Photo by Clem Murray, The Philadelphia Inquirer
Taxes, trade, public policy: Will the playing field ever be level?
Thursday, October 17th, 2013
Donald L. Barlett and James B. Steele's 2012 book, "The Betrayal of the American Dream," chronicles how four decades of public policy shaped America's ongoing economic crisis. The New York Times bestseller, researched in part by Workshop staffers, will be released in paperback Oct. 22. The paperback edition includes an afterword, excerpted here, by the authors and which takes a critical look at recent reports of economic recovery in the United States and its impact on the middle class.
Excerpts from the hardcover book and a Q&A with the authors were published last year by the Investigative Reporting Workshop's site and by our partner on the project, The Philadelphia Inquirer. You'll also find Barlett and Steele's previous stories for the Workshop as well as those of other Workshop staffers at AmericaWhatWentWrong.org.
Workshop staffers Kat Aaron, Michael Lawson and many others contributed research to the book and reported additional stories on the economy, public policy, the housing crisis, unemployment and wages throughout the multiyear project.
On May 28, 2013, the U.S. stock market hit an all-time high — 15,409 on the Dow Jones — a peak not even achieved during the go-go years before the economic crash of 2008. The news media rejoiced: “Americans’ 401(k)s are skyrocketing,” blared ABC News. “What financial crisis?” asked a euphoric CNN Money.
A week later another statistic about the financial health of Americans surfaced, but it received little attention. Despite the financial markets’ “recovery,” average household wealth in the U.S. remained significantly less than it was in 2007, according to a study by the Federal Reserve Bank of St. Louis. The Fed calculated that average households had only recovered about 63 percent of what they had lost. In other words, Americans were a third poorer than they were in 2007, despite the rising stock market. The Fed noted in a classic understatement, the recovery for these Americans — the vast majority of the country’s citizens — “remains incomplete.”
For all this talk throughout the 2012 election cycle by candidates from both parties about the urgent need to help the middle class, virtually nothing has been done to change policies that are impoverishing working Americans.
Public opinion polls before the November 2012 election showed that a significant majority of Americans supported higher taxes on the wealthy. But the White House-Congressional negotiations over taxes and spending that followed, though widely seen as a triumph for President Obama, ended in what can only be called a modest tax increase on the wealthy. How modest? As a result of the deal struck by the President and Congress, a couple with a taxable income of $500,000 will only pay a little more than $1,000 a year in additional income taxes.
The outcome of those negotiations signaled that it would be business as usual in Washington and reaffirmed the central theme of “The Betrayal of the American Dream” — that America is now ruled by an economic elite. The failure to achieve a significant tax increase on the 1 percent of very wealthy Americans shows how a minority can block a policy change favored by the majority. It forcefully demonstrates that America is no longer a democracy, but a plutocracy run by a few for their own benefit.
In the year since “The Betrayal” was first published, several other developments have brought into sharper focus some of the crucial issues explored in the book.
The fiasco that followed the initial launch of Boeing’s new passenger jet, the 787 Dreamliner, illustrates the potential pitfalls of outsourcing, a policy that more and more U.S. corporations have embraced to cut costs. The 787 is a revolutionary aircraft, and Boeing has staked a hefty bet on its success. But shortly after the jet began limited service late in 2012, all 50 models were grounded by the FAA after the lithium-ion batteries that power the electrical system mysteriously began to overheat on two of the planes and ultimately failed within days of each other.
Despite the media’s extensive coverage of the battery snafu, not enough attention was given to the fact that the 787’s critical components were outsourced to foreign suppliers. An estimated 70 percent of the plane was outsourced — not just the batteries, but parts of the fuselage, wings, landing gear, rudder and the electrical system as well. An investigation published in February 2013 in the Seattle Times concluded that the widespread problems with the 787’s electrical system stemmed largely from outsourcing, much from Boeing’s offshore supply chain.
This is an issue that goes well beyond the corporate pursuit of cheap labor. Outsourcing threatens the nation’s ability to manufacture high-quality products for export. Once the technical issue with the batteries was apparently resolved, the 787 was once again cleared for flight, but the larger issue — that corporations are increasingly willing to sacrifice the quality of their products in favor of short term profits — remains.
Boeing’s Dreamliner was just another chapter in an all-too-familiar tale of the outsourcing of American jobs, but one potential glimmer of hope did appear on the job front last year — a wider recognition of the importance of manufacturing in the U.S. economy.
For many years, manufacturing jobs paid high wages and provided good benefits. They were the road to upward mobility for millions of working Americans. But from the 1970s onward, corporate actions and government trade and tax policies have systematically gutted the manufacturing sector. At the same time, corporate CEOs, politicians and academic pundits have dismissed manufacturing as a relic of America’s past. This is a view that helps large corporations justify the export of jobs to boost profits. And it supports the ivory-tower theory shared by many economists, academics and media commentators that the American workforce has been moving away from jobs dependent on brawn to those that relied on brain power.
But that view is finally changing. More and more Americans are realizing that manufacturing is an essential component of the nation’s job mix. Even Wal-Mart, the nation’s largest employer — one that has done so much over the years to gut American manufacturing by compelling suppliers to produce products for the lowest possible prices — now claims to have had an epiphany on the subject of American manufacturing.
In a speech to the nation’s retailers early in 2013, Bill Scott, Wal-Mart’s U.S. CEO, said that one of Wal-Mart’s new policies is “to support American manufacturing and to create more American manufacturing jobs.” Scott acknowledged that retailers have encouraged investment in Asia for years, but said that now “the equation is changing, and “if we can help create these [manufacturing] jobs here, it will make us proud as Americans.”
It is revealing that Wal-Mart now says manufacturing jobs are again becoming essential — a tacit admission that service jobs (which the company creates) are not enough to sustain the economy. That has long been known, of course, as U.S. Bureau of Labor Statistics data shows: on average, manufacturing jobs pay nearly twice that of most service jobs.
Time will tell whether Wal-Mart’s position is more show than substance, but it’s a reflection of how manufacturing jobs — so long denigrated as irrelevant by policymakers — are increasingly viewed as a critical component of the economy and crucial to the fortunes of the middle class. The company that will show whether all this talk about the resurgence of American manufacturing is just ritual lip service by the nation’s corporate elite or an actual stance regarding a sensitive domestic issue is Apple Inc.
After widespread revelations about its export of good-paying middle class jobs to sweatshops in China (where grueling working conditions drove some workers to suicide), Apple disclosed in 2013 that it would begin shifting some factory jobs back to the United States. Apple CEO Tim Cook said the company has committed $100 million to bringing one line of Mac computers back to the U.S., but did not say where they would be made or assembled.
Will all this talk of manufacturing turn into real action? We hope so, but not if a pattern long familiar in Washington reasserts itself.
In the past when public opinion was outraged by practices of powerful interests that were destructive to middle-class jobs, those interests would often bow before public opinion and promise to change their ways. Then, as the pressure for reform subsided, the movement for change died with it. This has been the long-standing pattern for trade legislation in Congress: As anger over the unfair trading practices of foreign nations and multinational corporations has periodically erupted, Congress has adopted trade laws supposedly intended to level the playing field for global trade. But then Washington doesn’t enforce the laws, and the job losses continue. The same thing could easily happen with manufacturing.
This time, though, there is a much wider recognition that offshoring and outsourcing are hurting the middle class, and that unless those forces are slowed or reversed, the erosion of wages and incomes will continue. Manufacturing & Technology News, one of sharpest observers in this field, says that 2013 “might be the year” for change, pointing to the election of new senators who are more knowledgeable about trade and committed to finding ways to help middle-class America.
In addition to lost wages and a decline in incomes, the overseas flight of manufacturing is causing concern about the U.S.’s ability to maintain its tradition of ingenuity and innovation. A 2013 report by the Aspen Institute and the Manufacturers Alliance for Productivity and Innovation summed up the consequences if we continue to export manufacturing jobs:
“When production goes overseas, innovation often follows. In many cases, designers and engineers must be in proximity to the process to ensure the steady flow of ideas . . .wherever production takes place, R & D investment and innovation follow. . .Thus we lose not only our nation’s innovation capabilities, but the knowledge and network spillovers that benefit the broader economy.”
Even though more and more Americans ascribe to the view that domestic manufacturing must be bolstered, the task of changing public policy is formidable given the power of multinational corporations, foreign interests, free-trade ideologues and the financial power they wield in Washington. As long as policy is still made with a dollar sign, it will be difficult to make any changes. But to do any good, the U.S. must adopt a tougher policy on trade and stop submitting to the will of the moneyed elite. The outcome of the debate over manufacturing will have ramifications far beyond factory jobs. As we show in "The Betrayal," the flight of work offshore has now moved well beyond traditional blue-collar occupations. White-collar jobs of educated Americans are being shipped offshore, too. Many of these service occupations are the hope for America’s future, but these are now just as imperiled as blue-collar jobs were decades ago.
If the backlash over outsourcing and a renewed interest in manufacturing offer a hint of hope for middle class jobs, there has been no change during the last year on one fundamental issue: Washington remains in the grip of deficit hawks.
The economic elite have so successfully sold the misguided notion that the U.S. budget deficit is the root of all current and future problems that there has been virtually no significant debate to challenge that theory. The staggering amount of misinformation on this topic, a good deal of it parroted by the media, has thwarted any meaningful public discussion of how we need to go forward as a nation.
Deficit hawks constantly warn the public that entitlements are bankrupting the country. To the average person with little direct knowledge of the nation’s accounts, it might seem that 18-wheelers are backing up to loading docks at the U.S. Treasury and carting off tons of cash to local Social Security offices so they can send out the checks each month. Actually it’s the other way around: Social Security runs a surplus. It collects more money than it needs to pay benefits and indirectly reduces the size of the budget deficit. Social Security has nothing to do with the nation’s current budget deficit. But you would never know that from the TV reports, radio talk shows or the frenzied accounts in newspapers and magazines that constantly warn about “runaway entitlements.”
We as a country face decisions on Social Security and Medicare — how high to raise the eligibility age and how to rein in health-care costs. But what we desperately need to do now is to get the economy going again for millions of working Americans — not just to get them a paycheck, but to create good-paying jobs that provide a measure of security for middle-class families. That would do more to reduce the deficit than all of the meat-ax approaches of Washington combined.
To stimulate the economy, for both the short and long term, we need, among other actions, to make public investments in America that will pay dividends for years to come. Public investment spurs economic growth. Our investments in infrastructure — bridges, airports and water systems — boost the middle class and benefit the nation as a whole. In the 1950s, for example, President Eisenhower marshaled broad bipartisan support to build the Interstate Highway system. That multibillion-dollar investment created millions of jobs, not just in construction, but in a host of other occupations as the federal money rippled through the economy.
We also need to invest in science, research and technology — areas where there’s no immediate payoff, but that have the potential for significant long-term gain. Taking this long view is crucial to our future. This is not a radical idea: the U.S. has followed this approach with great success in the past. In the 1960s, the House of Representatives approved an appropriation for an obscure Defense Department agency called the Advanced Research Projects Agency (ARPA) that was experimenting with ways computers might talk to each other. ARPA’s work helped create the Internet. What do you think the odds are of this happening today?
Although some deficit hawks no doubt honestly believe that debt will be the ruin of America, the fact is that many who advocate radical cuts in spending are only carrying water for the economic elite. There’s a reason the rich constantly rail about the deficit: in their minds, the lower the deficit, the fewer taxes they will have to pay and the less money they will have to spend on public projects.
To make any of these changes — to reverse the tax, trade and regulatory policies that are so harmful to the middle class — we must level the playing field for common citizens and give them a seat at the table alongside special interests that often own lawmakers who are supposed to represent the people. The solution that is usually proposed is to limit the amount of money in politics. What was driven home to us again and again at public meetings, radio shows, TV interviews and book signings over the last year since “The Betrayal” was published is the near universal agreement among Americans that money is poisoning our democracy. Ironically, this is the one issue on which many on the left and right agree.
But to try to restrict the flow of money into politics poses many challenges. Previous efforts at the national level have failed and even those who are appalled by the harmful impact of money in Washington hesitate to support constraints that might impinge on constitutional guarantees of free speech. To avoid that conflict, a constitutional amendment to limit money in politics is increasingly put forth as a solution. This movement was energized by the U.S. Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission, which held that the First Amendment prohibits the government from restricting campaign contributions —thereby opening the floodgates to unrestricted corporate cash in elections.
In our view, the answer is public financing of elections. We need to provide the financing to make sure a candidate who wants to enter public service can forgo special-interest dollars and still have a chance to win an election without selling his vote. How many of the lawmakers who bowed to pressure by the National Rifle Association (NRA) dollars might have changed their vote on the assault-weapons ban in April 2013 if they knew they would have access to the same dollars and resources in their next campaign as an NRA-backed candidate?
Of course not all problems can be solved with public financing. Special interests would still have access to powerful, high-priced lobbyists, but their influence would be diminished if lawmakers knew their election-campaign war chests wouldn’t depend on doing the bidding of the moneyed few. Several states and local jurisdictions have already adopted public campaign legislation that gives political newcomers a more solid footing, enabling them to challenge incumbents and make the electoral process less dependent on narrow interests.
Even if we as a nation are able to change our policies and return to a more balanced economy that benefits all citizens, we all know this won’t happen overnight. But it’s important to understand what some of the options might be and not to lose hope. All the great economic and social changes in American history, from Social Security to civil rights to women’s rights, only came about after years — indeed decades — of work by those advocating change.
Restoring economic balance to the middle class will be a challenge of a similar magnitude. It may take years to achieve, but it must be accomplished if we are to save the American dream.
Donald L. Barlett and James B. Steele have been working with the Investigative Reporting Workshop for more than two years to publish new stories about ongoing economic hardships on working Americans. These stories, and additional research, became part of their 2012 book, "The Betrayal of the American Dream," a New York Times bestseller.
Barlett and Steele are contributing editors at Vanity Fair magazine. They have worked together for four decades, first at The Inquirer (1971-1997), where they won two Pulitzer Prizes and scores of other national journalism awards, then at Time magazine (1997-2006), where they earned two National Magazine Awards, and since 2006 at Vanity Fair. They also have written seven books, including the New York Times No. 1 best-seller "America: What Went Wrong?" — an expanded version of the 1991 Inquirer series. Both live in Philadelphia. You can email the writers at firstname.lastname@example.org.