Smith, Who Stole the American Dream?

If you cheered Elizabeth Warren at the DNC, you’ll love Hedrick Smith’s latest book, Who Stole the American Dream? (Random House, 2012). If you’re an Ayn Rand devotee, you’ll probably hate it. If, however, you’re one of the 99%--Democrat or Republican, liberal or conservative, you owe it to yourself to read Smith’s plea to restore middle-class prosperity and power. Hedrick Smith, for those too young to remember, was a New York Times reporter who wrote a brilliant 1976 book, The Russians, and who shared a Pulitzer for the Times’s Pentagon Papers series.

Smith analyzes the U.S. slide from “one large American family with shared prosperity and shared political and economic power” in the decades following World War II to “a sharply divided country—divided by power, money, and ideology,” a “house divided against itself” which, as Lincoln famously warned, “cannot stand.”

Slowly but inexorably, beginning as Smith tells the tale with a 1971 memorandum written by future Supreme Court justice Lewis Powell, the country embraced a “pro-business power shift in politics and a new corporate mind-set” and abandoned the middle class. Worker salaries stagnated, CEO pay skyrocketed. Business lobbyists dramatically outspent lobbyists for labor, nearly 60 to 1 from 1998 through 2010.

The first “bend in the path of American history” came not during a Republican administration but in the late 1970s when Democrats controlled both Congress and the White House—that is, during the Carter administration. Congress embraced deregulation. They passed an omnibus tax bill that contained the 401(k) provision, intended at the time as a tax break for corporate executives at Xerox and Kodak but soon enough expanded to apply to the rank-and-file, to replace lifetime company pensions with do-it-yourself retirement savings plans. And, balking at Carter’s tax bill that closed loopholes for the wealthy and for corporations and that cut taxes for lower-income families, Congress passed a bill that cut the maximum capital gains tax rate from 49 to 28 percent, cut the top corporate tax rate from 48 to 46 percent, and included generous write-offs for small businesses. “Although the size of the tax cuts was relatively small, it marked a watershed in Washington’s tax and economic policies. Instead of following the traditional pattern of using the tax system to redistribute income from the affluent and from corporations to the less well-off, the 1978 tax bill charted the opposite course, a course that would be pursued by Ronald Reagan and George W. Bush.”

The New Economy undid the equality and prosperity of the postwar period. No longer would Americans at all income levels move up together. “The dynamics of the New Economy disrupted the virtuous circle of growth, the economy of middle-class power, and the Great Compression, where the destinies of management and labor had been linked.” By 2011 the OECD ranked the U.S. thirty-first—fourth from the bottom—among its thirty-four member countries in ratio of incomes.

How can average Americans counteract the influence of money in politics, what Joseph Stiglitz called government “of the 1%, by the 1%, for the 1%”? Smith contends that “millions of average Americans will have to become directly involved once again in citizen action—making their presence felt, taking to the streets, just as millions did in the 1960s and 1970s—to restore the vital link between Washington and the people.” Occupy Wall Street was an inchoate first step, “but for significant long-term impact, either Occupy will need to mature or some new movement will need to emerge with broader participation, better organization, more clearly articulated goals, and specific policy targets.”

A movement of the 99% would, of mathematical necessity, cut across party lines. It would connect people to government instead of alienating them from it; it would give them power in place of their current powerlessness. It would bring the political power game out of the shadows into the broad daylight. And it might just restore, and even strengthen, the middle class. Smith’s book is a call to action. The choice for Americans, in the words of Louis D. Brandeis, is stark: “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”