Nieman Reports | Defying Gravity
Who stole the American Dream? The short answer to the question in the title of Hedrick Smith’s new book is: The U.S. Chamber of Commerce and Wal-Mart.
But the longer answer is one heck of a story, told by one of the great journalists of our time.
In his sweeping, authoritative examination of the last four decades of the American economic experience, Smith describes the long, relentless decline of the middle class—a decline that was not by accident, but by design.
He dates it back to a private memo—in effect, a political call to arms—issued to the nation’s business leaders in 1971 by Lewis F. Powell, Jr., a corporate attorney soon to become a Supreme Court justice. From that point forward, Smith writes, corporate America threw off any sense of restraint or social obligation and instead unstintingly leveraged its money and political power to pursue its own interests.
The result was nothing less than a shift in gravity. Starting in the early 1970s, every major economic trend—increased productivity, globalization, tax law overhauls, and the phasing out of pensions in favor of 401(k)s—produced the same result: The benefits fell upward.
Smith, a 1970 Nieman Fellow, is at his very best as he examines, one by one, the key economic shifts of the last 40 years and shows that in each case the money flowed to the very richest Americans, particularly those on Wall Street, while impoverishing the middle class.
Nowhere was that more blatantly the case than in the housing sector. We are all well aware of how the bursting of the housing bubble has left many middle-class Americans without the nest egg they were counting on for their retirement. But Smith describes how the banks had been sucking the home equity out of the middle class for years before that.
“Instead of enabling ordinary Americans to achieve The Dream, they fashioned stratagems that stole the dream,” Smith writes, describing what he calls the “New Mortgage Game.” The sales pitch “was that homeowners should think of their houses not as nests … but as ATM machines,” Smith writes. The goal was “perpetual hock”—and correspondingly high fees.
The banks “seduced millions of middle-class families into draining the precious equity that they had painstakingly built up in their homes” and the result was “a monumental transfer of the absolute core of middle-class wealth from homeowners to banks. Trillions of dollars in accumulated middle-class wealth were shifted from average Americans to the big banks, their CEOs, and their main stockholders.”