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    The New Economy: Who Stole the American Dream?

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    “Who Stole the American Dream?” is full of surprises and revelations—the accidental beginnings of the 401(k) plan, with disastrous economic consequences for many; the major policy changes that began under Jimmy Carter; how the New Economy disrupted America’s engine of shared prosperity, the “virtuous circle” of growth and how America lost the title of “Land of Opportunity.”
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    This excellent work of history and reportage is filled with the penetrating insights, provocative discoveries and great empathy of journalist Hedrick Smith. The author also offers ideas for restoring America's great promise and reclaiming the American Dream.

    Who Stole the American Dream?(Random House,
    2012), by Hedrick Smith, is essential reading for anyone who want to understand
    America today, or why average Americans are struggling to stay afloat. Smith
    reveals how pivotal laws and policies were altered while the public wasn’t
    looking, how Congress often ignores public opinion, why moderate politicians
    got shoved to the sidelines and how Wall Street often wins politically by
    hiring over 1,400 former government officials as lobbyists. The following
    excerpt comes from the prologue, “The Challenge From Within.”

    History often has hidden
    beginnings. There is no blinding flash of light in the sky to mark a turning
    point, no distinctive mushroom cloud signifying an atomic explosion that will
    forever alter human destiny. Often a watershed is crossed in some gradual and
    obscure way so that most people do not realize that an unseen shift has moved them
    into a new era, reshaping their lives, the lives of their generation, and the
    lives of their children, too. Only decades later do historians, like
    detectives, sift through the confusing strands of the past and discover a
    hitherto unknown pregnant beginning.

    One such hidden beginning,
    with powerful impact on our lives today, occurred in 1971 with “the Powell
    Memorandum.” The memo, first unearthed by others many years ago, was written by
    Lewis Powell, then one of America’s most respected and influential corporate
    attorneys, two months before he was named to the Supreme Court. But it remains
    a discovery for many people today to learn that the Powell memo sparked a
    business and corporate rebellion that would forever change the landscape of
    power in Washington
    and would influence our policies and economy even now.

    The Powell memo was a
    business manifesto, a call to arms to Corporate America, and it triggered a
    powerful response. The seismic shift of power that it set in motion marked a
    fault line in our history. Political revolt had been brewing on the right since
    the presidential candidacy in 1964 of Senator Barry Goldwater, the anti-union,
    free market conservative from Arizona,
    but it was the Powell memo that lit the spark of change. It ignited a long
    period of sweeping transformations both in Washington’s
    policies and in the mind-set and practices of American business leaders–transformations
    that reversed the politics and policies of the postwar era and the “virtuous
    circle” philosophy that had created the broad prosperity of America’s
    middle class.

    The newly awakened power of
    business helped propel America
    into a New Economy and a New Power Game in politics, which largely determine
    how we live today. Both were strongly tilted in favor of the business,
    financial, and corporate elites. Trillions were added to the wealth of America’s
    super-rich at the expense of the middle class, and the country was left with an
    unhealthy concentration of political and economic power.

    This book will take you
    inside that decades-long story of change and show how we have unwittingly
    dismantled the political and economic infrastructures that underpinned the
    great era of middle-class prosperity in the 1950s, ’60s, and ’70s.

    The Economic Divide – The 1
    Percent and the 99 Percent

    Today, the gravest challenge
    and the most corrosive fault line in our society is the gross inequality of
    income and wealth in America.
    Not only political liberals but conservative thinkers as well emphasize the
    danger to American democracy of this great divide. “America is coming apart at the seams–not
    seams of race or ethnicity, but of class,” writes conservative sociologist
    Charles Murray of the American Enterprise Institute. Murray voices alarm at what he describes as
    “the formation of classes that are different in kind and in their degree of
    separation from anything that the nation has ever known. . . . The divergence
    into these separate classes, if it continues, will end what has made America

    Since the era of
    middle-class prosperity from the mid-1940s to the mid-1970s, the past three
    decades have produced the third wave of great private wealth in American
    history, a new Gilded Age comparable to the era of the robber barons in the
    1890s, which led to the financial Panic of 1893 and the trust-busting
    presidency of Theodore Roosevelt; and to the era of great fortunes in the
    Roaring Twenties, which ended in the stock market crash of 1929 and the Great

    In our New Economy, America’s
    super-rich have accumulated trillions in new wealth, far beyond anything in
    other nations, while the American middle class has stagnated. What separates
    the Two Americas is far more than a wealth gap. It is a wealth chasm–“mind-boggling”
    in its magnitude, says Princeton economist
    Alan Krueger. Wealth has flowed so massively to the top that during the nation’s
    growth spurt from 2002 to 2007, America’s
    super-rich, the top 1 percent (3 million people), reaped two-thirds of the
    nation’s entire economic gains. The other 99 percent were left with only one-third
    of the gains to divide among 310 million people. In 2010, the first full year
    of the economic recovery, the top 1 percent captured 93 percent of the nation’s

    Americans, more than people
    in other countries, accept some inequality as part of our way of life, as
    inevitable and even desirable–a reward for talent and hard work, an incentive
    to produce and excel. But wealth begets wealth, especially when reinforced
    through the influence of money in politics. Then the hyperconcentration of wealth
    aggravates the political cleavages in our society.

    The danger is that if the
    extremes become too great, the wealth dichotomy tears the social fabric of the
    country, undermines our ideal of equal opportunity, and puts the whole economy
    at risk–and more than the economy, our nation itself. A solid majority of
    Americans say openly that we have reached that point–that our economy is
    unfairly tilted in favor of the wealthy, that government should take action to
    make the economy fairer, and that they’re frustrated that Congress continually
    blocks such action.

    What’s more, contrary to
    political arguments put forward for not taxing the rich, an economy of large
    personal fortunes does not deliver the best economic performance for the
    country. In fact, concentrated wealth works against economic growth. Several
    recent studies have shown that America’s
    wealth gap is a drag on today’s economy.

    Harvard economist Philippe
    Aghion cites an accumulation of “impressively unambiguous” evidence from
    multiple economic studies documenting that “greater inequality reduces the rate
    of growth.” A recent International Monetary Fund study came to a similar conclusion–that
    a high level of income inequality can be “destructive” to sustained growth and
    that the best condition for long-term growth is “more equality in the income

    The Unraveling of the American Middle Class

    The opposite has happened in
    since the late 1970s. The soaring wealth of the super-rich has brought the
    unraveling of the American Dream for the middle class–the dream of a steady job
    with decent pay and health benefits, rising living standards, a home of your
    own, a secure retirement, and the hope that your children would enjoy a better

    As a country, we have declined
    from an era of middle-class prosperity and middle-class power from the 1940s to
    the 1970s to an era of vast fortunes and mass economic insecurity. We have
    fallen from being the envy of the world, with the most widely shared economic prosperity
    and the most affluent middle class of any place on earth, to losing our title
    as “the land of opportunity.” It is now easier, in fact, to climb the economic
    and social ladder in several Western European countries than it is in the United States.

    Globalization has hit us
    all, of course, but the way we have responded with our New Economy has put the
    American middle class in an ever-tightening financial squeeze, raising protests
    from both left and right.

    “The middle class is the key
    to greatness in this country,” rightwing radio commentator Rush Limbaugh told
    his audience of millions one sunny fall afternoon in October 2011. “We had the
    largest middle class in the world, and it’s under assault from practically every
    direction. Look at the destruction of home values. The family home was the
    largest asset most people in the middle class have, and it’s being destroyed,
    and it’s being destroyed after being talked up for generation after generation
    after generation. The American dream equals owning your own house.”

    “It was the middle class
    that made America
    great,” AFL- CIO president Rich Trumka said in a television appearance a few
    weeks earlier. “We were very, very competitive when the unions were at their
    heydays. We spread the wealth around to everybody so that the main driver of
    our economy [was] consumer spending, people [had] money in their pockets to
    spend.” Now, Trumka went on, the question “is whether we’ll restore the middle
    class, which is the heart and the soul of the American dream.”

    When such normally clashing
    political voices as Limbaugh and Trumka sound a common theme, it is worth
    listening. They are highlighting a critical national problem.

    This excerpt has been
    reprinted with permission from
    Who Stole the American Dream?, published by Random House, 2012.

    Published on Mar 12, 2013


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