The Betrayal of the American Dream

by Donald L. Barlett

  Today, it’s not just Wall Street that discounts the significance of the great American middle class. In 2011, AdAge, the trade publication for the advertising industry, declared the era of mass affluence over in America, adding: “Simply put, a small plutocracy of wealthy elites drives a larger and larger share of total consumer spending and has outsize purchasing influence—particularly in categories such as technology, financial services, travel, automotive, apparel, and personal care.” From now on, if you don’t make $200,000, you don’t count, according to the advertising industry.

  Barring wholesale changes in public policy, the coming years will be grim for millions of American men and women. To be sure, there will be ups and downs in the economy, enabling the mainstream news media and cable television to proclaim from time to time that all is well, just as they did in the early 1990s. But the dismal fact is that for tens of millions of middle-class Americans, as well as for the working poor who hope to achieve that status, the American dream is over. As for the mantra heard ever since the 1950s—that children can expect to enjoy a better life than their parents—only the delusional believe it today.

  This is a sea change in American life without modern parallel. Where once we were told, over and over, that anyone could move up the economic ladder, now that movement is, with some exceptions, down. If existing policies remain in place, all that will be left will be the upper end of what once was a thriving, broad-based middle class. Everyone else will be toiling on a treadmill. “Retirement” will join “pension” as an archaic term in the dictionary. And if those who write the economic rules continue to have their way, those terms will be joined by some others too. Having dismantled the economic support network that underpinned the world’s largest middle class, the members of the ruling class have set their sights on another goal that, if achieved, would put the middle class in an even deeper hole: they are promoting “austerity” in government budgets and policies—cuts in programs such as Social Security and Medicare—for everyone but themselves.

  Only once before in American history, the nineteenth-century era of the robber barons, has the financial aristocracy so dominated policy and finance. Only once before has there been such an astonishing concentration of wealth and power in an American oligarchy. This time it will be much harder to pull the country back from the brink.

  What is happening to America’s middle class is not inevitable. It’s the direct result of government policy, and it can be changed by government action. Look no further than at what the governments of our trading partners do to protect their people and advance the interests of their country. We could do the same.

  But the United States has taken a totally different route.

  “Running the country like a business means everyone is expendable,” says Christine Wright-Isak, a former advertising executive who teaches marketing at Florida Gulf Coast University. “Is that the kind of country we want?”

  In the forty years that we have been researching and writing about issues that affect all of us, we have never been so concerned for the future of our country. The forces that are dismantling the American middle class are relentless.

  America must stop sacrificing its greatest asset. Because, without a middle class, there isn’t really an America.

  CHAPTER 1

  ASSAULT ON THE MIDDLE CLASS

  Her name was Barbara Joy Whitehouse, but everyone called her Joy, and after you met her you knew why.

  She was sixty-nine, and though hobbled by ill health, her eyes sparkled and she wore a smile. A wisp of a woman who had probably never weighed a hundred pounds, she radiated dignity and resolve.

  Joy lived in a small home in a community called Majestic Meadows, a mobile home park for seniors just outside Salt Lake City. In her backyard was a shed that was filled with used aluminum cans—soda cans, soup cans, and vegetable cans—that she had collected from neighbors or found alongside roadways.

  Twice a month she took them to a recycler who paid her as much as $30 for her harvest of castoffs. When your fixed income is $942 a month, as hers was, an extra $30 here and there makes a big difference. After paying rent, utilities, and insurance, Joy was left with less than $40 a week to cover everything else. So the money from cans helped pay for groceries as well as her medical bills for the cancer and chronic lung disease she had battled for years.

  “I eat a lot of soup,” she said.

  As a young woman, Joy never dreamed that her later years would be spent this way. She and her husband had raised four children in Montana, where he earned a good living as a long-haul truck driver. But in 1986 he was killed on the job in a highway accident attributed to faulty maintenance on his truck. It happened during a period when his company was struggling to survive the cutthroat pricing that Congress legislated when it deregulated the trucking industry. After her husband’s death, Joy knew that her future would be tough, but she was confident that she could make ends meet. After all, the company had promised her a death benefit of $598 every two weeks for the rest of her life—a commitment she had in writing, one that was a matter of law.

  She received the benefit payments for four years. Then the check bounced. A corporate-takeover artist, later sent to prison for ripping off a pension fund and committing other financial improprieties, had stripped the business and forced it into U.S. bankruptcy court. There the pension obligation was erased by members of Congress who had passed laws allowing employers the right to walk away from agreements with their employees. In a country that once prided itself on creating a level playing field for everyone, those same members of Congress preserved the right of executives in those same companies to keep all their compensation, and even to raise it substantially.

  To support herself, Joy sold the couple’s Montana home and moved to the Salt Lake City area, where she had family and friends. With her savings running out, she applied early for her husband’s Social Security at a reduced rate. She needed every penny. For health reasons, she couldn’t work. In addition to lung disease that kept her tethered to an oxygen tank part of the time, she’d been further weakened by battles with uterine and breast cancer.

  Her children and other relatives offered to help with expenses, but Joy, fiercely independent, refused. Friends and neighbors pitched in to fill her shed with aluminum.

  “You put your pride in your pocket, and you learn to help yourself,” she said. “I save cans.”

  Joy’s story may sound like an isolated case of bad luck, but in one respect she vividly demonstrates what many other middle-class Americans experience these days. Thanks to Washington, Wall Street, and the ruling class, our economic security has been taken away. The good-paying jobs that underpinned a way of life have been replaced by part-time or minimum-wage jobs, if there are jobs at all. As steady work disappears, more and more people work under contracts, wages go down, and of course some have no work at all. Benefits that middle-class Americans paid for through reduced wages, benefits that promised to make their lives more secure, have been canceled.

  And the worst is yet to come, as the privileged and their associates in Congress prepare to initiate slash-and-burn policies, beginning in 2013, to balance the budget—largely on the backs of the working middle class. That’s when people will learn that they are expected to work until at least the age of seventy, assuming that they can find employers willing to hire them at that age and that they are healthy enough to handle full-time employment. At the same time that the government is requiring people to work until they are seventy before retirement benefits are available to them, for most working people fifty is all too often the new sixty-five when it comes to employment opportunities for anyone who wants to do anything other than become a greeter at Walmart.

  The ills of today’s economy are explained away by the privileged as nothing more than ongoing fallout from the recent recession. All will be better, they insist, when the economy recovers. They said the same thing twenty years ago when they attributed the economic failings of the early 1990s to a re
cession. The recession was not why the middle class was declining then. Nor is it now. The causes are deeper. The joblessness, foreclosures, and implosion of retirement savings that came into sharp focus after this last recession are no more transitory today than they were in 1992. The attack on the middle class goes back long before that.

  For decades Washington and Wall Street have been systematically rewriting the rules of the American economy to benefit the few at the expense of the many—putting in place policies that have steadily dismantled the foundation of America’s middle class.

  The future looks bleak for all but the richest Americans if these policies don’t change.

  Indeed, it’s grimmer than Washington is saying.

  A majority of the new jobs being created are at the bottom of the wage scale. And there are still not enough. We are in the fourth year of unemployment hovering above 8 percent. In April 2012, it was 8.2 percent, or 12.7 million men and women out of work. The last time we were in this situation was during the Great Depression. In 1982–1983, unemployment was above 9 percent for those two years, before dropping back into the 7 percent range. But the unemployment number the news media parrots is a Washington spin figure. The real number of people without work is north of 22 million. Think of it as the entire population of New York City and the surrounding suburbs, all looking for a job.

  Begin with the basic unemployment figure of 12.7 million. Add to that the people who were working part-time because they could not find full-time jobs, or who were forced into working less: 7.7 million. Now unemployment is 20.4 million. Finally, toss in another 2.4 million people officially identified as “marginally attached to the labor force”—those who had looked for a job in the past year but not in the month before the federal survey, partly because they were discouraged. Grand total: 22.8 million in need of a job—or nearly double the official unemployment total.

  These figures will take on new meaning in 2013, when Congress begins to mindlessly—and needlessly—wield a meat axe to government spending. Not that spending should be allowed to continue unchecked. There are many areas where it should be reduced. But the spending that should be curbed won’t be. Rather, lawmakers will pretend, as they have for several years, that spending must be slashed to bring down the deficit. Even Social Security will be on the chopping block. So, too, health care. What they really mean is the ruling class is getting ready to squeeze working people even more.

  The financial deregulation that enriched Wall Street and triggered the Great Recession was just the latest in a long series of moves by the economic elite to consolidate their control of the American economy. They have:

  • Created a tax system that is heavily weighted against the middle class

  • Deregulated sectors of the economy and in so doing killed jobs or lowered wages for employees across entire industries such as airlines and trucking

  • Ignited in the financial sector a wildly speculative run-up in mortgage-backed securities of little value that imploded in the 2008–2009 recession

  • Encouraged corporations to transfer jobs abroad and eliminate jobs in this country to bolster the value of stock, increase dividends, and boost executive compensation

  • Enabled companies to eliminate positions and replace permanent employees with contract workers at lower pay and with no benefits

  • Allowed multinational corporations to shelter profits overseas and avoid paying taxes on earnings that could be used to help stimulate jobs at home

  • Forced 11 million people with mortgages that exceed the value of their homes to make monthly payments to the banks that caused the housing collapse—a debt they will never be able to pay off

  • Refused to support the growth of new industries that could generate jobs for the future

  Look upon all this as the end of a broad-based middle class in America.

  MORE FOR THE FEW

  Throughout its history, America has dazzled the world with the outsized fortunes of its entrepreneurs and industrial titans. But the heart and soul of our democracy has long been its middle class, a beacon of opportunity to the world. Entrance into America’s middle class meant a good job, decent benefits, your own house. Maybe it wasn’t a way to get rich, but at least it was a chance to have a good life. It attracted the brightest and the best to America, and our life, economy, and culture were immeasurably richer.

  The optimism of the past has given way to raw fear—middle America worries over how to pay the bills, whether they can send their kids to college, whether they will ever be able to retire. The insecurity is rampant. “I’d say 99 percent of Americans are not sure they’re going to have a job next year,” says Tom Toner of West Chester, Pennsylvania, a former telecommunications industry manager and engineer who lost two jobs to downsizing and offshoring before trying to start his own business. His income is a fraction of what it once was.

  How did this happen? Who decided to dismantle the American middle class?

  Despite obligatory comments about the importance of the middle class and why it should be helped, America’s ruling class doesn’t really care. They’ve moved on, having successfully created through globalization a world where the middle classes in China and India offer them far more opportunities to get rich.

  The chief executive officer of a global hedge fund made this clear to Reuters journalist Chrystia Freeland when he told her, as she later wrote in the Atlantic, that

  his firm’s investment committee often discusses the question of who wins and who loses in today’s economy. In a recent internal debate, he said, one of his senior colleagues had argued that the hollowing-out of the American middle class didn’t really matter. “His point [the CEO explained] was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade.”

  The only problem is that no one told working Americans they were going to forfeit their future so that people in China, India, Brazil, and other developing countries could become part of a global middle class. In theory, this should not be a zero-sum game. But it is because Washington and corporate America have structured the rules that way.

  No one disputes that globalization, no matter what policies the federal government might have adopted, would have eliminated jobs in certain industries in the United States as Asian, eastern European, and Latin American economies developed to replace that work. But where U.S. policy broke down was in failing to make that transition less traumatic for existing workforces and compel other nations to open their markets to U.S. exports to offset the losses at home.

  At every step in the globalization process, the American middle class has been misled by corporate leaders, politicians, economists, and others in the economic elite. When blue-collar workers first began to lose jobs, white-collar workers were told that globalization wouldn’t affect them—that jobs in the growing service sector would in fact be the wave of the future, replacing all those factory jobs shipped overseas. But the same forces that eviscerated plant workforces are spreading through white-collar ranks, from information technology to pharmaceutical research. Under the trade policies pursued by the U.S government, very few jobs are safe anymore.

  The result is a huge transfer of wealth from the middle class to the wealthy in this country, as well as to workers in China, India, and other developing nations. No one wants to deny people in those countries the right to improve their lot, but the price of uplifting them has been borne almost entirely by American workers, while in this country the benefits have flowed almost exclusively to a wealthy super-elite. Globalization was peddled on the basis that it would benefit everyone in this country. It hasn’t, and it won’t as long as current policies prevail.

  What has happened to the middle class—the shrinking middle-class share of America’s wealth and middle-class workers’ loss of good-paying jobs and secure retirement—is told by statistics drawn from decades of tax and e
conomic data:

  The “One-Percenters”: America’s richest citizens, the “one-percenters,” would not become notorious until 2011. In 1996, when we first wrote about the “top one percenters,” recognition of their existence was just emerging. Based on 1992 data, the one-percenters were all those who earned more than $190,000, with income going all the way up to millions of dollars. The average income of those at the top went up 215 percent from 1980 to 1992, compared to 67 percent for the bottom 90 percent of tax filers. By 2010 the baseline for the one percent was $344,000. A more revealing number was the average earnings of the top income group: $950,000. By contrast, average earnings for the bottom 90 percent, according to IRS data, came to $36,000.

  Executive Excess: While earnings for middle-income wage-earners have been stagnant for decades, executive compensation has soared. In 1980 the average CEO was paid about 42 times more than the average factory worker. By 1990—when we were researching America: What Went Wrong?—CEO pay had climbed to more than 100 times that of average workers. Since then, it has tripled: today CEO pay is 325 times more than the pay of factory workers. If the earnings of manufacturing workers had gone up at the same rate as the compensation for corporate chiefs since 1990, factory workers today would earn on average $82,000. In fact, they take home about $40,000 a year, according to the Bureau of Labor Statistics (BLS). CEO pay is now so hefty that it often exceeds the corporation’s annual federal tax bill.

  Subsidizing the Rich: People generally understand the origin of the nation’s deficit: we spend more money than we take in. But why do we take in so little? Statistics culled from the mountain of IRS personal tax data available show that in 1980 a total of 4,410 individuals and couples with adjusted gross income of $1 million up to tens of millions filed federal tax returns. On average, they reported that they owed $999,944—in other words, just short of $1 million each.