DAVID WEBBER: Reclaiming the American Dream tied to middle-class political system

Tuesday, March 12, 2013 | 6:00 a.m. CDT

Hedrick Smith, author of "Who Stole the American Dream?," will speak at 6:30 p.m. Wednesday in Fred W. Smith Forum at the Missouri School of Journalism.

While many Missouri residents will instinctively resist Smith’s argument, they shouldn’t. He offers credible reasons that the middle class is not keeping up with its wealthy cousins.

Smith’s central argument is that there was a political power shift in the 1970s that coincided with a changed corporate culture of business managers promoting their own interests. This combination has resulted in a financially squeezed middle class that has not received the benefits of its increased productivity and is now left ill-prepared for retirement.

Many of Smith’s factual claims about the disappearing middle class are consistent with recent research. In "Coming Apart: The State of White America, 1960-2010," Charles Murray, a conservative sociologist, documents that America has become polarized by class since the 1960s. Smith’s view of the disappearing middle class is also consistent with Pew Research Center’s “The Lost Decade of the Middle Class: Fewer, Poorer, Gloomier.”

Smith’s contribution is to investigate the connections among policymaking, politics and the disappearing middle class, arguing that the 1978 Congress is the best place to look for causes of middle-class stagnation. During the 1970s, there was an explosion of business-oriented special interest groups that specialized in organizing their members to lobby policymakers on narrow financial issues while the general public was debating civil rights, environmental issues and abortion. One does not need to ascribe evil motives to these corporate interests to anticipate that these newly organized political influences would have economic consequences.

Smith details the history of the 1978 adoption of the 401(k) section of the tax code that permitted corporations to contribute to employee retirement funds. This was originally adopted as a narrow tax break for corporate managers but quickly grew as the retirement program for most private sector employees. The results are (1) the growth of the financial services industry and (2) the loss of employee-defined benefit-retirement plans that had provided employees economic security.

Additionally, middle-class employees were required to pay more of their health benefits and faced stagnant wages despite productivity increases. Recent studies estimate that the nest egg of people over 55 is about $80,000 compared to the $500,000 that is estimated as the minimum investment necessary to generate an adequate retirement income. With an estimated half of near-retirees unable to cover their basic needs, elderly poverty is likely to return to the policy agenda, probably making reasonable changes to Social Security unlikely.

Smith details other public policies that have adversely affected the middle class. Many of these may have been well-intended but have resulted in lost income for middle-class employees. An example that is in the news recently is the H-1B visa program adopted in the early 1990s to keep a small quota of international students in the U.S. in a few high-demand, specialty occupations. Over two decades, the number of qualifying occupations, the quota levels and visa period all incrementally grew in the Congressional process. Credible studies show that AIG, Microsoft, Intel, IBM and others have used the H-1B program to replace American high-tech workers with less expensive international subcontractors.

Smith offers “ten steps to reclaim the American Dream” including some mainstream proposals such as investing in infrastructure to improve American competitiveness, encouraging more high-tech research and making the tax code simpler and fairer and designed to keep U.S. corporations at home.

Smith is only a little bolder in calling for a resurgence of the manufacturing sector from about 9 percent of U.S. employment to 20 percent. Manufacturing incentives, especially high-tech manufacturing, has been the talk of U.S. policymakers for more than two decades but without much new employment resulting.

The lynchpins of Smith’s proposals to reclaim the American Dream are two political ones:

  • No. 9 Rebuild the Political Center
  • No. 10 Mobilize the Middle Class.

Achieving these will be challenging.

Reducing the influence of money in politics, adopting more responsive voting systems and redesigning political parties are necessary first steps. It is hard to imagine the middle class mobilizing over economic issues. American culture accepts a widely unequal distribution of income. Our collective instinct is to assume that income is a result of "market forces" rather than questioning if tax breaks and sweetheart deals are the main cause. Policymakers and public relations spokespeople are skilled at couching special interest proposals as public benefits.

Ultimately, in a democracy, citizens get the government they are willing to accept. The weak spot of democracy is, and will always be, that well-organized narrow interest will trump disorganized general interests. Smith connects the political dots of the past 40 years to show how the middle class lost financial security while others prospered.

David Webber is an associate professor of political science at MU where he is currently teaching a course on "Is America in Decline?" He can be reached at Questions? Contact Opinion editor Elizabeth Conner.

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Ellis Smith March 12, 2013 | 8:00 a.m.

"Toute nation a le gouvernement qu'elle merite."

[Every country has the government it deserves.]

-Comte Joseph Marie De Maistre (1811)

(Report Comment)
Jimmy Bearfield March 12, 2013 | 9:10 a.m.

A lot of middle class folks struggle now and will continue to do so in the future because they bought a lot of unnecessary stuff (e.g., iPads, Audis, big-screen TVs, McMansions) instead of saving for a rainy day and retirement.

Mortgage deductions. Child deductions. The list of middle-class tax breaks goes on and on, and they still can't make ends meet. Time to look in the mirror.

(Report Comment)
Michael Williams March 12, 2013 | 9:47 a.m.

JimmyB: Right. The author (and, apparently, Hedrick Smith) go to great lengths to blame anyone and everything EXCEPT the "boomer" middle class and its lifetime of horrible financial and philosophical decision-making.

As for this: "Credible studies show that AIG, Microsoft, Intel, IBM and others have used the H-1B program to replace American high-tech workers with less expensive international subcontractors."

In the mid-1980s, I distinctly remember a conversation with my former boss (before I had my own company). Both of us were concerned with the loss of American work ethic and performance/productivity and I jokingly (???) wondered out loud if the company would better be served if we fired all current employees and hired an all-Asian or Mexican work force of ambitious chemists plus one interpreter. Racist? Discriminatory? Well, "no" to the former and "absolutely yes" to the latter....I have no problem whatsoever basing hiring/retention decisions on merit and a willingness to work hard. I discriminate against a poor work ethic.

In that discussion, "wages" were never mentioned.

Fact's fine and dandy to be in the middle class during your 20s, 30s, and 40s. But, it sucks to retire there. Best to plan on not being there. That's good advice for your sons and daughters........

(Report Comment)

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