Reforming Global Finance

The American Boulevard of Stolen Dreams: Part II — 1990s-2012

How has the American middle class fared under Presidents Bush I, Clinton, Bush II and Obama?

Credit: Albund/Shutterstock.com

Takeaways


  • For the first time since World War II, a major piece of legislation passes Congress without a single yes vote from the opposition party.
  • GE CEO Jack Welch wins favor on Wall Street for cutting 25% of his company's workforce — or 130,000 jobs.
  • Home prices rise so fast after Greenspan's interest rate cuts that Americans borrow $700 billion a year from their home equity.
  • Wal-Mart gets 80% of its products from China-based production, much of it from U.S. companies operating in China.
  • In 2007, the richest 1% take a near-record 23% of the personal incomes paid to all Americans.

This is continued from The American Boulevard of Stolen Dreams: Part I — 1945-1980s.

1990

Congress passes the H-1B visa program, permitting U.S. businesses to import college-educated foreign workers for high-tech and knowledge economy jobs.

By the early 2000s, close to a million Americans have been replaced by foreigners, even though studies by the Rand Corporation and others assert that there is no shortage of Americans to fill such jobs.

1993

For the first time since World War II, a major piece of legislation — President Clinton’s budget — passes Congress without a single yes vote from the opposition party. In a virtually unprecedented party-line vote, not a single Republican supports Clinton’s tax increases.

1993-1994

Hampered by partisan gridlock, the 1993-94 Congress becomes one of the two least productive legislative sessions in a half-century, with the second lowest percentage of major legislation passed.

1994

The CEO stock option boom takes off, with 70% of CEOs now receiving stock option grants. By 2000, grants of millions of stock options become the norm, hugely increasing CEO pay.

Corporate executives overtake the inherited rich as the biggest portion of the nation’s richest 1%.

1995

Partisan gridlock shuts down the government after Republicans take control of the House of Representatives for the first time in 40 years and Republican Speaker Newt Gingrich sets up a confrontation with President Clinton over the budget.

Eventually, with polls showing the public blames Republicans more than Democrats, Gingrich backs down.

1999

General Electric CEO Jack Welch is named “the ultimate manager” of the 20th century by Fortune.

Nicknamed “Neutron Jack” for the weapon that kills human beings but leaves buildings standing, Welch reverses the employee-friendly policies of his predecessor and wins favor on Wall Street for cutting 25% of GE’s workforce — 130,000 jobs.

As one executive put it, “Working for him is like a war — a lot of people get shot up.”

1995-2000

By balancing the federal budget and generating budget surpluses, the Clinton tax increases of 1993 help to lower inflation and interest rates and to generate the nation’s strongest steady economic growth period since the 1960s, boosting the real wages of average middle-class workers.

2001-03

President George W. Bush pushes massive tax cuts through Congress each year, starting in 2001, despite opinion polls showing the public favors using budget surpluses inherited from Clinton to increase spending on education, health, and Social Security, or to reduce the national debt.

May 2003

At a White House ceremony, President Bush thanks “my friend Dirk Van Dongen” for helping to move the Bush tax cuts through Congress.

Unknown to most Americans, Van Dongen is a Washington insider, field marshal of the “Gang of Six” — the six major business organizations that anchor the Tax Relief Coalition that lobbied for tax cuts.

2001-03

The Federal Reserve, led by Chairman Alan Greenspan, cuts interest rates 11 times from 6.5% to 1%, providing cheap money to fuel a housing boom and revive the U.S. economy.

Home prices rise so fast that Americans borrow $700 billion a year from their home equity. Despite warnings about the dangers of rising personal debt, Greenspan hails homeowners’ “equity extraction” as the engine for consumer demand and economic growth.

2003

Airline mechanic Pat O’Neill retires from United Airlines after 35 years on the job, but when United Airlines declares bankruptcy, his lifetime pension is drastically cut, and his employee stock-option plan collapses.

His 401(k) suffers from a sharp stock market decline and he is forced to take another job. To rebuild financially, O’Neill is still working today, and he expects never to retire.

2004

Pam Scholl and Mike Hughes lose their jobs when the old RCA television tube plant in Circleville, Ohio, shuts down — one of 54,000 American plants to close in the 2000s.

Scholl gets another job fairly quickly, but Hughes can’t find steady work.

2004

Bill Nichol, CEO of Kentucky Derby Hosiery, bowing to Wal-Mart executives telling their suppliers to set up low-cost production in China, says he is moving a big chunk of his company there.

Wal-Mart gets 80% of its products from China-based production, much of it from U.S. companies operating in China.

2004-05

Alan Greenspan praises the rapid growth of the subprime mortgage market and encourages mainstream borrowers to shift from standard, level-rate loans to adjustable-rate mortgages.

Then, from 2004 to 2006, Greenspan raises interest rates, making adjustable-rate mortgages riskier.

2003-07

Small-business owner John Terboss of North Miami Beach, Florida, is talked into a series of adjustable-rate home mortgage refinancings, each with a higher loan balance.

When he discovers that his broker got an $18,875 bonus for putting Terboss into a high interest loan, Terboss tries to cancel the loan and gets socked with a $21,000 prepayment penalty. In all, he loses $150,000 in equity he had put into his home.

2005-06

More than half of the people to whom banks sell subprime mortgage loans, at high interest rates with heavy fees, are actually solid mainstream middle-class borrowers who qualified for — and should have been sold — prime loans.

2006

American business has shed much of the cost of the corporate safety net. By the mid-2000s, only 18% of employees at companies with more than 100 workers get health insurance fully paid by employers, down from 70% in 1980.

Only 35% still get lifetime monthly pensions, paid by the company, down from 84% in 1980.

2006

Oracle CEO Larry Ellison, with $706.1 million in pay and stock in 2001, tops a Wall Street Journal compilation of the biggest CEO pay packages from 1995 to 2005.

Close behind are Michael Eisner of Disney (with payouts of $575.6 million in 1999 and $203 million in 1993) and Sandy Weill of Citigroup (with pay of $621.8 million in three big years between 1997 and 2000).

July 4, 2007

Hundreds of workers at Sunbeam’s profitable plant in McMinnville, Tennessee, are laid off and ordered to train their replacements in a factory in Mexico, in a firing ordered by Sunbeam CEO Al Dunlap. Dunlap has made a personal fortune as a serial downsizer of businesses.

Jack Wahl, owner of Sunbeam competitor Wahl Clipper Corporation, criticizes the Sunbeam layoffs as short-sighted and “extremely wasteful,” and says his company runs profitably with U.S. workers.

2007

The richest 1% take a near-record 23% of the personal incomes paid to all Americans, earning a combined $1.35 trillion a year, which is more than the entire economies of Canada, Italy, or France.

2007

Among economic sectors, corporate profits see their share of national income rise during the Bush years to the highest level since 1943, while the share of national income going to employee salaries and wages sinks to its lowest level since 1929.

2008

In a Cornell University survey, 57% of people say they have never benefited from any government program or policy.

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But questioned in more detail, it turns out that 94% have actually benefited from at least one program. The average person has used four government programs.

2008-09

In the recession, hundreds of major U.S. companies — including General Motors, Eastman Kodak, Sears, Motorola, UPS, Fedex, Hewlett-Packard and National Public Radio — either cancel or cut back their employer match for 401(k) programs.

2009

After a taxpayer bailout, big Wall Street banks rebuff President Obama’s appeal to “hire American.” They continue offshore hiring and domestic layoffs.

In the 2000s, the Hackett Group reports, 3.9 million jobs in finance, information technology, human resources, and back-office functions have been lost in North America and Europe.

In 2011, JPMorgan Chase, Bank of America and Citigroup sign new contracts to offshore $5 billion worth of IT and back-office work to Indian firms.

2009

Millions of average Americans, including Pam Scholl and Mike Hughes, become middle-class dropouts — the New Poor. Scholl is laid off for a second time and, despite an intense search for work, remains unemployed for 18 months.

The only work Hughes can find is as a night custodian at a local high school at about one-fourth of his old pay at RCA. Scholl eventually gets a public sector job, at about half her old RCA salary.

December 2009

The United States ends a decade with the slowest economic growth of any decade since World War II. Economic growth was slow prior to 2007, even before the Great Recession, despite President Bush’s promise that his tax cuts would spur growth.

2000-09

In this decade, the Commerce Department reports, U.S. multinational companies hire 2.4 million people overseas while firing 2.9 million workers at home.

IBM now has more employees in India than in the United States. Intel CEO Craig Barrett says his company can be successful without ever hiring another American.

Cisco CEO John Chambers says his company is developing a strategy to become “a Chinese company.”

December 2009

Germany ends the decade having earned $2 trillion in trade surpluses, with 21% of the German workforce still in manufacturing, versus America’s $6 trillion in trade deficits and 9% in manufacturing.

Since 1985, average German hourly wages have risen 30%, compared to 5% in the United States.

2009-10

With the U.S. economy in a painfully slow recovery, political lobbying in Washington is enjoying a boom. As Congress tackles such big ticket items as a stimulus bill, health reform, and financial regulation, a record $7 billion is spent in lobbying in these two years — 87% by business interests.

Business outspends labor on lobbying by 65-to-1. Wall Street banks hire 1,477 former members of Congress, Congressional staff or Executive Branch officials to lobby against new financial regulation.

2010

The National Retirement Fund deficit is calculated at $6.6 trillion by economists at the Boston College Center for Retirement Research. At year’s end, the average 401(k) balance is $17,686.

For people in their sixties, on the verge of retirement after 20 years in a 401(k) plan, the average balance is only $84,469.

Economists warn that half of Baby Boomers will not have enough funds to cover their basic financial needs in retirement.

June 2010

Democratic majorities in Congress pass President Obama’s health care law. Not a single Republican in either House votes for the final bill — a sharp contrast to the strong bipartisan support for Medicare in 1965.

2010

Escalating use of the filibusters (or the threat of filibuster) in the Senate has become a major reason for Congressional gridlock, allowing a minority — sometimes just one or two senators — to prevent even the start of debate.

Scholars who now call Congress “the broken branch” of government report that in the 1960s, only 6% of all legislation faced a filibuster, but now it is up to 70%. Most bills passed by the House die in the Senate.

2010

Wall Street financial firms hire 1,447 former government officials as lobbyists to fight new banking regulation legislation, attempting to eliminate or water down provisions for strict regulations.

After the bill passes, Wall Street bankers and lobbyists continue the battle to delay or weaken new regulations.

2010

In the Congressional elections of 2010, business interests outspend labor $1.3 billion to $79 million, a 16-to-1 advantage for business.

In soft-money contributions to political parties, rather than donations made directly to candidates through political action committees, the business advantage is 97-to-1 ($972 million for business to $10 million for labor).

2010

Thirty-three of sixty new Tea Party members elected to the House are millionaires. Tea Party members have an average net worth of $1.8 million.

Overall, 261 of the 535 senators and House representatives are millionaires — 49%, compared to 1% among the public at large.

2010-12

Washington’s vanishing political center — so vital to bipartisanship in past decades — continues to shrink.

Two moderate Senators — Democrat Evan Bayh of Indiana and Republican Olympia Snowe of Maine — announce they are so frustrated and disgusted by the harsh partisan divide that hobbles Congress that they are quitting and will not seek re-election.

2011

The housing boom and bust causes a massive transfer of wealth from ordinary American families to the banks — economists say roughly $6 trillion — mainly because so many Americans have drained equity out of their homes.

In 1985, Americans owned nearly 70% of the total value of the nation’s housing stock, the main anchor of middle-class wealth. By 2011, the homeowners’ share had plummeted to just under 40%, and the banks now owned the major share of U.S. housing.

2012

The United States struggles with what economists call a “jobless recovery” in which data show the economy is growing, but unemployment remains stubbornly high.

This is the third instance of a jobless recovery in recent decades, after declines in the early 1990s and again in 2000-02.

Corporations sit on $1.9 trillion in cash, spending more money on buying back stock than hiring workers, undermining the dynamics of “the virtuous circle.”

2011-12

Some corporate leaders call for a “domestic Marshall Plan” and revisions in U.S. tax laws to generate more job growth, revitalize America’s global competitiveness, and to enable more of the middle class to reclaim the American Dream.

Former Intel CEO Andy Grove and GE CEO Jeffrey Immelt, among others, advocate a renaissance in U.S. manufacturing.

Other business leaders and economists call for our current leaders to do what past presidents from Washington to Lincoln and Eisenhower have done — take government action to rebuild America’s aging roads, ports, and airports, recoup American’s lost lead in technology and innovation, and educate America’s next generation and retrain America’s current generation to compete better against global rivals.

Read the first part of this article: The American Boulevard of Stolen Dreams: Part I — 1945-1980s

Editor’s note: This essay is adapted from Who Stole the American Dream? (Random House) by Hedrick Smith. Copyright © 2012 by Hedrick Smith. All rights reserved. This text may not be reprinted, disseminated, or distributed in any medium without written permission of the author.

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About Hedrick Smith

Hedrick Smith is an author and documentary filmmaker and a former reporter for the New York Times.

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