The Betrayal of the American Dream

by Donald L. Barlett

  A first-generation Greek American, Odell had graduated from the University of South Florida with a degree in business administration in 1990. But she quickly found out that “it was not a good time to be a brand-new graduate with a business degree,” she said. When she couldn’t find anything but minimum-wage jobs, she realized that “this isn’t what I want for the rest of my life.” So she went back to school to become a nurse. There she became fascinated with computers and the rapidly emerging Internet. She started a website and became active with newsgroups through Usenet, tried her hand at building websites, and became proficient in using the new personal computer software that was constantly arriving. By the time she earned her nursing degree in 1995, there was such a demand for people with computer experience that she went into IT, first at a small company in the Tampa area, and then in 2000 at PricewaterhouseCoopers.

  After losing her job, Odell wondered what she would do next. She had the qualifications and résumé to land another job in IT, though IT jobs were scarce in the Tampa Bay area. But the more she thought about it the more she felt that there was no future for IT in the United States. As she wondered whether to change careers, a meeting at PwC helped Odell make up her mind.

  Like others who were on their way out the door, she attended counseling sessions arranged by the company to help them with their “transition.” At one meeting she attended with about sixty others, the employees were asked what they were thinking about doing next.

  “Every single person was choosing a different field,” she said. “Not one person said, ‘I’m going to be looking for the kind of job I was doing.’”

  One said she was going to nursing school. Another decided to open a cake decorating business.

  “If I’d had any doubts about making a complete career change, that settled it for me,” she said. “Because PwC had really smart people, and if all these really smart people are saying they want training for some other field, then collectively as a group we must be right.”

  She decided to return to nursing, the field where she’d earned her second degree before she went to work in IT. She had to go back to school to refresh her training, and she also had to obtain her nursing license. While in school, she took a nursing job at an acute-care facility, but cutbacks there created staff shortages and made working conditions extremely stressful.

  Odell isn’t sure that she will stay in nursing, but wherever she winds up, she knows she’ll be earning much less than she earned at PricewaterhouseCoopers. Still, she feels fortunate. Her husband, a pharmacist, has a good job, so they’ll be okay.

  Others are not as fortunate. Alex Sanabria also worked in PwC’s IT unit when he was fired in 2010. After he lost his job, Sanabria couldn’t find work in Tampa. The recession there was still raging, and there was a glut of unemployed technology workers. First, he and his wife drew down their savings to try to keep their home, which they had bought at the top of the real estate market five years earlier. But they finally had to walk away and declare bankruptcy. For Sanabria, bankruptcy was “the most gut-wrenching, awful thing I’ve ever had to do.” Eventually he and his wife moved to Colorado to live with her parents while he looked for work there. He finally found a job on the help desk of a consumer products company. He was working again, but at a much lower salary than at PwC.

  Almost as bad as the economic blow was the emotional impact. PwC was Sanabria’s first real job after college, and he says that he put his “heart and soul” into it, sometimes working sixty-five to seventy hours a week. He said he always got high marks and was moving up, taking on more responsibilities and earning raises and bonuses. Led to believe by his performance evaluations that the company valued his work, he had the feeling that “good things are coming around the corner.”

  What came around was a security escort out of the building. Like many people who lose their job, he began to doubt himself after he was fired. “You start wondering—and I don’t think this way now—but you start thinking, Maybe I wasn’t a good employee. Maybe they had a reason to let me go. I know that’s the wrong way to think. I know I went in there and did the best job I could have possibly done every day I was there, but you start getting so demoralized.”

  Irene Odell says that she and many of her former coworkers will move on, but she does worry about what is happening to the middle class. With their expenses going up and their earnings going down, they have less and less income, and the gap between most Americans and those at the top keeps on growing. She wonders:

  “When we get down the road and we end up where we’re headed—which is an elite class and a low class—is the low class going to tolerate that for a long period of time? Isn’t that what inspired the revolution?”

  NEXT TO GO

  One of the most overlooked—and most frightening—forecasts about the future of the middle class was released in December 2008. This was a study by researchers at the Labor Department that identified service jobs that might go offshore. Despite its scholarly tone, its conclusions are alarming.

  It found that as many as 160 service occupations—one-quarter of the total service workforce, or 30 million jobs—could go offshore. Jobs in those 160 categories were growing at a faster rate than service jobs overall and, ominously for future middle-class incomes, they were among the higher-paying service jobs. The Bureau of Labor Statistics calculated the annual wage for these jobs at $61,473—significantly higher than the $41,610 in annual wages for all service occupations.

  The list of vulnerable jobs and their average annual earnings is breathtaking: aerospace engineers ($92,700); aircraft mechanics ($49,670); anthropologists ($55,490); architectural drafters ($45,280); biochemists ($85,290); chemical engineers ($84,240); chemists ($68,520); epidemiologists ($63,600); fashion designers ($71,170); financial analysts ($81,700); graphic designers ($45,340); insurance underwriters ($60,120); market research analysts ($66,980); mathematicians ($90,930); microbiologists ($66,430); multimedia artists ($61,010); nuclear technicians ($65,850); pharmacists ($98,960); and tax preparers ($34,890).

  The most revelatory aspect of the BLS report was how surprised by its conclusions its authors seemed to be. The agency that specializes in economic matters affecting working Americans has spent little time looking at what may be an Armageddon for service workers. But that’s in keeping with the perennial optimism that economists generally peddle about the direction of the American economy when the subject involves free trade. Why give much ink, these optimists reason, to a problem that doesn’t fit the prevailing theory that offshoring is good?

  One of the few economists who did sound an alarm on offshoring, Alan S. Blinder of Princeton, was roundly criticized by his fellow economists when he predicted in 2007 that the offshoring of service jobs from rich countries to poor countries “may pose major problems for tens of millions of American workers over the coming decades.”

  While it’s clear that free trade, as practiced by the United States, is driving down the income of millions of working Americans, the economically elite are sticking to their message that America is on the right track.

  Harvard economist N. Gregory Mankiw, a former chairman of the Council of Economic Advisers under President George W. Bush, says that the migration of jobs from offshoring makes economic sense and is “the latest manifestation of the gains from trade that economists have talked about at least since the days of Adam Smith.... More things are tradable than were tradable in the past, and that’s a good thing.” For decades, Americans have been given misleading assurances like that. Many so-called experts have also made rosy predictions about the U.S. trade deficit. In a Washington Post article in 1992, Stephen Cooney, a senior policy director for international investment and finance for the National Association of Manufacturers, predicted that because of changes under way in the American economy, “with luck our trade deficit could disappear by 1995.” No such luck. In 1992, when Cooney made his prediction, the deficit was $39 billion. Rather than disappearing by 1995, the deficit nearly tripled to $96
billion, and it has continued to escalate; by 2011 the trade deficit had reached $560 billion.

  Gary Clyde Hufbauer, a former deputy assistant secretary at the Treasury Department, predicted in a research paper that was widely picked up by the media that NAFTA would “generate a $7 to $9 billion [trade] surplus that would ensure the net creation of 170,000 jobs in the U.S. economy the first year.” Instead, NAFTA caused an immediate trade deficit with Mexico. By 2012, the cumulative total was $700 billion. More importantly, NAFTA wiped out hundreds of thousands of good-paying manufacturing jobs in the United States.

  Hufbauer is still in the job-predicting business at a Washington think tank. One of his latest: “When American multinationals go overseas, on balance, they create more jobs here in the United States than they would have if they’d not gone overseas.”

  Right.

  THE EDUCATION TRAP

  If free trade isn’t working out for millions of middle-class Americans, the elite have the answer. American workers need more education. If they upgrade their skills, they can compete in the global economy.

  One of the promoters of this theory is Thomas Friedman, the New York Times columnist and author of the blockbuster bestseller The World Is Flat. Friedman maintains that our trade policies “must be accompanied by a focused domestic strategy aimed at upgrading the education of every American, so that he or she will be able to compete for the new jobs in a flat world.” This is one of the most shopworn theories about what has caused our trade deficit and why we have lost so many jobs to offshoring and outsourcing. And it’s wrong. The real cause is a failure of the trade policy in the first place.

  In fact, what education has done is create a false sense of security. The theory that all you need is a sheepskin and jobs will seek you out is not rooted in reality. To begin with, not everyone benefits from a college education. Truth to tell, tens of millions of Americans don’t benefit from higher education, but that doesn’t mean their potential contributions to society are any less worthwhile. To suggest that their contributions are insignificant is arrogant and also ignores the basic rules of the labor market. Flooding a jobs sector with new applicants can have only one result: lower wages for everyone, which is exactly what is happening.

  Today young Americans have more education than ever, but it’s not doing them much good. The entry-level hourly earnings of college graduates today are lower than a decade ago: $21.77 in 2010 compared with $22.75 in 2000, according to the Economic Policy Institute (EPI). This decline had little to do with the 2008–2009 recession. EPI data show that earnings of recent grads fell all through this past decade. In fact, entry-level wages have barely risen in the last three decades. While a degree is better than no degree, there are “really no safe havens—even for college graduates,” says Carl E. Van Horn, a professor of public policy at Rutgers University. “Everyone needs to calibrate, to readjust their expectations to meet the harsh realities that show little sign of letting up.”

  Even worse, more and more graduates leave college with suffocating debt loads that will make it impossible for many to achieve the lifestyles of their parents.

  By the end of 2011, total outstanding student loan debt in the United States totaled more than $1 trillion—more than all credit card debt. The average college student graduates with a debt of about $24,000. Some owe $100,000 or more. Overall, student debt is growing by $100 billion a year. Those with a vested interest assure students they are not merely borrowing money, but investing in their futures. For some, it’s true. For many, it isn’t.

  This trend creates a domino effect in the economy. It means that young people, the traditional first-time homebuyers, are unable to obtain a mortgage, hence priced out of the market. This further impacts the already dismal prospects of the homebuilding industry. The previous generation of homeowners, now ready to move up, can’t because the pool of potential buyers for their homes has shrunk. Lastly, there can be no meaningful economic recovery until the housing sector rights itself. Since 2006, the country, under the guidance of Wall Street, Washington, and the super-rich elites, has run up $7 trillion in housing losses. As the Federal Reserve explains in its dry, understated way: “Declines on this scale are unprecedented since the Great Depression.” Only the morbidly optimistic believe that any of this can be fixed within the foreseeable future.

  Forty years ago, student loan debt was such a non-issue that it barely registered as a liability in America. The rising cost of college has been a major reason for the growth of student debt, but a parallel cause has been the economic collapse of the American middle class. In years past, many middle-class parents could save enough to pay for the education of their children. No more.

  The amount of student debt was relatively unchanged throughout the 1970s, but in the 1980s—a period that coincided with growing problems of middle-income families—student debt began to spike. From 1999 to 2011, it recorded the sharpest rise yet, increasing 511 percent.

  The result is that growing numbers of young American college graduates begin their working lives (if they’re lucky enough to have a job) deep in debt and have no money to save, buy a home, or start a business—all the options of earlier generations.

  More and more of them default on their loans. The U.S. Department of Education estimated defaults at nearly 9 percent in 2011, but other sources, including the Chronicle of Higher Education, say that the actual default rate is much higher, at least 20 percent. Whatever the number, default often makes the plight of borrowers much worse.

  In 2005, bowing to the wishes of Wall Street and the financial industry, Congress passed a law that made it much harder for anyone to file for bankruptcy. The Bankruptcy Abuse Prevention and Consumer Protection Act came down especially hard on those struggling with their student loans by making it next to impossible for anyone with college loans to seek relief in bankruptcy court.

  Student loans are the only form of debt for which bankruptcy isn’t an option. Instead, borrowers have to undergo a costly process called “loan rehabilitation” run by companies holding the debt, a process that piles on more charges and plunges them even deeper in the hole. “This effectively obligates the borrower to a much larger debt than when the loan defaulted, often double, triple, or even more than the original loan amount,” according to StudentLoanJustice.org, a grassroots group.

  This means that many Americans who have college loans will never pay them off, says Nicholas Pardini, a Villanova University graduate student in finance who has followed and blogged on the issue. Instead, he says, they’ll be relegated to a “lifetime of debt slavery.”

  Debt slavery at home or iSlavery abroad? With those consequences, can we really be proud of the trade policy we’ve been following for the last thirty years?

  CHAPTER 5

  THE GREAT TAX HEIST

  Most Americans agree that the rich should pay more taxes. Poll after poll indicates that a majority—including even a few billionaires such as Warren Buffet—would like to see higher taxes on the wealthy.

  But it hasn’t happened. And it isn’t likely to happen. The ruling class won’t let it happen.

  In today’s America a minority sets policy for the majority, the opposite of what democracy should be.

  Two numbers starkly tell the story:

  In 1955 the richest Americans—the four hundred households with the highest incomes—paid 51.2 percent of their income in federal taxes.

  In 2007, on the eve of the global financial meltdown, the four hundred richest Americans paid 16.6 percent of their income in federal taxes.

  The figures do not come from some liberal soak-the-rich think tank: they’re from the Internal Revenue Service, part of the periodic number-crunching that the IRS performs on tax returns.

  The victory of the ruling class has been more decisive in setting tax policy than in any other area, with trade running a close second. Three decades of tax cuts have lowered tax rates for corporations as well as the wealthy. Some of those savings have been reinvested in Washingt
on so the victors could hold on to their gains and seek more. It’s no coincidence that campaign contributions and lobbying expenditures have surged in the last generation, and they will continue to escalate.

  After buying Congress, the super-rich secured a stamp of approval from the U.S. Supreme Court, which in 2010 gave its blessing to unlimited campaign contributions to a candidate by anyone with the money—individual or corporation. This means it will be harder and harder for the will of the people to override the money machine of the ruling class. A sign held by a protester at Occupy Wall Street in the fall of 2011 framed the issue: I DON’T MIND YOU BEING RICH. I MIND YOU BUYING MY GOVERNMENT!

  The tax cuts for those at the top have greatly exacerbated inequality in America. Equally devastating is their effect on the deficit and what that will mean to the middle class for years to come. The tax cuts for the wealthy from 2001 to 2008 cost the U.S. Treasury $700 billion in lost tax revenue. To cover the shortfall, Treasury printed more money and added $700 billion to the national debt. Paying interest on that debt will fall on many middle-class taxpayers for decades.

  Having added to the national debt, the wealthy are now funding initiatives that decry the deficit and call for cuts in programs that provide safety nets for middle-class Americans such as Social Security and Medicare.

  Meanwhile, during the period when the richest Americans received their enormous tax cuts, the taxes on the middle class actually went up. In 1960 the middle 20 percent of U.S. taxpayers paid 15.9 percent of their income in total federal taxes. By 2007, the same group of taxpayers was paying 16.1 percent, according to a report by the Wealth for Common Good, a Boston-based network of business leaders and wealthy individuals that advocates a more equitable tax system.