T he great financial crash, Bernie Madoff, predatory lenders, and easy credit–for all the pain, there is an upside: A long overdue conversation about how unchecked markets can distort and damage American society has begun. Part of that conversation is populist, about how Wall Street and the new Gilded Age bankrupted hard-working Americans. But it is also about how go-go values penetrated Main Street, leading these same hard-working Americans to over-consume and take too many risks.

While this conversation has been refreshing, history suggests that public doubts about laissez-faire economics may not linger. The 1980s produced scandals, greed, and record inequality, and ended with the recession of 1990-1991, along with a bailout of the savings-and-loan industry that cost taxpayers hundreds of billions of dollars. Yet just a few years later, with the economy bouncing back, talk of robust regulatory schemes was forgotten.

Something similar happened a decade later. In 2002, as Enron, WorldCom, and other scandals engulfed the business world and the Dow completed a 38 percent dive from its 2000 high, 38 percent of Americans thought that big business posed "the biggest threat to the country"–the highest point since Gallup started polling nearly 40 years ago. But by 2004, with the Dow back above 10,000, that number had fallen to 27 percent, and the corporate scandals barely registered that year as a campaign issue.

The current crisis is far bigger, and public anger at Wall Street and corporations is as hot as any time in memory. Yet assuming that we are not headed for another Great Depression, history will soon repeat itself; populist anger will cool and there will be less momentum behind efforts to curb Wall Street and corporations. Today, politicians voicing populist rage may sound like trumpeters for the common man; a year from now, if the Dow is surging along with employment rolls, they may sound like party poopers.

This reality should weigh heavily on Barack Obama and his advisers. After all, reversing 30 years of laissez-faire policies is hardly a short-term enterprise, accomplished with a few bursts of legislation. It will pit the president against some of the most powerful interest groups in Washington. That struggle will not get very far if public amnesia about the downsides of extreme capitalism sets in yet again.

The trick for Obama, and for progressives, is to keep up a sustained attack on free-market excesses even as–inevitably–AIG bonuses fade from memory and nobody can quite remember why credit default swaps were such a bad idea. This requires going beyond the standard Democratic playbook, which stresses bread-and-butter economic appeals, and offering something different: a full accounting of the moral corruption spawned by contemporary American capitalism, along with plans to curb this spreading rot.

In addition to soaring inequality and insecurity, laissez-faire policies have produced a range of social poisons: rising greed and envy, rampant fraud and dishonesty, falling trust between Americans, and a crisis of ethics in nearly every institution in American life. A focus on these poisons can help not just to sustain the momentum for reform once good times return but also provide a new explanation of how America’s moral fabric came so unraveled.

The New Culture War

Pessimism about values has been a fixture of American life for decades. Polls since the 1970s have consistently found that a large majority of Americans in both parties are dissatisfied with the state of America’s values, and such feelings intensified during the Bush years. A May 2008 poll, for example, found that 81 percent of Americans said things were getting worse when it came to values, up from 66 percent in 2002. And this has held true despite much good news over recent years. Violent crime is way down compared with the early 1990s. Teen pregnancy has also fallen sharply over the past 15 years, by at least 30 percent, and the abortion rate has dropped by a similar degree. Drunk driving deaths are down by 38 percent since 1982. Even the divorce rate has fallen by 32 percent since the late 1970s.

Judging by these statistics, America is not in the middle of a broad-based moral decline. So why the rising moral anxiety? Here’s where things get interesting. When pollsters for Harris Interactive asked Americans in January 2008, "What do you mean when you say that moral values are very important to you?"–an open-ended question–28 percent mentioned "honesty," 11 percent said "integrity," 9 percent said "family values/belief in family," 8 percent said "ethical/has character/has good values," and 8 percent said "someone who does the right thing/stands for what’s right." In a 2005 poll by the Democracy Corps, even Catholics said that issues like abortion weren’t the moral issues that concerned them most. When respondents to this poll were asked to define moral values in open-ended responses, issues of integrity led the list (24 percent), followed by family and culture (22 percent), and the golden rule/social compact (21 percent).

So the sources of moral anxiety are broad and center heavily on issues of honesty. But thanks to the cultural right wing, our debate about values has been quite narrow, focused on issues like abortion and gay marriage most recently, crime and welfare in earlier periods–all leading to the same point: that permissive liberalism is to blame for America’s moral decline. Yet for years now, this narrative has ignored a larger trend. Even as problems like drug use and teenage pregnancy have abated over the past decade, we have seen a growing tempo of news stories about fraud and deceit for financial gain: corporate leaders lying about earnings, traders using inside information, doctors taking money from drug-makers, politicians soliciting bribes, lawyers overbilling clients, and athletes taking steroids. These stories keep coming until nothing surprises us, even Bernie Madoff’s $65 billion Ponzi scheme.

This rising tide of bad behavior suggests that the great moral struggle of today is not between traditionalism and modernism, nor between faith and secularism, as the right would have it. Rather, it is between the relentless, amoral logic of self-interest, profit, and the bottom line, a logic that has grown ever more dominant in this age of turbo-charged global capitalism and, against that, the fuzzier bonds of human connectivity–our integrity, our empathy, and our obligations to others. This divide, pitting market values against human values, is the real culture war of our time. And it is one progressivism is well-positioned to win.

Morals and Economics

The link between capitalism and moral turpitude is by no means a new idea. Since the days of Adam Smith, social critics have remarked on how the pursuit of profit, efficiency, and creature comforts can change people’s values for the worse. More than thirty years ago, the sociologist Daniel Bell famously argued in The Cultural Contradictions of Capitalism that modern capitalism elevated the pursuit of short-term gain and pleasure over the more traditional values of self-restraint and obligation toward others. Bell was writing at a time when rising individualism and materialism, propelled by postwar affluence, seemed to be turning America into a more hedonistic and narcissistic society.

The picture turned much darker starting in the 1980s, as American capitalism went into overdrive and laissez-faire ideas came to dominate policymaking. In particular, ethical problems exploded as three features of contemporary U.S. capitalism took hold: high levels of inequality, widespread financial insecurity, and lax rules governing economic life.

Start with inequality. It makes sense that granting ever-larger rewards to economic winners might lead to bad behavior. Such fat carrots, which are endemic to what economist Robert Frank has called a "winner-take-all society," create obvious incentives to behave dishonestly or take excessive risks with other peoples’ money. George Washington once said, "Few men have virtue enough to withstand the highest bidder." Very true it would seem, especially on Wall Street. While the issue of executive pay has received much attention lately, there is a clear if less discussed link between the recurrent wrongdoing of U.S. business elites and the outrageous amounts of money these people are paid.