By John Lawrence
The American Dream is the ideological underpinning of the middle class. Now that the middle class is disappearing, it no longer makes sense as historically defined.
Thom Hartmann (Rebooting the American Dream) and Hedrick Smith (Who Stole the American Dream) have defined the American Dream as a good job at good wages plus benefits. They bemoan the fact that this has pretty much gone by the wayside in today’s world.
Well, it’s time to get over it because the conditions that gave rise to middle class prosperity in America from 1945 to 1980 are not coming back.
The era in which the economic rewards from rising productivity were widely shared between workers and owners is over. Those good jobs resulted from the fact that unions put pressure on corporations. Private sector union membership reached a peak of about 35 percent of the labor force in the 1950s.
Today union membership, especially in the private sector, has fallen off to less than 10%. The decline of the middle class mirrors the decline in union membership. Today in a globalized economy, corporations employ workers wherever in the world they can get them for cheapest.
… in the post-war era, the largest employer in America was General Motors, and they paid working people what would be, in today’s dollars, about $50 an hour with benefits. … [today] our nation’s largest employer is WalMart and they pay around $10 an hour.
During the heyday of the middle class, it was possible to own a house, a car, eat out once a week, take a vacation once a year, send a child to college without going into debt, have health care and a pension that would pay out monthly benefits for life – all in a one job family in which the wife could stay home with the children and make pies and cakes.
Then Reagan was elected President in 1980 and the War on the Middle Class began. Taxes that had been progressive during the middle class era became regressive. Instead of the transfer of tax money from rich to poor, the opposite started to occur. According to Thom Hartmann this was the single biggest factor in impoverishing the middle class.
When we had heavily regulated and taxed capitalism in the post-war era, the largest employer in America was General Motors, and they paid working people what would be, in today’s dollars, about $50 an hour with benefits. Reagan began deregulating and cutting taxes on capitalism in 1981, and today, with more classical “raw capitalism,” what we call “Reaganomics,” or “supply side economics,” our nation’s largest employer is WalMart and they pay around $10 an hour.
This is how quickly capitalism reorients itself when the brakes of regulation and taxes are removed – this huge change was done in less than 35 years.
The deunionization of America, a globalized work force and regressive taxation have all combined to decrease the middle class and undermine the American Dream. There is no use trying to get the conditions back that supported that dream. It ain’t going to happen.
However, it is possible to develop a new Weltanschauung or world view that doesn’t have anything to do with trying to recreate the conditions that led to middle class prosperity in the past. This involves letting go of many of the assumptions that were productive in the past but today are completely dysfunctional.
One of these assumptions is that, if we prepare ourselves as students for a job, some benign employer will hire us. Under this assumption it’s the employer’s job to provide jobs for us, the employees. I call this employee consciousness wherein most people aspire to be employees, to work for somebody else. Today most employers have no responsibility whatsoever to their employees. Employees are hired “at will” which means they can get rid of you for no reason at all.
So rather than get laid off at the age of 50 because some whippersnapper can do a better job than you can at half your pay rate, you’re better off being self-employed from the start of your career. Create your own job. It’ll be harder at first, but, as the years go by, you’ll be much better off especially if you gear yourself from the very beginning to be your own boss and not delegate the job of bossing you to someone else.
The only good non-self-employed jobs are unionized jobs in the public sector. For instance New York City sanitation workers make around $90,000 a year.
Another assumption is that a college education is essential to a middle class lifestyle. No longer true. Today a college education is just a precursor to a lifetime of debt. Instead of starting off life debt free which was the case for most college students from World War II until Reagan’s election, college students today start off life with a debt equal to a first mortgage. Better to start a career just out of high school and not waste four years in college for what amounts to a worthless piece of paper.
There are many jobs that can be done with just training acquired either at high school or during the high school years that end up paying more than those that require a college degree and which can be easily outsourced. Think local service type jobs rather than jobs with national or global pretensions.
Plumbers, electricians and many other service jobs are more remunerative in the long run than jobs for which you need a college degree, and, instead of being laid off at the age of 50, you will have an asset – your business – which is salable at the age of 50.
The only good non-self-employed jobs are unionized jobs in the public sector. For instance New York City sanitation workers make around $90,000 a year. Becoming a garbage man is the most coveted job in the city. Over 90,000 people applied last year for the job of carting away NYC’s garbage, but they only hire about 500 a year.
It’s actually harder to become a sanitation worker in New York City than it is to get into Harvard. Starting salary is about $34,000, but with overtime it averages about $47,000 the first year. After 5.5 years the salary jumps to an average of $89,000. This compares with an average salary for New York teachers which is $68,000.
For those unwilling or unable to be self-employed or unable to win the lottery to become a NYC sanitation worker, consider a two year associate’s degree from a community college …
Since sanitation workers also operate New York City’s snow plows, there is ample opportunity for overtime pay. They also get 10% more for night shifts, double time for Sundays, 25 vacation days a year and unlimited sick leave. Sanitation workers in NYC have a very good health care plan and excellent pension benefits. And it’s all because they have a very strong union.
You can retire in 20 years. 71% of all government workers in New York state are unionized. That’s the difference that unionization has made, and it explains the lack of wage growth in the deunionized private sector.
For those unwilling or unable to be self-employed or unable to win the lottery to become a NYC sanitation worker, consider a two year associate’s degree from a community college which by the way President Obama wants to be free. Good luck with that. If wishes were horses, then beggars would ride. There’s a wave of people with two year degrees in applied science earning as much or more in their first year after graduation than four year college graduates.
According to collegemeasures.org, these two year degrees from a technical college are worth more in the job market than bachelor’s degrees. In Texas the earnings difference between 2-year technical college graduates vs those with a bachelor’s degree was on average $11,000. In Virginia it was $2000 and in Colorado it was $7000.
In Colorado the community college tuition is about $3600 per year, but the median wage for graduates in their first year of employment is $53,000, a significant cost/benefit advantage over four year colleges. Red Rock Community College near Denver has a water quality management program which almost guarantees graduates a good job since the City of Denver needs 1800 water quality workers in the next few years.
401(k)s are do-it-yourself pensions. You invest your own money in the stock market in the hopes that your expertise in managing your portfolio will result in an adequate pension.
That portion of the American Dream that promised a lifetime pension after working for 30 years has been totally vitiated. The defined benefit pension which promised a fixed monthly amount for life has been replaced by the defined contribution pension or 401(k) in which the employee funds and manages his own retirement account.
This might as well be called the undefined benefit pseudo pension as there is no guarantee that the amount of money in your account on retirement will last a lifetime.
So what good is it if you find at the age of 85 that you’ve run out of money. We’ll be seeing a lot of 85 year olds reduced to living on the streets since corporations have pulled the rug out from under the defined benefit plans. Now the employee, not the corporation, takes all the risk in the stock market.
The average employee has far less in his or her 401(k) than what will be needed over a lifetime especially if he or she lives into their 90s which is becoming increasingly common.
401(k)s are do-it-yourself pensions. You invest your own money in the stock market in the hopes that your expertise in managing your portfolio will result in an adequate pension. Unfortunately, most employees have little expertise in that area. Hedrick Smith writes:
[The advent of 401(k)s] was a monumental transformation for the American middle class. “When the 401(k)s came in, there was a sea change, a huge shift in who was paying for retirement,” observed Brooks Hamilton. “In the old system, employers put up most of the money – 89%. The employees contributed 11%. Those figures are from the Department of Labor. Fast-forward to the 401(k) system and today, employees are paying more than half – 51% – and the companies, 49%. So there was a huge shift in costs from employers to employees – hundreds of billions of dollars.”
The average employee has far less in his or her 401(k) than what will be needed over a lifetime especially if he or she lives into their 90s which is becoming increasingly common. The typical nest egg of those in their 60s with a 401(k) who are nearing retirement is around $79,000 according to The Center for Retirement Research at Boston College. This is far less than required to live a middle class lifestyle for the average life span.
Hedrick Smith sums up:
Retirement specialists like Brooks Hamilton and Alice Munnell question whether, in this turbulent economy, the task of financing retirement is too fraught with risk and too complicated for most average Americans, especially the millions who are gun-shy about financial markets.
So one of the advantages of employeehood, a secure retirement, has been taken away. Rather than live off a fixed sum of money at retirement, you need to do what the rich do: live on the return from your investment not the investment itself. It’s up to you to acquire your own wealth from which to pay yourself a monthly stipend from the return on that wealth. That’s the only way it will last as long as you need it.
If you have a fixed pot of money like that which the 401(k) provides and you live off of it, you will be consuming your own seed capital. On the other hand if you own a rental which pays you $1000 a month in rent, that goes on in perpetuity and you can will that asset to your heirs.
In other words you will never run out of money. Most of those depending on 401(k)s have the middle class mindset that you live off your life savings. This mindset and assumption needs to be changed. They will run out of money at some point unless they die quickly after retirement.
Thom Hartmann and Hedrick Smith are good analysts but their solutions amount to wanting the Federal government to bring back the good old days by creating good jobs at good wages.
It is better to acquire property development skills like carpentry, plumbing, electrical etc in high school so that you can add value to a piece of property and rent it out thus acquiring a life time cash flow. You can’t add value to a stock portfolio and it is subject to the vagaries of the market including bubbles and subsequent crashes.
That’s where self-employment in the building trades is invaluable. You can build wealth by adding value. And all the learning tools are readily available in the library or on the internet. The ancillary benefit of learning one or more trades is that you can build wealth on the side in addition to earning a living.
Thom Hartmann and Hedrick Smith are good analysts but their solutions amount to wanting the Federal government to bring back the good old days by creating good jobs at good wages. Yeah, it would be nice to have the Federal government put up $2 trillion to repair or rebuild infrastructure. It’s just not going to happen.
The Federal government and a lot of state governments have been captured by rich billionaires and corporations that have more economic power than most countries and they don’t want it to happen.
It would be nice to tax the rich and transfer money to the poor. It’s not going to happen. So despite the imprecations of Bernie Sanders, Elizabeth Warren and other voices crying out in the wilderness, their solutions are just pipe dreams.
Wishing does not make it so. We’re in a totally different environment than the one after World War II when veterans could go to college and buy houses with veterans’ benefits. Today most jobs are being reduced to WalMart type service jobs. But you can still make good money in a service job providing it’s a self-employed service job and you’re servicing the local economy.
Forget about STEM (Science, Technology, Engineering, Math) jobs. A few short years after graduating from college, skills in those areas will be obsolete and corporations will let you go because you will be deadwood. They want recent college graduates.
Cutting edge skill sets don’t benefit America as some would suggest. They only benefit American corporations which have absolutely no loyalty to their employees or in fact to America. They are doing everything they can including moving their headquarters out of the US to avoid paying taxes.
Instead of being concerned about global competition and America’s winning, be concerned about the local economy and contributing to it while at the same time earning a living and creating wealth for yourself. If an enterprise requires a number of workers to make it viable, form it as a cooperative and share the profits.
John Lawrence
Latest posts by John Lawrence (see all)
- Economist Kenneth Arrow, Nobel Laureate, Dead at 95 - March 22, 2017
- Container Ships Burn Dirtiest Fuel: the International Maritime Organization (IMO) Could Change That - March 15, 2017
- Cities and States Prefer Public Banks To Wall Street - March 7, 2017
Just saw a program about heroin addiction in Greenfield, Mass., a town I visited often in the 90s…..Reason? All the small industries are gone there. There is little opportunity for anyone, globalization has taken it all. The American dream is dead fo SO many. Your advice is super Thanks, John
As usual, you have penned a profound and disturbing look at how our society’s professed values are being sabotaged with us as willing accomplices. Thank you for your efforts to get the word out!
Sandy
John,
Your provocative writing is a stark reminder of the equitably shared benefits of the American Dream our generation born before WWII enjoyed through the 50s, 60s, and 70s … until Reaganomics subplanted “We the People” under constitutional ‘pursuit of happiness’ guarantee with “We the Profit Makers” under the holy social-economic paradigm of survival-of-the-fittest.
Corporate power has thus come to increasingly dominate the political, social, and cultural streams of American life. Corporations are empowered by their legal knighthood of ‘personhood’ and the right to finance at will the campaigns of their political servants. This has made a joke of our democracy. We are constantly visibly confronted with this corporate power not only in deciding political elections and laws disproportionately favorable to industry, but also in how local, small, independently owned businesses have been vanishing.
Corporations see it as their right and duty to maximize profits (for shareholders and bonuses for management) by gobbling up medium-sized firms and slashing jobs; by eliminating small-town proprietors of grocery stores, clothes stores, pharmacies, coffee shops , hardware stores, family restaurants, etc., often destroying the life of a town as well. Local citizens may get more buying choices at discounts and hence the urge to spend their stagnant low wages, but they pay a big cost. Community unity and social interconnections sparked by small businesses are replaced by spiritless ‘money-machine’ megamalls, supermarkets, hyper-stores – contributing little social cohesiveness and offering take-it-or-leave -it survival wages.
Corporation destruction of jobs and decently paying jobs for middle class workers is deeply intrenched in a hiring and firing culture. This is good so said ‘exotic financial-product expert, Alan Greenspan: ” The U.S. has benefited much more than Europe and Japan from the information technology revolution because American businesses enjoy a greater freedom to hire and fire (editor: to raise productivity and profits). U.S. companies find it much easier to introduce new equipment and displace existing workers.” (see: “Flexibility of Labour Key to U.S. Success,” Financial Times, July 2000).
Of course, this hire and fire flexibility has been exploited to the hilt the last 35 years.
A good example you mention, John, is the manufacturing industry. In 1965, about 27% of U.S. employment came from manufacturing and manufacturing output was around 14% of GDP. In 2013, less than 10% of U.S. employment comes from manufacturing BUT manufacturing output has risen as a % of GDP. We have created an economic model where fewer workers are producing many more goods than workers in the 60s or 70s and are getting much less for their contributions to the success of the business. In fact, as productivity rates continue to rise, corporations don’t hesitate to eliminate jobs, reduce wages and benefits. However, a promising precedent was Seattle’s recent move to sharply increase the minimum wage, recognizing fact low wages translate into low consumption, eventually lower business prices and lower or no profits.
What to do? Other than an upsurge in vocational training and self-employment at many levels, as you say a powerful grassroots countervailing action is to go local and regional with “cooperatives” which democratize company management and ownership. More and more citizens need to realize that “We the People” empower ourselves rather than global corporations by our decisions of where we buy, what we buy, how we take control of our employment … and, yes, where we bank.
Following words from economic analyst David Korten make a point:
“Life’s closest analogy to the … corporation is cancer. We get cancer when a genetic defect causes a cell to forget it is part of a layer whole and seeks its own unlimited growth without regard to the consequences. “
Frank, you rightly point out the trend away from Mom and Pop enterprises and towards big corporate enterprises. Wal-Mart is the best example. The profits all go to one family instead of spread out over thousands of families when local grocery stores were family owned. This concentration of industries among a few giants has led to the growing inequality in income and wealth and the trend towards lower paying jobs for the majority of the population. Ownership is concentrated in a few families instead of being widely dispersed. This concentrates wealth.
Since manufacturing has diminished, this leaves the majority of jobs in the service economy. This is not necessarily a bad thing in and of itself because self-employed service jobs can pay very well. For example, as a self-employed person in a service type job, I make around $40. an hour. If I went to work for someone else as an employee doing the exact same work, I would make minimum wage.