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a bachelor’s degree and to affluence as well. Households in poverty and with low parental educational attainment are likely to bequeath their poverty to their children as well, despite every desperate effort to avoid that fate. According to careful studies carried out by the OECD, and shown in the figure on the next page, the United States actually has the lowest social mobility within the entire OECD, as indicated by the highest correlation of education levels of parents and children. This is a stunning fact, since it runs counter to the long-held supposition that the United States is the land of social mobility and opportunity for all.

15. Some may object to considering the marketplace a contrivance as opposed to a natural phenomenon reflecting humanity’s intrinsic propensity to “truck, barter, and trade” (in Adam Smith’s famous phrase). Yet when we consider that the modern marketplace is not based on bartering but on sophisticated monetary institutions and financial markets, commercial law, corporate law, intellectual dispute settlements, and state enforcement of contracts and protection of property, we can conclude that markets today are the product of complex legal and institutional design as well as underlying economic motivations to trade.

Source: Data from Organization for Economic Cooperation and Development, “Economic Policy Reforms, Going for Growth: OECD 2010.”

Chapter 4: Washington’s Retreat from Public Purpose

1. Franklin D. Roosevelt, Second Inaugural Address, January 20, 1937.

2. Ronald Reagan, First Inaugural Address, January 20, 1981.

3. Bill Clinton, radio address, January 27, 1996.

4. This great reversal of government after the 1960s is not a unique event in American history, according to historians. Arthur Schlesinger, Jr., among others, argued persuasively that America tends to experience waves of alternating public activism and retreat. In the 1870s to 1890s, for example, the great national industries—railways, steel making, oil, meatpacking, retailing by catalogue—first came into existence on a continental scale. Government stood in the shadows as the robber barons took the stage. The Gilded Age was born. Then came the reaction, first by the prairie populists who, like the Tea Party, railed against the depredations of Wall Street; next came the Progressives, who more systematically rolled out a series of reforms designed to rein in corporate abuses of the new national giants. The Progressive Era began to wane in the 1910s, and was swept away by the probusiness decade of the 1920s, when America longed to return to normalcy after World War I. The Roaring Twenties, the prelude to the Great Depression, had strong similarities to the years leading to 2008: very rapid financial innovation, soaring inequalities of wealth and income, a culture of financial speculation, real estate booms fueled by easy credit, and then finally a financial crash.

5. Unless otherwise noted, all proceeding budget data are from the Office of Management and Budget Historical Tables.

6. This allocation starts only in 1962 in the Office of Management and Budget Historical Tables (Table 8.2).

7. U.S. Census Bureau, “Population Division: Historical Census Statistics on the Foreign-Born Population of the United States: 1850–2000.”

8. U.S. Census Bureau, Income, Poverty and Health Insurance Coverage in the US: 2009, Tables B1, B2.

9. The chart below shows total revenues, defense and nondefense spending as a percentage of GDP.

10. During the early 1970s, the post–World War II monetary arrangement, known as “dollar-exchange standard,” came undone. From 1946 to 1971, the U.S. dollar was pegged to gold at $35 per ounce, with foreign central banks outside the United States enjoying the guaranteed right to convert their dollar reserves into bullion at the guaranteed price. Nixon closed the gold window (the gold-to-dollar conversion) on August 15, 1971, as the United States was being drained of its gold reserves. At the core of the crisis was overly expansionary monetary policy tied to the overheated U.S. economy, which itself