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CONVERSATION AIR DATE: Oct. 1, 2012
The Seismic Economic and Political Changes that Transformed the American Dream
For Pulitzer Prize-winning journalist Hedrick Smith, the American Dream depends upon the prosperity of middle class. Ray Suarez talks to Smith about his latest book, "Who Stole the American Dream?" for more on what needs to change to restore the American Dream, economically, politically and culturally.
JUDY WOODRUFF: Now: the dismantling of middle-class power and prosperity. Ray Suarez has our book conversation.
RAY SUAREZ: One aspect of the current national campaigns addressed by both parties is how hard it has been in recent years to get ahead in America, even to stay in place, as economic turmoil destroyed working lives, cratered housing values, and undermined retirement accounts.
Hedrick Smith, welcome. In "Who Stole the American Dream?" veteran journalist Hedrick Smith takes us on a tour of the last four decades, of economic globalization, winners, and losers.
HEDRICK SMITH, author of "Who Stole the American Dream?": Thanks, Ray. Nice to be with you.
RAY SUAREZ: The story you tell, one of the striking parts of it is that who knew in the early to mid-'70s that we'd some day look back on that as the good old days...
HEDRICK SMITH: Right.
RAY SUAREZ: .. as a time when working people were making pretty good livings?
HEDRICK SMITH: Well, they were living the American dream. They had pretty steady jobs. They had rising pay.
They had benefits, health care; 85 percent of the people who worked for companies of over 100 employees had health care, had retirement payments, a monthly check until you died on top of your Social Security, could afford to buy a home, pay off that mortgage over 30 years, and hope that your kids would do better.
That's a big chunk for an awful lot of people.
It made America the envy of the world. It let Richard Nixon go to Moscow and tell Nikita Khrushchev, the Soviet leader, we have a classless society.
RAY SUAREZ: That is also -- the people living that dream are also numerically the largest part of the United States.
HEDRICK SMITH: Sure.
RAY SUAREZ: How did they become so politically weak?
HEDRICK SMITH: Well, they were very strong back then.
As you know, Ray, the environmental movement was strong, put pressure on Washington.
The labor movement was strong, put pressure on General Motors and General Electric and U.S. Steel and so forth.
The civil rights movement put pressure on Washington to open up the American Dream to blacks and other minorities.
Part of what happened to them was, it was so successful. But part of what happened to them was, there was a power shift. There was a tremendous change of power in Washington. And that had a big effect on the ability of middle-class Americans to achieve the American dream.
And the other thing that happened is what I call wedge economics, the splitting of the American middle class off from the gains of the national economy, so that today you can see the economy improving bit by bit, but middle-class people aren't doing that much better.
People at the top are doing real well. Corporations are reporting profits, but the people in the middle aren't doing that well.
Back in the old days, back in the heyday of the middle class, everybody shared in that prosperity. Today, everybody doesn't share in that prosperity. And that's why so many people feel so much pain.
RAY SUAREZ: You take us again and again in the book to key moments where things could have gone one way, but they went another. And one was the movement of tens of millions of workers from defined benefit to self-funded pensions. Tell us about that.
HEDRICK SMITH: You know, it's amazing.
Everyone talks about 401(k). Almost nobody knows why it's called the 401(k). It's because it's that far down in the tax code. It is buried deep in the tax code.
When it was passed, it was never intended to be a national retirement system. It was put in the tax code as a favor to Kodak and Xerox, who have headquarters up in Rochester, N.Y., by the Republican congressman Barber Conable, who came from that district.
They wanted a tax shelter to give extra money to their executives.
Fast forward. In the Reagan administration, somebody said, hey, let's give that to ordinary people.
Fast forward again. The mutual fund industry says, wow, we get ahold of all those billions of dollars of retirement savings, we can make a lot of money.
Power to the people. Do it yourself. It's been a disaster for most Americans. They don't save enough. When they change jobs, they take their money out. When times get rough, as they have been recently, neither the company nor the individual contributes, with the result that the average balance is about $18,000 in a 401(k).
And if you're just on the lip of retirement, it's maybe $85,000 for somebody who is in their 60s and who has been in the plan for 20 years.
That's nowhere near enough. People will say, if you have been making $50,000 a year, you need a half-a-million.
So, we have got half of the baby boomer generation headed for poverty essentially in retirement, living on essentially only their Social Security.
RAY SUAREZ: How do you explain the upward distribution of income? The new dollars that came into the economy went very heavily up to the top quintiles of earnings.
HEDRICK SMITH: Right.
RAY SUAREZ: Yet, we don't have a society that's built on envy, resentment, a desire for expropriation. How do those things live side by side?
HEDRICK SMITH: Yes, that's a very good question. Let's just take the facts for a moment.
What happened was, the productivity of the American work force from World War II to the mid-'70s grew almost double, 97 percent. The wage and salaries of average Americans, not just assembly line workers, but plumbers, carpenters, small business people, and so forth, they rose 95 percent, so just about the same increase in wages and salaries as in productivity.
The wealth, the growth, the economy, the prosperity was shared.
Since then, however, those wedge economics came in. And what you have seen is productivity has continued to grow, about 80 percent since 1973. But the average hourly compensation of an average worker has grown only 10 percent.
The CEOs' pay has quadrupled, sextupled. The income of the people at the top 1 percent has grown 600 percent.
The Census Bureau says the average male worker since 1978 is making just the same pay, adjusted for inflation. So it's flat in the middle and it's soaring up at the top, tremendous inequality.
I think you're right. People don't favor expropriation. Americans are more tolerant of economic inequality than, say, Europeans and Asians and so forth.
But you do see in poll after poll people are -- there's too many wealth concentrated at the top. There's too much power in Washington lobbyists. The tax system should be changed to raise taxes on the top brackets. Two-thirds of Americans agree in almost every poll to those numbers.
So there is sentiment to change things. But there's not anger in any kind of rebellious sense of word. In fact, there's not even the same kind of anger that prompted the middle class to protest back in the '60s and '70s.
RAY SUAREZ: There are tons of books covering this era that take a cut of it just as a political story or just as an economic story or even as a cultural story.
The story you're trying to tell here needs to be all those things. I think you're saying you have to look at it all in an interlocking way to understand it.
HEDRICK SMITH: Absolutely. Such a good point you're making here.
What we forgot was that middle-class prosperity, economics, depended on middle class power, public politics.
And, today, this gross inequality that you see in income is accompanied by a starkly unequal democracy, symbolized by the super PACs, symbolized by the fact that business lobbyists -- business spends 65 times as much money on lobbyists as labor does.
There are 12,500, roughly, business lobbyists, registered lobbyists lobbying Congress in the administration, and only 400 for labor.
So, you have this very lopsided economic situation right alongside this very lopsided political situation.
RAY SUAREZ: "Who Stole the American Dream?"
Hedrick Smith, thanks a lot.
HEDRICK SMITH: Thank you, Ray.
“Who Stole the American Dream?” by Hedrick Smith
By Frederick R. Lynch,October 27, 2012
Saving the middle class has become a battle cry in the 2012 presidential campaign — and it’s no wonder. According to a recent Pew Research Center study, the percentage of Americans considered middle class has dwindled to 51 percent from 61 percent in 1971. But the Pew report does not explain the political and economic forces behind this decline. That’s a task Hedrick Smith sets for himself in his new book, “Who Stole the American Dream?”
Long before most reporters and social scientists took note, Smith had established himself as television journalism’s foremost expert on the forces eroding the ranks of the middle class. In a series of penetrating “Frontline” documentaries over more than a decade, he chronicled the rise of a new buccaneer brand of global capitalism that relentlessly undermined the middle-class dream of “a steady job with decent pay and health benefits, rising living standards, a home of your own, secure retirement, and the hope that your children would enjoy a better future.” Now in a sober, self-described reporter’s book, Smith deepens his analysis using the latest data.
The American dream’s demise, Smith says, began with a corporate rebellion against President Richard Nixon’s aggressive business regulations. That blowback ended a long postwar era of shared prosperity and power based on relatively stable relationships between business, government and labor. Alarmed corporate chiefs raised an army of lobbyists who helped pave the way for new federal legislation and regulations that benefited American businesses operating in an increasingly globalized marketplace. Corporate domination of U.S. politics, Smith writes, set off an era of economic dislocation and political polarization.
In Smith’s telling, America’s corporate plutocracy has largely abandoned even the pretense of stewardship, loyalty or patriotism. It has imported cheap foreign workers to replace millions of Americans in an increasingly wide range of occupations: from agricultural and construction labor to high-tech and banking professionals. Corporate chieftains also moved offshore many of the nation’s once-unionized, blue-collar jobs and low-level white-collar jobs, such as working in call centers. (Smith cites Thomas Jefferson’s prescient warning: “Merchants have no country.”)
Smith views 1978 as a pivotal year. First, Congress revised bankruptcy laws to allow troubled corporations to restructure rapidly by abrogating union contracts and other employee agreements. Second, lawmakers enacted a little-noticed tax-code provision designed to let workers supplement existing pension plans with individual retirement accounts. Corporations unexpectedly seized upon the new plans as an excuse to eliminate expensive, professionally administered, lifetime pensions. The result: Employees’ share of retirement costs went from 11 percent in the 1950s to 51 percent by the mid-2000s; insufficient or badly managed retirement investing by individual workers has given rise to predictions that perhaps half of aging boomers may end their lives in poverty. (Employers also took a parallel path in health insurance, shifting costs to employees via higher premiums and deductions.)
Finally, a 1978 Supreme Court decision permitted banks to offer high-interest, low minimum-payment credit cards, even to Americans with bad credit histories — sowing the seeds for a massive credit card debt bubble. That process, followed two decades later by a residential real estate boom and bust, eventually bankrupted millions of middle-class Americans.
“Who Stole the American Dream?” provides a grim panorama of the real-world consequences of these power shifts: concentration of financial assets and higher incomes in fewer hands; race-to-the-bottom wage and sales dynamics (epitomized by the rise of Wal-Mart) that pit American producers against Asian sweatshop factories and result in massive sales of imported, cheap merchandise that, in turn, eviscerates small, local retailers; efforts by America’s highly admired high-tech moguls (from Steve Jobs to Bill Gates) to transfer overseas much of our knowledge-based economy;the evolution of a Washington-Wall Street “symbiosis” that dominates White House and congressional policymaking and thrives on political gridlock.
Smith’s saga of economic and political polarization is so downbeat and devastating that there seems little hope for his modest blueprint for change: a 10-step “Domestic Marshall Plan” based on new public-private commitments to rebuild the nation’s infrastructure, foster high-tech growth and a manufacturing renaissance, enact a reformed tax code favoring domestic job creation, etc. Smith also pines for new, transcendent leadership and a progressive populism that valuesjobs and fairness and stands up to the “influence of money in elections and on legislative policy-making.”
Smith’s book is rambling, a bit disorganized and crowded with an almost overwhelming number of topics. Yet he overlooks two fundamental sociological trends that will complicate any rebuilding of America’s middle class.
First, among non-college-educated Americans, the linchpin of stable middle-class life — long-term marriage — is foundering in a rising tide of never-married moms, divorce, cohabitation, childless individuals and couples, and serial partnerships. Second, an electorate that is disproportionately white, older, relatively wealthy, better-educated and anxious wants full funding of Medicare, Social Security and pensions; but this group resists additional spending or taxes for schools, roads and other infrastructure improvements that would benefit a general population that is younger, more immigrant and multi-ethnic, poorer, less educated, and economically vulnerable.
Smith emphasizes a crucial point: Corporate domination of U.S. politics has produced far greater class polarization than in Europe or Japan. Politics and policy making matter. But Americans historically have been more willing than Europeans to tolerate high inequality levels if accompanied by strong economic growth and a healthy middle class. Whether the Great Recession and the low-growth recovery have fundamentally altered this outlook will be registered in the upcoming election.