Third World America (4 page)

Her conclusion: “Many people are now just aiming for ‘financial security’ as their American Dream.”
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In other words, the core idea of the American Dream—work hard and advance up the ladder—has been gutted. Now the American Dream is try to not fall, or do all you can to slow your rate of decline.

And forget about having enough in the bank to give your kids a leg up on doing better than you’ve done. It’s hard enough just to keep a job until you retire—if that’s even going to be an option. At a D.C. jobs fair for older workers in May 2010, more than 3,000 job seekers showed up for the event, entitled “Promoting Yourself at 50+.”
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Not surprising given that, at the time, the average jobless stint for those unemployed who are fifty-five and over was around forty-three weeks. (Quick note to struggling politicians out there: want a huge crowd at your campaign rally? Call it a “jobs fair” and you’ll have people lined up around the corner.)

Their children and grandchildren who recently graduated from college aren’t faring any better. According to
BusinessWeek
, the 1.6 million new grads hitting the job market with their expensive degrees are confronting a youth unemployment rate of almost 20 percent—“the highest level since the Labor Department began tracking the data in 1948.”
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And many workers who have managed to hold on to their jobs are increasingly doing so only by accepting less pay and taking on a higher share of their health-care costs.
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“My company didn’t eliminate my job, they just eliminated my salary,” said marketing director Mike Cheaure. “I was back at work as a freelancer the next day working at one-fourth of the pay and no benefits.” The experience has made him very familiar with the new reality. “For us, the American Dream is gone,” he said. “Now it’s just getting by.”

Adding insult to injury, a growing number of working mothers are having to give up their jobs and rely on welfare because states are cutting back on child-care services that allowed them to keep working.
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And kids were left scrambling to find something to do this past summer when a number of states made deep cuts to summer school programs.
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This spring saw a surge in consumer spending that spawned talk of “green shoots.” But it turned out the spending surge was economically imbalanced. As the
Los Angeles Times
’s Don Lee put it, the “little-noticed reality” behind the “encouraging numbers” was that “much of the new spending [had] come not from America’s broad middle class but from a small slice of affluent people at the top.”
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In fact, according to the Labor Department, the richest 20 percent of American households accounted for 40 percent of all spending.

The news in consumer lending has been similarly dismal—especially among the banks that got the most help from taxpayers. According to the Federal Reserve, from June 2009 to June 2010, the largest banks cut business lending by over $148 billion—yet more evidence of the schism between the Wall Street economy and the real economy.
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Of course, the two
economies aren’t entirely separate—the Wall Street economy is happy to accept massive transfusions of cash from the fading middle class.

This isn’t to say that there were no provisions considered that would help Main Street as part of the Restoring American Financial Stability Act. There were plenty—it’s just that almost all of them were either voted down or taken out and never even put up for a vote. Even something as simple and sensible as putting a cap on credit card interest rates. Senator Sheldon Whitehouse’s amendment to do just that was voted down 60 to 35.
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So much for “financial stability.” Though I suppose it depends on whose financial stability you care about—the banks’ or the taxpayers’.

Or how about payday lending—the largely unregulated advances on a paycheck that can carry interest rates in the triple digits? In Missouri, for example, rates can top 600 percent.
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Yes, you read that right. Not exactly a recipe for “financial stability.” North Carolina’s Kay Hagan offered an amendment that would have clamped down on the $40 billion industry. It was killed without a vote.
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Then there is the Merkley-Levin amendment that would have prohibited banks from making risky proprietary trades—a version of the Volcker Rule.
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It also never even made it to a vote. This wasn’t because it wouldn’t have passed. On the contrary, anger from those mired in the real economy had reached enough lawmakers that the amendment had a real shot. Which is why, as Simon Johnson put it, “the big banks were forced into overdrive to stop it.”

We’ve been told time and time again over the last two years that right after Washington deals with what’s on its plate, “jobs
is next.” Well, it’s been “next” for quite some time now, but it never seems to come to the floor. I often have a nightmare—a common sort—in which I’m stuck in a forest and I can’t find my way out. I have a friend whose version is that her feet are stuck to the ground and she can’t move. Not a bad description of our leaders’ approach to the massive suffering that’s going on across America.

A recent study by Duha Tore Altindag and Naci H. Mocan for the National Bureau of Economic Research found that the effects of unemployment can have troubling implications for a political system.
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The authors studied data from 130,000 people in 69 countries. Their conclusion: “We find that personal joblessness experience translates into negative opinions about the effectiveness of democracy.”

No shock there. But it should frighten anyone genuinely concerned about our stability, financial and otherwise—especially since one out of every six blue-collar workers has lost his or her job in the latest recession, a number commensurate with what happened during the Great Depression.
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Andrew Sum, director of the Center for Labor Market Studies at Northeastern University in Boston, says, “Our ability to maintain a healthy middle class is very dependent on being able to get a lot of these individuals back into the workplace and back into jobs to keep the rest of the economy going.…
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There are very high multiplier effects from many manufacturing activities. So the loss of jobs spills over into the rest of the economy.”

But isn’t wringing our hands over the loss of manufacturing jobs the twenty-first-century equivalent to nineteenth-century concerns about America turning from an agrarian society into an industrial one? Isn’t America’s future to be found in newer, better, more modern service industry jobs?

Economist Jeff Madrick doesn’t think so—for a number of reasons.
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For starters, it turns out that manufacturing jobs aren’t just more productive and valuable than jobs in the Wall Street casino—they’re also more valuable than service jobs: “Making goods is on balance—with exceptions—more productive than providing services, and rising productivity is the fundamental source of prosperity,” says Madrick. “A major nation must be able to maintain a balanced current account (and trade balance) over time, and goods are far more tradable than services. Without something to export, a nation will either become over-indebted or forced to reduce its standard of living.”

In other words, in the absence of manufacturing, the only way to compete with Third World nations is to
become
a Third World nation, which is exactly what will happen if we allow our middle class to disappear.

What’s more, it’s not just manufacturing and lower skilled service jobs that are disappearing. According to the Hackett Group, a business and technology consultancy, companies with revenues of $5 billion and over are expected to take an estimated 350,000 jobs offshore in the next two years alone—nearly half in information technology, and the rest in finance, procurement, and human resources.
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Linda Levine of the Congressional Research Service says that some see “perhaps a total of 3.4 million service sector jobs moving overseas by 2015 in a range of fairly well paid white-collar occupations.”
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And in a 2006 study, consulting firm Booz Allen Hamilton found that white-collar outsourcing is no longer just about call center and credit card transactions.
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Now “companies are offshoring high-end work that has traditionally been considered ‘core’ to the business, including chip design,
financial and legal research, clinical trials management, and book editing.”

Do you hear that? It’s Ross Perot’s giant sucking sound being cranked up to a deafening roar—and it’s about a lot more than NAFTA. Accenture now employs more people in India than in America.
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IBM is headed in the same direction. And the horizon looks even darker. A June 2008 Harvard Business School study found that up to 42 percent of U.S. jobs—more than fifty million of them—are vulnerable to being sent offshore.
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Even more troubling is the reason so many of these jobs are being sent overseas.
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It’s not just about cost control. “What used to be a tactical labor cost-saving exercise,” the Booz Allen Hamilton study says, “is now a strategic imperative of competing for talent globally.” In other words, America’s talent pool—especially when it comes to professions such as engineers and computer scientists—is drying up. At the same time the demand for these highly skilled workers is growing, the number of Americans earning master’s degrees and PhDs in engineering has fallen.

We are continuing to feel the sting of our lack of investment in our people—particularly when it comes to education, the other primary pillar (along with a good job) of a healthy middle class.

This is what happens when a country is willing to spend trillions of dollars fighting unnecessary wars while allowing college tuition to rise out of the reach of so many of its citizens. And it’s what happens when a country turns its economy over to the casino of Wall Street.

It’s not too late to change course. The financialization of our economy didn’t just happen. Decisions were made that made it possible—and decisions can be unmade. But first we need to decide, as a country, what kind of economy we want to
have: one that’s good for middle-class families or one that’s built to enrich Wall Street.

“The financial sector,” wrote Martin Wolf of the
Financial Times
, “seems to be a machine to transfer income and wealth from outsiders to insiders, while increasing the fragility of the economy as a whole.”
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When the chief economics commentator at the
Financial Times
is sounding like the second coming of Karl Marx, you know things have gotten way out of hand.

Another potentially catastrophic problem headed our way is our mounting debt. And no, I’m not joining forces with those who use the debt explosion as a backdoor way of cutting or killing Social Security or Medicare. But ceding this issue to such retro-thinkers makes it that much harder to seriously tackle the problem.

America is like a patient in danger of suffering a massive heart attack. We may be able to postpone things with a bit of outpatient surgery, but we won’t be able to avoid it without some serious lifestyle changes. The economic coronary isn’t quite here yet, but it’s on the way. Here are just a couple of the symptoms of big-time trouble ahead:

A recent report by the Bank for International Settlements (BIS) shows that this is a worldwide phenomenon.
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Financial adviser John Mauldin distills the report’s bottom line: “Everyone and their brother intuitively knows that the current government fiscal deficits in the developed world are unsustainable.”

The numbers in the BIS study make this clear. For instance, in Greece, the problem child of the moment that everyone is looking at with horror, government debt could reach 130 percent of gross domestic product in 2011.
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But Greece is far from alone. In the United Kingdom, it is expected to hit 94 percent, jumping more than 10 percentage points in one year. And in the United States, we could approach nearly 100 percent. As a Greek American, I’m enthusiastic about all the shared traits of my two countries, but I’d prefer not to add crippling debt to the list.

“While fiscal problems need to be tackled soon,” says the BIS report, “how to do that without seriously jeopardizing the incipient economic recovery is the current key challenge for fiscal authorities.”
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Exactly. And those fiscal authorities need to remember that there is more to tackling the deficit crisis than just cutting spending. We need to think bigger—we need to reorient our economy so that it’s once more an engine for production and productivity, not a vehicle for gambling and speculation. As Mauldin says of the old—and still dominant—order on Wall Street: “Let’s be very clear.
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This was purely gambling. No money was invested in mortgages or any productive enterprise. This was one group betting against another, and a
lot
of these deals were done all over New York and London.”

Mauldin goes on to question why large institutional investors were even gambling on such things as synthetic collateralized debt obligations in the first place: “This is an investment that had no productive capital at work and no remotely socially redeeming value.
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It did not go to fund mortgages or buy capital equipment or build malls or office buildings.”

Commenting on our looming debt crisis, Princeton economist Alan Blinder noted that “in 1980 [policymakers] knew about the year 2010 but that was really far away.”
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Well, it’s not anymore, and given that much of our deficit problem is about huge numbers of workers born decades ago now hitting retirement age, Blinder quipped, “The long run is now the short run and they’re combining.”