Unfortunately, the case for infrastructure investment has suffered from the lack of a plausible vision of the next American infrastructure.  Unlike in the 1860s, when the transcontinental railroad caught the public imagination, and the 1950s, when the interstate highway system symbolized a promising future, the present day lacks a consensus about what America’s future infrastructure should be.

To the extent that there has been a consensus about future infrastructure, it has been mistaken.  Until recently, much of the public, particularly to the left of center, was enthralled by a vision of a new infrastructure based on renewable energy and mass transit, symbolized by videos of iconic high-speed trains whizzing past equally iconic white windmills.  This vision was uncritically accepted by the Obama administration and many Democrats in Congress.  The idea that the U.S. could transition quickly from fossil fuels to renewable energy sources like wind power and solar power inspired many liberals to support artificially rigging markets in favor of renewable energy by methods like cap-and-trade and renewable energy standards that force working-class consumers, via utility, to buy expensive power from uneconomical wind, solar or biofuel sources.  And for a brief moment in time, the center-left in the United States was entranced by the mirage of a continental high-speed rail system.

The on-going shale gas revolution has been devastating to the conventional progressive vision of infrastructure.  By turning previously-inaccessible natural gas resources into accessible reserves in the U.S. and around the world, hydraulic fracturing (“fracking”) has made it likely that the ages of coal and petroleum will be succeeded by an age of low-cost methane.  While anti-fracking activists have sought outright bans on the new technology, more thoughtful environmentalists have welcomed natural gas, which emits far less CO2 than coal or oil, as a lower-carbon bridge to a zero-carbon future based on solar or wind or nuclear energy.   Environmentally-responsible exploitation of shale gas has been embraced by the Obama administration.

Instead of a bridge to a future based on renewables or nuclear energy, however, shale gas may be a torrent that washes those energy alternatives away, for decades or generations, by making those alternatives too expensive by comparison.  Even a carbon tax designed to phase out the use of coal in electricity generation would probably end up favoring cheap, abundant natural gas as coal’s replacement, not solar, wind or nuclear energy.  The government should continue to fund R&D in different energy technologies, but the hope that we will be getting much of our energy from those little white windmills in the near future now looks quaint.

As the white windmills fade from the picture of the future, so do the bullet trains speeding past them.  Even before the end of President Obama’s first four years, unrealistic fantasies about high-speed passenger rail had collapsed.  Federal funding for high-speed rail demonstration projects has been minuscule and symbolic.  State and local governments continue to conclude that the costs of high-speed passenger rail outweigh the alleged benefits.

In the longer run, robocars may be fatal for fixed-rail transportation, at least for passengers rather than freight.  Google has been test driving self-driving cars in California and Nevada has become the first state to legalize driverless vehicles.  No doubt it will take several decades for safety issues and legal arrangements to be worked out.  But high-speed trains might find competition in high-speed convoys of robot cars on smart highways, allowed higher speeds once human error has been eliminated.  And the price advantage of subway tickets over taxi fares in cities may vanish, when the taxis drive themselves.  Point-to-point travel, within cities or between them, is inherently more convenient than train or subway journeys which require changing modes of transit in the course of a journey.  Thanks to robocars, much cheaper point-to-point travel everywhere may eventually be cheap enough to relegate light rail and inter-city rail to the museum, along with the horse-drawn omnibus and the trans-atlantic blimp.

If windmills and bullet trains symbolize yesterday’s mistaken vision of the future, what kind of infrastructure will twenty-first century America really need?  The following list of possibilities is intended to be suggestive, not definitive:

Pipeline networks.  By their nature, underground pipelines are not visible, so they do not serve as dramatic icons of technological progress.  But taking advantage of the cheap and cleaner energy provided by shale gas will require an expansion of the existing natural gas pipeline network.

In the decades to come, fresh water is likely to become ever more important—for human consumption, for agriculture, for energy, including fracking, which relies heavily on water, and even for cloud computing and Internet communication, which require heat-generating servers to be kept cool.  The build-out of natural gas pipelines may be accompanied by a build-out of freshwater pipelines, funneling water from water-rich regions, aquifers or even desalinization plants.

Ports.  If the U.S. is to enjoyed a healthy recovery from the Great Recession, it must end its reliance on debt-enabled consumption of imports and export more—more manufactured goods, more commodities, more energy.  Even if manufacturing becomes more localized, thanks to the new technology of 3-d printing or additive manufacturing, international trade will be more in raw materials for industry than in finished products, but the need for bulk transport of cargo will remain.

Lowering the costs of international shipping further will require the deepening of numerous American ports so that they can receive colossal “post-Panamax ships” that will take advantage of the widening of the Panama Canal by 2014.  Inland ports away from the coasts can take advantage of the overflow of business from coastal megaports, serving as transshipment centers and stimulating infrastructure-driven growth in America’s hinterlands.

Truck-only lanes and congestion relief tunnels.  These ideas have been explored by the Reason Foundation’s Robert Poole.  Truck-only lanes or truck-only highways would siphon truck traffic away from heavily-travelled highways, reducing the risks to ordinary drivers—and reducing their incentive to seek safety in big muscle cars and trucks.  http://www.internationaltransportforum.org/jtrc/discussionpapers/DP200924.pdf
Truck-only lanes could be built with natural gas filling stations to encourage a shift from gasoline to natural gas in transportation.  Congestion relief tunnels http://reason.org/news/show/congestion-relief-toll-tunnels would avoid controversies about widening surface roads by taking cross-town traffic underneath cities.

Drones on the home front.  Unpiloted aircraft have been developed, like other technologies, first by the military.  Their initial use has been in the legally ambiguous and ethically troubling realm of extra-judicial assassinations.  The technology no doubt will find more benign civilian uses—say, package delivery drones.  As with robot cars, so with flying drones the major obstacles to deployment are likely to be legal.  Who will be liable when the drone carrying your Christmas present accidentally crashes into your chimney, like a drunken Santa Claus?

As the ill-fated vision of bullet trains and windmills shows, all visions of the future are tentative and must be constantly revised, in the light of new breakthroughs or political and economic realities.  Even so, at least some of these infrastructure technologies are likely to play an important part in the economy of tomorrow.  The next era of American politics may belong to the movement or the party that promotes the real infrastructure of the future instead of the fantasy version.

This is not just a French phenomenon, nor is it limited to immigration policy. In most of the world’s advanced democracies, the egalitarian left and the nationalist right are growing in strength among voters. After three decades in which apostles of financial deregulation, offshoring and immigration liberalization dominated the capitals of major Western countries, the pendulum is swinging in the other direction.

You would never know this from the prestige press, which is owned by billionaires and populated by upscale journalists, many of whom were able to begin their journalistic careers as unpaid interns thanks to affluent parents. According to the consensus in the elite media, history runs in one direction toward the merger of national economies in a single global free market, the elimination of borders for labor and the relaxation of restrictions on the free movement of capital. Any moves in the opposite direction represent dangerous backsliding that can only be motivated by racism and xenophobia and that threaten to produce new Hitlers and Mussolinis and trade wars leading to world wars.

But the voters of the industrial democracies are not listening to the elite transatlantic chattering class.  The late political scientist Samuel Huntington coined the term “Davos Man,” after the World Economic Forum at Davos, Switzerland, to symbolize the post-national, anti-populist global elite. Davos Man still exists, but he is in danger of going the way of Neanderthal Man. The Davos vision of a dawning post-national free market utopia was cracked by the al-Qaida attacks on Sept. 11, 2001, and then shattered by the global financial crash of 2008. Free market globalism continues to be the  orthodoxy in elite economic and journalistic circles, but in politics it has been in retreat for years. It is increasingly clear that libertarian globalism was never the wave of the future, but merely a temporary blip in history between the fall of the Berlin Wall in 1989 and the fall of the twin towers in 2001.

Consider the case of immigration policy. In every advanced nation, including the United States, governments under pressure from voters have moved to tighten up surveillance and control of immigrants, for reasons of national security and protection of the wages and cultures of their citizens from real or imagined threats. Parties of the center-left as well as of the center-right have adopted positions on immigration that would have been considered far-right in the globalist 1990s. America’s Democrats and the Labour Party of Gordon Brown have been forced by voter sentiments to carry out tough immigration policies that elite pundits of the left, right and center have denounced to no effect.

In the world economy, the major trend of our time is the rise of nationalist state capitalism, not the disappearance of national economic boundaries that was predicted by the prophets of globalization like Thomas Friedman following the end of the Cold War. When the world economy collapsed in 2008, leading industrial countries rushed to bail out national firms like America’s GM and Germany’s Opel, giving the lie to the claim that major corporations no longer had national identities. Instead of liberalizing its economy as it developed, China has made its state-owned companies more rather than less important. Most of the world’s energy companies, and a number of major shipping and aerospace industries, are state-controlled. The response in the U.S. has been growing economic nationalism, which is tapped by presidential candidates like Obama and Romney who call for defending and promoting American industry — at least when they are running for office.

It is true that protectionist policies have been limited during the Great Recession, compared to the Great Depression of the 1930s. But this arguably reflects the interests of working-class voters rather than the triumph of libertarian globalist ideology. A dwindling majority of wage earners in advanced industrial countries work in manufacturing industries that can be offshored to other countries. Most work in the nontraded domestic service sector. Only a few of them need to worry that their jobs will be sent abroad, but it is rational for many to worry about immigrant competition within their own countries for local service sector jobs. At the same time, the working class in Western democracies benefits from low prices for imports. It is perfectly rational, therefore, for working-class Americans or Europeans to be more concerned about immigrant competition than about trade. On another front, the deregulation of finance, the centerpiece of Clinton Treasury Secretary Robert Rubin’s global economic strategy, is being slowly but inevitably reversed, in the aftermath of the global crisis to which financial deregulation contributed. Unwilling to wait for global agreement on financial regulation, nations are unilaterally re-regulating the financial industry within their own borders. The result will be to reverse much of the financial globalization of recent decades and replace it with a patchwork of different national financial systems.

The Balkanization of global finance along national lines will be accelerated in the decades to come as many governments choose to deploy moderate inflation to burn away much of the public and private debt built up during the Great Recession, as the alternative to politically unpopular spending cuts and tax increases. What is known as “financial repression” — forcing national banks and, through them, national savers to accept government bonds whose value is being eroded by deliberate inflation — is a policy that is helped by a degree of segregation of national banking systems from the world economy. In the future, countries pursuing debt reduction by means of moderate inflation will find it attractive to partly re-nationalize their financial systems for this purpose alone. Most retirees in advanced industrial nations depend primarily for their retirement income on inflation-adjusted public pensions like Social Security, not on private savings. As a result, financial repression will hurt economic elites the most, while doing little harm to the working-class majorities in the U.S., Canada and Europe. Even as nationalism further fragments the global economy along national and regional lines, populism will redraw the map of domestic politics in one country after another, including the United States. Nationalist populists who break with the elite libertarian consensus, even those who, like Ross Perot, are centrist rather than far-right, are routinely demonized by the pundits of the mainstream press, whose moderate libertarian orthodoxy reflects the values and class interests of the owners of the media. But while populist outsiders are marginalized in the media and usually fail at the ballot box, their issues are often co-opted by mainstream conservative and progressive parties, the way that populist opposition to illegal immigration has been co-opted by establishment parties throughout the West in the last decade.   

Votes clearly count, even in plutocratic America. If American public policy reflected the objectives of the 1 percent, then long ago there would have been relaxation of border enforcement and amnesties for illegal immigrants, the privatization or means-testing of Social Security and Medicare and further deregulation of finance. On all of these issues, however, the oligarchic consensus is losing at the ballot box, if not in the editorial pages.

Davos Man is not dead, but he is on life support.  The libertarian globalist moment in world history is over. Free market globalism peaked in the late 1990s, before the rise of al-Qaida and Chinese-style state capitalism, when it appeared briefly that the Reagan-Thatcher version of capitalism represented the future. Most of our politicians and pundits are still living in the mental world of the 1980s and 1990s, but the future has arrived and it is not what libertarian globalists predicted.

Here and there, trade and immigration liberalization will continue, when it serves the interests of particular nations or particular pressure groups. And it will always be important, even in a partly renationalized world, to resist nativist bigotry and misguided forms of protectionism. Even so, the fading vision of inevitable progress toward the free flow of money, goods and labor across national boundaries was never anything more than a utopian fantasy, like the Marxist dream of international fraternity in a socialist world.  Capitalism in some form, partly private and partly statist, will endure. But less than a generation after the fall of the Berlin Wall, libertarian globalism has joined communism on the dust heap of history.

In what is advertised as a grand bargain between the right and the left, tax rates will be lowered, to appease conservatives, in return for closing many tax expenditures or “loopholes” (for some reason this is presented as a concession to liberals). Revenue that would otherwise be sheltered from taxation by the abolished loopholes would, to some degree, raise overall federal revenue collection, even with lower rates.

Allegedly centrist tax reform plans like Simpson-Bowles are presented by the media as nonpartisan compromises by serious, thoughtful, public-spirited experts willing to speak truth to selfish special interests. In reality the Simpson-Bowles plan and similar schemes  are best described as center-right. Generally these plans call not only for closing loopholes that disproportionately benefit the rich, like the home mortgage interest deduction, but also for cutting essential government benefits for the middle class, like Social Security and Medicare.

Alan Simpson famously mocked Social Security as “a milk cow with 310 million tits.”

The bargain at the core of plans like Bowles-Simpson — lowering income tax rates while reducing tax expenditures — isn’t a genuine bargain at all. If it is a good idea to raise needed revenue by closing loopholes while lowering income tax rates, why not raise even more revenue by closing loopholes without lowering income tax rates?  This kind of “grand bargain” is not based on give-and-take among two sides equally flexible and willing to bargain. Instead, it requires the center and the left to engage in unilateral surrender to extortion by the uncompromising right.

If Simpson-Bowles represents the center-right in the tax debate, the radical right is represented by flax-tax plans like the “Fair Tax” that would replace most or all federal taxes with a single national consumption tax with a single rate. A national consumption tax ought to play a role in federal tax reform — but as an addition to the mix of taxes, not as a replacement for all other taxes. A single flat tax would be extremely regressive, dramatically shifting the burden of taxation from the rich to the middle class and the poor.

Compared to the center-right and the far right, the American left has been relatively uninterested in devising plans for tax reform.  One reason is the justified focus of liberals on what the political scientist Jacob Hacker calls “pre-distribution,” like the growing pre-tax inequality highlighted by the Occupy Wall Street movement. Another factor is undoubtedly the fact that, unlike many conservatives, progressives do not believe that tax policy is all-important for economic growth, to the exclusion of other factors, like public investment, trade policy, energy policy and education. To the extent that there is a consensus on tax reform among American progressives, it would seem to combine higher taxes on the rich with more tax breaks for the middle class as well as the poor — the “Buffett Rule” (a minimum tax on millionaires) plus an expansion of the earned income tax credit, for example.

Unfortunately, when it comes to taxes, many American progressives think with their hearts, rather than with their heads. They want a welfare state on a European scale, but ignore the fact that European social democracies do not rely for revenue primarily on steep income taxes. Instead, the most generous European welfare states derive their funding from three kinds of taxes:  income taxes, payroll taxes and a consumption tax, the value-added tax (VAT). In contrast, the U.S. federal government derives its revenue chiefly from only two taxes:  the personal income tax and the payroll tax. In the U.S., consumption taxes are used by state and local governments but not by the federal government.

Michael Graetz of Columbia Law School points out that “the United States is a relatively low-tax country, but not with respect to income taxes … We typically collect about 12 percent of GDP in corporate and individual income taxes, while the OECD nations average about 13 percent. The biggest difference is that most other nations rely much more heavily on consumption taxes than we do: 11 percent of GDP in the OECD compared to about 5 percent in the United States. Indeed, we are the only OECD nation that does not impose a national level tax on sales of goods and services.”

This raises the possibility of a fourth option for American tax reform, distinct from the phony centrism of Simpson-Bowles (closing loopholes while lowering rates for the rich and cutting entitlements for the majority), radical conservatism (the single flat tax) and conventional progressivism (relying for more revenue chiefly on higher personal income taxes combined with bigger tax credits). The fourth option would reject the goal of revenue neutrality and acknowledge that, in a nation with an aging population, federal taxes can and should be permanently increased to pay for Social Security, Medicare and Medicaid. (These, like the rest of the American healthcare sector,  need to be made solvent by price reduction and price regulation, not rationing). Much or most of the needed additional revenue should come from the adoption by the federal government of a VAT.  A federal VAT’s revenues could be shared with state and local governments, partly replacing existing sales taxes.

This approach to radical tax reform could take more liberal or more conservative forms.   In a 2002 article and a 2007 book,  Michael Graetz has proposed one version, a “competitive tax plan” (CTP), which the Urban Institute recently analyzed.

The Graetz plan would use the revenues from a VAT to eliminate income taxes on Americans who make less than $100,000 a year.  It would also lower payroll taxes, by means of payroll tax rebates that would offset the regressiveness of the VAT.  As the tax expert Bruce Bartlett notes, the Graetz plan would eliminate popular support for income tax expenditures by eliminating income taxes on most of the middle class:  “The important thing is the basic idea of avoiding a frontal assault on tax expenditures that is likely to make trench warfare seem tame by comparison and instead just make them irrelevant to the vast majority of Americans.” A VAT can also be used to cut corporate income taxes that discourage production in the U.S., an option that the Urban Institute and the New America Foundation’s Economic Growth Program analyzed in a 2010 study.

The Graetz plan is revenue neutral but it could be tweaked to raise more revenue overall or to be more progressive. Any plan that attempts to compensate for the regressive nature of a VAT by means of credits or rebates for working Americans that would be administered through the payroll tax would necessarily reduce payroll tax revenues for Social Security, Medicare and Medicaid. But that is a point in its favor. In a society in which more and more of the gains from economic growth are going to capital, rather than labor, it makes sense to shift from a system in which social insurance relies solely on payroll taxes to a new system in which it relies on a mix of payroll taxes and higher taxes on the consumption or non-wage income of the rich. Medicare has always been funded in part by payroll taxes and general revenues. Funding Social Security by general revenues or other dedicated taxes, in addition to payroll taxes, might permit not only income taxes but also payroll taxes to be permanently reduced for the majority of working Americans.

This approach to tax reform should appeal to progressives and genuine centrists for another reason. It would almost certainly doom the conservative project of replacing public social insurance programs with tax credits or private accounts subsidized through personal income tax expenditures, because only affluent Americans would pay income taxes and middle-class voters would no longer enjoy the benefits of those programs. Tax reform that limited income taxation to the affluent few could thus build support for the replacement of the unfair and inefficient private welfare state run through the IRS — a system that includes 401Ks, IRAs and tax credits for employer and individual health insurance — with a simpler, cheaper, more efficient system of public provision or public utility regulation in the fields of retirement security and healthcare.

Conservative Democrats and moderately conservative Republicans, masquerading as “bipartisan centrists,” have signaled that following this fall’s election they plan to push for the passage of tax reform along the lines of the Simpson-Bowles proposal in the lame duck Congress. But the American people deserve, and the American economy needs, a better option for tax reform than the pseudo-centrist proposal of further lowering tax rates on the rich while eliminating or capping tax expenditures.  Something along the lines of the Graetz plan that would use a federal VAT to cut both federal income taxes and payroll taxes for the working majority of Americans while providing adequate revenue for a twenty-first-century government is the truly radical tax reform that America needs.

Eras of invention, in which these disruptive technologies are devised, tend to be followed by periods of innovation. The era of innovation can last decades or generations, while entrepreneurs figure out how to use the new technologies in one economic sector after another. James Watt dramatically improved the steam engine in the 1770s, but it was not until the 1830s that steam-powered locomotives and steam-powered factories began to transform the landscapes first of Britain and then of the U.S. and other nations. The internal combustion engine and practical electric motors and electric lights were invented around the same time, in the mid-19th century. But it took until the early 20th century for their effect to be felt in electrified factories based on mass-production conveyor belts and the electric grids and highway grids that underlay a new, dispersed, suburban civilization. The transistor and other elements of the information revolution had been invented by the 1960s, but the new machinery only gradually began to revolutionize the economy a few decades later, by means of innovative adaptations like the Internet, personal computers, smartphones and sophisticated software apps.

Each of these successive industrial revolutions has undermined existing structures of business, commerce and government.  The misalignment between government and the technology-transformed economy often grows for decades, until there is a cataclysmic event like the Civil War and Reconstruction or the New Deal and World War II that brings about long-delayed reform.

For example, the locomotive and the telegraph made an integrated continental American market possible before the Civil War, but modernizing economic reforms had to await the Lincoln administration’s support for the transcontinental railroads and the Union Army’s defeat of the states’ rights South.  A few generations later, the success of the second industrial revolution had created new problems that the Lincoln-era framework could not cope with, including gigantic industrial corporations and predatory electrical utility empires. The shock of the Great Depression allowed Franklin Roosevelt and his successors in both parties to modernize American government and public policy in order to adapt it to the challenges of the second industrial era, like the need for economic security for the wage-earning majority that had replaced a nation of farmers.

In our own time, the IT revolution and the reorganization of business and commerce it has caused is undermining the political and legal structures of the New Deal era. Many of the corporate regulations and labor laws of the New Deal assumed an economy based on national, vertically integrated corporations. But globalization — made possible by a combination of computers, satellite communications and container ships — has created a new kind of global corporation drawing on supply chains in many nations and subject to overall regulation by none. Similarly, America’s unemployment system, designed in the mid-20th century to help well-paid industrial workers in brief recessions, is ill-suited to 21st century America, with its prolonged “jobless recoveries” and the growing ranks of poorly paid service-sector workers in hospitality and healthcare.

Even in the absence of the Great Recession, at some point in the early 21st century the challenges of the IT revolution would have forced radical reform of America’s inherited political and legal system. America’s values of equal opportunity and bold enterprise can only be preserved in changing conditions by intelligent reform. What is needed is nothing less than a generation of creative thinkers and visionary statesmen who can renew and reinvent America in our time as the generations of Abraham Lincoln and Franklin Roosevelt did in theirs.

Unfortunately, even the trauma of the Great Recession so far has failed to discredit and dislodge obsolete thinking about the economy on both sides of the partisan aisle. What are passed off today as bold, original ideas are rooted in ideologies of the 1960s and 1970s — archaic ideologies that took shape before the IT-induced wave of economic revolution was understood or got underway. On the right, in particular, conservatives and libertarians mindlessly cling to the half-century-old dogmas of right-wing opponents of the New Deal like Milton Friedman. Proposals like privatizing Social Security and Medicare were stale and discredited ideas on the libertarian right even before Ronald Reagan was elected to the White House in 1980. The beat of American politics has a distinctly retro 1970s disco sound.

Perhaps it will take a cataclysm even greater than the Great Recession to shatter the hold of establishment dogmatism and force fresh thinking. Or perhaps it will take a new generation of leaders too young to care about refighting the battles of the New Deal era and the Reagan era that followed it.

One thing is certain. The chief obstacle to prosperity lies with our institutions and our ideas, not with a lack of innovation or resources. In government, academic and commercial labs in the U.S. and across the world, revolutionary new technologies like exascale computing, additive manufacturing, robotics, phonemics and genomics are being invented or developed. Meanwhile, vast amounts of money are looking for profitable investments, even as enormous numbers of potentially productive workers in the U.S. and around the world remain unemployed. If the technology, the money and the labor can be mobilized, with support from politicians more interested in shaping the future than in defending the past, the potential exists for unprecedented advances in prosperity, health and wealth in America and the world.  

But that promise will not be realized in the absence of leadership adequate to the challenges of our age. America has plenty of politicians willing to seek election by seeking the lowest common denominator. Where are the leaders willing and able to rise to the occasion?

During periods of rapid asset inflation, whether the assets be stocks and bonds or houses, it is tempting to conclude that the middle class and poor, as well as the rich, should be able to enjoy the benefits of asset appreciation. In such an era, like the 1990s, the warnings of realists are drowned out by the claims of optimists that the rise in stock market or house values is a permanent trend, not an unsustainable bubble. The failure to recognize the stock market bubble for what it was encouraged schemes to increase the ownership of stocks and bonds by America’s high-school educated, working-class majority. The utopian dream was that, in addition to earning income by means of wages, every American could be a capitalist, supplementing wage income with income from capital gains. The fact that, during the bubble, stock market returns outpaced the virtual returns from “investment” in Social Security created converts for the libertarian scheme of partly or wholly replacing Social Security with tax-favored individual retirement accounts invested in the stock market.

That this was madness was argued by a lonely few at the time.  By now its lunacy should be apparent to everyone but die-hard libertarians and stock market touts in the financial press. Appealing as it seems, “universal capitalism” — the idea that middle- and low-income Americans can or should rely for a substantial part of their incomes on investments in the stock market — is bad for ordinary Americans and the American and world economies as a whole.

Proponents of universal individual stock ownership often view it as a supplement or replacement for public income maintenance programs, of which the most important are Social Security and unemployment insurance. Likely Republican presidential nominee Mitt Romney recently praised the libertarian idea of private unemployment insurance accounts. Diverting Social Security payroll taxes into the stock market is another right-wing idea which, like Count Dracula, repeatedly rises from the dead.

But public income maintenance programs are far less volatile than stocks and bonds, particularly at the federal level. The federal government has a diverse, continental tax base. And it can borrow more easily than the states to meet its obligations during downturns like the Great Recession. Average Americans can count on Social Security and the federal contribution to unemployment insurance far more than they can expect the stock market to be up at the exact moment when they are fired or have to retire.

This is not liberal propaganda. It is common sense. Any rational person would prefer the security of government-funded retirement and unemployment insurance to the insecurity of private retirement accounts and unemployment accounts. The truth is that Social Security and government unemployment insurance are far better deals than the universal capitalist alternatives.

In addition to being a bad deal for ordinary people, the push to increase stock market participation by the majority of Americans has had bad effects on the economy as a whole. At the root of the volatility of the global economy in the decades leading up to the crash of 2008 was an excess of global savings and too little wage-enabled consumption by ordinary people in developed and developing nations alike. This problem had many causes, including the strategy of Asian mercantilist countries of suppressing the incomes of their workers and the diversion of the gains from economic growth in the U.S. into rewards for shareholders and CEOs rather than higher wages for workers.

One factor in macroeconomic instability was federal tax policies that encouraged employer-based pension funds, in the 1940s and 1950s, and then Roth IRAs and 401K’s, beginning in the 1970s. These tax incentives channeled enormous amounts of money from working Americans into mutual funds. This money—at least what was left, after the brokers had extracted their hidden fees — added to the oceans of money sloshing around in search of unrealistically high returns, producing a pattern of ever more severe booms and busts.

Among other harmful effects, Wall Street management of the retirement money of millions of Americans, whether in the form of employer or union or public pension funds or IRAs and 401K’s, contributed to the culture of short-termism in the American business community. Answerable to flighty investors demanding high short-term returns, CEOs neglected the long-term health of one American company after another, in order to goose quarterly earnings reports by dismantling and offshoring industrial capacity, slashing wages and benefits, or engaging in financial machinations (some of them criminal, as in the case of Enron).

Last but not least, the fantasy of the investor society has had a corrosive effect on the ethics of Americans. The unspoken premise is that it is not enough to work hard in order to get ahead. Average Americans as well as the rich few must gamble in the stock market as well. To their detriment, millions of Americans whose wages failed to keep up with economic growth bought into this Wall Street-peddled fantasy of a nation of day traders and house flippers. They and the rest of us are still paying the price for the corruption of American morals by the get-rich-quick mentality.

It is time to wake up from the daydream of the investor society and face reality. The bubbles were just bubbles. No serious economic expert expects the next few decades to be a golden age of rapid growth capable of enriching janitors with stock market accounts as well as tycoons.

The United States is not a nation of capitalists. It is a nation of wage earners with a minority of capitalists. The only genuine capitalists — individuals who can live entirely from their investments — are a minuscule minority in the U.S. and all other so-called capitalist countries. Having a modest amount of retirement money in a mutual fund does not make anyone a capitalist except in the Wall Street Journal’s Op-Ed pages. For the foreseeable future, few Americans will derive any significant income from capital gains during their working lives, just as few will derive more than a small portion of their retirement income from sources other than Social Security including 401K’s. Right-wing propaganda about an emerging “capitalist majority” to the contrary, America is and will remain a nation of wage earners dependent on pay-checks and public social insurance like Social Security and unemployment insurance.

In the name of dealing with the federal budget, there is a well-funded push in Washington for cutting Social Security and forcing Americans to rely more for retirement on 401K’s and other tax-favored accounts. This conventional wisdom manages to be stupid and crazy at the same time. Given the dangerous volatility of the stock market, the truly prudent course would be to expand risk-free Social Security payments to most Americans, while reducing or phasing out tax breaks for volatile, risky stock market accounts funded by employer pensions or private savings accounts.

Businesslike prudence counsels an effort to shrink the failed, volatile private retirement savings programs and expand the more secure public retirement system. The  expansion of the low-risk Social Security program, proposed by Steven Hill among others, can be paid for with higher payroll taxes or a mix of payroll taxes and general revenues, including increases in income tax revenues that follow the capping or eliminating of IRAs, 401K’s and similar poorly performing, tax-favored private retirement programs.

Just as private investments are a poor substitute for Social Security, so the promise of capital gains is a poor substitute for wage increases.  Low- and middle-income Americans need higher wages or greater, secure public benefits, or both, not the promise that they can supplement their low wages or inadequate benefits with day trading — a promise that in hindsight looks like a sick joke.

Libertarian ideologues will continue to lobby in favor of replacing public social insurance with private accounts in the stock market; that is what they are paid to do, by the Koch brothers and their other donors. And self-styled “budget hawks” — most of whom are ideological conservatives posing as pragmatic centrists — will continue to claim falsely that the U.S. cannot afford Social Security in its present form, much less in an expanded form that would increase American retirement security while reducing macroeconomic volatility.  Finally, fund managers on Wall Street will continue to salivate at the prospect of replacing part or all of Social Security payroll taxes with voluntary or compulsory “individual mandates” pressuring Americans to buy the risky products they peddle and to pay the Wall Street middlemen their fees.

Do not be fooled by this well-funded propaganda.  Americans need higher wages and more generous, secure public benefits, not schemes to encourage them to compensate for lousy pay and inadequate benefits by gambling in the risky stock market.  Some ideas really do fail the test of history. After two catastrophic stock market crashes in less than 10 years, the once-fashionable idea of the investor society gets a failing grade.