Pulitzer Prize-winning former New York Times Washington bureau chief Hedrick Smith is also the author of several books. His most recent, "Who Stole the American Dream?", is a clearly laid-out explanation of how we went from a prosperous, thriving economy to the meltdown of the middle class. He is also an Emmy award-winning producer for PBS's "Frontline." His documentary "Poisoned Waters" in 2009 stirred up renewed interest in protecting our waterways from chemical run-off and toxins. For more, go to www.HedrickSmith.com.
How did writing "Who Stole the American Dream?" affect you?
It made me very angry. I knew that middle-class, average Americans, had really fared badly over the last 30 years, but I didn't know how badly compared to others. Income flat for average male workers for the last 30 years adjusted for inflation, while the top 1 percent was gaining 600 percent. Didn't realize that homeowners had lost $6 trillion in accumulated value in their home mortgages before the housing boom went bust. Didn't realize the main victims of subprime loans were prime borrowers, people with good credit ratings who got talked into, cheated into, bamboozled into bad loans with high rates, high fees. So I was shocked at the degree to which the middle class had its dream stolen.
You talk about how the roots of the problem go back to Lewis Powell's 1970s declaration of an attack on free enterprise which stirred corporations into political action.
The middle class really exercised a lot of political power during its economic heyday. We the people really influenced Washington through the consumer's movement, the environmental movement, the labor movement ... the peace movement. Those middle-class movements had a real impact on the standard of living and the way Washington worked.
What happened was you had a revolt of the bosses which was triggered by this memorandum written by Lewis Powell, who was a famous corporate attorney -- very strongly anti-union, very strongly free enterprise. He basically said in a private memo: Business, you have got to get into the political arena. You have been taken to the cleaners by all these middle-class movements.
I was running The New York Times Washington Bureau in the late 1970s, and I could see some impact. I could see the 401(k) plan being put in to replace lifetime pensions. I could see the corporate bankruptcy laws being changed and the tax rates on capital gains being dropped, but I didn't realize there was an organized movement. It took quite a long time for people to wake up and see what was going on, including the media.
Responsibility was transferred from employer to employee for managing their retirement, and it appears that the Baby Boomers, who are retiring now, didn't really know what they were doing and many don't have the funds to retire.
Yeah, I think people to a certain extent were sold a bill of goods. The mutual fund industry understood that the 401(k) plan, if they could get a hold of managing all those funds, would make enormous amounts of money. So they preached power to the people -- run your own retirement.
The median 401(k) balance today is $18,000 and for people who have been in the program for 20 years, now in their 60s on the verge of retirement, it's $85,000. That's nowhere near enough. People don't stick with their plans. They don't invest intelligently. When the economy goes down, they stop putting money in, and that's the very time you should be putting money in because that's when you are going to get the best gains later on. People make all kinds of mistakes. It's a terrible idea.
But how much responsibility should the individual take for signing the bad mortgage deal or not putting enough money toward retirement?
I think we should take a lot of responsibility politically, but I think a lot of those people with bad mortgages were simply cheated. I mean, you'll see stories in my book about people who literally were given false information. That's why we have a Consumer Protection Bureau so the sleazy financier can't take advantage of people. Finance is complicated. Saying everybody should be able to take care of themselves is like washing your hands of it.
The folks who were floating these mortgage loans, and the banks that were behind them, they knew what they were doing. They were fleecing people. But, politically, we are all to blame because we have backed out of politics.
So what happened to that early crop of Baby Boomers who protested the Vietnam War and fought for civil rights? Are they just exhausted?
Ironically, part of it was they were successful. I mean, in the environmental movement, they pushed and they got the Clean Water Act and they got the Clean Air Act and the Safe Drinking Water Act and the Anti-Toxic Substances Act. And they were all signed by that great tree-hugging environmentalist, Republican President Richard Nixon (I'm making a joke). To a certain extent, we got all this legislation passed, now it is up to the government -- They'll do it. Well, the problem is you've got to keep the heat on regulators to do it, and they gave up on that.
The landscape of power in Washington has changed, and unless consumers and average people get active, the policy tilt is going to continue to be on behalf of big business and on behalf of the 1 percent, the financial elite.
The more it tilts, the more powerless people feel and the virtuous circle becomes the vicious cycle.
That's right. Well, it's up to us to change that. My friend, Ernie Cortes [Industrial Areas Foundation co-chair], says really profoundly: "Not only does power corrupt, powerlessness also corrupts." In other words, if people feel powerless, it corrupts democracy at the core. We don't try.
In the book you do use United Airlines bankruptcy as an example of a lot of things that went wrong. The unions gave back a lot to keep jobs and even today the mantra is you are lucky to have a job, which makes you powerless.
That's right, you feel insecure. That's always going to be the case when there is high unemployment. People can't afford to protest too hard against their own working conditions. There is no question that the current circumstances really hurt the middle class. But I've got to tell you, this has been going on even when unemployment was low. The middle class has not been active. People can demonstrate for bailing out the homeowners since we bailed out the banks. People can protest for a level playing field on taxes. Those are not things people should be afraid to protest about. We have a systemic problem here. Our system is not working for most Americans really well. We need to do something about it.
What about all the people who can't retire and are holding onto their jobs while all those graduates with student loans are looking for jobs. Nothing is budging.
We are connected to each other. We are a family, and if someone in the family is doing badly, in the end the whole family is doing badly. And we are. We are suffering right now as a nation because middle-class Americans are not getting paid well enough. We need strong consumer demand from middle-class Americans to drive this economy.
Speaking of connectedness, lets talk about Earth Day and the environment.
It's incredible to go back and take a look [at Earth Day]. In 1970, 20 million Americans went into the streets, went to shopping malls, went to college campuses, got on the air to talk on radio and television to protest the fouling of the nation's air and waterways. There was public outrage. People demanded that things change, and they had a powerful impact.
Within a year, Congress had passed seven major pieces of environmental legislation. All of those were signed by Richard Nixon, a Republican president who regarded himself as a friend of big business. He set up the first Environmental Protection Agency and they went after big business, they went after cities, they went after auto emissions and the pollution from them. They really cracked down. To the degree that our environment is better off today, it is because of those people.
Now many of those laws are being eroded.
People need to be aware of that. But the problem of limiting emissions from coal power plants, the battle over the Keystone Pipeline, the question of a carbon tax to reduce our dependence on fossil fuels -- all of that is in political trouble.
Other environmental issues are going under the radar, such as factory farming and genetically modified foods.
There's no question. Huge agri-businesses are having a terrible effect on the environment, and there are new chemicals that are going into the waterways, into the soil. Fortunately, there is a counter movement. You do have more and more markets cropping up around the country where people buy from local farms.
Do you keep tabs on the subjects you have delved into?
Absolutely. In the last four years, corporate profits have been rising 20 percent on average and the average home income has gone up 1.4 percent. So the division I am talking about, the two Americas I am describing in this book, are continuing. The gap between the middle and the top is continuing to widen. The problems are still there. Yes, I keep up with it. I follow it very closely.