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October 02, 2012

Pulitzer Prize-winning journalist Hedrick Smith’s new book portends to answer the question, “Who stole the American dream.”
(NATIONAL) -- Having trouble getting ahead these days? Have your wages, when adjusted for inflation, barely increased in the past decade? Twenty years?

Has your 401K-retirement plan been wiped out by the Great Recession? Medical bills eating you out of house and home? Are you part of the 50% of baby boomers now headed for poverty in their retirement years?

Well, there are reasons for all of that says veteran journalist Hedrick Smith in his new book called "Who Stole the American Dream?"

He says the systematic dismantling of middle class economic power and prosperity in the country has been taking place slowly but surely over the past forty years.

And thanks to a gradual shift in power in Washington as well as economic globalization and other factors, the last high water mark of the good life for the middle class in America was – are you ready? - the 1970’s.

In a recent interview with Ray Suarez of the PBS “News hour” broadcast, Smith said the 1970’s were actually the last “good old days” for the middle class because back then those middle classers were actually living the American dream with “pretty steady jobs…rising pay…benefits, health care; 85 percent of the people who worked for companies of over 100 employees had health care, had retirement payments, a monthly check until you died on top of your Social Security, could afford to buy a home, pay off that mortgage over 30 years, and hope that your kids would do better. That's a big chunk for an awful lot of people,” said Smith.

He adds that it made America the envy of the world. It let Richard Nixon go to Moscow and tell Nikita Khrushchev, the Soviet leader, we have a classless society.

So what happened to the middle class that had so much power and promise back then?
“Part of what happened to them was, it (the middle class) was so successful. But part of what happened to them was, there was a power shift. There was a tremendous change of power in Washington. And that had a big effect on the ability of middle-class Americans to achieve the American dream.

And the other thing that happened is what I call wedge economics, the splitting of the American middle class off from the gains of the national economy, so that today you can see the economy improving bit by bit, but middle-class people aren't doing that much better.

People at the top are doing real well. Corporations are reporting profits, but the people in the middle aren't doing that well.

Back in the old days, back in the heyday of the middle class, everybody shared in that prosperity. Today, everybody doesn't share in that prosperity. And that's why so many people feel so much pain,” said Smith.

In his book Smith points to “key moments” where things could have gone one way, but they went another. And one that did great damage to the middle class was the movement of tens of millions of workers from defined benefit pensions to self-funded pensions.

Smith again:
“You know, it's amazing. Everyone talks about 401(k). Almost nobody knows why it's called the 401(k). It's because it's that far down in the tax code. It is buried deep in the tax code.

When it was passed, it was never intended to be a national retirement system. It was put in the tax code as a favor to Kodak and Xerox, who have headquarters up in Rochester, N.Y., by the Republican congressman Barber Conable, who came from that district.

They wanted a tax shelter to give extra money to their executives.

Fast forward. In the Reagan administration, somebody said, hey, let's give that to ordinary people.

Fast forward again. The mutual fund industry says, wow, we get ahold of all those billions of dollars of retirement savings, we can make a lot of money.

Power to the people. Do it yourself.

It's been a disaster for most Americans. They don't save enough. When they change jobs, they take their money out. When times get rough, as they have been recently, neither the company nor the individual contributes, with the result that the average balance is about $18,000 in a 401(k).

And if you're just on the lip of retirement, it's maybe $85,000 for somebody who is in their 60s and who has been in the plan for 20 years.

That's nowhere near enough. People will say, if you have been making $50,000 a year, you need a half-a-million.

So, we have got half of the baby boomer generation headed for poverty essentially in retirement, living on essentially only their Social Security.”

So how does Smith explain the upward distribution of income over the decades, meaning the new dollars that came into the economy that “went very heavily up to the top quintiles of earnings.”

A good question, he says. Here’s a few facts about that.

“What happened was, the productivity of the American work force from World War II to the mid-'70s grew almost double, 97 percent. The wage and salaries of average Americans, not just assembly line workers, but plumbers, carpenters, small business people, and so forth, they rose 95 percent, so just about the same increase in wages and salaries as in productivity.

The wealth, the growth, the economy, the prosperity was shared.

Since then, however, those wedge economics came in. And what you have seen is productivity has continued to grow, about 80 percent since 1973. But the average hourly compensation of an average worker has grown only 10 percent.

The CEOs' pay has quadrupled, sextupled. The income of the people at the top 1 percent has grown 600 percent.

The Census Bureau says the average male worker since 1978 is making just the same pay, adjusted for inflation. So it's flat in the middle and it's soaring up at the top, tremendous inequality…but you do see in poll after poll people are -- there's too many wealth concentrated at the top. There's too much power in Washington lobbyists. The tax system should be changed to raise taxes on the top brackets. Two-thirds of Americans agree in almost every poll to those numbers.

So there is sentiment to change things. But there's not anger in any kind of rebellious sense of word. In fact, there's not even the same kind of anger that prompted the middle class to protest back in the '60s and '70s,” says Smith.

You can see the full interview with Smith in a video here



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