LF: The Myth Of 'American Exceptionalism' Implodes

Until the 1970s, US capitalism shared its spoils with American workers. But since 2008, it has made them pay for its failures

A homeless encampment known as Tent City, in Sacramento, California, in 2009. Since the 1970s, real wages stopped growing and the gap between rich and poor expanded as the US economy slowed down after decades of growth. Photograph: Rich Pedroncelli/AP

One aspect of "American exceptionalism" was always economic. US workers, so the story went, enjoyed a rising level of real wages that afforded their families a rising standard of living. Ever harder work paid off in rising consumption. The rich got richer faster than the middle and poor, but almost no one got poorer. Nearly all citizens felt "middle class". A profitable US capitalism kept running ahead of labour supply. So, it kept raising wages to attract waves of immigration and to retain employees, across the 19th century until the 1970s.

Then everything changed. Real wages stopped rising, as US capitalists redirected their investments to produce and employ abroad, while replacing millions of workers in the US with computers. The US women's liberation moved millions of US adult women to seek paid employment. US capitalism no longer faced a shortage of labour.

US employers took advantage of the changed situation: they stopped raising wages. When basic labour scarcity became labour excess, not only real wages, but eventually benefits, too, would stop rising. Over the last 30 years, the vast majority of US workers have, in fact, gotten poorer, when you sum up flat real wages, reduced benefits (pensions, medical insurance, etc), reduced public services and raised tax burdens. In economic terms, American "exceptionalism" began to die in the 1970s.

The rich, however, have got much richer since the 1970s, as every measure of US income and wealth inequality attests. The explanation is simple: while workers' average real wages stayed flat, their productivity rose (the goods and services that an average hour's labour provided to employers). More and better machines (including computers), better education, and harder and faster labour effort raised productivity since the 1970s. While workers delivered more and more value to employers, those employers paid workers no more. The employers reaped all the benefits of rising productivity: rising profits, rising salaries and bonuses to managers, rising dividends to shareholders, and rising payments to the professionals who serve employers (lawyers, architects, consultants, etc).

Since the 1970s, most US workers postponed facing up to what capitalism had come to mean for them. They sent more family members to do more hours of paid labour, and they borrowed huge amounts. By exhausting themselves, stressing family life to the breaking point in many households, and by taking on unsustainable levels of debt, the US working class delayed the end of American exceptionalism – until the global crisis hit in 2007. By then, their buying power could no longer grow: rising unemployment kept wages flat, no more hours of work, nor more borrowing, were possible. Reckoning time had arrived. A US capitalism built on expanding mass consumption lost its foundation.

The richest 10-15% – those cashing in on employers' good fortune from no longer-rising wages – helped bring on the crisis by speculating wildly and unsuccessfully in all sorts of new financial instruments (asset-backed securities, credit default swaps, etc). The richest also contributed to the crisis by using their money to shift US politics to the right, rendering government regulation and oversight inadequate to anticipate or moderate the crisis or even to react properly once it hit.

Indeed, the rich have so far been able to use the crisis to widen still further the gulf separating themselves from the rest, to finally bury American exceptionalism. First, they utilised both parties' dependence on their financial support to make sure there would be no mass federal hiring programme for the unemployed (as FDR used between 1934 and 1940). The absence of such a programme guaranteed that real wages would not rise and, with job benefits, would likely fall – as they indeed have done. Second, the rich made sure that the prime focus of government response to the crisis would benefit banks, large corporations and the stock markets. These have more or less "recovered".

Third, the current drive for government budget austerity – especially focused on the 50 states and the thousands of municipalities – forces the mass of people to pick up the costs for the government's unjustly imbalanced response to the crisis. The trillions spent to save the banks and selected other corporations (AIG, GM, Fannie Mae, Freddie Mac, etc) were mostly borrowed because the government dared not tax the corporations and the richest citizens to raise the needed rescue funds. Indeed, a good part of what the government borrowed came precisely from those funds left in the hands of corporations and the rich, because they had not been taxed to overcome the crisis. With sharply enlarged debts, all levels of government face the pressure of needing to take too much from current tax revenues to pay interest on debts, leaving too little to sustain public services. So, they demand the people pay more taxes and suffer reduced public services, so that government can reduce its debt burden.

For example, California's new governor proposes to continue for five more years the massive, broad-based tax increases begun during the crisis and also to cut state services for the poor (reduced Medicaid funding) and the middle class(reduced budgets for community colleges, state colleges, and the university system). The governor admits that California's budget faces sky-high interest costs and reduced federal government assistance just when the crisis increases demands for public services. The governor does not admit his fear to tax the state's huge corporate and private individual wealth. So, he announces an "austerity programme", as if no alternative existed. Indeed, a major support for austerity comes from the large corporations and wealthiest Californians, who hold the state's bonds and want reassurances that the interest on those bonds will be paid.

California's austerity programme parallels similar programmes in many other states, in thousands of municipalities, and at the federal level (for example, social security). Together, they reinforce falling real wages, falling benefits, falling government services and rising taxes. In the US, capitalism has stopped "delivering the goods", as it so long boasted. The reality of ever-deeper economic division clashes with expectations built up when wages rose over the century before the 1970s. US capitalism now brings long-term painful decline for its working class, the end of "American exceptionalism" and rising social, cultural and political tensions.