The Betrayal of the American Dream Read online

  Table of Contents

  Title Page

  Dedication

  PROLOGUE

  CHAPTER 1 - ASSAULT ON THE MIDDLE CLASS

  MORE FOR THE FEW

  RIGGING THE SYSTEM

  THOSE HIGH-PRICED AMERICAN WORKERS

  CHAPTER 2 - THE COST OF FREE TRADE

  OPENING THE DOOR TO IMPORTS

  OUR GREATEST EXPORT

  BOEING’S FAUSTIAN BARGAIN

  CHAPTER 3 - MADE IN AMERICA?

  THE BIRTH OF APPLE

  iSLAVES

  CHAPTER 4 - PHANTOM JOBS

  THE EPICENTER OF IT

  NEXT TO GO

  THE EDUCATION TRAP

  CHAPTER 5 - THE GREAT TAX HEIST

  POOF! THE DISAPPEARING TAX ACT

  THE UNITED STATES AS TAX HAVEN

  CHAPTER 6 - THE END OF RETIREMENT

  TURNING BACK THE CLOCK

  PAYING THE PRICE

  CHAPTER 7 - DEREGULATION: ECONOMIC CHAOS

  THE HAVOC BEGINS

  UNLEASHING THE BANKS

  WRECKING LIVES

  CHAPTER 8 - GLOBALIZATION SHANGHAIED

  JUSTIFYING JOB LOSSES

  CHAPTER 9 - RESTORING THE AMERICAN DREAM

  REVISE THE TAX CODE

  MAKE FREE TRADE FAIR

  INVEST IN AMERICA

  RETHINK TRAINING

  UPHOLD THE LAW

  WILL THE MAJORITY RULE?

  APPENDIX

  Acknowledgments

  A NOTE ON SOURCES

  INDEX

  Copyright Page

  ALSO BY

  Donald L. Barlett and James B. Steele:

  Critical Condition: How Health Care in

  America Became Big Business—and Bad Medicine

  The Great American Tax Dodge

  America: Who Stole the Dream?

  America: Who Really Pays the Taxes?

  America: What Went Wrong?

  Forevermore: Nuclear Waste in America

  Howard Hughes: His Life and Madness

  TO THE MEMORY OF JOY WHITEHOUSE

  PROLOGUE

  The Betrayal of the American Dream is the story of how a small number of people in power have deliberately put in place policies that have enriched themselves while cutting the ground out from underneath America’s greatest asset—its middle class.

  Their actions, going back more than three decades, have relegated untold numbers of American men and women to the economic scrap heap—to lives of reduced earnings, chronic job insecurity, and a retirement with fewer and fewer benefits. Millions have lost their jobs. Others have lost their homes. Nearly all face an uncertain future. Astonishingly, this has been carried out in what is considered the world’s greatest democracy, where the will of the people is supposed to prevail. It no longer does. America is now ruled by the few—the wealthy and the powerful who have become this country’s ruling class.

  This book tells how this has happened, who engineered the policies that are crippling the middle class, what the consequences will be if we fail to reverse course, and what must be done to restore the promise of the American dream.

  We have been reporting and writing about middle-class America for many years. In our 1992 book America: What Went Wrong? we told the stories of people who were victims of an epidemic of corporate takeovers and buyouts in the 1980s. We warned that by squeezing the middle class, the nation was heading toward a two-class society dramatically imbalanced in favor of the wealthy. At the time, the plight of middle-class Americans victimized by corporate excess was dismissed by economists as nothing more than the result of a dynamic market economy in which some people lose jobs while others move into new jobs—“creative destruction,” it was called. Soon, they said, the economy would create new opportunities and new jobs. We said, Don’t believe it. What happened to the middle class in the 1980s and early 1990s wasn’t just a blip, but part of a disturbing pattern: a shift by Washington away from policies that had built the American middle class and enabled successive generations to do better than their parents, in favor of policies that catered to Wall Street, corporate chieftains, and America’s wealthiest citizens. We wrote:

  Popular wisdom has it that the worst has passed, that it was all an aberration called the 1980s. Popular wisdom is wrong. The declining fortunes of the middle class that began with the restructuring craze will continue through this decade and beyond.

  Because of statements like that, we were accused of being alarmists. But in fact we grossly underestimated how much more difficult life would become for most Americans. The workers we wrote about in the 1990s were pioneers of a sort never before seen in the United States. Unlike middle-class Americans for more than three generations before them, for whom life progressively got better, they were heading down the economic ladder. They were the first substantial wave of what will be tens of millions of casualties—most likely well over 100 million—as Wall Street and the moneyed interests proceed unchecked to dismantle the structure that has sustained America’s middle class, all with the assistance and blessing of Congress. The country that once offered so much to its people—like the GI Bill, which put millions of Americans through college—has begun to eat its own.

  In this book, we describe areas where government action or indifference has taken its harshest toll. Some of the examples we dwell on, such as the deplorable working conditions in Apple’s Chinese plants, may seem familiar. But their context and wider consequences are often overlooked. Apple is America’s most profitable corporation. It is a signature innovator in a field—technology—that has for years been said to hold the promise of lucrative and long-term employment. Yet this innovative company has left most of its American workers behind. If the United States is unable to retain the benefits of a successful company like Apple and its potential to provide huge numbers of good jobs in this country for years to come, what does that say about our ability to encourage future innovators and provide employment here at home? Apple’s phenomenal business success has benefited only a small share of the population, unlike some of our great corporations in the past that provided a solid middle-class living for generations of working Americans while also rewarding stockholders with handsome dividends. For its part, Apple decided to take the money and run. It is by no means alone, just the most visible. In fact, between 1999 and 2008, according to Tax Notes, the definitive tax publication, foreign affiliates of U.S. parent corporations increased their employment abroad by 2.4 million jobs, or 30 percent. During the same period, they slashed their employment in the United States by 1.9 million. If our largest and most successful corporations are no longer working for the shared benefit of American workers, then what is the future of the middle class?

  The skewing of the tax code in favor of the rich is a subject we have written about for years. In this book, we tabulate the unprecedented riches the preferential tax law provisions have showered on the wealthy, and we explain why they will hollow out the middle class for years to come. The well-being of the majority of Americans is also coming under assault from U.S. policies having to do with trade, regulations, and benefits. In each of these areas, we address the broader context, drawing on decades of our own research and observations. It is the cumulative impact that has been so detrimental to the middle class. Yet most of the media cover these stories as if they were isolated events, devoid of a larger significance or pattern. Unfortunately, the significance is stark.

  At a time when the federal government should be supporting its citizens by providing them with the tools to survive in a global economy, the government has abandoned them. It is exactly what members of the ruling class want. The last thing they want is
an activist government—a government that behaves, let’s say, the way China’s does. Their attitude is “let the market sort it out.” The market has been sorting, and it has tossed millions out of good-paying jobs. Now that same ruling class and its cheerleaders in Congress are pushing mightily for a balanced budget at any cost. If it happens, it will be secured mostly by taking more out of the pockets of working people, driving yet another nail into the middle-class coffin.

  The economic elite have accomplished this by relentlessly pressing their advantage, an advantage that exists for the simplest of reasons: the rich buy influence. As the divide between them and everyone else has grown since the early 1970s, the wealthy have poured more and more money into lobbying and politics in order to control the agenda. Now the “one percent” is plowing untold millions into political contributions and lobbying, and every effort to try to reduce the influence of money in politics has been rebuffed. With the Supreme Court Citizens United ruling of January 21, 2010, the message was driven home to the middle class that politics had become slavishly addicted to the big bucks of the moneyed class and that the ability of average Americans to influence elected officials would be overwhelmed by that money. Now, for a price, the elite will select the candidates and bankroll the campaigns, and few politicians will be able to afford to give up the corporate dollars.

  Who are the members of America’s ruling class? We use the term to describe an amalgam of politicians and special interests who have succeeded in making life exponentially more comfortable for the already comfortable, while simultaneously lowering the quality of life for everyone else. The book details how they have done it. The chapters form a mosaic whose overall picture is clear: the ruling class is defined by its ability to move money beyond the reach of government supervision. This has been accomplished in various ways, but the most important is arguably the establishment of a belief that government has no business in business. This creed has no basis in fact and is widely disproved by the performance of other governments around the world. But not in America. Instead, we have created the world’s newest financial aristocracy, a class that has successfully put itself beyond the reach of government constraint and can do pretty much whatever it wants in pursuit of its own personal gain. This, they like to tell us, is virtuous.

  There are no Blue Book membership rosters of the new ruling class, no secret handshakes, no regularly scheduled meetings. Wealth alone does not get you a seat at the table; nor does your family tree, your academic credentials, or your job title, whether in a corporation, the government, or a think tank. What counts is your ability to advance the cause of the group. The membership is bipartisan. There are seats for Republicans and Democrats, as well as for institutions, including representatives of the mainstream media. In the most devastating financial collapse since the Great Depression, when the news media accounts were studded with doomsday scenarios, the ruling class made conscious decisions to rescue certain businesses while they shoved others off the cliff. In the process, both Democratic and Republican administrations ditched the notion that all Americans should be treated equally, that the playing field should be level for everyone. This quaint concept has no standing in a plutocracy. Lacking a civic or moral compass, it’s a peer group without a purpose beyond its own perpetuation with no mission except to wall in the money within its ranks.

  In contrast, we define the “middle class” strictly by income. Most Americans, even those who are affluent, think of themselves as middle-class. But economically they are not. We have defined the heart of the middle class as those wage-earners who reported overall incomes between $35,000 and $85,000 on their tax returns in 2009. Median household income that year was $50,599, meaning that half of all Americans earned more than that and half earned less. That figure has since fallen below $50,000 as the United States went through its first full decade of declining incomes when adjusted for inflation. Only the poor and the middle went down. The rich tracked sharply higher.

  All told, there were 34 million individuals and families in the $35,000 to $85,000 range who reported wage and salary income on their 2009 tax returns. They accounted for 30 percent of the more than 116 million returns filed by working Americans. By far the largest group with job income, 58 million individuals and families, fell below our middle-class definition. The remaining 24 million tax return filers fell in the upper-middle, affluent, and rich classes. While the merely affluent 20 percent in the upper middle maintained their wealth, those at the very top of the income scale—the one percent—dramatically increased their wealth. An extended middle class would include people with incomes up to $115,000. While that may seem large to people living in many towns across the country, it would not be nearly so impressive for a family in an expensive city such as New York. At the same time, at the other end of the scale, a new definition of poor puts one in two Americans in that category. Census Bureau and academic statisticians are still refining the definitions that will make up the new American poor.

  Men and women of every age and profession within the middle class have been affected by the policies championed by the ruling class, but the ones who may pay the highest price are the young—those in their twenties and thirties. For the next generation, the outlook is even bleaker. Many doors that were once open to high school graduates have slammed shut. Factory jobs that offered a way to maintain a comfortable lifestyle have disappeared at record rates, and nothing has come along to take their place. The reason the Apple example is so chilling is that Apple and companies like it were supposed to be the forward-looking option for a better-educated U.S. middle class. As we show, especially with regard to outsourcing, the promise that education is a gateway to solid middle-class well-being has also been retracted for many Americans.

  Growing numbers of college graduates are hurting, unable to find jobs in this economy that match the skills for which they were trained. They had been assured that a college degree would be their ticket to a secure future. Now many of those with freshly minted degrees are working at jobs that require only a high school diploma, expecting to be in hock for much of their productive lives, or living in shared housing with parents or friends because they don’t earn enough to pay their own way.

  Veterans of the wars in Iraq and Afghanistan are especially disheartened by the lack of options. Volunteers at a veterans’ service center in Cape Coral, Florida, recall a young Army veteran who served in Iraq and received a Bronze Star. After his discharge, he returned to the States, enrolled in college, and earned a bachelor’s degree. He was then ready to enter the job market, but he told advisers at the veterans’ center that “there was nothing out there.” He believed that his only alternative was to reenlist, an option that will be less available as Defense cuts start to bite and staffing levels are reduced in all the armed services.

  Many more areas of public policy affect the middle class but are beyond the scope of this book. For example, we do not discuss health care here in detail because of pending litigation and turmoil in Congress over threats to repeal President Barack Obama’s health care law. But in our view, the most fundamental problem in health care won’t be addressed anytime soon. The U.S. health care system is based on the misguided notion that the private market is the best way to provide care and coverage to Americans. We focused on it in our 2004 book Critical Condition: How Health Care in America Became Big Business—and Bad Medicine. In that work, we documented the failure of the market system to deliver quality health care to everyone at an affordable price. The market system didn’t work then. It doesn’t work now. It never will. Yet ideologues are committed to foisting it off on an unsuspecting public, and key lawmakers and jurists are prepared to do their bidding, even though when compared with other developed countries, the United States has fewer hospital beds per capita, fewer doctors per capita, and fewer nurses per capita. But the bottom line is this: U.S. citizens die younger than people in more than two dozen other countries, many decidedly less developed, largely as a result of inferior health care. What
the existing American system does very nicely, however, is enrich a very few people and favored corporations.

  The private market experiment has failed, but even Obama’s health care bill still leaves most of the power in the health industry in the hands of private insurers. It is a mark of how effectively the ruling class’s propaganda machine has become in framing the debate in America that this relatively benign piece of legislation would be portrayed as a triumph of “socialism.”

  There is a reason why Washington has turned its back on average Americans. We are no longer the democracy we once were. We have become a plutocracy in which the few enact programs that promote their narrow interest at the expense of the many. Ironically, it was Wall Street that disclosed the emergence of the American plutocracy. As early as 2005, a global strategist at Citigroup, Ajay Kapur, and his colleagues coined the word “plutonomy.” They used it in an internal report to describe any country with massive income and wealth inequality. Among those countries qualifying for the title: the United States. At the time, the top 1 percent of U.S. households controlled more than $16 trillion in wealth—more than all the wealth controlled by the bottom 90 percent of the households. In their view, there really was no “average consumer,” just “the rich” and everyone else. Their thesis: “capitalists benefit disproportionately from globalization and the productivity boom, at the relative expense of labor,” a conviction later confirmed by America’s biggest crash since the Great Depression. The very rich recovered quite nicely. Most everyone else is still in the hole. Some in the middle and at the bottom, like the millions who lost their jobs, their homes, and their retirement savings, will never recover.