How Our American Dream Unraveled

As we envisioned it, prosperity was a blissful state that had only winners and no losers. This, too, was an illusion. It ignored a huge contradiction: we wanted both economic growth and economic security, but the two are often incompatible. Economist Joseph Schumpeter (1883-1950) long ago pointed out that capitalism involves "creative destruction." Consider the steel industry. In 1960, it produced 99.3 million tons of steel with 577,100 workers. By 1990, it produced 98.9 million tons with 207,700 workers. Steel demand was stunted by the growth of plastics and aluminum. Smaller cars hurt. Imports intensified competitive pressures. Squeezed, companies got more efficient--or went bust. We wanted the greater productivity. But we didn't want the social havoc: steel communities were often devastated as old plants closed.

Steel's story has been repeated in many different ways. One effect is that Corporate America can't fulfill all our expectations. Companies were supposed to be both prodigious producers and reliable welfare states, providing job security and welfare benefits (health insurance, pensions). But these roles often collide. To survive as producers, companies sometimes shirk their welfare responsibilities. Factories are shut, jobs cut, benefits shaved. Since 1979, the share of workers whose employers offer pension plans has slipped from 61 to 55 percent. The security that Americans expected from major companies is evaporating. Many venerable firms (Pan Am, Gulf Oil) have vanished.

In general, prosperity has been more chaotic than we imagined. It has brought many unintended (and unwanted) consequences. Economic growth around the world inevitably spawned industries that challenged U.S. dominance, which was artificially exaggerated after World War II. The move to suburbia-welcomed by most Americans-was bound to degrade the very qualities that made suburbia appealing. Congestion, grime and crime increased. Abandoned by the middle class, cities have become more vulnerable to poverty and decay.

But our most profound illusion about prosperity was to think that doses of it would solve almost a problem. We unwittingly adopted a view of human nature that assumed spiritual needs could ultimately be satisfied with material goods. We diagnosed all conflicts as economic struggles that could be resolved by more abundance. We minimized geography, ethnicity, race and religion as sources of hostility. Our crusade to Americanize other nations-to convert them to our way of thinking-foundered, because economic convergence does not create cultural homogeneity. Countries can be connected by economic ties and still be separated by vast differences of tradition. Witness the rancor between the United States and Japan.

Many of our social ills simply reflect human nature. If prosperity cured crime, there would be less crime now than 50 years ago. In fact, there is more. Prosperity doesn't automatically create personal happiness or social peace. We consider prosperity liberating, because it affords us more freedom through more "choices." That's good. Well, not always. Choices made may later be regretted. Greater sexual freedom-to live together, marry or divorce-has bred family instability. Greater freedom for women to work has torn many mothers between jobs and family. New lifestyles breed new conflicts: between employed and at-home mothers, between straights and gays, between singles and couples. Family breakdown has abetted poverty.

Naturally, our confidence has eroded. We see ourselves as pragmatic problem-solvers. But our megasolution (prosperity) grows weaker, while our social problems grow stronger. The magic of prosperity politics was that it seemed to mute messy social choices. Economic growth could satisfy everyone. It doesn't. The economy will recover and revive our spirits. But that won't be enough. No conceivable rate of economic growth will end federal budget deficits. The social problems associated with family breakdown or inner-city poverty are too complex to be erased by a bit more prosperity. The defects of our health-care system will endure, regardless of whether the economy grows at a 2.5 or 3.5 percent rate. We will deal with these problems directly-or not at all.