Editorial: A massive heist pulled off in plain sight
Hedrick Smith is a man on a mission. The journalist, author, filmmaker and two-time Pulitzer Prize winner wants to open America’s eyes to something that he himself was once blind to: the massive transfer of wealth from the middle class to the 1 percent and how it happened. Smith, author most recently of Who Stole the American Dream, met with Monitor editors on Tuesday. His book is a lengthy account of a massive heist pulled off in plain sight, and a manual for how to restore fairness and recapture the dream.
The scale of the wealth transfer that led to the demise of the middle class is mind-boggling. In the 1980s, Smith said, the average American homeowner owned 70 percent of his or her home. That figure dropped to 40 percent by 2009 because people borrowed against their equity in their homes to make up for flat wages and the shift of financial responsibility from employer to employee. The transfer, some $6 trillion, is the largest in U.S. history.
Three major changes, and a host of smaller ones, are responsible for the biggest disparity in wealth between rich and poor since the robber baron era. One was the lifting of limits on interest rates, which made it easy for people to borrow huge sums at exorbitant costs. Another was the rapid replacement of lifetime pensions with employee 401(k) plans. In the 1980s, 80 percent of those who worked for a company with 100 or more employees had a lifetime pension. Today, outside the public sector, they are a rarity. The shift to 401(k)s, Smith says, did more to transfer wealth to Wall Street than protect workers in their retirement years. As a result, 45 percent of the baby boom generation could end up living in poverty in old age. Taxpayers who lack pensions or good health-care benefits have become eager to take them away from government workers who do, rather than fight to win such benefits for themselves. “The politics of envy have triumphed over the politics of solidarity,” Smith said.
The third change is the ongoing shift of health care costs from employers to employees. In the 1980s, 70 percent of the workforce in companies with more than 100 employees enjoyed fully paid employer health insurance benefits. Today, they too are a rarity and employees, no matter what their income, must pay a big share of cost of health care and do so on wages that haven’t increased.
At the same time, the Bush-era tax cuts and other breaks won by the rich concentrated the wealth so effectively that the combined wealth of just four families, all of them heirs to the Walmart fortune, equals that of the 120 million Americans at the bottom of the economic ladder. The 400 richest Americans have assets of $2 trillion, a sum larger than the GDP of Canada or Mexico.
The vast income disparity and reduced odds of upward mobility was created, and persists, Smith argues, because the public doesn’t understand how it happened, and they’ve been persuaded that their problems are their own fault. For the most part, they aren’t. Voters are convinced that Washington listens to lobbyists and ignores them, and they’re right. But most of all, the income disparity and the collapse of the American dream exists because people feel powerless to change things. If they act alone, Smith says, that’s true. But if they act together, as a populist movement in pursuit of political and economic fairness, they can restore the dream. They must band together, much the way the AARP has become the giant protecting Social Security and Medicare from those who want to shrink or privatize the systems. They must insist that a tax code skewed in favor of the rich be reformed.
Smith wants citizens to push back against the claim that government support of research, industries and infrastructure is inherently bad because it violates free market principles. That’s false. Government involvement led to the transcontinental railroads and the interstate highway system, for example. Both strengthened the nation and made the economy boom.
Most of all, people in pursuit of the American dream must realize that Ronald Reagan was wrong. Government is not the problem. Shrinking it so it can be strangled in a bathtub will not bring prosperity, improve lifestyles, result in economic fairness, restore faith in the legislative process or ensure the well-being of future generations. Creating a government that works because its controlled not by corporate lobbyists, but by a united citizenry will. In solidarity, Smith rightly believes, there is strength.