Third World America (6 page)

We look at our obliterated 401(k)s and dwindling pensions, and hear the whispers about Social Security going broke, and we wonder if we will ever be able to retire—let alone maintain our standard of living into our sunset years. Golden visions of post-work leisure time have been replaced by dark, fevered flashes of deprivation—of having to decide between eating and paying for the medicine we need. Of letting our homes go into foreclosure to scrape together the money to live on.

The void is filled by the fear that America is becoming a nation of haves and have-nots—and that millions are in danger
of becoming permanent members of the have-nots. Forget Freddy Krueger. The real nightmare is not happening on Elm Street. It’s happening on Main Street. And it’s not scantily clad teens being slashed—it’s jobs and incomes and stability and quality of life.
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It’s our future.

And we’re afraid—very afraid—that the worst may not be over, and that the real economy, as opposed to the one on Wall Street, is still melting down. The housing crisis is still raging. The first run of foreclosures was because of subprime loans; the second run is because of people thrown out of work. And the government’s loan modification programs won’t be of any help with this round of foreclosures. As
Newsweek
’s Nancy Cook pointed out, “If you’re unemployed, you don’t qualify for a loan modification.” And then there is the coming commercial property crisis and a potential credit card meltdown.

So we look at the suffering all around us, at the shuttered factories and stores, and worry that it is just the tip of the iceberg—or the tip of the tip of the iceberg. We try to fight off the fear that if things don’t change—and in a big way—we may find ourselves working at Walmart or McDonald’s or Dunkin’ Donuts for minimum wage.

We are fast becoming a nation collectively waiting for the next shoe to drop.

Washington is filled with talk about national security: troop levels, airport screenings, Pentagon budgets, and terrorist threats. But there is another kind of national security: the one that keeps us feeling confident that the economic rug isn’t going to suddenly be pulled out from under us, and that our way of life isn’t going to suddenly implode—the kind of national security that gives us hope for the future. For that national security, especially
when it comes to America’s middle class, the threat level has definitely moved from yellow (“elevated”) to orange (“high”)—and we are afraid that red (“severe”) is looming up ahead.

For more and more of its citizens, America has become a national insecurity state.

In 1835, Alexis de Tocqueville published
Democracy in America
, his observations on the nature of our country. The opening line speaks volumes: “Amongst the novel objects that attracted my attention during my stay in the United States, nothing struck me more forcibly than the general equality of condition among the people.”
²

Looking across the vast expanse of this developing country, the thing that most drew his attention was a vision of America as a level playing field, a place where the same rules applied to everyone. “Democratic laws,” he noted, “generally tend to promote the welfare of the greatest possible number; for they emanate from the majority of the citizens, who are subject to error, but who cannot have an interest opposed to their own advantage.”
³

America’s enlightened elites have always understood that their long-term well-being and security depended on the middle and lower classes having an equal stake in the nation’s prosperity and political institutions. They knew that this great democratic experiment would be defined not by breeding or religion or language, but by a unifying idea—“All men are created equal”—and by an ideal: the good of the many outweighs
the good of the few.
E pluribus unum
. Out of many, one. In the infancy of our nation, Tocqueville saw the power of this idea and its centrality to the American experiment.

He traveled across America before the industrial revolution transformed the country. Once it did, manufacturing jobs helped turn the working poor into middle-class Americans, liberating them from the shackles of a hand-to-mouth existence and moving them closer to enjoying a “general equality of condition.”

So, is America still a nation where its citizens enjoy a “general equality of condition”? Are we still promoting “the welfare of the greatest possible number”? It’s hard to imagine a modern Tocqueville taking in the grand sweep of our current political and economic landscape—with its shrinking middle class, disappearing jobs, growing economic disparity, banking oligarchy, and public policy sold to the highest bidder—and reaching the same conclusions.

Tocqueville’s words are deeply at odds with the reality of modern America. For decades our political leaders have systematically squeezed the nation’s middle class in order to promote the corporate interests paying for their reelection. America’s middle class has been the country’s economic backbone. It is our vast, energized middle class that has done the heavy lifting and inspired the most innovation. Where the middle class heads, the rest of the country follows. So when the middle class is systematically worn down—when too many of its members become downwardly mobile, unable to keep their jobs or their homes or buy as many goods and services and drive market innovations—can a diminished America, a Third World America, be far behind?

The crippling of America’s middle class didn’t happen overnight—and it wasn’t the result of the bad bets made by the game-fixing gamblers on Wall Street (although they sure did their part). It’s actually been decades in the making. But before we look at who set the roadside explosives along the middle class’s road to the American Dream, it might help to define exactly what the term means.

What makes someone middle class? Is there a base income level (fall below it and you are officially poor), or a top-line figure above which you instantly ascend to the upper class (with a quick rest stop at upper middle class)? Does it depend on the size of your house (do you even need a house—can renters be middle class?), the kind of car you drive, the amount of rainy-day savings you have squirreled away in the bank?

In truth, pinning down a hard-and-fast definition of “middle class” is tricky business. It’s a lot like Supreme Court justice Potter Stewart’s famous assessment of what constitutes pornography: “I know it when I see it.” (Indeed, with both porn and the modern middle class, someone is usually getting screwed.)

There is no tidy formula.
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Paul Taylor, executive vice president of the Pew Research Center, asked during his testimony to the Senate Finance Committee: “Is a $30,000-a-year doctor doing his residency in brain surgery lower class? Is a $100,000-a-year plumber upper middle class?” Or are they both part of the great middle class?

According to the Pew Research Center, more than half of American adults (53 percent) define themselves as middle class.
^5,
6
But behind this assertion, Pew discovered a host of
caveats: “Four-in-ten (41%) adults with $100,000 or more in annual household income say they are middle class”—as do 46 percent of those with incomes below $40,000.
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At the same time, a third of those with incomes between $40,000 and $100,000 don’t believe they are middle class.
⁸

For purposes of its research, Pew defined the middle class as those adults “who live in a household where the annual income falls within 75% and 150% of the median” gross income for a family of three in 2006 (the latest year data was available).
⁹
In dollars and cents, that meant an income of between $45,000 and $90,000 made you middle class.
¹⁰

But, in the end, in a very American way, it all comes down to self-definition: If you consider yourself middle class, you
are
middle class.

From 1945 to the 1970s, a period characterized by widespread economic prosperity, the wealthiest Americans grew richer at a rate almost identical to that of America’s lower and middle classes.
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From factory employees to chief executives, Americans experienced a doubling of income.
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By the end of the 1980s, however, things had changed drastically, with the income of the wealthy skyrocketing while the rest of the country lagged far behind.
¹³

What happened? Did middle-class Americans lose their mojo? Or had rich Americans unexpectedly come upon the economic equivalent of the Fountain of Youth—a Fountain of Wealth? They had, but rather than Ponce de León, it was Ronald
Reagan who led the income-boosting expedition, marching into Washington under the banner of lowering the taxes of America’s moneyed elite.
¹⁴

But, the Reagan Revolution of the 1980s was about more than shifting the tax burden—it was about shifting the way America looked at itself. In short order, government was no longer seen as a solution—it was fingered as the problem. Tocqueville’s “welfare of the greatest possible number” was replaced by the notion that the invisible hand of the free market could best determine society’s winners and losers—until, that is, the winners got into trouble in 2008 and the government rushed to the rescue in the name of preventing Armageddon.

In books such as
The Virtue of Selfishness
and
Atlas Shrugged
, Ayn Rand, the high priestess of free-marketeers such as Alan Greenspan, championed the notion that by doing what is best for yourself, you end up doing what is best for everyone. But, as put into practice by corporate America over the past thirty years, that equation has been flipped upside down. It turns out that an unregulated free market is sooner or later corrupted by fraud and excess. In other words, it isn’t free at all. In fact, it’s as fixed as a street-corner game of three-card monte. And the interests of the elites have become disconnected from the public interest.

In the three decades since the Reagan Revolution, Americans have been preached to from pulpits far and wide the holy word of unregulated markets as the true path to a higher standard of living. As part of the new religion, we were converted from citizens to consumers and taught a catechism about how the market—not “equality of conditions”—was the foundation of our country. Along the way, the social contract—especially the subsections protecting workers, poor people, and our air,
water, and oceans—was fed into a shredder. Starting with the New Deal, we began constructing a social safety net to help the most vulnerable among us. But who needed a safety net when the laws of supply and demand were there to protect us, when the trickle-down theory would provide sustenance for us all?

The missing tenet in this new free-market fundamentalism was the recognition, central to capitalism, that businessmen have responsibilities above and beyond the bottom line. Alfred Marshall, one of the founding fathers of modern capitalism, in an address to the British Economics Association in 1890, called it “economic chivalry.”
¹⁵
He explained that “the desire of men for approval of their own conscience and for the esteem of others is an economic force of the first order of importance.” There is a reason Adam Smith’s free-market gospel,
The Wealth of Nations
, was preceded by his
Theory of Moral Sentiments
.
¹⁶
He knew that economic freedom could not flourish without a firm moral foundation.

But that moral foundation is by no means inevitable. The “approval of their own conscience” and “the esteem of others” have gotten a lot cheaper in recent years. We see the results of capitalism without a conscience all around us: the pollution of our environment, workers being injured or killed, the sale of dangerous products, the shameless promotion of risky mortgages for overvalued homes, and the wholesale loss of millions of jobs and trillions in savings.

The collapse of communism as a political system sounded the death knell for Marxism as an ideology. But while unregulated, laissez-faire capitalism has been a monumental failure in practice, the ideology is still alive and kicking. You can find
all manner of free-market fundamentalists still on the Senate floor or in governors’ mansions or showing up on TV trying to peddle deregulation snake oil.

Given how close we were in 2008 to the complete collapse of our economic and financial system, anyone who continues to make the case that markets do best when left alone should be laughed off his bully pulpit.
¹⁷

Despite the fact that many banks, car companies, and so on would be defunct without government intervention, the free-market fundamentalists continue to live in denial, trying to convince the world that if only left alone, free markets would right themselves.

Free-market fundamentalism didn’t fail because our leaders didn’t execute it well enough. In fact, during his time in office (until the economic house of cards finally collapsed at the end of his presidency), President George W. Bush and his team did a bang-up job executing a defective theory. The problem isn’t just the bathwater; the baby itself is rotten.

William Seidman, the longtime GOP economic adviser who oversaw the savings and loan bailout in 1991, cuts to the chase: “[The Bush] administration made decisions that allowed the free market to operate as a barroom brawl instead of a prize fight.
¹⁸
To make the market work well, you have to have a lot of rules.” Even Alan Greenspan, whose owl-eyed visage could adorn a Mount Rushmore of free-market capitalists, finally saw the light, telling a House committee in October 2008 that he “made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms.”
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Many, including Bush 43, lay the blame on a few rotten apples: “Wall Street got drunk,” he said.
²⁰
Maybe so, but who made the Bush years a nonstop happy hour and kept serving up the drinks?