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and influential part of the middle class wanted the government to step in. “Consumerism,” wrote political historian David Vogel, “was a beneficiary of rising public expectations about the capacity of government to improve the quality of life in American society.” The movement was also riding the tide of citizen activism that reached into all corners of American society.

CHAPTER 4

MIDDLE-CLASS PROSPERITY

HOW “THE VIRTUOUS CIRCLE” WORKED BEFORE THE NEW ECONOMY
    The United States comes closest to the ideal ofprosperity for all in a classless society.
    — VICE PRESIDENT RICHARD NIXON ,
1959
    The Great Compression succeeded in equalizing incomes for a long period—more than thirty years. And the era of equality was also a time of unprecedented prosperity, which we have never been able to recapture.
    — PAUL KRUGMAN ,
The Conscience of a Liberal
    HENRY FORD , the pioneering automaker, was the godfather of a central economic idea that powered the great era of American growth and middle-class prosperity in the 1950s, ’60s, and ’70s, before the New Economy began unraveling the American Dream for millions of average people. Ford’s idea was what economists call “the virtuous circle of growth.”
    Henry Ford gave that idea popular currency when he brought outthe famous Model T car and announced in 1914 that he would pay his workers the then unheard-ofwage of $5 a day. Not only was it a matter of social justice, Ford later wrote, but it was smart business. When wages are low, Ford argued, business and the economy are at risk. But when pay is high and steady, Ford reasoned, business is more secure because workers earn enough to be good customers and eventually to be able to afford to buy Model Ts.
    That was Ford’s shorthand formula for the analysis of modern economists that high wages paid to tens of millions of middle-class Americans in the postwar era were the engine of economic growth. Good, steady pay, and job security, they say, are the drivers of strong consumer demand, and strong demand stimulates economic growth. Business is moved to expand production and invest in new plants. Each expansion generates a new round of consumer demand. Thevirtuous circle keeps on generating growth, unless someone breaks the chain reaction.
    With that dynamic at work, the postwar era enjoyed “the best economy America has ever had,” asserted economist Paul Krugman of Princeton. “It was an economy that seemingly provided jobs for everyone. What’s more those abundant jobs came with wages that were higher than ever, and rising every year. At the bottom end, workers were much better off than they would ever be again….”
A Different Business Mind-Set
    People often overlook the critical importance of the mind-set of business leaders to the economic fortunes of the middle class. During the long postwar era of shared prosperity, from the mid-1940s to the mid-1970s, the prevailing ethos of business leaders was radically different from the prevailing mind-set of today’s CEOs, just as Richard Nixon’s “share the wealth” ideas on taxes and on business regulation were radically different from the prevailing philosophy of the Republican Party today.
    During the postwar middle-class boom, good corporate leaderssaw a competitive advantage in caring for their workforce. If they wanted to succeed, to expand, and to generate steady profits, they needed to keep well-motivated, high-skilled employees on their payroll, and the key, they felt, was assuring good steady jobs with rising pay and benefits.
    No less a figure than Frank Abrams, chairman of Standard Oil of New Jersey, voiced the corporate mantra of “stakeholder capitalism”—namely, balancing the needs and interests of all the stakeholders in the corporate family. “The job of management,” asserted Abrams, “is to maintain an equitable and working balance among the claims of the various directly affected interest groups … stockholders, employees, customers,