The Index of
Systemic Trends

Preface

This is the second edition of our Index of Systemic Trends for the United States. Although in many respects it is a simple five-year update of the first edition – a suitable time period after which to check back in for substantial changes in direction at the level of the U.S. political economy as a whole – it has also turned out to be a little bit more than that. A great deal has happened in the intervening five years since we first published the Index in 2019, be it the closing act of the Trump presidency, the arrival of a worldwide pandemic in the shape of COVID-19, the onset of the new inflation, the enactment of an alphabet soup of large-scale new federal programs as part of the “Bidenomics” agenda, or other external shocks such as wars in Ukraine and Gaza, trade and supply chain disruptions, and food and energy price spikes, not to mention increasing weather effects from the growing catastrophe of global climate change. The much-heralded “New Washington Consensus” of recent years has even seen the proclamation (prematurely, we would argue) of an end to neoliberalism amid a new era of state intervention and activism.  

Not so fast, say the data. Yes, there have been significant efforts on climate and the economy (as well as less welcome developments in the areas of health, international conflict, and war). The American Rescue Plan (ARP), the Bipartisan Infrastructure Law (BIL), the CHIPS and Science Act, the Inflation Reduction Act (IRA) – these are big federal interventions, historically speaking, measured in the trillions of dollars. The Federal Reserve Bank of St. Louis produced a helpful comparison of the Biden fiscal programs plus COVID-19 spending with that of Franklin Delano Roosevelt’s New Deal, and there have also been comparisons to Lyndon B. Johnson’s Great Society programs. But as the data in this revised Index shows, the scale and pace of these changes has not been enough to bend the curve on many long-running trends in the U.S. political economy, whether economic inequality or poverty or health outcomes or labor union density or the racial wealth gap. We continue to store up great difficulties for the future.

Shockingly, we have also seen instances – such as the near-elimination of child poverty via COVID-19 payments – where short-term substantial progress in the course of the last five years has been immediately reversed with the termination of the temporary measures that afforded the relief. For a brief moment, America practically abolished child poverty, only to then bring it back! And there remain – for one of the richest economies and societies in the history of the world – many unconscionable outcomes, such as the shocking uptick in maternal mortality rates, as well as the ongoing racial exclusion that lies at the heart of our system, evident across so many of the indicators assembled below.

“All in all, the dashboard warning lights are still blinking insistently across much of this second edition of the Index of Systemic Trends, emphasizing the ongoing systemic nature of the crisis we are facing in America – one that has been building over many decades,  and has largely continued to do so over the past five years.”

All in all, the dashboard warning lights are still blinking insistently across much of this second edition of the Index of Systemic Trends, emphasizing the ongoing systemic nature of the crisis we are facing in America – one that has been building over many decades,  and has largely continued to do so over the past five years, in spite of welcome but ultimately unsuccessful efforts to change course. 

One key lesson from this Index, both in terms of changes over the past five years and the longer-run trends of the past several decades, is the relative fragility and insufficiency of after-the-fact policy “fixes” – whether in terms of tax-and-spend redistribution, or regulatory interventions, or both – as any kind of substitute for deep structural interventions in the core institutions and relationships of the political economy. Absent “pre-distributive” transformations in the basic operations of the U.S. economy, there will always have to be redistribution, and it will likely always remain inadequate (at least over the medium run). 

We need a conversation in America that goes beyond policy to system change. If we are not to find exactly the same pattern of results and outcomes another five years down the line, then there will need to be an altogether different and more ambitious set of interventions in the years ahead, commensurate with the scale of the challenge and capable of setting the United States on a very different trajectory from our present, downward one. That is the collective challenge that lies ahead.

The first edition of the Index of Systemic Trends was prepared by Democracy Collaborative staff. This time, the data for the second edition was collected and updated by Howard Reed of Landman Economics (to whom we are very grateful), while Joe Guinan and Dana Brown wrote the narrative. We have added several new trends to this edition, given their political salience: these include inflation and the cost of living, government spending as a share of GDP, and military spending as a share of GDP. There is also a special section on the financialization of the U.S. economy, based on important analytical work by Michael Hudson, Dirk Bezemer, and Howard Reed for The Democracy Collaborative. We are also grateful to Isaiah Poole and to the team at openbox9 for design and production support for this Index.

The trends are presented here with minimal analysis and argumentation, as a baseline in the reality of what is happening (and not happening) in the experience of most Americans. Our intent is to make this material accessible in one place such that it lends itself to a “long view” and systemic horizon, setting the proper parameters on our understanding of what it will take to alter the course of many dangerous political-economic trends in the United States that have been decades in the making. We hope that you find it useful.

Joe Guinan
President
The Democracy Collaborative

Dana Brown
Director, Health and Economy
The Democracy Collaborative

A Note on the Data

The data in the Index of Systemic Trends is drawn from a variety of government and NGO databases. In all cases, efforts were made to attain the most up-to-date information. However, in some cases (especially for the country comparisons) the latest available data may be from different years. Regarding the identification of racial groups, we have retained the terminology from the original data sources.

Introduction

On January 26, 2021, her first day in office as President Biden’s Secretary of the Treasury, Janet Yellen, one of the most powerful economic policymakers on the planet, had a stark message for her departmental staff, speaking of “four historic crises” facing the United States: 

COVID-19 is one. But in addition to the pandemic, the country is also facing a climate crisis, a crisis of systemic racism, and an economic crisis that has been building for fifty years. 

Ten years ago, such an admission would have been unheard of from such a high-ranking U.S. economic official. Today it is commonplace. The Treasury Secretary is not alone in her use of such language, which can increasingly be found in official U.S. government communiqués and even in the pronouncements of international institutions such as the International Monetary Fund (IMF) and the Organisation for Economic Cooperation and Development (OECD). In that respect, at least, there has been progress in recognizing the seriousness of what we are facing.

This second edition of the Index of Systemic Trends is an effort to quantify, track, and visualize this multifaceted political, economic, social, and ecological crisis afflicting the United States. But it is also a warning. A daunting gulf still remains between the magnitude of the systemic challenge and the scope and scale of the responses that are being conceived and proposed, and (partially) enacted – a gulf from which new monsters will continue to emerge.  

Over the last few years we have seen the beginnings of welcome action in the face of the crisis. Some good things are being done, and action is being taken – by the standards of recent decades, fairly significant action. New directions on trade policy, industrial strategy, manufacturing capacity, labor force unionization rates, and climate change all mark a significant departure from the past forty years of U.S. government policy and practice. Yet this is where the danger lies: in the comforting illusion that we are finally making progress, that – after decades of misdirection, obfuscation, and inaction – we are at last awakening to the magnitude of the crisis. The bigger picture, unfortunately, is that we are still losing – and losing badly – in our struggle to tackle long-run negative political-economic trends. We have only just begun walking tentatively up a fast-moving downward escalator, suggesting that further systemic shocks are in store.

“The bigger picture, unfortunately, is that we are still losing – and losing badly – in our struggle to tackle long-run negative political-economic trends. We have only just begun walking tentatively up a fast-moving downward escalator.”

Systemic Crisis and Systemic Change

One of the signs that a crisis is systemic, rather than purely political or economic, is that key indicators decline or stay the same regardless of changes in political power or business cycles. Since 1970, the United States has experienced seven party changes in the White House, six party changes in control of the Senate, and four in the House of Representatives. It has also experienced eight recessions (and recoveries). Yet, as our Index demonstrates, on many very important indicators of economic, social, and democratic health there has been little improvement and, in many cases, substantial deterioration over this period. The trends considered include poverty, wealth inequality, racial wealth inequality, income inequality, wage stagnation, the cost of higher education, homeownership, corporate taxation, taxation of the rich, labor union density, incarceration rates, healthcare costs, climate change, and life expectancy, among others. We also examine the increasing financialization of the U.S. economy as a key driver of many of our economic outcomes, especially inequality.

Another way to evaluate whether or not a political-economic system is in crisis is to compare its outcomes against similar systems. Far from being exceptional, the United States’ political-economic system actually compares relatively poorly with many other countries across a variety of important indicators. U.S. performance on these indicators is compared against the 35 other OECD countries, including both advanced contemporaries (including the United Kingdom, Japan, and Germany) as well as less developed countries (such as Turkey, Mexico, and Hungary). Cross-country indicators presented here include poverty (including child poverty), inequality, union membership, healthcare spending, life expectancy, infant mortality, maternal mortality, homicide, violence against women, weapons exports, prison population, and greenhouse gas emissions.

The Index of Systemic Trends is by no means a comprehensive or exhaustive study. Rather it seeks to offer a “snapshot” as to the performance of the U.S. political economy as a whole over time. It is designed purely to be illustrative of what, we believe, is an important observation: that our current political-economic system is consistently failing to deliver improvement and/or competitive results compared to other advanced economies across a variety of different measures; and that this is indicative of a systemic crisis – and of the need to move in the direction of a new system that can and will produce better outcomes.

Section I: U.S. Macroeconomic Environment

Recent years have witnessed a number of big shifts in the macroeconomic environment in the United States and globally that affect how policymakers, economists, and the general public view the U.S. economy. The first has been the dramatic return of inflation after a period in which it had all but disappeared. The preceding extended period of low inflation was in spite of the massive expansion of central bank balance sheets around the world after the 2007-2008 Great Financial Crisis, through government asset purchases in the form of “quantitative easing” (QE). With the reemergence of inflation, central bank interest rates have been increased, including by the Federal Reserve, with consequences for household and consumer debt servicing and for business investment.

Academic and policy debate has been raging about the source of this new inflation, which has been dubbed in part a form of “sellers’ inflation” by economist Isabella Weber and her colleagues. These economists have pointed out that corporations are keeping prices high even as pandemic and other supply chain pressures have eased – a form of profiteering in an environment in which companies are able to hike prices above rising costs without suffering any falloff in demand. As a result, there have been calls for price controls and other anti-profiteering measures, rather than increases in interest rates, as the appropriate policy response.

“Corporations are keeping prices high even as pandemic and other supply chain pressures have eased – a form of profiteering in an environment in which companies are able to hike prices above rising costs without suffering any falloff in demand.”

Recent research from the Groundwork Collaborative think tank found “resounding evidence” that high corporate profits are a main driver of ongoing inflation, and that companies are continuing to keep prices high even as their inflationary costs drop. They found that corporate profits accounted for about 53% of inflation during the second and third quarters of 2023. By contrast, profits drove just 11% of price growth in the forty years prior to the COVID-19 pandemic. Prices for consumers rose by between 3% and 4% over 2023, whereas input costs for producers increased by just 1%. The data for the Groundwork Collaborative analysis are taken from the National Income and Product Accounts (NIPA) tables produced by the Bureau of Economic Analysis.

Second, and relatedly, in response to the unprecedented economic shocks to the system from the COVID-19 pandemic (the impacts of which can be seen in the data throughout this Index) and other external events such as wars and extreme weather effects that have impacted supply chains and raised production costs, we have seen an accompanying series of major federal programs that saw sizable temporary increases in public spending as a share of GDP as the federal government mounted an economic rescue from the pandemic. In keeping with the emergency nature of this government spending, it has since fallen off again back towards previous levels, but the temporary impacts in several key areas (see data on child poverty, below) were pronounced. Some have even seen the big Bidenomics programs as heralding a break with neoliberalism and a new era of public-led investment in America, a view which the Biden White House has encouraged.

Inflation and the Cost of Living

Figure 1 shows the U.S. Consumer Price Index, a measure of the cost of living, over the last quarter century. Price inflation (as measured by the Consumer Price Index) increased dramatically in early 2022 (peaking at 9% in June 2022) before falling below 4% in mid-2023 (but still, at between 3% and 4%, higher than for most of the period between 2009 and 2021).

Figure 1: U.S. Consumer Price Index, 2000-2024

Government Spending as a Share of GDP

Figure 2 shows U.S. government spending (including all levels of government – federal, state, and local) as a share of total Gross Domestic Product for each year from 1950 to 2023. The chart shows an overall upward trend in government spending as a share of GDP, from between 20% and 25% in the 1950s to over 30% since 2000 (spiking upwards at over 40% of GDP during the COVID-19 pandemic).

Figure 2: U.S. Government Spending as Percentage of GDP, 1950-2023

When government spending as a proportion of GDP for the United States is compared with a range of other countries using data from the OECD, the United States ranks eighteenth highest out of the 33 featured countries for government spending as a share of GDP. (Note that the OECD figure for U.S. government spending as a share of GDP is higher than the equivalent 2022 figure from the U.S. NIPA data – this is because the OECD defines government spending differently from the U.S. government to ensure comparability across countries).

Section II: Our Unequal Economy

Poverty

In 1964, President Lyndon B. Johnson declared an “unconditional war on poverty in America.” The resulting federal War on Poverty shone a spotlight on the pervasive poverty that still gripped much of what was supposedly the richest country on Earth – and certainly one of the wealthiest societies in human history. It spurred a raft of social insurance and economic development initiatives aimed at poverty reduction, and these anti-poverty efforts experienced some undoubted initial success. The percentage of people living below the official poverty line dropped from 22.4% in 1959 to 12.1% in 1969. By 1973 it hit its lowest recorded point: 11.1%. There was considerable optimism that poverty would eventually be eradicated, primarily through the extension and expansion of government programs. This prediction was unfounded. Since 1973, the poverty rate has remained relatively constant at around 13% despite poverty reduction being named as a priority by leading politicians from both major political parties.

“There was considerable optimism that poverty would eventually be eradicated, primarily through the extension and expansion of government programs. This prediction was unfounded.”

The Official U.S. Government Measure

The U.S. Government uses two main measures of poverty (see Shrider and Creamer, 2023). The official measure of poverty, in use since the 1960s, defines poverty by comparing pretax money income to a poverty threshold that is adjusted by family composition. This is an idiosyncratic measure by international standards because it is an absolute poverty measure (defining poverty using a monetary line that is fixed in real terms) rather than a relative poverty measure (which defines poverty relative to average incomes in the United States as a whole). 

Figure 3 shows the evolution of this official poverty rate in the United States since 1960. Poverty fell rapidly in the early and mid 1960s, but since 1968 there have been fluctuations, with between around 10% to 15% of people below the poverty line, but no clear trend. Given that this line is fixed in real terms, this chart shows essentially no clear progress on improving living standards for the poorest 10% to 15% of the population over a period of 55 years.

Figure 3: Official U.S. Poverty Rate, Overall, 1960-2022

The Supplemental Poverty Measure

The supplemental poverty measure (SPM), first released in 2011 and produced with support from the U.S. Bureau of Labor Statistics (BLS), extends the official poverty measure by accounting for many government programs that are designed to assist low-income families but are not included in the official poverty measure. The SPM also includes federal and state taxes and work and medical expenses. In addition, the SPM accounts for geographic variation in poverty thresholds, while the official poverty measure does not. This makes the SPM a more realistic measure of poverty which is closer to (although not the same as) the internationally consistent OECD poverty measure.

Figure 3.2: U.S. Child Poverty Rate Using Supplemental Poverty Measure, 2009-2022

Figure 3.2 shows the child poverty rate in the United States since 2009 using the Supplemental Poverty Measure. Note that there are some discontinuities in the SPM due to definitional changes in the measure in 2013 and 2017. Figure 3.2 shows that poverty on the SPM definition fell gradually between 2014 and 2019 (from around 18% to around 12.5%. There was then a very substantial fall in poverty in 2020 and 2021 – to just over 5% in 2021 – as a direct result of the measures in the Coronavirus Aid, Relief and Economic Security (CARES) Act and temporary expansions of the SNAP program in 2020, and (even more so) the extensions to the Child Tax Credit in the American Rescue Plan (ARP) in 2021. Analysis by the Center for Budget and Policy Priorities (see Trisi 2023) shows that without the expansion of the Child Tax Credit in 2021, child poverty on the SPM measure would have been 8.1% instead of the actual figure of 5.2%. When the Child Tax Credit expansions were withdrawn in 2022, poverty increased again, to 12.4%. 

These striking statistics show that the U.S. government has the ability to substantially reduce child poverty via transfer payment programs. The response to COVID-19 temporarily reduced child poverty massively, but when these measures lapsed, child poverty returned to its former level. America almost abolished, but then brought back, child poverty during the COVID-19 pandemic.

  • image|Figure 3.3

    Figure 3.3 shows the poverty rate for different age groups in the United States (also using the official poverty measure). From the early 1980s onwards, poverty for children aged under 18 has been significantly higher than for adults. From the early 2000s until the late 2010s the poverty rate for adults aged 65 and over was lower than the rate for adults aged 18-64, but the poverty rate for both groups has converged in recent years at around 10 percent of adults (compared to 15 percent for children).

  • image|Figure 3.4

    Figure 3.4 compares poverty in the United States with other countries using a poverty measure which is compiled by the Organisation for Economic Cooperation and Development (OECD) to be consistent across each country. The measure is the proportion of the population in each country who live in households below 50% of median income (adjusted for the number of adults and children in each household). Figure 3.4 shows the overall poverty rate using this measure. Of the 18 countries featured in the chart, the United States has the second highest poverty rate (behind only Costa Rica).

  • image|Figure 3.5

    Figure 3.5 shows a breakdown of the Supplemental Poverty Measure (SPM) for children by race (White, Black, and Hispanic). The rates of child poverty for Black and Hispanic children are significantly above the rate for white children, although the gap is narrowing over time.

Wealth Inequality

The distribution of wealth is one of the simplest indicators of how equitable (or inequitable) a society is. Access to wealth (or lack thereof) impacts the education a person receives, their employment prospects, their health and life expectancy, their political power, and much more besides.

At the time of its founding, the younger, larger United States did not have the same levels of wealth concentration that the older European states developed. However, by 1929, on the eve of the Great Depression, the top 1 percent had amassed around 48% of the total net personal wealth in the country. As in other countries, the Great Depression (and the New Deal), World War II, and post-war liberal (social democratic) policies lessened wealth inequality and led to a thriving middle class. By 1970, the top 1 percent and the middle 40 percent of Americans had a similar share of wealth (around 28%). The bottom 50 percent of Americans, however, had virtually nothing. Since 1970, the wealth share of the top 1 percent has substantially increased, while that of the middle 40 percent has fallen. The bottom 50 percent has seen virtually no improvement, with any gains wiped out during the 2008 financial crisis. 

There are good reasons to question whether a democratic polity and an increasingly plutocratic economy are compatible over the long run. In words often attributed to U.S. Supreme Court Justice Louis Brandeis, “We can have a democratic society or we can have the concentration of great wealth in the hands of a few. We cannot have both.”

U.S. Wealth Inequality Since 1950

Figure 4: Share of the Top 1%, Top 10%, the Next 40% and the Bottom 50% of the U.S. Wealth Distribution in Total Wealth, 1950-2022

Figure 4 uses data from the Wealth Inequality Database to show trends in the share of total wealth for the top 1 percent and top 10 percent of the U.S. wealth distribution, the rest of the top half of the distribution (from the middle to the 90th percentile), and the bottom 50 percent of the distribution. Data for the top half of the distribution are available from 1950 onwards, and for the bottom half from 1962 onwards. 

Figure 4 shows that the share of the top 1 percent in total wealth fell from 30% to just over 20% between 1950 and the late 1970s, before rising to around 36% in the mid-2010s. Since then the trend for this group has flattened out. The share of the top 10 percent fell from just over 70% in the mid-1960s to around 62% in the mid-1980s before rising to around 73% in 2015. The trend for the middle 40 percent is a mirror image of the trend for the top 10 percent, with their share rising to around 33% in 1985 before falling to 26% in 2014. The share of the bottom 50 percent in total wealth fell from just under 2% in the mid-1990s to less than 1% in the early 2010s, before rising to around 1.3% in 2017 and subsequent years.

Racial Wealth Inequality

Trends around wealth inequality in the United States are even more pronounced when looking at race. The White-Black wealth gap is measured as: (average wealth of White households) / (average wealth of Black households). (For details of how the racial wealth gap time series was constructed, see Derenoncourt et al, “Wealth of Two Nations: The U.S. Racial Wealth Gap, 1860-2020.”)

Racial wealth inequalities were deeply inscribed in America’s political economy from the outset – and have been perpetuated through slavery, civil war, the destruction of Reconstruction, Jim Crow, and modern forms of spatial segregation, exclusion, and racial discrimination. The White-Black wealth gap was extremely high in 1860, with white households owning almost 60 times the average wealth of Black households. Following the end of the American Civil War, the White-Black wealth gap fell rapidly to around 11 times in 1900, and then fell (more slowly) to around 7 in 1950.

Figure 5 shows the Black-White wealth gap since 1950. The wealth gap increased from 7 to 8.04 during the 1950s, then fell to its lowest point of 4.77 in 2007, before rising to 5.84 in 2016 (and then falling slightly in 2019).

Figure 5: U.S. White-Black Wealth Gap, 1950-2019

Income Inequality

Another important indicator of economic inequality is income share. High levels of income inequality are associated with a host of negative outcomes, such as low social mobility, low economic growth, poor mental health, and other deleterious effects. As with wealth, income inequality fell precipitously during and after the Great Depression and World War II, with the top 1 percent’s share of pre-tax national income reaching a low in the 1970s. Since then, it has exploded. By the mid-1990s, the top 1 percent and the bottom 50 percent had roughly the same share of national income (15%). Since this inflection point, the top 1 percent’s share has continued to increase, while the bottom 50 percent’s share has fallen even further. 

“High levels of income inequality are associated with a host of negative outcomes, such as low social mobility, low economic growth, poor mental health, and other deleterious effects.”

The United States is one of the most economically unequal countries in the OECD. This may seem unsurprising, given the trajectory of American capitalism in the past few decades. However, the United States actually started the twentieth century with less inequality than its European counterparts, which saw significant accumulated (and inherited wealth) in the hands of its hereditary aristocracy. Yet, over the broad sweep of the twentieth century, income inequality in the United States surpassed that in Europe.

Figure 6: U.S. Income Inequality Since 1950

Figure 6 uses data from the World Inequality Database to show the inequality in the U.S. income distribution in terms of income shares – the share of total income accruing to the top 1 percent and top 10 percent versus the bottom 50 percent over time. Note that inequalities in income are not as extreme as inequalities of wealth, but as with wealth inequalities, income inequalities have worsened in recent decades. The share of income held by the top 1 percent fell from around 17% in 1950 to around 10% by the mid-1970s before rising in the 1980s, 1990s, 2000s and 2010s – to 21%, more than double its 1970s level – in 2022. The share of income of the top 10 percent rose from 33% in the mid-1970s to 48% by 2022, while the share of the bottom 50 percent fell from just over 20% to less than 10% over the same period.

  • image|Figure 6.2

    Figure 6.2 compares income inequality across OECD countries using an inequality measure called the Gini coefficient which is higher for countries with more unequal household income distribution. Figure 6.2 shows that the United States is a highly unequal economy by international standards, ranking fifth most unequal out of 34 countries. Only Costa Rica, Chile, Mexico and Turkey had higher inequality out of the countries featured.

Wage Stagnation

For the vast majority of Americans, wages have been stagnant for more than forty years – an astounding feature of our present political economy. For production and nonsupervisory workers in the private sector, average hourly earnings today are essentially the same as they were in 1970 once inflation is factored in. Moreover, wage gains have disproportionately gone to the highest earners.

Figure 7 shows average (mean) hourly earnings for U.S. production and non-supervisory employees since 1965 in real terms. “Production and non-supervisory employees” are only a subset of U.S. workers rather than the total, but this is the measure for which the Bureau of Labor Statistics has the longest consistent time series. The data show that real average earnings rose in the 1960s and early 1970s before falling from around $22 per hour in 1973 to $18 per hour in the mid-1990s – two decades of sustained falls in wages. Since the mid-1990s there has been a recovery, but it was not until 2020 that real average hourly wages rose above their 1973 post-war peak level. For almost half a century, American workers saw no improvement in hourly remuneration – an extraordinary statistic. Furthermore, the average hourly earnings figures for 2020 and 2021 are probably biased upwards because of the reduction in employment during the COVID-19 pandemic, which had a larger impact for lower-paid workers and is likely to have biased the average upwards in these two years (and perhaps 2022 as well).

Figure 7: Average Real Hourly Earnings for Production and Non-Supervisory Employees, 1965-2023

  • image|Figure 7.2

    Figure 7.2 shows median real-terms weekly earnings for full-time employees in the United States since 1979, for workers as a whole and for men and women respectively. For employees as a whole the picture is similar to Figure 7; wages fell between 1979 and the mid-1990s overall before rising slowly after this point. By the early 2000s median earnings had exceeded their 1979 level. In particular there was a gradual increase in wages over the decade 2013-2023 (excepting the COVID-19 pandemic “spike” caused by reduction in employment and hence an increase in measured median earnings for the remaining sample). Looking separately at men and women, median full-time earnings for women have increased faster than men since the end of the 1970s, leading to a reduction in the gender earnings gap. In 1980 median male full-time earnings were 55% higher than female full-time earnings, but by 2024 this gap was less than 20%.

  • image|Figure 7.3

    Figure 7.3 shows median real full-time earnings for employees by race between 1998 and 2023 using data from the Bureau of Labor Statistics. The results show that the percentage gap between median earnings for White and Black employees has increased slightly since 1998 whereas the gap between White and Hispanic employees has fallen slightly. Since 2003 (the first year for which data on Asian workers is available), the gap between median earnings for Asian workers and White workers has increased; by 2023, median earnings for Asian employees were around 30% higher than White employees, whereas in 2003 the gap was only 9%.

Figure 8 illustrates the well-known ‘decoupling’ of earnings growth from productivity growth in the last fifty years in the United States. The chart shows average hourly wages in the non-farm business sector and productivity (measured as output per worker in the non-farm business sector) since 1950, indexed so that the values of wages and productivity are set to 100 in 1970 and the chart shows increases in each variable before and after this date. Up to the early 1970s, wages and productivity tracked each other almost exactly, but since around 1973 the two series have diverged, with wage growth being much slower than productivity. Between 1970 and 2020 productivity in the United States grew by around 170% in real terms whereas wages only grew by 60%.

Figure 8: Real Hourly Wages and Productivity (Output Per Hour) for Nonfarm Business Sector Workers, United States, 1950-2023 (indexed to 1970=100)

Section III: Social Reproduction: Impacts on Women and Children

Societies can, to a large degree, be judged by how they treat their most vulnerable populations – especially children. Similarly, the value given to social labor and to the work of social reproduction as compared to formal employment and economic activity is also telling as to the priorities of any system. Women and children do not fare particularly well, to say the least, under the current system of political economy in the United States.

“Women and children do not fare particularly well, to say the least, under the current system of political economy in the United States.”

A 2020 report from the National Coalition Against Domestic Violence offers some grim statistics, providing a snapshot of a society in which violence against women is endemic. One in five women (and one in forty men) in the United States are victims of rape or attempted rape during their lifetime. One in every four women in the United States have experienced physical or sexual violence from a partner in their lifetime. One in four women (compared to one in ten men) experience sexual violence, physical violence and/or stalking by an intimate partner during their lifetime with ‘IPV-related impact’ such as being concerned for their safety, PTSD symptoms, injury, or needing victim services. Approximately one in five female victims (and one in twenty male victims) need medical care due to incidents of sexual and/or physical violence from intimate partners. 23.2 percent of women and 13.9 percent of men have experienced severe physical violence by an intimate partner during their lifetime. (See Smith et al: The National Intimate Partner and Sexual Violence Survey: 2015 Data Brief - updated release, 2017.) Intimate partner violence is most common against women between the ages of 18-24. 19 percent of intimate partner violence involves a weapon. (See Morgan et al: Criminal Victimization, 2018.)

Infant Mortality Over Time

While improving in recent years, the United States still has one of the worst infant mortality rates of any advanced country – more than double many of its contemporaries in Europe. Infant mortality rates are a key indication of the functioning of health systems, as well as the broader social, economic, and environmental conditions in which communities live. Moreover, there is cause to be concerned that recent improvements in infant mortality may be slowing or even reversing.

Figure 9 shows data from the United States on infant mortality since 1990 (from the World Bank Development Indicators series). “Infant mortality” is defined as the total number of infant deaths per 100,000 live births. Infant mortality in the United States trended downwards between 1990 and 2021 before rising in 2022 – the first year-on-year rise for several decades.

Figure 9: Infant Mortality in the United States, 1990-2022

Maternal Mortality

The United States also has one of the worst maternal mortality rates among advanced countries, with around 33 mothers dying during childbirth for every 100,000 live births, a rate worse than that of many countries that are significantly less developed. And maternal mortality rates in the U.S. are on the rise.

Figure 10 shows data on maternal mortality for U.S. mothers, overall and by race, between 2018 and 2021. Overall, the data show an increase in maternal mortality from around 18 deaths per 100,000 births in 2018 to 33 in 2021. This continues a trend of increases since 1998, when the United States recorded a rate of 7 maternal deaths per 100,000 births (see Commonwealth Fund data). Before this, maternal mortality had fallen over several decades, from around 700 maternal deaths per 100,000 births in 1930. 

“The largest increase [in maternal mortality between 2018 and 2021] was for Black mothers, who started with a much higher rate in 2018 than other groups (around 36)...[and, by 2021, increased to] over 70.”

Maternal mortality increased for all race groups between 2018 and 2021. The largest increase was for Black mothers, who started with a much higher rate in 2018 than other groups (around 36). By 2021, maternal mortality for Black mothers was over 70 maternal deaths per 100,000 live births.

Figure 10: Maternal Mortality in the United States by Race, 2018-2021

Section IV: The American Dream: Getting Ahead or Falling Behind?

One of the ways in which economic inequality has been justified in the United States is through appeals to social mobility and equality of opportunity as foundational aspects of the ‘American Dream.’ No matter who you are or where you are from, the argument goes, if you pull yourself up by your bootstraps and work hard you can get ahead. Two of the principal mechanisms by which upwards social mobility is supposed to occur in the United States, according to the prevailing belief system, are education and homeownership. This powerful mythology, never really true for many, bears less and less resemblance to today’s reality, as these twin engines of upward social mobility have increasingly stalled for many.

Education Costs

Traditionally, higher education has been an important factor in individual social mobility and economic advancement, as well as general societal prosperity and development. For much of the country’s history, access to higher education was reserved for the wealthy. However, in the post-World War II period, the United States dramatically expanded access to higher education. Famously, the G.I. Bill allowed around nine million veterans returning from the war to get a college education. Universities expanded, enrollment surged, state and local governments invested heavily in public institutions to expand access, and universities (supported by government research funding) made significant technological and scientific breakthroughs. For these reasons, the period from 1945-1970 is sometimes referred to as the ‘Golden Age’ of higher education.

“It was not uncommon in the 1960s for a person to be able to pay for their entire year’s tuition and fees with a part-time summer job, or for parents with a blue-collar job to be able to afford a child’s tuition by saving a few weeks of their salary.”

A big factor in this increased accessibility was affordability. It was not uncommon in the 1960s for a person to be able to pay for their entire year’s tuition and fees with a part-time summer job, or for parents with a blue-collar job to be able to afford a child’s tuition by saving a few weeks of their salary. Since the 1970s, however, the average cost of undergraduate tuition has more than doubled when adjusted for inflation. This, combined with the wage stagnation experienced by many workers during the same period, has led to increasing levels of student loan debt, which in turn has further dampened economic prospects and social mobility. 

Figure 11 shows the increase in average annual costs of higher education, both in terms of tuition alone and as tuition fees, room and board, in 2022 prices.

Figure 11: Average Annual Cost of Higher Education, 1963-64 to 2021-22

Homeownership

Homeownership has, traditionally, been the primary mechanism by which most Americans build and maintain wealth. For the vast majority of Americans (those in the middle 60 percent), their homes make up around 62% of their total assets. This reveals a paradox that is at the heart of the systemic failure to address intergenerational inequality (especially racial inequality) in the United States. In order to purchase a home, a person needs access to a certain amount of wealth (for a downpayment, taxes, fees, etc.), but for most American families access to such wealth is only available through ownership of a home.

In 1968, President Johnson signed the Fair Housing Act into law, officially banning the practice of racial discrimination in the housing sector. It was widely assumed that this would narrow the homeownership gap between White people and families of color, providing additional opportunities for the latter to build wealth and access improved educational, health, and job opportunities. This did not come to pass. Since 1970, the homeownership rate (the percentage of households that are owner-occupied) for Black and Hispanic families has been virtually stagnant (and the gap between them and White families virtually the same) – with any gains almost entirely wiped out by the housing collapse and financial crisis of the late 2000s.

Figure 12 shows data from the U.S. Census Bureau on the proportion of adults in the United States who own their own home (either outright or with a mortgage) since 1965. The percentage of homeowners rose rapidly from the early 1990s to a peak of 69% in 2004 before falling rapidly during the subprime mortgage crisis and associated financial crash. In 2016 the proportion of homeowners had fallen to 63.4%, the lowest level since 1965. There has since been an increase to just under 66% in 2023 (with an upwards spike during the COVID-19 pandemic).

Figure 12: Proportion of Homeowners in United States, 1965-2023

Section V: Labor vs. Capital: A Fair Share?

Shares of National Income

The modest welfare state put in place in the United States before, during, and after World War II was predicated on a simple premise: allow enterprising American capitalism to produce economic growth and then clean up around the edges using government regulation to prevent corporate excesses and minimal redistribution through ‘after-the-fact’ taxation and public spending to spread the benefits more evenly throughout the population. This essential posture was at the heart of the political-economic settlement that dominated the United States in the so-called ‘Golden Age’ of American capitalism in the postwar period. Corporations would be allowed to flourish and generate profits for their shareholders, and in exchange the state would tax and regulate them to help provide funding for national programs (including defense) and a bare-bones safety net for the elderly, the sick, and the poor. 

During the postwar “boom” years, corporate taxation accounted for up to 30% of all federal tax receipts, and during the Eisenhower administration, the top tax rate on corporations was 52%. Many CEOs accepted this arrangement and considered the payment of taxes to be their patriotic national duty. However, starting in the early 1970s, this started to change. Spurred on by right-wing think tanks and conservative politicians, and driven by thinking such as that encapsulated in the infamous “Powell Memorandum” to the U.S. Chamber of Commerce, corporations began to agitate for lower tax rates and utilize loopholes and accounting tricks to hide their profits. This now includes the tactic of corporate inversions, where U.S. companies merge with a foreign competitor and then move their headquarters overseas to avoid U.S. taxes. Between 1970 and the present, as corporate pre-tax profits exploded, federal tax revenue from corporations remained relatively constant. In turn, this lack of revenue allowed (and continues to allow) conservative politicians to demand cuts to social programs and the safety net out of professed concern for a “balanced budget.”

Figures 13 and 14 show the share of labor (earnings plus payroll taxes) and capital (profits) in national income (GNI) from 1960 through 2022. The labor share increases during the 1960s, reaching a high point of 58.4% in 1970. It then declines (somewhat unevenly) over the next 50 years, reaching a low point of 52.2% in 2022.

Figure 13: Labor Share in U.S. National Income, 1960-22

Figure 14 shows that the share of profits in U.S. national income fell from a high point of 25.7% in 1965 to 20.3% in 1980 before recovering gradually to 25.5% in 2012. It then fell to 23.6% in 2019 before rising again in the early 2020s. 

Figure 14: Profit Share in U.S. National Income, 1960-2022

Figure 15 shows corporate tax receipts as a share of corporate profits between 1960 and 2022. In the 1960s and 1970s, corporate taxes accounted for between 35% and 45% of corporate profits. The share of corporate taxes in profits then fell over the subsequent four decades. Since 2017, corporate taxes have accounted for less than 20% of corporate profits each year – a very substantial reduction since the 1970s.

Figure 15: Corporate Tax Receipts as a Share of Corporate Profits, 1960-2022

Top Individual Tax Rate

Another feature of the postwar economic settlement was high taxation rates on the top earners. This was critical to driving down income inequality during these years and limiting the hereditary accumulation of wealth. In the 1950s and early 1960s (during the Truman, Eisenhower, and Kennedy Administrations), the top tax rate on individuals was as high as 92%, higher than it was during World War II. By 1969, it was still at 77%. Since then, however, it has fallen precipitously, with the biggest drops coming in the 1980s during the Reagan administration as part of the now discredited program of “trickle-down economics,” which posited that by cutting taxes on the rich, their increased income would work its way down to the middle and lower classes. However, as billionaire investor Warren Buffet recalls, “During this period, the tsunami of wealth didn’t trickle down. It surged upward.”

“Since [1969, the top tax rate on individuals] has fallen precipitously, with the biggest drops coming in the 1980s during the Reagan administration as part of the now discredited program of ‘trickle-down economics’...as billionaire investor Warren Buffet recalls, ‘During this period, the tsunami of wealth didn’t trickle down. It surged upward.’”

Figure 16 shows the top (federal) U.S. marginal income tax rate between 1950 and 2024. In the early 1960s the top marginal tax rate was over 90%. It then fell substantially in the 1970s and 1980s to a low of 28% in 1988. Since 1993 the top marginal tax rate has fluctuated between 35% and 40%.

Figure 16: Top Federal Income Tax Rate, 1950-2024

Labor Union Density

Another key feature of the post-war economic settlement was the role of labor unions as a “countervailing” force (to use John Kenneth Galbraith’s famous term) to the power of business generally, and large corporations in particular.

Union membership surged during the New Deal and World War II as a result of intense organizing and supportive public policies. By 1954, union membership rates hit a high of around 34.7% (of nonagricultural workers). While the concept of an explicit or implicit agreement or accord between the labor movement and corporate America during the 1950s and 1960s is controversial among scholars, unions did not face the same level of repression as in the early part of the 20th century and in many industries became accepted parts of the economic landscape. These high (for the United States) rates of unionization are associated with the decreased economic inequality of this period, as union jobs came with better pay, benefits, and working conditions. Unions also played a pivotal role in many of the progressive legislative successes of the period, including landmark civil rights and the environmental laws. 

Since the 1970s, however, political attacks on labor unions by businesses and their allies in government have continued to increase. In 1981, Ronald Reagan broke a strike by PATCO, the air traffic controllers union, ushering in what many observers have described as a new antagonistic era of labor-business-government relations in the United States. In recent years, attacks have escalated, especially at the state level and on public sector unions. 

Figure 17 shows data on union density in the United States between 1970 and 2023. In 1970 around 25% of U.S. workers belonged to a union. This proportion has fallen consistently over the last fifty years, although the pace of decline has leveled off in recent years. By 2020, union membership was around 10% of all employees. It is just 6% in the private sector.

Figure 17: Labor Union Membership (percentage of all employees), United States, 1970-2023

  • image|Figure 17.2

    Figure 17.2 shows union density in the United States compared to a range of other countries using OECD data. The United States has the sixth lowest percentage of union members in the workforce of the 33 countries included in the chart.

  • image|Figure 17.3

    The Bureau of Labor Statistics has published data on the proportion of adults who are employed, unemployed (seeking work) and inactive (retired, or not seeking work for other reasons such as family commitments or disability) in the United States since the 1950s. Figure 17.3 shows the trends in employment, unemployment and inactivity each year between 1955 and 2023. The chart shows that the employment rate was relatively stable between 1955 and 1975 at around 57%, then rose through the late 1970s, 1980s and 1990s to reach a high point of 64.4% in 2000 before falling to 58.5% in 2010, recovering slightly over the 2010s and then falling to below 57% during the COVID-19 pandemic. In 2023 the employment rate was 60.3%. Unemployment was around 4-5% during the late 1950s and 1960s, rose during the 1970s and early 1980s to a peak of around 10% then reduced during the 1990s, reaching a low point of 4% in 2000 before rising in the wake of the ‘dot com’ crash and then the Great Financial Crisis in 2008-09. By 2010, unemployment was at almost 10%. It has since fallen to a low of 3.6% in 2023 (with the exception of an upward spike during the COVID pandemic). Inactivity was at around 38% to 40% of adults in the 1950s and 1960s, fell to around 30% in the 1990s, and then rose again – to around 36% in the early 2020s.

  • image|Figure 17.4

    Figure 17.4 shows average hours of work per year for working adults in the United States from 1950 to 2019 using data from the Penn World Table compiled by researchers at the University of California Davis and the University of Groningen in the Netherlands. Unfortunately, the latest update of this data series only goes up to 2019 and so does not cover the impact of the COVID-19 pandemic or its aftermath on hours of work.

    Figure 17.4 shows that average annual hours of work trended downwards in the 1950s, 1960s and 1970s before stabilizing at around 1,800 hours per year in the 1980s and then rising in the 1990s to around 1,850 per year in 2000. There was then a fall to around 1,730 hours per year in 2008, followed by a gradual rise to around 1,770 per year in 2018-19. Note that this statistic includes full and part-time workers so average hours of work could be affected by the overall composition of the U.S. workforce in terms of full-time versus part-time workers. Also, this is an average for people in work – and does not include the unemployed or inactive – so compositional effects due to changing employment rates could also affect the average.

Section VI: Health and Wellbeing

The American healthcare system is famously the most expensive in the world, yet it delivers generally poor outcomes when compared with other high-income countries. Although a staggering $4.8 trillion was spent on healthcare in 2023 (nearly a fifth of total U.S. GDP), on common indicators of health system functioning, like maternal and infant mortality rates (see Section III above), the United States fared relatively poorly.

The rising cost of healthcare in general – and of pharmaceuticals in particular – has recently become a major political issue. Yet, despite concerted attention from both political parties – from the enactment during the Obama Administration of the Affordable Care Act to the elimination of the individual mandate to the Inflation Reduction Act (IRA) provisions for drug price negotiations by Medicare – total healthcare costs continue to rise. The rising cost of U.S. healthcare has led to tens of thousands of personal bankruptcies as the result of medical debt (disproportionately affecting people of color), and to millions of Americans forgoing or delaying treatment due to cost. It has also led to worsening overall health outcomes and contributed to ongoing health disparities. 

“The rising cost of U.S. healthcare has led to tens of thousands of personal bankruptcies as the result of medical debt (disproportionately affecting people of color), and to millions of Americans forgoing or delaying treatment due to cost.”

Figures 18 and 19 show the increase in healthcare costs in the United States since 1960. Figure 18 shows healthcare expenditure per capita in real terms (2022 U.S. dollars) while Figure 19 shows healthcare expenditure as a percentage of U.S. GDP. Measured on a per capita basis, U.S. healthcare expenditure rose by a factor of around nine times between 1960 and 2022 – from $1,505 to $13,488.  There was a steady upward increase in every year except for 2020-2022 (when expenditure spiked due to COVID-19).

Figure 18: U.S. Healthcare Expenditure Per Capita, 1960-2022 (real terms, 2022 U.S. dollars)

  • image|Figure 18.2

    Figure 18.2 compares health expenditure as a share of GDP in the United States with other countries using OECD data. The United States has the highest expenditure as a share of GDP by a wide margin – more than 4 percentage points higher than Germany and France, which were the second and third highest spenders as a proportion of GDP in 2022.

  • image|Figure 18.3

    Figure 18.3 compares data on life expectancy at birth across OECD countries. Given that the United States spends considerably more on healthcare as a percentage of GDP than any other country in the OECD data, we might expect its life expectancy outcomes to be world-leading. In fact, the opposite is the case; the United States has the second lowest life expectancy of the 38 countries in the OECD dataset. Only Latvia has a lower life expectancy. South Korea has a life expectancy eight years longer than the United States despite having healthcare spending 7 percentage points lower.

  • image|Figure 18.4

    Figure 18.4 shows trends in life expectancy for men and women since 1950 in the United States using data from the Centers for Disease Control. For the overall adult population the results show a steady upward trend in life expectancy from 68.2 in 1950 to 78.7 in 2011. Over the 2010s life expectancy was static at just under 79 years. Data for the 2020s show a substantial fall in life expectancy between 2019 and 2021 (to 76.4) due to the COVID-19 pandemic, followed by a partial rebound to 77.5 in 2022. Women’s life expectancy was around 7.5 years longer than men’s in 1970; over the ensuing half century the gap in life expectancy between the sexes closed to some extent. By 2019 women’s life expectancy was around five years longer than men’s. The COVID-19 pandemic affected men slightly more than women; men’s life expectancy fell from 76.3 in 2019 to 74.8 in 2022, while women’s life expectancy fell from 81.4 in 2019 to 80.2 in 2022.

  • image|Figure 18.5

    Figure 18.5 shows life expectancy for White and Black (non-Hispanic) people since 1950. In 1970 the White-Black gap in life expectancy was almost eight years. This gap closed partially over the following forty years until in 2019 life expectancy for White people was 79 years compared to 75.5 for Black people – a gap of 3.5 percentage points. COVID-19 had a more severe impact on the Black population than the White population; in 2021 the White-Black gap in life expectancy expanded to 5.5 percentage points, and only a small proportion of the additional gap was closed in 2022.

Figure 19: U.S. Healthcare Expenditure as a Percentage of GDP, 1960-2022

Section VII: Climate Change

Climate change remains one of the most pressing planetary challenges, representing an increasingly existential threat to human civilization and to the future of an organized global community. Without rapid climate mitigation, future generations will inhabit a planet that is far different and far less hospitable than we do.

The required action on climate is by definition international in scope. However, the response of the United States in particular to the climate threat is important for a number of reasons. America is home to many of the fossil fuel corporations responsible for both significant carbon dioxide emissions and for blocking or stalling national and global efforts to address climate change. For decades (until 2005) it was the top global emitter of CO2 and it has previously been reluctant to join international efforts to address climate change. Environmentalist James Gustave Speth has documented half a century of U.S. federal government inaction on the matter in his 2022 book They Knew: The U.S. Federal Government’s Fifty-Year Role in Causing the Climate Crisis – what he calls “the greatest dereliction of civic responsibility in the history of the Republic.”

“While CO2 emissions around the world continue to rise, in the United States they have leveled off and begun to fall as a result of the transition towards both natural gas and renewable energy.
”

While CO2 emissions around the world continue to rise, in the United States they have leveled off and begun to fall as a result of the transition towards both natural gas and renewable energy (along with more fuel-efficient cars and energy conservation efforts). In the 2020 presidential race Joe Biden made urgent climate action one of the centerpieces of his election campaign, running on what the World Resources Institute called “the most ambitious climate action platform of any major presidential candidate in U.S. history.” Under the Biden Administration, massive federal interventions like the Inflation Reduction Act (IRA) sought to channel hundreds of billions of dollars into decarbonization, the most comprehensive U.S. climate legislation there has ever been. And yet, it remains the case that the United States – like much of the rest of the world – is still falling short in failing to take anywhere near ambitious enough action on climate given the magnitude of the green transition that is actually required: what climate scientist Joachim Schellnhuber has termed “an induced implosion of the carbon economy” over the next two decades. At the same time, the historical legacy of U.S. emissions (and the continued rise in emissions worldwide) has led to steadily increasing average temperatures in the United States. Worldwide, 2023 was the warmest year on record, according to the U.S. Environmental Protection Agency (EPA).

Figure 20 shows a cross-country comparison of Greenhouse Gas Emissions (GHGs) measured in kilograms per head of population for 38 OECD countries (plus the average for the 27 European Union countries). In 2021 the United States had the second highest GHG emissions per capita, with only Australia having higher per-capita emissions. 

EPA data on total U.S. GHG emissions since 1990 (measured as millions of tons of CO2-equivalents show that domestic U.S. emissions peaked in 2007 and have fallen most years since then (although they spiked upwards from 2020 to 2021 as the U.S. recovered from the onset of the COVID-19 pandemic). Note however that this only measures domestically produced emissions; it does not include emissions produced in the manufacture of goods or commodities imported by U.S. consumers or producers. If these were included, the overall figure for the U.S. “carbon footprint” would be much higher.

Figure 20: Cross-Country Comparison of Greenhouse Gas Emissions Per Capita, 2021 (or most recent year)

Section VIII: Violence and the Carceral State

The United States remains an incredibly violent country, with a high murder rate and a high level of state violence and mass incarceration. Quite apart from the consequences on individuals, families, and communities, there is also a serious impact on democracy, as the passage of more and more people through the prison system, including through racialized policies toward custodial sentences for nonviolent drug offenses, results in high levels of democratic disenfranchisement, especially among minority populations.

The Carceral State

One of the most astonishing international comparisons is the prison population rate (the number of prisoners per 100,000 people). Simply put, the United States has the highest prison population rate in the entire world (not just among other OECD countries).

For much of the twentieth century, the U.S. incarceration rate – the number of people imprisoned per 100,000 residents of all ages – remained relatively constant, in the 120-200 range. However, beginning in the 1970s incarceration rates began to skyrocket. This was due to a number of policy decisions, including the ramping up of the drug war (and increasing prison time for drug offenders), “three strikes” laws (long prison sentences for repeat offenders), and “truth in sentencing” laws (reductions in early release). These laws continued to be enacted, and the prison population continued to rise, despite reductions in crime rates.

“The policies enabling mass incarceration were economically motivated and had clear racist intentions.”

For many observers, the policies enabling mass incarceration were economically motivated and had clear racist intentions. “When African-Americans said we refuse to work as, basically, semi-slave laborers with no voting rights and no protections, and my generation said ‘we’re not going to do that work our parents did,’ then employers started bringing undocumented immigrants into the country to work with no rights and no protections, and when the government said ‘well, what are we going to do with all these young folks’ – like me – ‘who don’t want to do this kind of semi-slave work?’ they didn’t reform the economy, they said ‘let’s lock’ em up,’ and we got mass incarceration,” argues J. Phillip Thompson III. 

The incredibly high U.S. prison population is driven by a racialized incarceration system that imposes long sentences for relatively minor crimes (mandatory minimums) and repeat offenders. Moreover, unlike prison systems in many other advanced countries, the U.S. system is severely lacking in programs and policies designed to rehabilitate prisoners (such as education and drug and alcohol treatment programs. Moreover, it is incredibly difficult for prisoners, once released, to obtain employment, housing, or social services. As a result, it is estimated that around 75% of released prisoners are reincarcerated within five years.

This system of mass incarceration results in tremendous social and economic costs as entire communities are often caught up in a multigenerational cycle of family separation, crime, trauma, and imprisonment. In recent years, the total incarceration rate has begun to slowly decline. While this is positive, there is a long way to go to return to historical levels, and the United States continues to have the highest incarceration rate in the world.

Figure 21 shows the overall incarceration rate for the United States since 1970 using data from a number of sources. The rate is defined as the number of prison inmates per 100,000 population. The incarceration rate rose rapidly in the 1980s and 1990s before leveling off and then falling (slightly) after 2010.

Figure 21: United States Incarceration Rate, 1970-2021

  • image|Figure 21.2

    Figure 21.2 shows a comparison of incarceration rates across a range of different countries using data from the Institute for Crime and Justice Policy Research’s World Prison Population List (13th edition). The United States had the highest incarceration rate of any country in the world database – higher than Rwanda, Turkmenistan, El Salvador, and Cuba, which were the four countries with the next highest incarceration rates.

Homicide

When it comes to violent deaths, the United States is in a different league compared to most other OECD nations. Figure 22 shows data from the Macrotrends website (compiled from Centers for Disease Control NVSS data) for the homicide rate (number of homicides per 100,000 population) in the United States on a consistent basis between 1990 and 2021. The homicide rate fell precipitously during the 1990s and then more slowly between 2006 and 2014 before rising in the second half of the 2010s and start of the 2020s to levels last seen in the late 1990s (around six homicides per 100,000 population).

Figure 22: U.S. Homicide Rate, 1990-2021

Democratic Disenfranchisement

One prominent feature of mass incarceration in America is the consequent widespread democratic disenfranchisement. The Sentencing Project has produced a detailed account of the number of U.S. citizens denied voting rights due to felony convictions (current or previous). The key findings from the Sentencing Project’s Locked Out 2022 report include the following: 

  • In 2022, an estimated 4.4 million Americans – one in fifty adult citizens, representing 2% of the voting age population – were ineligible to vote due to restrictive laws or punitive policies, many of which date back to the Reconstruction era.

  • Three out of four disenfranchised people are living in their communities, having fully completed their sentences or remaining supervised while on probation or parole. 

  • In two states – Alabama and Tennessee – more than 8% of the adult population, one in every 13 adults, is disenfranchised. Florida is the nation’s disenfranchisement leader in absolute numbers, with over 1.1 million people currently barred from voting, often because they cannot afford to pay court-ordered monetary sanctions. An estimated 935,000 Floridians who have completed their sentences remain disenfranchised, despite a 2018 ballot referendum that promised to restore their voting rights.

  • One in nineteen African Americans of voting age is disenfranchised, a rate 3.5 times that of non-African Americans. Among the adult African American population, 5.3% are disenfranchised compared to 1.5% of the adult non-African American population. In seven states – Alabama, Arizona, Florida, Kentucky, South Dakota, Tennessee and Virginia – more than one in ten African American adults is disenfranchised.

  • Although data on ethnicity in correctional populations are unevenly reported and undercounted in some states, a conservative estimate is that at least 506,000 Latinx Americans (or 1.7% of the voting-eligible population) are disenfranchised.

Note that the estimates from the Sentencing Project do not include effective disenfranchisement for other reasons (e.g. state voter ID rules, restrictions on mail-in ballots, closure of polling stations). They also do not include the impact of gerrymandering (e.g. politically-motivated redrawing of congressional election boundaries) or attempts to overturn elections through violent coercion or other means (as happened after the 2020 presidential election). 

Figure 23 shows estimates of the number of people disenfranchised in the United States due to a felony conviction. The total number of disenfranchisements increased from around 1.2 million in 1976 to a peak of 6.1 million in 2016 before falling to 5.2 million in 2020 and 4.4 million in 2022 as some states eased their restrictions.

Figure 23: Estimates of the Number of People in the United States Disenfranchised due to a Felony Conviction, 1960-2022

Section IX: Legitimation Crisis

Since the early 1970s, there has been a slow but steady erosion of public confidence in some of the key institutions of the United States’ democratic system. Significant political challenges emerge when people begin to lose belief in the things that once mattered most – especially the performance of the system with regard to professed historic values such as liberty, equality and democracy that are supposed to have given meaning to American democracy from the beginning.

The United States is clearly in the throes of what political scientists have termed a “legitimation crisis” – an era in which the values it affirms are contradicted by the profound reality of so many important societal trends moving in the opposite direction. Over the last several decades, popular opinion regarding the condition of democracy has shown a dramatic decline amidst decaying trust and faith in U.S. political institutions. Many Americans now feel that their elected officials are more influenced by major campaign contributors than what is best for the country; that they don’t have much say in what the government does; and that members of Congress are more interested in serving special interests than their constituents. Public confidence in specific democratic institutions such as the Supreme Court, the Presidency, and Congress has fallen considerably.

“Over the last several decades, popular opinion regarding the condition of democracy has shown a dramatic decline amidst decaying trust and faith in U.S. political institutions.”

Trust in Institutions Over Time

The polling company Gallup has run a series of questions asking survey respondents what degree of trust they have in a wide range of political and non-political institutions in the United States, going back as far as 1973.

Figure 24 shows results for the proportion of respondents expressing “very little” or “no” confidence in the three most important government institutions in the United States – the presidency, Congress, and the Supreme Court – since 1973. The results show an upward trend in lack of confidence (i.e. a falling trend in confidence) in the presidency from a high point of confidence where only 12% had little or no confidence in the presidency in 2002 (in the immediate aftermath of 9/11). The proportion with little or no confidence in the presidency rose to 48% at the end of the George W. Bush Administration, declined to 23% in 2009 in the first year of the Obama Administration, then rose to 44% in 2014. The proportion with little or no confidence rose to 47% in the first year of the Trump Administration in 2017, then fell back to 37% in 2020 (during COVID-19) and 33% in the first year of the Biden Administration. In the second year of the Biden Administration (2022), the proportion of respondents with very little or no confidence in the presidency hit an all-time high of 49%.

Meanwhile, the proportion with very little or no confidence in Congress climbed from 14% in 1973 to 37% in 1993 (the first year of the Clinton Administration). It then fell to 17% in 2002 before rising to 57% in 2014, and 57% (again) in 2022. The proportion with very little or no confidence in the Supreme Court was below 20% every year between 1973 and 2006. In 2007, and then again in 2012-16, the proportion with very little or no confidence in the Supreme Court climbed above 20%. The proportion then rose rapidly to 31% in 2022 and 35% in 2023, in the wake of the Court’s decision to overturn the Roe v. Wade abortion judgment, leading to abortion bans in a number of U.S. states.

Figure 24: Proportion of Respondents with “Very Little” or “No” Confidence in Key Federal Political Institutions, United States, 1973-2023

Figure 25 shows equivalent figures for other key U.S. institutions outside of formal politics in the United States: big business, newspapers, the military, and the police. The results show that the military and the police have the highest levels of confidence in recent decades (although the proportion of respondents with little or no confidence in the police has trended upwards since the mid-2000s, to almost 20% in 2000). There has been an increasing lack of confidence in newspapers since the early 2000s; by 2023, 45% of respondents had little or no confidence in this media source. (The proportion of respondents with little or no confidence in internet news – which has only been surveyed in 1999, 2015 and 2017 – was 47% in 2017, up from 25% in 1999). The proportion of respondents with little or no confidence in big business has been trending upwards (albeit with some volatility year-to-year) since the early 2000s. In 2023, 43% of respondents had little or no confidence in big business. (The equivalent figure for big technology companies, which Gallup has only been asking about since 2020, was that 30% have little or no confidence in them).

Figure 25: Proportion of Respondents with “Very Little” or “No” Confidence in Other Institutions, United States, 1973-2023

  • image|Figure 25.2

    Figure 25.2 shows a cross-country comparison of the percentage of respondents with trust in the government across 40 OECD countries. The US has the seventh lowest proportion of the adult population trusting the government, ahead of only Lithuania, Colombia, Latvia, Chile, Greece, and the Slovak Republic.

Section X: Military Empire

The United States plays a leading role in exporting violence around the world. Between the end of World War II and the end of the twentieth century, America “intervened” covertly or overtly in dozens of countries (and often the same country multiple times). These include (but are not limited to): Iran, China, Greece, Korea, Vietnam, Guatemala, Lebanon, Panama, Haiti, Congo, Cuba, Laos, Ecuador, Dominican Republic, Cambodia, Chile, El Salvador, Nicaragua, Grenada, Honduras, Libya, Iraq, Somalia, Bosnia, Serbia, Sudan, and Afghanistan. The twenty-first century has already seen the longest war in American history (Afghanistan), the disastrous invasion of Iraq, interventions in Libya and Syria, extensive drone strikes in Pakistan and Yemen, and many more. Most recently, the United States has been the chief backer of both Ukraine in its war with Russia (following the latter’s 2022 invasion) and Israel in its massively destructive campaign against the Palestinians in Gaza. Recent estimates suggest that the United States now has around 750 military bases and facilities in 80 foreign countries – at least three times as many overseas bases as all other countries combined, a truly globe-spanning military presence.

Famously, the United States spends more on its military than do the next seven countries put together (China, Russia, Saudi Arabia, India, France, the United Kingdom, and Japan). With war in Ukraine and Palestine, and tensions mounting all around the world, there has been renewed attention, at home and abroad, to the United States’ vast military empire. There is also renewed attention to U.S. overseas military aid – particularly ongoing American weapons supplies to Israel against the backdrop of widespread international criticism and credible allegations of breaches of international law, war crimes, and crimes against humanity in Gaza. 

“In pure dollar terms, the United States now accounts for 42% of all international arms sales, substantially higher than the next two countries on the list (Russia and France, with 11% each) combined.”

The United States is one of the world’s leading weapons exporters, helping to fuel conflicts, sustain illegal occupations, and bolster repressive governments around the world. In pure dollar terms, the United States now accounts for 42% of all international arms sales, substantially higher than the next two countries on the list (Russia and France, with 11% each) combined. 

It is worth noting that despite the scale of U.S. military spending it does not have the same domestic economic importance as was once the case. Careful examination of American economic performance over the course of the twentieth century reveals a recurring tendency towards secular stagnation, the product of chronic insufficient demand, with only the repeated intrusion of war and Cold War (together with the serial inflation of asset price bubbles in recent decades) serving repeatedly to rescue the U.S. economy from contraction and slump. Today, the American economy overall is so large that even the bloated U.S. defense budget cannot play this role – of so-called “Military Keynesianism” – in providing macroeconomic stimulus in an era in which sluggish growth and economic decay threaten to become the norm, with minor upticks punctuating the faltering longer-term trend.

Figure 26 shows U.S. defense spending as a percentage of Gross Domestic Product since 1972 (from the National Income and Product Accounts). Defense spending fell as a share of GDP from between 7% and 8% in the mid-1980s to around 4% in the late 1990s, before rising again to just over 5% in 2010. In the 2010s defense spending declined, falling to 3.6% of GDP in 2023.

Figure 26: Defense Spending Over Time

  • image|Figure 26.2

    Figure 26.2 shows data for the top 25 arms-exporting countries in the world (in terms of value of total sales) for their share of global arms exports in 2019-23 (and, for comparison, earlier data for 2014-18). The United States was the top country for weapons exports by a huge margin in 2019-23 (and in 2014-18). In 2019-23, the United States accounted for 42% of total weapons exports. The second largest exporters, France and Russia, accounted for 11% each.

Section XI: Financialization

The vast wealth of the United States’ economy is not experienced as such by many if not most Americans. GDP may increase, the stock market may rise, but for many there is a growing squeeze on incomes and an accumulating consumer debt burden. We see this in the financial fragility of so many American households: in the Federal Reserve’s Economic Well-Being of U.S. Households in 2023 report, 37% of all adults, faced with a hypothetical unanticipated expense of $400 (such as a car repair or a modest medical bill), said they would have paid by borrowing or selling something or said they would not have been able to cover the expense. In her recent book, Wealth Supremacy, Marjorie Kelly points to the condition of asset poverty of the two in three Americans who have next-to-nothing to fall back on in case of an emergency.

There is clearly an explanatory gap between the headline performance of the U.S. economy and the household data, as well as what most Americans report to polling companies regarding their individual economic position and the financial stresses and worries they carry. Part of the explanation for this gap is the somewhat hidden economic process of financialization, by which financial flows are diverted away from production and consumption toward asset markets in the pursuit of capital gains.

“In today’s capital gains economy, the lion’s share of the benefits are reaped by existing asset-holders – the already wealthy – and extracted from the rest.”

A study of the National Income and Product Accounts (NIPA) by a team of economists (Michael Hudson, Dirk Bezemer, and Howard Reed) for The Democracy Collaborative concluded that the United States has become what they term a “capital gains economy” fueled by debt-financing, and that it is important to look at “total returns” (calculated by the addition of capital gains to ‘earned’ income) rather than GDP, as the former is concentrated in the hands of the richest 10 percent of Americans, the distinguishing feature of present-day U.S. finance capitalism: “asset price gains dwarf incomes in the real economy. This financial reality of how the U.S. economy works is no longer captured in GDP statistics.” 

In almost every year they looked at, asset-price gains in the FIRE sector – Finance, Insurance, and Real Estate – far outpaced the gains (or shrinkage) in reported GDP. (See Michael Hudson, “Rent-Seeking and Asset-Price Inflation: A Total-Returns Profile of Economic Polarization in America,” Review of Keynesian Economics, Vol. 9 No. 4, Winter 2021, pp. 435-460.) In current economic data, the growing wealth and income of the FIRE sector are added to GDP as economic growth, even though they in fact take the form of a steepening liability for households and businesses in the rest of the economy, leaving less income for consumption or productive investment. “This financialized overhead is not real growth,” Hudson argues. “It does not make the economy richer.” Instead it manifests as asset-price inflation (capital gains), and as the offsetting debt burden that must be paid back: a subtrahend from, rather than addition to, the wealth of the rest of the U.S. economy.

This goes a long way to explaining the squeeze-play by which headline growth and economic expansion in the United States is experienced as stress and contraction by most of the population. In today’s capital gains economy, the lion’s share of the benefits are reaped by existing asset-holders – the already wealthy – and extracted from the rest. This takes a particularly racialized form given who, historically, has accumulated assets in America, and who has not.

Asset Inequality and Debt by Race

The following charts in this section use data from the U.S. Survey of Consumer Finances to show the average (median) assets, debts, and net worth by race. 

Figure 27 shows the average value of all assets (including financial assets such as equities and bonds, and non-financial assets – mainly housing) for White non-Hispanic, Black non-Hispanic, Hispanic, and Other households. Note that the median value of assets in Figure 27 (and the other Figures in this section) is measured in real terms in thousands of U.S. dollars. The median assets for White households have increased from around $225,000 in 1989 to around $425,000 in 2022 (with strong growth in the 1990s and early 2000s, then a reduction after the Great Financial Crisis of 2008, then a rebound after 2013). For Black and Hispanic households, the increase in median assets is much smaller and the patterns less consistent over time.

Figure 27: Median Assets by Race of Household (all assets), 1989-2022

  • image|Figure 27.2

    Figure 27.2 shows median financial assets by race of household members. There has been a much greater increase in the financial assets of White households between 1989 and 2022. For Black and Hispanic households, financial assets were barely higher in 2022 than they were in 1989.

  • image|Figure 27.3

    Figure 27.3 shows median non-financial household assets (mainly primary residence) by race. There were relatively strong gains in median non-financial assets for all groups across the period 1989-2007, followed by substantial falls in asset values in 2007-2013 and then a rebound after 2013.

Figure 28 shows median debt levels by race. There were substantial increases in debt levels for each group over the period, with debt more than doubling in real terms for each group.

Figure 28: Median Debt by Race, 1989-2022

Finally in this section, Figure 29 shows median household net worth (defined as total assets minus total debt) by race. The median net worth of each race group increased between 1989 and 2007, then fell after the Great Financial Crisis, then rose again after 2013. By 2022, median net worth for White households was around $280,000 compared to around $40,000 for Black households, $60,000 for Hispanic households and $160,000 for households of other races.

Figure 29: Median Household Net Worth by Race, 1989-2022

Capital Gains and Financialization

In recent decades the gains from financial asset appreciation (equities and bonds) in the U.S. economy have outpaced gains in income (gross national income or gross domestic product) and nonfinancial assets (such as buildings and land) as the financialization of the economy has gathered pace.

Figure 30 shows the total value of financial assets and nonfinancial assets in the United States as a percentage of GDP for each year from 1945 to 2022 using data from the Federal Reserve’s Z1 data release. The data show a huge increase in the total value of financial assets from around 600% of GDP in 1980 to over 1300% of GDP during the COVID-19 pandemic of 2020-21. Meanwhile, the total value of nonfinancial assets as a percentage of GDP was reasonably stable between around 1960 and 1995 at approximately 400% of GDP, then rose in the lead-up to the subprime mortgage crisis of the mid-to-late 2000s, then again in the 2010s to reach over 530% by 2022.

Figure 30: Financial and Nonfinancial Assets as Percentage of U.S. Annual GDP, 1945-2022

Figure 31 shows data for the share of the U.S. financial services sector as a percentage of annual GDP between 1970 and 2022. There is a discontinuity in the series because the National Income and Product Accounts (NIPA) only publishes this data from 2000 onwards using the 2008 System of National Accounts (SNA) classification. The Organisation for Economic Cooperation and Development (OECD) publishes historical data using the earlier 1993 SNA classification. Combining the two data series enables us to see that the financial services sector increased from 20% of GDP in 1970 to between 30% and 35% in the 2000s.

Figure 31: U.S. Financial Services Sector as Percentage of U.S. Annual GDP, 1970-2022

The machine of capital extraction powered by financialization, as seen above, is the locus of the production of inequality in today’s U.S. economy. As Hudson puts it: “The financial sector’s returns are best seen not as real wealth on the asset side of the balance sheet, but as overheads on the liabilities side… income accruing to the financial wealth owned by the top 10 percent is paid mainly by the bottom 90 percent in the form of rising debt service and other returns to financial and other property.” As the rest of the economy increasingly pays into the FIRE sector, and as the payouts from the FIRE sector are more concentrated than those from the economy as a whole, inequality increases. Given the spread of assets and debt, this inequality also takes racialized forms.

Conclusion: A Next System?

The data in this second edition of the Index of Systemic Trends present a somewhat bleak prospect for anyone concerned with the civic health of the United States and its performance regarding proclaimed values of liberty, equality, and democracy. Across a range of important indicators the outcomes of the present system for most Americans have largely been failing to improve or getting steadily worse in real terms for an extended period.

As has been evident since the first edition of the Index in 2019, the United States faces a deep, ongoing, persistent, and multi-faceted crisis of the political economy as a whole – a systemic crisis. Although there have been some significant policy interventions and attempted course corrections over the past five years, they have not been of a scale or magnitude sufficient to change the overall trajectory or course of national development that can be seen in the long-run trends we have assembled.

Broken By Design

“A political economy is a system, and our system is programmed not to meet basic needs but to prioritize the generation of corporate profits, the growth and concentration of asset ownership and capital gains, and the projection of national power.”

While in some respects these persistent negative outcomes can be considered a failure, a breakdown, a fracturing of previous social and political settlements, from another vantage point it is the perfectly predictable operation of today’s actually existing U.S. political economy – corporate capitalism. A political economy is a system, and our system is programmed not to meet basic needs but to prioritize the generation of corporate profits, the growth and concentration of asset ownership and capital gains, and the projection of national power. 

The institutional arrangements at the heart of today’s American capitalism – private ownership, credit creation by banks, global capital markets, giant publicly traded corporations – together form the most powerful engine for the extraction of value the world has ever seen. It is this set of relationships, this basic institutional design, that drives the outcomes we are seeing in terms of crumbling public infrastructure, social atomization, uneven development, environmental destruction and a widespread sense of popular disempowerment.

In today’s U.S. economy, plutocratic power dominates government decision making through lobbying and political contributions. Income and wealth inequality are increasing to levels not seen in decades, as workers and households find their financial position growing ever more precarious. This is an economy of monopoly power, with a small number of big players in each key sector – energy, finance, food, technology – dominating their markets and able to rip off both customers and suppliers with impunity. Everywhere in this economy wealth and power flow not downwards to ordinary people but upwards to economic elites, who make their vast wealth not by producing goods and services that are useful to others but through their ownership and control of assets. This ‘capital gains economy’ is built around extracting wealth from others, rather than the creation of new real wealth. The same logic applies to the unsustainable extraction of natural resources, pushing us ever closer towards ecological ruin. 

It follows that, if we are serious about addressing the challenges we face, we need to address the nature and basic operations of the system itself. We need to move to a different set of institutions and core economic arrangements capable of producing sustainable, lasting, and more democratic outcomes – a new paradigm, a democratic economy in support of a democratic polity.

Changing the System?

“A new political settlement will require reparation for past harm, without relying on growth, and without causing a fascist backlash through vast redistribution, but with majority democratic support for the program. The landing zone for accomplishing all of this at once is somewhat narrow and circumscribed.”

What would a systemic response to the crisis even look like? In analytical terms, we might look to identify the hard constraints of our overlapping crises such that the “landing zone” for effective remedial action becomes clear. In broad-brush terms, it should be possible to delineate the magnitude of the required transition. Focusing on Janet Yellen’s longer-run triple crisis of economic inequality, environmental collapse, and racial injustice, there is a very severe challenge if we are to strike simultaneously at all three of them together:

  • The racial wealth gap in the United States is estimated at around $10 trillion – that’s wealth that has been extracted and stolen from and denied to communities of color – which is equivalent to around two-fifths of annual U.S. gross domestic product (GDP).

  • At the same time, we are currently consuming at a rate of throughput that is beyond regeneration and equivalent to 1.75 planet Earths. To get back within planetary boundaries and avert climate collapse, even with technological advances and “green growth” in some sectors, will inevitably require major cutbacks in consumption of some kind, however unpalatable.

  • Meanwhile, the economic inequality and stagnant median wages and living standards for so many pose the stark challenge of building a majoritarian political coalition that is both ‘predistributive’ and redistributive, without relying on growth – and at the same time delivering reparative justice, avoiding the pitfalls of reactionary politics, racialized division, and instincts to pull up the ladder by semi-privileged groups.

The intersection of these challenges presents a wicked problem in political economy terms. A new political settlement would require reparation for past harm, without relying on growth, and without causing a fascist backlash through vast redistribution, but with majority democratic support for the program. The landing zone for accomplishing all of this at once is narrow and circumscribed. It will likely require a shift in the ownership and control of capital that dwarfs even such radical previous episodes in history as the industrial revolution or the upheavals of the twentieth century, whilst seeking to do so peaceably, and on the basis of a rebuilding and reconstruction of community in democratic public life.

A Democratic Economy?

“There are things being done everywhere around the country, which, if you brought them together, add up to a mosaic that looks like a different system, building on what we know works already in this country.”
— Gar Alperovitz

This is clearly a heavy lift. But however daunting the scale of the challenge, we cannot allow ourselves to become seduced by the consolations of despair or resigned to fatalism and inaction. As Dee Ward Hock once said, “It’s far too late and things are far too bad for pessimism.”

Despite the adverse trends documented in this report, there are practical solutions to these systemic problems, if only we know how and where to look. A new and more democratic economy is already in the making, in communities all across America and around the world – most notably in the global south and in Black and Brown communities that have been serially excluded from conventional economic activity and growth in the United States. Driven by pain, and by the failure of conventional policies, such communities have been experimenting with mechanisms for local democratic economic self-determination and Community Wealth Building for generations.

This democratic economy in the making contrasts starkly with the present extractive economy designed to generate maximum financial returns and distribute them upwards. Instead, it comes from a pattern of popular exploration and experimentation, the result of an explosion of local innovation in response to the ravages of generations of extraction. “There are things being done everywhere around the country,” Gar Alperovitz points out, “which, if you brought them together, add up to a mosaic that looks like a different system, building on what we know works already in this country.” 

This vision of a democratic economy suggests the contours of a system capable of producing radically different outcomes by striking at the sources of America’s long-run failing trends. In important areas, the institutions and relationships are the polar opposite to those of today’s decaying system.

Principles of a New Political Economy

“Making a democratic economy is about consciously redesigning and rebuilding basic economic institutions and processes... so that their core functioning is designed to serve the common good.”

We need a new economic paradigm – a next system – beyond predatory, extractive corporate capitalism. This means a redesign of economic institutions and processes built around new core values. Making a democratic economy is about consciously redesigning and rebuilding basic economic institutions and processes – enterprises, investments, economic development, employment, purchasing, banking, resource use – so that their core functioning is designed to serve the common good.

To begin with, finance in the democratic economy is put back in the service of people, communities, and the planet. In this economy, labor comes before capital, and good decent work is a core social aim and source of individual development. Ownership is not concentrated but broad-based and widely shared – and stewardship is the basis of ownership, not exploitation. This is a real and not a financialized economy: all economic activity occurs in real places, and communities are able to take control of their own destinies. It is a collaborative economy, in which human flourishing occurs in healthy communities and a livable planet. This economy recognizes that we have only one planet, on which all life is interdependent and real ecological boundaries require limits to growth. Human development is the real face of freedom, requiring removal of unfreedoms such as poverty and the lack of opportunity. Government plays a big role in this economy, in a democratic and decentralized fashion – and it is recognized that our collective ability to govern ourselves is the bedrock of the good society. 

This economy is harder to imagine, perhaps because we’ve forgotten how to hope, how to demand. We’ve impoverished our imaginations, and as a result it is harder to imagine an economy in which, when we wake up each day, we can know that in and of itself the economy will produce better outcomes: greater equality, more democracy, healthier people and communities, a cleaner environment. It is harder to imagine – but not impossible. And more and more people are actively doing it.

An Explosion of Institutional Innovation

“Only certain pathways forward will deliver the fundamental changes in outcomes that are necessary. These must become the de facto contours of a possible, practicable, and desirable next system capable in and of itself of producing the better outcomes that we want as a result of its everyday operations.”

The fundamentals of this new direction are already emerging in an array of alternative models of ownership and control over capital. Over ten thousand American businesses are now owned in whole or part by their employees, involving more than 10 million workers – more than are members of private sector unions. More than one in three Americans – 130 million – are members of urban, agricultural, and financial cooperatives. Credit unions – one-member, one-vote democratic banks – collectively serve 90 million Americans, while holding around $1 trillion in assets, making them as large, taken together, as one of the biggest Wall Street banks.

There are also 2,000 publicly-owned utilities that – together with cooperatives – provide some 25 percent of America’s electricity. More and more U.S. cities and states are looking into the creation of public banking systems along the lines of the long-standing public Bank of North Dakota. Over 500 communities have established full or partial public telecommunications networks – for example, cable or fiber optic lines operated through public utilities or by local governments, with more than 230 communities in 33 states even providing ultrafast, one-gigabyte services.

City and local government economic development programs increasingly lend to – or make direct investments in – local businesses and employee-owned cooperatives. Economically targeted investments channel public pension assets into job creation and community economic development. Venture capital funds give public authorities an equity stake in local investments. Municipal enterprises build infrastructure and provide services, raising revenue and promoting employment and economic stability, diversifying the base of locally controlled capital. New experiments with participatory budgeting allow for direct citizen engagement in the allocation of public funds.

Commons management systems cover everything from the internet to public libraries, parks, and blood banks. Large-scale public trusts receive revenues from timber and mineral rights to grazing and oil production, in turn providing funding streams that underwrite public spending or issue a citizen dividend. And new and clean versions of these sovereign wealth funds are increasingly economically feasible.

These alternative models are proliferating and growing in sophistication and impact. They illuminate how new democratic economy principles and approaches can work in practice and generate new solutions to political and economic challenges. It is becoming possible to see how, by projecting and extending these practical experiments, the underlying structural building blocks of a new political-economic system based on the democratization of capital might be assembled. Taken together, these various activities and elements within what could be considered the nascent democratic economy sector of any given locality represents a very significant base – sometimes reaching as much as a third or more of local economic activity – from which to begin the work of bottom-up systemic transformation and community-driven change. 

But the long-run trends documented in this report are unforgiving, and have proved impervious to the vanities of policy change in Washington. Deeper, more institutional and structural interventions are now required if we are to alter the overall course. Only certain pathways forward will deliver the fundamental changes in outcomes that are necessary. These must become the de facto contours of a possible, practicable, and desirable next system capable in and of itself of producing the desirable outcomes that we want as a result of its everyday operations. There will also be a challenge (as has already been evidenced by much of the climate change debate) in framing what are in effect real hard constraints on solutions in a manner that is expansive rather than restrictive of future possibilities and potentialities.

Developing the politics and strategy that can pull this off is the fundamental epochal challenge of our age – and must become the central mission of transformative political action in the years ahead. We hope you will join us in this work that our time in history demands.

The Democracy Collaborative
September 2024