Who Stole the American Dream?

by Hedrick Smith

  17 “Middle class is the key” Rush Limbaugh, “Democrats and the Middle Class,” The Rush Limbaugh Show, October 25, 2011, http://​www.​rushlimbaugh.​com.

  18 “Middle class that made America great” Richard Trumka, “Your Money,” CNN, September 4, 2011, http://​transcripts.​cnn.​com; and Trumka, remarks, Brookings Institution, September 30, 2011, http://​www.​brookings.​edu.

  19 Unequal Democracy The title of Princeton University professor Larry M. Bartels’s excellent book on modern U.S. politics and economics: Bartels, Unequal Democracy: The Political Economy of the New Gilded Age (New York: Russell Sage Foundation; Princeton, NJ: Princeton University Press, 2008).

  20 “Powerlessness also corrupts” William Greider, Who Will Tell the People? The Betrayal of American Democracy (New York: Simon & Schuster, 1992), 20.

  21 “An elaborate influence-peddling scheme” John McCain, CNN AllPolitics, June 30, 1999.

  22 Business has employed thirty times as many “Lobbying Database,” Center for Responsive Politics, based on data from the Senate Office of Public Records, January 31, 2011, http://​www.​opensecrets.​org/​.lobby/​index.​php; Lee Jared Drutman, The Business of America Is Lobbying, online doctoral thesis (Berkeley: University of California at Berkeley, Fall 2010), 5, 140–141, http://​www.​leedrutman.​com.

  23 From 1998 through 2010 “Lobbying Database”: With this database, the Center for Responsive Politics covers lobbying expenditures from 1998 through 2011 for thirteen sectors—Labor; “Ideology,” or single-issue lobbying; “Other”; and ten business-related categories (listed in descending order of their lobbying expenditures): Health; Miscellaneous Business; Finance/Insurance/Real Estate; Communications/Electronics; Energy/Natural Resources; Transportation; Agribusiness; Defense; Construction; and Lawyers& Lobbyists. That database shows business lobbying expenditures from 1998 through 2010 of $28,562,488,910, compared with $492,244,499 for labor. In all, business groups accounted for 85.71 percent of the total lobbying expenditures and labor for 1.48 percent for those twelve years.

  24 No countervailing power matches Drutman, thesis, 117.

  25 Share of world trade shrank William H. Branson, Herbert Giersch, and Peter G. Peterson, “Trends in United States International Trade and Investment Since World War II,” in The American Economy in Transition, ed. Martin Feldstein (Chicago: University of Chicago Press, 1980), 183–84.

  26 “Empire of consumption” Charles S. Maier, Among Empires: American Ascendancy and Its Predecessors (Cambridge, MA: Harvard University Press, 2006), 255.

  27 Germany took a different fork David Leonhardt, “The German Example,” The New York Times, June 8, 2011; Steven Rattner, “The Secrets of Germany’s Economic Success: What Europe’s Manufacturing Powerhouse Can Teach America,” Foreign Affairs 90, no. 4 (July–August 2011); Leslie H. Gelb, “What Germany’s Economy Can Teach Us,” Daily Beast, June 5, 2011, http://​www.​thedaily​beast.​com; Kevin Phillips, Wealth and Democracy: A Political History of the American Rich (New York: Broadway Books, 2003), 163.

  28 Multitrillion-dollar trade deficits The U.S. trade deficits totaled $6 trillion from 2000 through 2010. Germany’s trade surplus totaled $2 trillion. “U.S. Trade in Goods and Services, Balance of Payment Basis, 1960–2011,” U.S. Census Bureau, Foreign Trade Division, March 9, 2012, http://​www.​census.​gov/​foreign-​trade/​statistics/​historical/​gands.​pdf; German Office of Federal Statistics, “Foreign Trade Data: Overall Development in Foreign Trade Since 1950,” Statistisches Bundesamt, Deutschland, February 21, 2012, http://​www.​destatis.​deDocument2.

  29 Pay of middle-class workers in Germany Leonhardt, “German Example”; Robert B. Reich, “The Limping Middle Class,” The New York Times, Sunday Review, September 4, 2011.

  30 Today, 21 percent of Germans work In U.S. nonfarm payroll of 131.6 million, the Bureau of Labor Statistics listed 11.8 million in manufacturing in September 2011: “The Employment Situation, September 2011,” October 7, 2011, http://​www.​bls.​gov. For German figures, see U.S. Bureau of Labor Statistics, International Comparisons of Annual Labor Force Statistics: Adjusted to U.S. Concepts, 10 Countries 1970–2010, table 2–8, “Percentage of Employment in Manufacturing,” March 30, 2011, 23, http://​www.​bls.​gov/​fls/​flscomparelf/​lfcompendium.​pdf.

  31 The difference is not in technology Marcus Walker, “Is Germany Turning into the Strong Silent Type?” The Wall Street Journal, July 27, 2011; Gelb, “What Germany’s Economy Can Teach Obama.”

  32 Middle class was left behind Neither ordinary Americans nor experts agree on what constitutes the U.S. middle class. In opinion polls, close to half of Americans, from people who make $45,000 a year to those who make $200,000, call themselves middle class. The U.S. Census Bureau reports the median household income—right in the middle—was $49,445 in 2010 and that 80 percent of all U.S. families had household incomes below $100,065. Typically, economists divide the current U.S. population of 312 million into income quintiles, or fifths. In its income analysis, the Congressional Budget Office uses four groupings: the bottom fifth; the three middle fifths; the top fifth, and the top 1 percent—corresponding to lower-income, middle-income, and upper-income groupings, plus the super-rich. At the high end, income analysts such as Emmanuel Saez of the University of California at Berkeley separate the top 10 percent from the lower 90 percent and then differentiate among the top 1 percent (the super-rich, with annual incomes above $352,000) and the next 9 percent (upper middle class and wealthy). I have followed the CBO groupings with the exception that I have moved the middle class up by ten percentiles. Since the U.S. Census Bureau tops out household income for the lowest quintile at $20,000 (below the official poverty level of $22,811 for a family of four), it seems mistaken to include that level in the middle class. Accordingly, like some other analysts, I group as poor and low income the bottom 30 percent (90 million people with incomes below $28,636). The middle class comprises the thirtieth through the eightieth percentiles, 150 million people with household incomes from just below $30,000 to $100,065; the upper middle class from the eightieth to the ninety-fifth percentiles (45 million making $100,065 to $150,000, using Census Bureau and Saez figures); the wealthy as the top 5 percent (15 million people earning above $150,000), topped by the super-rich 1 percent (3 million people with household incomes topping $352,000). For income and poverty level figures, see U.S. Census Bureau, “Income, Poverty, and Health Insurance Coverage in the United States: 2010,” issued September 2011, 14–16, table A-3, which shows quintile levels and the mean level for the second quintile at $28,636; for total U.S. population, see Census Bureau, “Monthly Population Estimates for the United States, April 1, 2010 to March 1, 2012,” http://​www.​census.​gov/​popest/​data/​state/​totals/​2011/​tables/​NA-​EST2011–​01.​xls; CBO “Trends in the Distribution of Household Income Between 1979 and 2007,” October 2011, http://​cbo.​gov/​sites/​default/​files/​cbofiles/​attachments/​10-​25-​Household​Income.​pdf; Emmanuel Saez, “Striking It Richer,” updated to 2010, March 7, 2012, elsa.​berkeley.​edu/​~saez/​saez-​UStopincomes-​2010.​pdf; Lawrence Mishel, director, Economic Policy Institute, email, March 29, 2012; Haskins and Sawhill, Creating an Opportunity Society, 48–50.

  33 Getting nowhere Ibid.; Conor Dougherty, “Income Slides to 1996 Levels,” The Wall Street Journal, September 14, 2011.

  34 “More productive, more profitable, flush with cash” Scott Thurm, “U.S. Firms Emerge Stronger,” The Wall Street Journal, April 9, 2012.

  35 Two-thirds of Americans “Rising Share of Americans See Conflict Between Rich and Poor,” Pew Research Center, January 11, 2012, http://​www.​pewresearch.​org.

  36 “Virtuous circle of growth” Thomas I. Palley, “America’s Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession,” New American Contract (Washington, DC: New America Foundation, June 2009), http://​www.​newamerica.​net.

  37 Dynamic t
hrust of “the virtuous circle” Ibid.

  38 What we need now Jeffrey R. Immelt, “An American Renewal,” Detroit Economic Club, June 26, 2009, http://​www.​econclub.​org.

  39 A domestic Marshall Plan Horizon Project, “Report and Recommendations,” February 2007, http://​www.​horizonproject.​us.

  40 Management and labor doing give-and-take Nick Bunkley, “G.M. Contract Approved, with Bonus for Workers,” The New York Times, September 29, 2011; “GM, UAW Pioneer a Competitive Path,” Detroit News, September 28, 2011; Bill Vlasic and Nick Bunkley, “In Deal with Ford, Union Wins Wage Increases and Additional Jobs,” The New York Times, October 4, 2011.

  41 Big Three carmakers planned to invest Joseph B. White, Jeff Bennett, and Lauren Weber, “Car Makers’ U-Turn Steers Job Gains,” The Wall Street Journal, January 23, 2012.

  42 Manufacturing employment Floyd Norris, “Making More Things in the U.S.A.,” The New York Times, January 6, 2012; David Wessel, “Factory Floor Has a Ceiling on Job Creation,” The Wall Street Journal, January 12, 2012.

  43 Cost advantages of China “Moving Back to America: The Dwindling Allure of Building Factories Offshore,” The Economist, May 12, 2011; John Bussey, “Buck Up, America: China Is Getting Too Expensive,” The Wall Street Journal, October 7, 2011.

  44 A few companies such as General Electric John Schmid, “Master Lock Reassessing China,” JSOnline, Milwaukee Journal-Sentinel, January 1, 2011; Eduardo Porter, “The Promise of Today’s Factory Jobs,” The New York Times, April 4, 2012; Annie Lowrey, “White House Offers Plan to Lure Jobs to America,” The New York Times, February 4, 2012.

  45 In all, some 25,000 manufacturing jobs James R. Hagerty, “Once Made in China: Jobs Trickle Back to U.S. Plants,” The Wall Street Journal, May 22, 2012.

  46 “The American people themselves” Gardner, “American Experiment.”

  47 More than half “Tea Party House Members Even Wealthier than Other GOP Lawmakers,” Center for Responsive Politics, January 4, 2012, http://​www.​opensecrets.​org/​news/​2012/​01/​tea-​party-​house-​members-​wealthy-​gop.​html.

  48 “We are the 99 percent” Brian Stelter, “Camps Are Cleared but ’99 Percent’ Still Occupies the Lexicon,” The New York Times, November 30, 2011.

  49 “Powerful thrust of energy” Gardner, “American Experiment.”

  PART 1: POWER SHIFT

  1 Powell’s personal manner Linda Greenhouse, “Lewis Powell, Crucial Centrist Justice, Dies at 90,” The New York Times, August 26, 1998.

  CHAPTER 1: THE BUSINESS REBELLION

  1 “The danger had suddenly escalated” Thomas Byrne Edsall, The New Politics of Inequality (New York: W. W. Norton & Co., 1984), 113–14.

  2 “There has been a significant erosion” Ibid., 13.

  3 “Revolt of the Bosses” Ted Nace, Gangs of America: The Rise of Corporate Power and the Disabling of Democracy (San Francisco: Berrett-Koehler, 2003), 137–51.

  4 Powell warned the corporate community Powell, memorandum, “Attack on American Free Enterprise System,” August 23, 1971, http://​www.​aspenlaw​school.​com.

  5 Business was being victimized Ibid.

  6 “Business must learn the lesson” Ibid.

  7 In a private session Nixon meeting with Henry Ford II and Lee Iacocca, White House tapes, cited in Tom Wicker, One of Us: Richard Nixon and the American Dream (New York: Random House, 1991), 515.

  8 Nixon administration was swept along Jacob S. Hacker and Paul Pierson, Winner-Take-All Politics: How Washington Made the Rich Richer—and Turned Its Back on the Middle Class (New York: Simon & Schuster, 2010), 97.

  9 “He didn’t know much” Excerpt of interview of William Ruckelshaus for the Frontline program “Poisoned Waters,” September 3, 2008.

  10 “Most of the people” Ibid., July 28, 2008.

  11 His package also included David Vogel, Fluctuating Fortunes: The Political Power of Business in America (New York: Basic Books, 1989), 62–63.

  12 “The most ‘anti-rich’ tax reform” Edwin L. Dale, Jr., “It’s Not Perfect, but It’s the Best Yet,” The New Republic, May 3, 1969.

  13 Business sprang to life Vogel, Fluctuating Fortunes, chap. 8, “The Political Resurgence of Business.”

  14 The chief executives Hedrick Smith, The Power Game: How Washington Works (New York: Random House, 1989), 31.

  15 “If you don’t know your senators” Leonard Silk and David Vogel, Ethics and Profits: The Crisis of Confidence in American Business (New York: Simon & Schuster, 1976), 65.

  16 Quickly expanded their agenda Edsall, Politics of Inequality, 121–26.

  17 The National Association of Manufacturers Vogel, Fluctuating Fortunes, 193–200; Nace, Gangs of America, 137–42.

  CHAPTER 2: THE PIVOTAL CONGRESS

  1 “Fifteen years ago, the businessman” “The Swarming Lobbyists: Washington’s New Billion-Dollar Game of Who Can Influence Whom,” Time, August 7, 1978, 14.

  2 “Business’s new lobbying weapon” “A Potent New Business Lobby,” Business Week, May 22, 1978.

  3 The decisive force “The Swarming Lobbyists.”

  4 “Never seen such extensive lobbying” “Carter Dealt Major Defeat on Consumer Bill,” CQ Almanac 1978 (Washington, DC: Congressional Quarterly, 1979).

  5 A disastrous defeat Hacker and Pierson, Winner-Take-All Politics, 126–27.

  6 Council on Union-Free Environment “Council Is Formed by NAM for Union-Free Environment,” The Washington Post, December 2, 1977.

  7 It passed the House “House Passes Bill Aiding Union Drives,” The New York Times, October 7, 1977.

  8 “What the filibuster does” Ray Marshall, interview, June 14, 2011.

  9 Douglas Fraser … resigned Jefferson Cowie, “ ‘A One-Sided Class War’: Rethinking Doug Fraser’s 1978 Resignation from the Labor-Management Group,” Labor History 44, no. 3 (2003): 307–14.

  10 Some wins for labor “Carter Signs Minimum Wage Bill, Giving Raises of 45 Percent by ’81,” The New York Times, November 2, 1977.

  11 Federal minimum wage fell U.S. Department of Labor, “Federal Minimum Wage Rates Under the Fair Labor Standards Act,” http://​www.​dol.​gov/​whd/​minwage/​chart/​pdf; and U.S. Bureau of Labor Statistics, “B-2: Average Hours and Earnings of Production and Nonsupervisory Workers on Private Nonfarm Payrolls by Major Industry Sector, 1964 to Date,” http://​www.​bls.​gov/​ces/​#tables.

  12 The first priority “Congress Clears Trucking Deregulation Bill,” CQ Almanac 1980 (Washington, DC: Congressional Quarterly, 1981); “Congress Clears Airline Deregulation Bill,” CQ Almanac 1978 (Washington, DC: Congressional Quarterly, 1979); “House, Senate Advance Bills to Curb FTC,” CQ Almanac 1979 (Washington, DC: Congressional Quarterly, 1980).

  13 The first major bankruptcy reform Lynn M. LoPucki and William C. Whitford, “Corporate Governance in the Bankruptcy Reorganization of Large, Publicly Held Companies,” University of Pennsylvania Law Review 141, no. 3 (January 1993): 674–75, 688–92, 719; Robert Lawless, email, January 6, 2012.

  14 Labor union contracts Lawless, email, December 21, 2011.

  15 Banks got top priority “Congress Approves New Bankruptcy System,” CQ Almanac 1978 (Washington, DC: Congressional Quarterly, 1979), 179–82.

  16 “A big part of the selling” Elizabeth Warren, interview, February 6, 2006.

  17 Instead of tax increases “Congress Preparing Tax Lop-offs: Capital Gains, Retired Get Biggest Relief,” Associated Press, October 15, 1978; How Capital Gains Tax Rates Affect Revenues: The Historical Evidence (Washington, DC: Congressional Budget Office, March 1988), 34, http://​www.​cbo.​gov.

  18 “Business began to see” Arthur Levitt, interview, April 20, 1986.

  CHAPTER 3: MIDDLE-CLASS POWER

  1 “This hallowed spot” Martin Luther King, Jr., speech, “I Have a Dream,” Washington, D.C., August 28, 1963, http://​www.​pbs.​org/​newshour/​extra/​teachers/​lessonplans/​english/​mlk_​transcript.​pdf.

  2
“Deep public concern” Excerpt of interview of William Ruckelshaus for the Frontline program “Poisoned Waters,” September 3, 2008.

  3 “No one could remember” Russell Baker, “Capital Is Occupied by a Gentle Army,” The New York Times, August 29, 1963.

  4 “Probably the most thoroughly segregated city” Martin Luther King, Jr., letter from the Birmingham Jail, in Reporting Civil Rights, part 1 (New York: Library of America, 2003), 778.

  5 “A community of fear” Harrison Salisbury, “Fear and Hatred Grip Birmingham,” The New York Times, April 12, 1960.

  6 By his personal involvement King, letter, 784–85.

  7 “Money is color-blind” Andrew Young, interview, February 8, 2011.

  8 A deal slowly emerged Hedrick Smith, “A Dozen Men Hammered Out Birmingham Agreement in Home of Negro Executive,” The New York Times, May 11, 1963.

  9 “Promissory note” King, “I Have a Dream.”

  10 “He shook hands” John Lewis, interview, April 6, 2011.

  11 It fell to Lyndon Johnson Nick Kotz, Judgment Days: Lyndon Baines Johnson, Martin Luther King Jr., and the Laws That Changed America (Boston: Houghton Mifflin, 2005), 18–19; Taylor Branch, Pillar of Fire: America in the King Years, 1963–65 (New York: Simon & Schuster, 2005), 177.

  12 Johnson was challenging King Kotz, Judgment Days, 18–19.

  13 Bloody march at Selma Lewis, interview, April 6, 2011.

  14 Twenty million Americans Philip Shabecoff, A Fierce Green Fire: The American Environmental Movement (Washington, DC: Island Press, 2003), 103–10.