families lived in neighborhoods the study defined as middle-income, down from 65 percent of families in 1970. At the same time, a third of American families lived in areas of either affluence or poverty, up from just 15 percent of families in 1970...

Much of the shift is the result of changing income structure in the United States. Part of the country’s middle class has slipped to the lower rungs of the income ladder as manufacturing and other middle-class jobs have dwindled, while the wealthy receive a bigger portion of the income pie. Put simply, there are fewer people in the middle.

But the shift is more than just changes in income. The study also found that there is more residential sorting by income, with the rich flocking together in new exurbs and gentrifying pockets where lower- and middle-income families cannot afford to live.

The middle class paradise lost, I noted in a recent post, was lived by my wife (b. 1958) growing up on a leafy cul-de-sac lined with 1950s split levels in West Seneca, NY, an inner ring suburb of Buffalo.  Here's what the family recalled recently about neighbors' professions:

Coming soon: a misleading bump in household income?

One thing I learned from Stephen J. Rose is that census figures make U.S. household income appear somewhat more stagnant than it has been over the last thirty years, because household size has shrunk, and households with fewer people have less income on average than larger households. The census divides households into income quintiles, and half of Americans live in the upper two household quintiles. 

Now, Global Insight analyst Patrick Newport reports that in the wake of the great recession, household size is increasing, while growth in new households hit a postwar low last year (hence the continued depression in new housing construction, Newport's focus). His explanation:

One can also infer from the newly released data that "doubling up" played a greater role in 2009 than it did in 2008. For example, the number of households headed by those 15–24 years old fell by 124,000 (students moving back in with parents), while the number of households with six or more people in the home rose by 355,000, an 8% increase. The breakdown by age groups also suggests that "doubling up" increased in 2009. By 10-year age groups, the number of households headed by those in the 15–24, 25–34, and 35–44 age brackets all fell in 2009, while the number in all of the older 10-year age brackets increased. Job losses and foreclosures are concentrated in the younger age brackets.

I wonder: will the increase in household size produce a misleading bump in household income?  Some of those younger adults living with their folks must be earning some income.  Moreover, the growth in household size should be skewed toward lower income households. Hence we may get a faux reduction in income inequality too.

About those free range little Krugmans and Manzis

There's an irony in Jim Manzi's moment of communion with Paul Krugman over Krugman's nostalgia for early-60s suburbia:

The safety and freedom that Krugman describe are rare now even for the wealthiest Americans – by age 9, I would typically leave the house on a Saturday morning on my bike, tell my parents I was “going out to play,” and not return until dinner; at age 10, would go down to the ocean to swim with friends without supervision all day; and at age 11 would play flashlight tag across dozens of yards for hours after dark.

Here's the thing: leaving aside demographic changes in Krugman's native Merrick, NY, most American suburbs today are very safe places. The murder rate nationally in 2009 was 5.4 per 100,000 people, vs. 5.1 in 1960. Violent crime rates nationally were at lower in 2009 than at any point since 1973. It's true that the 2009 violent crime rate remained  two and a half times that of 1960, but most of that crime was concentrated in poor inner city neighborhoods (and increased reporting of rape probably accounts for some of the difference over time). I doubt that most little Manzis or Krugmans living on suburban streets today are at significantly more risk of being crime victims than their grandparents were in 1960.

What's changed is parents' perception of risk -- and tolerance for it. Perhaps the crime-ridden 1980s changed the culture, or perhaps increased affluence (we'll get to that...) inevitably makes parents more risk averse, or perhaps we're just all made permanently jittery by too much information, or maybe our dual-action superparenting ethic renders us incapable of leaving them kids alone. As Megan McArdle points out, too, back then, neighborhoods full of stay-at-home moms increased the sense of on-the block safety.   In any case, as parents we've gone collectively insane. As Lenore Skenazy has documented, parents in many suburbs won't let their kids walk two blocks to school:

On debt-fueled consumption, rising inequality, education, and service sector pay

Raghuram Rajan, the former IMF economist who was one of the first to finger banks' pay structure as a key cause of the financial crisis,(in Jan. '08)  has an  interesting essay out: How Inequality Fueled theCrisis (h/t Chait).  In developed countries, only the educated can thrive in a global economy. Delivering effective, broad-based education reform is hard and slow; encouraging debt-fueled consumption is a readily available palliative. So politicians of both parties have turned to the latter:

In the US, though, there have been strong political forces arrayed against direct redistribution in recent years. Directed housing credit was a policy with broader support, because each side thought that it would benefit.

The left favored flows to their natural constituency, while the right welcomed new property owners who could, perhaps, be convinced to switch party allegiance. More low-income housing credit has been one of the few issues on which President Bill Clinton's administration, with its affordable-housing mandate, and that of President George W. Bush, with itspush for an "ownership" society, agreed.

Stephen J. Rose's Rebound foresees America Unbound

Stephen J. Rose, a think-tank economist who worked in the Clinton administration, has drawn ire on the left because he challenges key articles of economic faith: that the American middle class has remained static for three decades; that Americans are "drowning in debt"; that they shoulder far more risk than they did a generation ago.  His new book, Rebound: Why America Will Emerge Stronger from the Financial Crisis, consolidates and develops these theses, which boil down to John McCain's  ill-timed campaign mantra: the fundamentals of our economy our strong.

In Rose's view, financial industry recklessness threw sand in the gears (his cliche) of a rip-roaring economic machine. His prognosis for the U.S. economy in the wake of the financial crisis was well summed-up by a David Brooks column largely based on his findings (with which I picked a rather notorious bone): Relax, We'll be Fine. (That is, if we enact effective financial reform, as Rose simply assumes we will.)

Rose is in his element in the book's middle chapters, in which he parses Census, Current Population Survey and other data on Americans' incomes and wealth to debunk what he defines as five myths: that all income gains in the last thirty years have gone to the rich; that the middle class is declining; that good jobs have been disappearing; that international trade is to blame; and that employee benefits are disappearing.

Some of these myths he dispatches more thoroughly than others; his argument with liberal economists such as Jacob Hacker and Elizabeth Warren is often aptly characterized as a glass half empty/half full dispute because at times he emphasizes different aspects of a data set that is not in dispute.  This is almost literally true when Rose points out that "54 percent of households had no credit card debt after paying their monthly bill; this means that the median credit card debt of Americans is zero" (212). Okay -- it also means that almost half of Americans are paying double-digit interest rates on a credit card balance every month. More on this later.

To get a purchase on Rose's attack on the notion that the American middle class is shrinking, it's useful to work one's way backwards through his central claims. The vast majority of American retirees are satisfied with their retirement.  There is every reason to believe that Americans approaching retirement age are equally well positioned -- though Rose does acknowledge that the major decline in wealth caused by the financial crisis seriously dents this relative prosperity, knocking asset levels back to about 2004.  Those subject to the most income volatility -- prime age adults -- also have much higher incomes than oft-cited median income figures for all Americans would indicate.  While growing income inequality is a real problem (indeed, Rose takes credit for bringing it to national attention in 1983), its worst effects are concentrated among the least well educated; the majority of Americans who have at least "some college" have benefited substantially from the strong growth in GDP over the past four decades.

Among the facts Rose cites that run counter to the 'disappearing middle class' thesis:

Minorities set us free

Via Andrew Sullivan, Nate Silver's take on the ethnic underpinnnings of the Democratic resurgence:

Consider this remarkable statistic. In 1980, 32 percent of the electorate consisted of white Democrats (or at least white Carter voters) -- likewise, in 2008, 32 percent of the electorate consisted of white Obama voters. But whereas, in 1980, just 9 percent of the electorate were nonwhite Carter voters, 21 percent of the electorate were nonwhite Obama voters last year. Thus, Carter went down to a landslide defeat, whereas Obama defeated John McCain by a healthy margin.

I am struck by the economic implications of this shift in the electorate. The average Democratic voter is probably not poorer relative to the average Republican than in 1980, since Democrats have lost poor white voters and probably gained richer white ones. Nonetheless, the ethnic shift in the U.S. population does give the less well-off more of a voice-- at least if you assume that Democrats can represent the economic interests of the less well-off more effectively than Republicans.

At the height of the Bush era, as income inequality soared, lobbyists and Republicans flaunted their symbiosis, Rovian smear campaigning reached its apotheosis and the Republicans increased their majorities in Congress, it was possible to think that American democracy was being hollowed out by an oligarchy that was cementing its economic gains with a lock on the political process. But it turned out that the country's hardening democratic arteries still ran clear enough --defibrillated by an unpopular and mismanaged war started until false pretenses -- to give the Democrats a fresh shot at rolling back the great wealth shift and the great risk shift of the last 30 years.

As in 1980, democracy performed its core function: give failure its due reward, throw the bums out, and let a fresh crew at least try to do better. Today that means mending the safety net, rebuilding the educational system, and creating more opportunity for those not born into privelege.