At college, 'Who Stole American Dream?' author chronicles middle class demise

LACONIA — Two-time Pulitzer Prize winner and best-selling author Hedrick Smith told an audience of about 100 at Lakes Region Community College Wednesday night that he believes it is not too late to reverse the unraveling of the American Dream which has taken place over the last 30 years.
Smith described the decline of the American middle class in his 2012 book ''Who Stole the American Dream?'', a chronicle of how the rise of business influence over the nation's economic policy has sapped the vitality of the middle class and reduced its share of the economic pie.
''The middle is really important in our economy and our politics and it is under assault in both arenas,'' said Smith. ''The middle is not getting its share of income and moderates and independents are being marginalized in both political parties, but much more so in the Republican Party,'' said Smith.
The former New York Times reporter and PBS producer contrasted the gridlock and hyper-partisanship of today's Washington with the atmosphere which prevailed when Dwight Eisenhower was president and House Speaker Sam Rayburn and Senate President Lyndon Johnson would stop by and socialize over bourbon and branch water with Ike and when senators and representatives from both parties would regularly meet at each other's homes to socialize and formed lasting friendships which enabled them to reach across the aisle to compromise.
He said the atmosphere changed starting with 1994 when Newt Gingrich was elected House Speaker and turned what had been a bipartisan orientation for newly elected house members into one in which Republicans and Democrats held separate orientations.
''Confidence in the American political system is at a 40-year-low and 60 percent of Americans think we are a nation already in decline,'' said Smith, who pointed out that both Greece and Rome declined due to internal divisions according to historian Arnold Toynbee and that the same fate could await America.
''In case we don't understand it, the stakes are that big,'' said Smith, who rejects the idea that impersonal forces are decisive and definitive. ''We're where we are because of choices that were made and the outcomes can be different if we make different choices.''
He said that from 1945 until 1975 the American economy grew at a steady pace in which productivity increased by 97 percent and median household income kept pace by increasing by 93 percent in what was called ''the great convergence.''
Since that time productivity has increased 80 percent while household income rose by only 10 percent with 84 percent of the growth of income going to the top one percent of the population he said, pointing out that a recent Citibank study showed that America now has the greatest inequality of income of any major nation since 16th century Spain.
Smith says that the prevailing philosophy which led to a widely shared prosperity in the post World War II era among American business leaders was that it was good politics and good business to share the wealth and to balance the interests of all stakeholders, business management, labor, consumers and suppliers, creating ''a virtuous circle of growth'' in which high consumer demand drove the economy.
That was coupled with social movements springing from the middle class, which included the Civil Rights, Women's Rights and environmental movements that brought rapid change in American society and exerted great influence over legislators of both parties.
Smith traces the change in those policies to a private memo circulated to business leaders in 1971 by Lewis F. Powell, Jr., a corporate attorney who would later become a Supreme Court justice. The memo, called ''The Revolt of the Bosses'', led to business interests organizing themselves to play a role in Washington politics through increased lobbying. That shifted the gravity to the point that starting in the mid-1970s every major economic trend, whether increased productivity, globalization, tax law overhauls, and the phasing out of pensions in favor of 401(k)s , all shifted money up the income ladder.
He said 1978 was a key year in which those changes came in the form of legislation which was started out by the Carter Administration as an effort to increase the ability of unions to organize, reduce tax loopholes and increase capital gains taxes instead came back from the Democratic House without the union provisions, increased loopholes and reduce capital gains taxes from 48 to 28 percent.
He said the Reagan tax cuts which followed helped create the idea that tax cuts for the wealthy and for corporations actually spurred economic growth, which he said has proved to be fallacious.
''Lower income tax rates have nothing to do with growth. We've experienced higher growth when we've had higher taxes. The job creators are not on Wall Street. They are the consumers who create the demand for goods and services,'' said Smith.
He pointed out that lower income taxpayers have had to pay a higher share of their income in taxes over the last 30 years, with the payroll tax rising from 3.5 percent to 7.65 percent in the 1980s, while at the same time assuming a greater share of their retirement costs as companies shifted their pensions over to 401-ks, which help financial firms realize profits while reducing through annual fees the amount of retirement income workers realize.
He said that one recent example of a company squeezing its workers on retirement is Boeing, which wrung concessions from workers over production of the 777 jetliner that enabled the firm to switch guaranteed pensions over to 401-k plans and then approved a 50 percent increase in the company's stock dividend and a $10 billion stock buyback that will rewards investors and executives who get paid in Boeing shares.
''They could have used the $10 billion to fund the pension plan but decided to enrich themselves,'' said Smith.
He said ''manufacturing is the core of any modern economy and we've seen manufacturing decline from 19 percent to 9 percent of the jobs in the American economy over the last 20 years.''
He contrasted that with Germany, which has a highly-skilled and unionized labor force and where manufacturing accounts for 21 percent of the jobs. ''German companies have raised their average wage five times faster than American companies since 2000 and they have a $2 trillion trade surplus while we have a $6 trillion trade deficit. We've been told for the last 20 years that manufacturing is dead and that the jobs are better off going to low wage countries so our companies can be competitive. But Germany shows that the facts that don't match that argument."
Smith said that the giant high tech cranes now used in American ports are actually made in China and were being used in their ports three years before they came to this country. He said that he was amazed at the high volume of high tech products coming from China and the fact that many American exports to China are actually in the form of scrap materials rather than manufactured products.
He said that trade agreements such as NAFTA and the Trans Pacific Partnership currently coming up for ratification have not worked as promised and have helped drain American manufacturing jobs.
Smith said that rebuilding the nation's infrastructure is one of the keys to restoring the nation's economic well-being and that tax policies which lead to a more equitable share of income for the middle class are needed.
''But we won't be able to confront these until we fix our political system which is nothing short of grotesque. The polarization is driving the middle out of American politics. Congressmen spend 40 to 50 percent of every day raising money rather than doing the nation's business. And it won't change until people say this is intolerable and roll back the Citizens United ruling which allows corporate donations to political campaigns,'' says Smith.
He said that many states have already passed resolutions urging a constitutional amendment to overturn the ruling, including every New England state except New Hampshire, and that is a worthwhile effort to be undertaken by those who want to become politically involved at the grassroots level.
Smith also said that one good way of bringing politics back to the center is the single primary system like that being used in Washington and California in which the two top votegetters, regardless of party, end up on the November ballot.
Former Belknap County Convention Chairman Alida Millham of Gilford said that the Free Sate Project is dividing the state Republican Party by bringing an anti-government ideology into the primaries and Smith said that moderate Republicans will need to work to assemble a broad coalition of like-minded people together to counter that influence.
He urged members of the audience to work together on issues on a local scale where they can have the most impact and to bring back the middle class activism which made such a big difference in the 1960s.
''People don't demonstrate because they think it's futile. They demonstrate because they believe change is possible,'' said Smith.

Pulitzer Prize winning author Hedrick Smith talks about American politics and the economy at Lakes Region Community College. (Roger Amsden photo The Laconia Daily Sun)