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.

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