Hedrick Smith Answers Your Questions
Monday night on NewsHour, Pulitzer Prize-winning journalist Hedrick Smith spoke with Ray Suarez about his book, “Who Stole the American Dream?”
As a follow-up to his interview, we gave our audience the opportunity to ask Smith questions on Twitter.
redsupanova: What year did you begin writing the book? What was the trigger that inspired you to start writing it?
Smith: I started working on “Who Stole the American Dream?” in the fall of 2009, and worked on it for two and a half years. What triggered the book idea was my research and reporting on the sub-prime housing crisis. When I learned that most victims of “sub-prime loans” were prime-rated buyers who got bamboozled by banks and mortgage brokers and saw that homeowners lost $6 trillion in accumulated wealth (their equity investment in their homes) before the housing bubble burst and hit bottom, and that bankers were pushing an “upside down” mortgage on middle class Americans, I realized that this was a symptom of a much bigger problem for the middle class. Then I dug into the 401(K) retirement systems and job off-shoring of good knowledge economy jobs of college-educated professionals, and decided that I needed to do a book on how the country had moved from an era of middle class prosperity and power — and effective bipartisan politics — to an era of polarized political gridlock, starkly unequal democracy and even more gaping inequalities in the economy, with the middle class stuck in a rut. That is the reporting that I have put into this new book.
JimBilello: What can the middle class do to fairly share America’s wealth? Are their organizations movements? What is the solution?
Smith: In “Who Stole the American Dream?” I have written a ten-point program for reviving and regained the American Dream for middle class Americans. We have to change corporate tax laws that give lower tax rates to U.S. companies that move jobs overseas, and make profits overseas, than to companies that operate inside America, creating jobs at home. We have to push the banks, who got a massive taxpayer bailout, to bailout millions of homeowners now stuck in homes worth less than their mortgages and left paying high, bubble-era interest rates instead of today’s low 3.5 to 4 percent interest. That would not only help those homeowners. It would help the whole economy by freeing up hundreds of billions of dollars of purchasing power — and strong consumer demands is the biggest job creator in the American economy. Strong demand generates economic growth, and right now the housing bottleneck is a huge drag on the economy.
There are some organizations that are trying to reach out to middle class Americans. One is the movement to Take Back the American Dream. Another is the Campaign for America’s Future. Also, keep your eye out for a big popular demonstration in Washington on August 28, 2013 — which is the 50th anniversary of the March on Washington where the Rev. Martin Luther King Jr. made his famous “I Have a Dream” speech.
ktdayg: To what extent is the Occupy movement a response to these problems? Do you think it’s made a difference?
Smith: What I say in “Who Stole the American Dream?” is that “Occupy Wall Street” played an important role in helping frustrated middle class Americans to vent their anger at Wall Street banks and the hyper-concentration of wealth in America today. It put the 99 percent versus 1 percent slogan into our national political dialogue. But it has not been a movement with organization, leaders and a clear agenda, and so it has not had continuing impact with the public or on political leaders in Washington.
tmartx: Is it even possible for someone making $50k/year amass sufficient amount to retire with a 401k?
Smith: Not the way things are going today. In my reporting I learned form financial experts that the median 401(k) balance in America is $18,000 — pitifully small. Even among people who have been in the program for 20 years or more and are over 60, getting ready for retirement, the median balance is only $85,0000 — far short of what is needed. (Financial experts say that people need 10 to 12 times their final annual salary as a retirement nest egg. That means a $50,000-year employee needs $500,000 to $600,000.) Most people aren’t even close. They don’t put away enough each year. Company matches are too small — and many companies stopped matching during the recession. People borrow from their 401(k) for other things. When they switch jobs, they cash out. So the money is simply not there when they need. “In Who Stole the American Dream?” I lay out the problems and quote experts giving advice for average Americans.
Isebrand: Did organized labor raise costs & thus weaken US competitiveness & the middle class? Was 1970′s middle class political clout all good?
Smith: What’s interesting is that when organized labor was strong and employee wages and salaries were rising, the U.S. had a strong and growing economy with shared prosperity that greatly benefited the middle class in the 1950s, 1960s, and 1970s. High wages meant strong consumer demand and strong consumer demand is what drives economic growth in any country. Since the 1970s, labor unions have grown weaker, wages have leveled off, corporate leaders have taken the lion’s share of the economic gains, and the incomes of the top 1 percent have risen 600 percent since the mid-1970s.
American corporate leaders tell us that they could not afford to raise wages because it would destroy America’s competitiveness. But that does not explain how German companies raised their wages levels five times faster than U.S. companies and did better in the global marketplace than the U.S. While we were piling up $6 trillion in trade deficits form 2000 to 2010, Germany had $2 trillion in trade surpluses — facing the same low-wage competition from China, India and the Asian tigers as we did. What’s more, Germany’s corporate managers sat down with their trade union leaders and figured out how to keep the best jobs in Germany instead of off-shoring them. So today, Germany still has 21 percent of its workforce in manufacturing, while the U.S. has only 9 percent. And those manufacturing jobs are the core of the economy and the best-paying jobs for working Americans, and not just assembly line workers but the engineers, designers, sales reps, parts suppliers, grocery stores, real estate agents, etc., etc. So we ought to try to learn how the Germans do it — and it isn’t by holding down wages. In fact, they did just the opposite.
UniverSouLove: What can we do about changing the economy around?
Smith: The most important step is to revive what economists call “the virtuous circle of growth,” which is the economic dynamic that drove the American economy during the great period of middle class prosperity from 1945 to the mid-1970s. What that means is that CEOs in that era believed that it was their job to promote and sustain the interests and economic well-being of all the stakeholders in the company, all the groups with a stake in the company’s success: owners, managers, employees, suppliers, creditors, customers and communities around the company’s plants. Those old CEOs operated from a philosophy of shared prosperity and the country as a whole benefited. Employees got paid well, they and their families went out and spent their pay. That created strong consumer demand, which caused companies to expand their production. They built new plants. They bought new equipment. They hired more workers and that generated a new circle of growth.
The business strategies of the New Economy dismantled that dynamic. CEOs were out to impress Wall Street and jack up their stock price, to get bigger bonuses and stock options. Middle class pay stayed flat — no increase from 1978 to 2011, in the hourly pay of the typical employee, while CEO salaries skyrocketed. So with low pay for the middle class, we got low consumer demand, and that means low growth and long jobless recoveries. We have a structural problem that goes way beyond what Romney and Obama are talking about. It goes way beyond political promises. It is going to take pressure from us, the middle class, on both the politicians and the business leaders to get this ship of ours, the Great Ship America, sailing straight again.