Third World America (2 page)

The Bush and Obama administrations bailed out America’s big banks because it suddenly became imaginable that the financial system might collapse. When we take a hard look at what’s happening to America’s middle class, its disappearance suddenly becomes not only imaginable but, unless drastic action is taken, inevitable.

In April 2010, the shot heard around the country—or at least around Wall Street and Capitol Hill—was the Securities and Exchange Commission suing Goldman Sachs for fraud.
⁵
It was big news in itself, as Goldman Sachs has become the poster child for the deep disconnect between Wall Street and Main Street. But much more important than the Goldman case in particular was the light it shed on what the financial and political elite had been doing to America for the last thirty years: shorting the middle class.

The American people have been sold on the very American idea that working hard and playing by the rules would ensure some modicum of prosperity and stability, while at the same time Wall Street has been overseeing a massive transfer of wealth from the middle class to the richest Americans. Ordinary working Americans were seen as the counterparty in a
zero-sum bet—in Wall Street parlance, the proverbial “dumb money” at the table.

The results have been devastating: a disappearing middle class, a precipitous drop in economic and social mobility, and, ultimately, the undermining of the foundation of our democracy.

The human toll of the shorting of the middle class is tallied every day on websites such as
Recessionwire.com
,
LayoffSupportNetwork.com
, and
HowIGotLaidOff.com
, where the casualties of Wall Street’s systemic scam share their personal stories. One tale in particular struck me as emblematic of the place America’s middle class finds itself these days. It feels like a dark reboot of the American Dream. Think Horatio Alger rewritten by O. Henry—or Rod Serling.

It’s the story of Dean Blackburn of Alameda, California. The first part of his life was a classic American success story. Raised in Minnesota by a single mom who worked as a teacher, he was “middle class by default.” Through a combination of smarts and hard work, he made his way to Yale, then, for seventeen years, he steadily progressed up the economic ladder, gaining skills as a project manager, analyst, and IT director.

Then came February 2009, when, at age thirty-five, he was laid off on the last day of the month. His boss chose that day because it meant the company would not have to pay for another month of his health coverage. “Looking back on it,” he told me, “that hurt more than the layoff itself—just knowing that the president of the company was exactly that calculating and that unfeeling about my own and my family’s well-being.” The timing, Blackburn continued, “put those ‘family days’ and company picnics in a weird new light.”

Fourteen months later, Blackburn was still looking for a
new job. His wife, who had taken a year off work when their daughter, Robin, was born, was eager to return to a full-time job. They faced the double challenge of finding an affordable preschool for their two-year-old as well as the jobs that would pay for it. Meanwhile, they tried to maintain their sanity by participating in life as they once had, “but we look at the numbers constantly now, and worry about what will happen when our savings run out,” Blackburn told me. “Not if, but when.”

As Blackburn dealt with the immediate financial struggles his extended unemployment brought, he became acutely aware of the broader implications of the shorting of the middle class. “Ultimately,” he says, “it’s not about a dip in corporate profits, but a change in corporate attitude—a change that means no one’s job is safe, and never will be, ever again.”

It’s one of the reasons he decided to start his own company, NaviDate, a data-driven twist on online dating sites: “It’s no longer a trade-off between doing what you love and having stability. Stability is long gone, so you better do something you love!”

Achieving middle-class stability has always been a big part of the American Dream, but, as Blackburn notes, mobility now is increasingly one way: “The plateaus of each step, which can be a great place to stop a bit and catch your breath, are gone. Now, it’s climb, climb, climb, or start sliding back down immediately.” The result: “The odds are you’re going to wind up at the bottom eventually, unless you get lucky.”

Luck. That’s what the American Dream now rests on. It used to be about education, hard work, and perseverance, but today the system is rigged to such an extent that the middle-class life is the prize on a scratch-off lottery ticket. The revelation of the corruption behind the financial crisis has put the
very idea of the middle class and the American Dream, as Blackburn put it, “in a weird new light.”

A lot of people at the top of the economic food chain have done very well shorting the middle class. But the losers in those bets weren’t Goldman Sachs investors—they were millions of Americans whose sole crime was to optimistically buy into the American Dream, only to find it had been replaced by a sophisticated scam.

In November 2008, as the initial aftershocks of the economic earthquake were being felt,
New York Times
columnist David Brooks predicted the rise of a new social class—“the formerly middle class”—made up of those who had just joined the middle class at the end of the boom, only to fall back when the recession began.
⁶
“To them,” he wrote, “the gap between where they are and where they used to be will seem wide and daunting.” But, in the time since Brooks wrote this, the ranks of the formerly middle class have swelled far beyond those who joined at the tail end of the boom. And for millions of Americans, that “wide and daunting” gap is also beginning to look permanent.

The evidence that the middle class has been consistently shorted is so overwhelming—and the results so potentially damaging to our society—that even bastions of establishment thinking are on alert. In a 2010 strategy paper, the Hamilton Project—the economic think tank founded in 2006 by former U.S. Treasury secretary Robert Rubin (a big beneficiary of the shorting of the middle class)—argued “that the American tradition of expanding opportunity from one generation to the next is at risk because we are failing to make the necessary investments in human, physical, and environmental capital.”
⁷

Of course, it’s even worse than that. Beyond failing to make
necessary investments for the future, we are actually cutting back on our current investment in people, with massive budget cuts in education, health care, and social services in state after state after state, all across America.

At least forty-five states have imposed budget cuts that hurt families and reduce vital services to their most vulnerable residents.
⁸
Those affected include children, the elderly, the disabled, the sick, the homeless, and the mentally ill, as well as college students and faculty.

According to a report by the Center on Budget and Policy Priorities, at least twenty-nine states have made cuts to public health programs, twenty-four states have cut programs for the elderly and disabled, twenty-nine states have cut aid to K–12 education, and thirty-nine states have cut assistance to public colleges and universities.
⁹

America’s states faced a cumulative budget gap of $166 billion for fiscal 2010.
¹⁰
Total shortfalls through fiscal 2011 are estimated at $380 billion—and could be even higher depending on what happens to unemployment.

These are massive numbers.
¹¹
But when you remember that we spent $182 billion to bail out AIG ($12.9 billion of which went straight to Goldman Sachs), you realize that this amount alone would be more than enough to close the 2010 budget gap in every state in the Union.
¹²
Toss in the $45 billion we gave to now-making-a-profit Bank of America and the $45 billion we gave to now-making-a-profit Citigroup, and we would be well on the way to ensuring that no state’s vital services are cut through 2011.
^13,
14

But instead that money has gone to the banks without any fundamental reform of the system, without any strings attached or edicts about how much they have to lend to help the real
economy recover—or, indeed, without even having to tell us what they did with our money.

All across the country, the fiscal ax is falling. The devastation is in the details:

• California is eliminating CalWORKS, a financial assistance program for families in need, a cut that will affect 1.4 million people, two-thirds of whom are children.
  ¹⁵
  This plan would also cut state subsidies for child care, affecting 142,000 children.
  

• Minnesota has eliminated a program that provides health care to 21,500 low-income employed adults with no children.
  ¹⁶
  

• Rhode Island has cut health insurance for 1,000 low-income families.
  

• Maine has cut education grants and funding for homeless shelters.
  

• Utah has cut Medicaid for physical and occupational therapies, as well as for speech and hearing services.
  

• Michigan, Nevada, California, and Utah have eliminated coverage of dental and vision services for those receiving Medicaid.
  

• Alabama has canceled services that allow 1,100 seniors to stay in their own homes instead of being sent to nursing facilities.
  

• Georgia has cut $112 million from an initiative designed to reduce the gap in funding between wealthy and poor school districts.
  

• Arizona has cut cash assistance grants for 38,500 low-income families.
  

• Virginia has decreased payments for people with mental retardation, mental health issues, and problems with substance abuse.
  

• Illinois has cut funding for child welfare and youth services programs.
  

• Connecticut has cut programs that help prevent child abuse and provide legal services for foster children.
  

• Massachusetts is making cuts in Head Start, universal pre-K programs, and services to prepare special-needs children for school.
  

Keep in mind, all these services are being cut at a time when more and more people are finding themselves in need of them. It’s a perfect storm of middle-class suffering.

And yet the human consequences of the financial collapse are largely missing from our national debate. I’m referring especially to the people who had steady jobs; people with college degrees; people who were paying their bills, saving for retirement, doing the right thing—and who have, in many instances, lost everything. The daily miseries being visited upon them are unfolding across the country.

So why is there no sense of urgency coming out of Washington?

Perhaps the reason can be found in the stunning results of a study conducted by Northeastern University’s Center for Labor Market Studies that broke down the unemployment rate by household income.
¹⁷
Unemployment for those making $150,000
a year, the study found, was only 3 percent in the last quarter of 2009. The rate for those in the middle income range was 9 percent—not far off the national average. The rate for those in the bottom 10 percent of income was a staggering 31 percent.

These numbers, according to the
Wall Street Journal
’s Robert Frank, “raise questions about the theory behind what is informally known as ‘trickle down’ economics, since full employment at the top doesn’t seem to be translating into more jobs below.”
¹⁸

In fact, these numbers do more than raise questions—they also supply the answers.

Does anyone believe that the sense of urgency coming out of Washington wouldn’t be wildly different if the unemployment rate for the top 10 percent of income earners was 31 percent? If one-third of television news producers, pundits, bankers, and lobbyists were unemployed, would the measures proposed by the White House and Congress still be as anemic? Of course not—the sense of national emergency would be so great you’d hear air-raid sirens howling.

Instead we get policy Band-Aids—timid moves that will do little to abate a crisis that threatens to change the very fabric of our society. For much of our history, America was known for its promise of upward mobility. That promise has been called into question over the past three decades, and an extended run of high unemployment could be its death knell.

“These are the kinds of jobless rates that push families already struggling on meager incomes into destitution,” wrote
New York Times
columnist Bob Herbert.
¹⁹
“And such gruesome gaps in the condition of groups at the top and bottom of the economic ladder are unmistakable signs of impending societal instability. This is dangerous stuff.”

The lack of urgency we are seeing in Washington—and the lack of focus on real people—is stunning considering that the consequences of our failed financial system are everywhere you look. Putting flesh and blood on the cold, hard statistics means putting the spotlight on the people whose lives were turned upside down as a result of our out-of-control financial system.

Ron Bednar and Mary McCurnin of Rancho Cordova, California, are a loving couple that got divorced last year, not because their relationship wasn’t working but because it was the only way to make ends meet. Due to unemployment and a bankruptcy caused by a prolonged illness, they found themselves with only $300 in the bank. By getting divorced, McCurnin was able to collect Social Security widow’s benefits from her first husband, who died in 1989. “We literally live from week to week,” she says.

Kimberly Rios of North East, Maryland, sold her wedding ring on Craigslist so she could pay her utility bills. “This is no joke, please be a serious buyer,” her ad read. “It is too cold for us to be without electric and heat so if you have been looking consider my deal.” After selling her ring, she locked herself in her bathroom, pretending to take a shower, so she could cry without upsetting her family. “I just felt like it was the last piece of what little I had left,” she says. “I came out smiling as usual and tried to get my husband and daughter excited that this was a good thing.”