ST. PAUL LEGAL LEDGER CAPITOL REPORT
Pulitzer Prize-winning journalist Hedrick Smith made some waves in Minnesota recently with speeches and media appearances related to his most recent masterpiece, a book that serves as something of a socioeconomic historical whodunit, entitled “Who Stole the American Dream?”
Most Minnesotans probably know a little something about how overall economic inequality has worsened over the last 40 years, or how those at the tip-top of the heap have a greater share of total income and wealth than they’ve had in almost a century.
Similarly, most families near the middle have some rough idea that they have less, in comparable wages and benefits and assets, than their parents or grandparents had in the 1970s.
Smith’s book explains in great detail exactly how this happened, with journalistic flair. He skillfully weaves several strands together: the rise since the early 1970s of an increasingly aggressive anti-tax, anti-government, anti-labor business lobby; regulatory rollbacks and exotic new gimmickry in banking and finances that consistently favored lenders over borrowers and Wall Street over Main Street; campaign finance trends and rulings that intensified the power of money even as that money was being concentrated in fewer hands; and conservative backlash to a civil rights movement and a women’s movement that could have realized the dream for millions more families.
Laced throughout are illustrative stories about real people with real names who lost jobs and pensions and benefits and home equity, and other real people, mostly CEOs and Wall Street manipulators, who literally made out like bandits, amassing wealth beyond their wildest dreams.
But perhaps the most useful “keeper” in the book is a chronology, a timeline with 65 entries from 1914 to 2012 that tell the story of a rise and fall of middle-class dreams. The timeline can be downloaded free from www.hedricksmith.com. It’s a serviceable thumbnail guide to what went right and wrong with American capitalism, from gross inequality before the Great Depression, to a New Deal and unprecedented middle-class prosperity and a Great Compression toward equality, back to regression and what Robert Reich calls in his recent documentary video our new era of “Inequality for All.”
Among the 65 dates on Smith’s stolen dream timeline, these stand out for their long-term impact. Many of these milestones are largely forgotten or unknown by average Americans, who increasingly may feel that inequality is normal. (Timeline items have been edited and paraphrased):
1948 “Treaty of Detroit”: Labor agreement between General Motors and United Auto Workers provides labor peace and annual pay increases, health benefits and pensions, setting a pattern for other industries, insuring productivity gains are shared between workers and owners.
Mid-1940s to Mid-1970s: Heyday of the middle class, when the U.S. economy is driven by the dynamics of a “virtuous circle.” Companies pay high wages and tens of millions of families have steadily rising income to generate high consumer demand. That robust demand propels businesses to invest in new plants and technology, fueling a cycle of rising living standards.
August 1971: Corporate attorney Lewis Powell, months before becoming a Supreme Court Justice, writes a memo to the U.S. Chamber of Commerce, warning that anti-business attitudes were threatening to “fatally weaken or destroy” free enterprise. He calls for business to arm itself politically, to battle organized labor and consumer activists, and wage a long-term campaign to change the balance of power in Washington.
1973: A pivotal before-and-after year for productivity sharing by American business. From 1945 to 1973, worker productivity rises 96 percent and hourly compensation rises 94 percent. But from 1973 to 2011, productivity rises 80 percent and hourly compensation rises only 10 percent. Ordinary Americans get their proportional share of their own productivity in one era; business owners keep that productivity in the other.
1981: Although the dream-stealing begins under Nixon and Carter, President Reagan accelerates the redistribution to the top with federal tax rate cuts that add $1 trillion in income to the top 1 percent during the 1980s, and another $1 trillion in each succeeding decade. The Forbes 400 richest Americans triple their net worth between 1978 and 1990.
1994: Stock options for CEOs, a relatively new feature of corporate finance with roots in free-market zealot Milton Friedman’s work in the 1970s, begin to take off. Soon CEOs overtake the inherited rich as the biggest portion of the 1 percent.
2006: American business has shed much of the employee benefit cost it provided in the heyday of middle-class prosperity. By the mid-2000s, only 18 percent of employees at companies with more than 100 workers get fully paid health insurance, down from 70 percent in 1980. Only 35 percent get lifetime monthly pensions, down from 84 percent in 1980.
2011: The biggest market failure since the Great Depression and the bursting of the housing bubble causes a massive transfer of wealth from families to banks — as much as $6 trilliion — because so many Americans have drained equity out of their homes. In 1985, Americans owned 70 percent of their housing value, the main anchor of middle-class wealth; by 2011, the homeowners’ share plummets to 40 percent and the banks owned the majority share.
Smith prescribes a “Domestic Marshall Plan” and a 10-step strategy for restoration of the dream, which includes new investment in public infrastructure, a return to a more progressive tax structure, changes in trade and tax-shelter policies, and regulatory and political reforms that restore public interest, moderation and a centrist mindset to Washington.
And despite Smith’s obvious conclusion that the U.S. Chamber and the Washington business lobby are largely responsible for the theft of the American Dream, he is sparing with hype and melodrama, and his book is not ideologically anti-business. He is quite complimentary of business leaders who then and now view free enterprise as a partnership of stakeholders rather than a gold mine for shareholders alone. And he quotes a corporate titan from days of yore, Frank W. Abrams, president of Standard Oil:
“The job of management,” Abrams wrote in 1951, “is to maintain an equitable and working balance among the claims of the various directly affected interest groups … stockholders, employees, customers and the public at large.”