The Lost American Dream

Although I lived most of my life in the US, I’ve now been away for over thirteen years and each time I go back I see things a little differently.  The big difference, of course, is the changes in the people I go to visit.  Everyone is older and has had more experiences and insights and there is always a lot to catch up on.

The high point of each visit is meeting up with family and friends, but it’s also always interesting to travel around, see how old, familiar places have changed and talk to people about what’s going on.

But this time is was a little different. 

For the first time ever I got a strong sense that the country is becoming increasingly polarized between the haves and have nots.  I saw it as I travelled around and heard it as I talked to people.

It’s a subtle thing and it doesn’t jump out at you.  It’s just that after you visit a few people and places you start to get a sense that something is going on—namely, the middle class is disappearing and people are moving to the extremes. 

A lot of people I know are doing very well—they have huge homes, nice cars and regardless of where they are in their careers, they feel secure. 

I also saw a lot of people like that in malls, restaurants and generally out and about.   If you go to a nice restaurant you will ask yourself “what recession?”  Everyone is well dressed, carefree and is flashing the latest technology bling in the form of an iPhone, iPad or Android.  They’re everywhere.

But not everyone is like that.  A lot of other people who on previous visits weren’t much different than everyone else now have a different look and sound.  They haven’t moved into a larger house.  In fact, they have downsized.  They talk about how their retirement plans have been shattered—either because their employer has curtailed the pension plan they had relied on, or is changing the ground rules for retirement age.  Or maybe their 401K or IRAs aren’t going to provide them with the level of income they’d expected. 

A lot of them have had to make a difficult decision about health care insurance because their employer decided to cut back employee health insurance.  Either they are channelling a significant amount of their income (or savings) into private insurance or keeping their fingers crossed that nothing catastrophic happens.  They shop at different stores and eat in different restaurants. 

Five years ago this difference didn’t exist.  It has slowly crept up on a lot of people and this was the first time I’d come face to face with it—successful professionals telling me they are going to have to take on a second job to make ends meet, people who were looking forward to retiring at 60 who now say they are “hoping” they can keep working until 70 in order to keep their home and maintain their standard of living.

The people who were living through this had experienced a gradual change—it just sort of happened to them.  But to me, an outsider visiting after two years, the change was striking and abrupt.  People who used to be basically all the same have now been polarized into the haves and have nots. 

Like many of the haves, I used to think that there were very specific reasons why there were have nots:  they made bad life decisions, they were uneducated, they were lazy—you’ve heard them all.

But now I’ve seen people who are have nots after doing all the right things.  They’ve educated themselves and their children.  They’ve saved for their retirement.  They’ve bought a home.  They look after themselves and their home.  So if those people are have nots, the traditional reasons must not be right.

The real reason seemed to be abundantly clear to me.  Although people with huge homes, fancy cars and gilt-edged retirement plans might think that they are reaping the rewards of hard work and being smart, the real reason is that they are just lucky.  And the nouveau have nots aren’t lazy or unmotivated.  They are simply unlucky in unexpected ways.  They may have gone to work for a company that suddenly decided that shareholder wealth was more important than employee health insurance. Or they may have shown good judgement and conservatively invested their retirement assets in government bonds and have watched their retirement nest egg shrink as living costs have risen faster than interest rates.

It was a sobering experience to come face to face with.  I’m proud to say that my lucky friends realize that they are the lucky ones.  But I ran into too many people who think that because they have a big house and don’t have to worry about retirement or health care, they are smarter and reaping rewards that they richly deserve. 

I may not like that attitude but I can understand where it is coming from.  I saw an article which said that executive pay was up 24% over last year.  How many people do you know who got 24% raises last year?  Average pay for the CEO of an S&P 500 company was $9 million.  I fully understand that those people may actually feel entitled to that kind of money.  But I’m not sure it’s right when you look at the big picture.  Because those people can’t be that much smarter and be working that much harder than the rest of us.  Luckier, yes, smarter, no.

Another article states that the tax rate in America is the lowest it has been since 1958.  In other words, people are paying less tax as a percentage of their income at any time in the last 50 years.   In the past twenty to thirty years, people were paying an average of 27% of their income in tax and today that number is about 23%.  If the tax rate were still 27%, the federal deficit would be reduced by one third—in just one year. 

It was a little hard for me to understand why the media debate on tax cuts is as vicious as it appears to be.  If you are making $50,000 you take home an additional $1,500 because of the lower tax rate.  A person making $9 million gets to keep an additional $270,000.  It is interesting to speculate on where that $270,000 goes.  Who does it help?  Some lobbyist or special interest group?  Or is it sent offshore to maximize further returns? How much is actually reinvested in the country/community?  Last time I heard charities and publicly funded arts are hurting so I don’t think it is going to those causes.

The question that needs to be asked in a time when the middle class is evaporating and the country is becoming increasingly polarized is how much is enough.  Defenders of capitalism rightly point out that the system works because of self interest, but is there a limit to self interest?  There seems to be something wrong when an executive can send jobs offshore, increase profitability, earn a multi million dollar bonus and then demand that it not be taxed when the money collected as tax might help the people who he has hurt by sending their jobs overseas. 

The point is that capitalism is a system and it increasingly appears to be a closed system with lucky winners and unlucky losers.

 It must be nice to be lucky.

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30 responses to “The Lost American Dream

  1. I plan to keep working until I drop, Tom, which is a good thing, because I’ll have to…we’re not lucky!

    Thoughtful piece…

    Wendy

  2. I have come to know this recession as the “great equalizer”. People who looked down upon the have nots, are experiencing not having as much as they are accustomed to having. It’s a very interesting phenomenon.

  3. the middle class is disappearing and people are moving to the extremes.

    I’ve often heard this. I’ve been wondering for some time now, what is the Middle Class? How would you define it?

    people who were looking forward to retiring at 60 who now say they are “hoping” they can keep working until 70

    As our lives are extended, should our retirement be pushed back as well? Perhaps not year for year, but to some degree? In other words, is it reasonable to expect that we live in retirement for all those years?

    Because those people can’t be that much smarter and be working that much harder than the rest of us.

    I suspect the differences in CEO ability and the average worker is the same as the differences in MLB Players and average baseball players.

    In the past twenty to thirty years, people were paying an average of 27% of their income in tax and today that number is about 23%. If the tax rate were still 27%, the federal deficit would be reduced by one third—in just one year.

    I suspect that number is so low because so few are actually paying a Federal Income Tax.

    How much is actually reinvested in the country/community?

    Unless it’s literally in cash under the bed, it’s either being spent or invested; most likely invested. And THAT is good.

    The point is that capitalism is a system and it increasingly appears to be a closed system with lucky winners and unlucky losers.

    Capitalism is that economic system that recognizes the rights of property. That is, I am free to shop my services or property [goods] to the highest bidder. And he is able to shop for the lowest such prices.

    What we are and what we own is both legal and recognized.

    It is precisely in those times and places when such rights were restricted that humanity found it self most poor. Where the rights of the individual are strongest is where you will find the richest of societies.

  4. I used to have a decent life, not great, but I paid my bills. I lost my job after 9/11 and life has gone downhill since. My partner has a disability and this is the 4th year we’ve been trying to get him benefits. We live on about $9,000 a year and will never get out of debt, but I still have to pay my taxes (on a credit card, every year). I have absolutely no life at all. It’s gotten worse since Obama took office. I don’t know who to blame except the government in general for caring more about war, oil, bailouts, and the health of citizens in faraway countries than they do us. Our country is weak because we are needy. I live in a dump in a dumpy neighborhood with no money to make repairs. Yes, I’ve been very unlucky. It has nothing to do with smarts. This probably sounds like whining, but the stress of having no money rules your life.

    We’re probably not as polarized as the media makes us out to be—it’s just that the zealots get all the attention. Most of us just want a job.

    • We live on about $9,000 a year and will never get out of debt, but I still have to pay my taxes (on a credit card, every year). I have absolutely no life at all. It’s gotten worse since Obama took office.

      I’ve checked out your site; you write extremely well.

      May I ask, what changes would you make?

  5. To hear the people who complain about having to pay taxes, you would think that roads or municipal water systems can build and repair themselves, garbage collects itself, and people without large disposable incomes can will themselves not to get sick.

    There is no such thing as free market capitalism in the America that currently exists, because private enterprise so baldly manipulates the law in its own favor. When you can bribe lawmakers to extend the patent on your drug for a modest one-time outlay, why should you bother competing in the free market? When you can f*** up the financial markets so badly with mismanagement and outright fraud that the nation’s economy goes to the brink of collapse and then pay your executives a bonus out of the bailout money that *taxpayers* provide, all (so far) without penalty, why worry about suffering the penalties of poor performance?

    I’m in business for myself and I earn every penny I put into the bank, literally, with my bare hands. And I WANT a government that takes some of those pennies and turns them into schools and roads and subway systems and clinics. I also want the people who rake in sixty-four times what I do to pay a fair share of what it takes to keep the water drinkable, the roads paved, the streets safe and the kids educated — especially if that money is being “invested” in businesses whose employees will never pay a penny in tax to the country where I live.

    “I got mine, now you get yours” is not a social contract.

    • you would think that roads or municipal water systems can build and repair themselves

      Those things usually DO get paid for in taxes. It’s that those taxes get taken for other things.

      I also want the people who rake in sixty-four times what I do to pay a fair share

      Me too. But I wonder; what do you consider fair share?

      • Well, let’s start with more than nothing.

        At least one American corporation has managed to exempt itself from all tax payment for 2010.

        http://www.nytimes.com/2011/03/25/business/economy/25tax.html

        The same corporation, in 1987, screwed my mother out of the retirement she had been promised and worked for throughout the previous 22 years, and forced her to settle for a less satisfactory bargain, under the threat that if she refused that offer she might be cut loose with nothing. Because our laws apparently allow a company that buys out another company to trample all contracts in the dust — making a wage-earner’s honesty and diligence meaningless. Last year, a client of mine in the same industry got hte same screwing.

        And then they find loopholes that free them from any obligation to pay taxes to the government that sends those workers a social security check.

        By the way, I don’t even like my mother. But she worked hard and deserved better, and so do millions of others.

        Sorry, but you will not find much sympathy for your free-market apologia here.

        • But she worked hard and deserved better, and so do millions of others.

          I’m sure she does deserve better.

          Sorry, but you will not find much sympathy for your free-market apologia here.

          I doubt you’ll find many free-market apologia that support the idea that one corporation can change the laws to their specific benefit. While I’ll freely admit our corporate tax rates should go down, I think they should go down equally for all corporations.

          Well, let’s start with more than nothing.

          You should be more clear.

          On one had you seem to be speaking of people and then on the other you are speaking of corporations.

          • Are corporations composed of anything but people who have an eye on what they will take home at the end of the day, year, life?

            To use a different word, when the individuals who have the power to extract the most profit from those corporations collude to evade any obligation toward the nation where their goods are sold, or to cheat their workers, they become a conspiracy; sometimes a quite large conspiracy if the manipulation involves an entire industry. And out of those profits, the people at the top take home enormous salaries — which are not taxed at anything like the rate that prevailed when I was a child, for example.

            And then they bleat about property rights. I don’t have the option of off-shoring the profits from my little one-horse home business, out of which, of course, I pay my own salary. I have to pay the IRS at the going rate.

            And by the way, the roads do NOT get paved. I live in the state of Virginia, which has been in a slow-motion transportation crisis for years. A decade and more back, the winning candidate for governor ran on repeal of the personal property tax for automobiles, which made a certain amount of sense as possession of a vehicle doesn’t necessarily imply ability to pay a certain part of that vehicle’s value for years on end. But there was no attempt to make up the slack — no gas tax hike, no tax that might “drive business out of the state.” We’ve all been watching this bridge a mile from the Pentagon, wondering when a chunk is actually going to fall onto the road below.

            Is every tax dollar wisely spent? No one argues that. But the people who depend on social infrastructure suffer when the people with huge assets make strategic use of legal outlays and outright bribes to protect any of those assets from ever being used to maintain that infrastructure. That those assets are accumulated, in part, by screwing the people who are too “stupid” or “untalented” to ever do anything but honest work, and can’t construct themselves a lavish private safety net, simply adds to the sting.

            I don’t understand why you feel the need to advocate for lower taxes these poor, beleaguered corporations (and the people who run them at seven-figure salaries) so long as there is one person out of work and running out of unemployment benefits, because some corporation played chicken on the stock market, or strip-and-sell, and incinerated a few thousand jobs along the way.

    • Interesting observations. One of the fault lines in the discussion seems to be the question of responsibility to self vs. responsibility to the greater society.

  6. Tom you see things correct. As you know I worked until I was 70 and Then took care of a sick wife. I am now a have not. My Children are lucky to be
    still working all 4 of them. What keeps me going is my ability not to give in
    to what was the American Dream . Greed caused all of this and continues
    look who makes a killing in gas futures. The system needs to have the people
    elected to take pay cuts when they raise my taxes. All elected officials need
    to understand they just don’t get it when it comes to the middle class . I have had to file Chapter 13 because greed from credit card companies raised my rates to 33% levels. and I paid my Bills on time. I worked and got a good pension from P.P.G Industries ,plus social security. My medical coverage is very good and thank God for that. I had to hire an elder lawyer to help me
    make good judgement calls when my wife became ill in 2010. The cost of her care exceeded $750,000 dollars and then some. I have made arrangements to prepay my passing so my children can have peace. In closing I say Tom you see it as it is, thanks for being a friend,Ray

  7. jacquelincangro

    What a thoughtful post. I’d be interested in hearing about your take on this subject as it relates to New Zealand. Is the same true there?

    • Thanks. It seems that NZ is also suffering from the global recession but the economy is very different so the effects are a little different. A big difference is that NZ has a multi party system so the main parties are more centrist. Plus very little of the national budget is spent on military so there is more money for social programs, especially health care.

  8. Isn’t it amazing how much we notice when we go away and come back? To see a child grow, you must NOT see it for six months, then see it AGAIN. To see American change, you must first head down under.

    Like you, I’ve been pondering this topic for a long time now. It was on my mind when I wrote about the “Frenemies of freedom and equality”.

    The “two Americas” you describe (and John Edwards should never have been allowed to hog the phrase) increasingly lead to two different stress/health/life expectancy/body mass/etc Americas. It was the “middle class” that was the transit, the Grand Central Station of social mobility, allowing us to change trains on the way up or down. If it disappears, we will have modern feudalism, without mobility, with just a rigged game. That would be the end of freedom.

    The other day I was saying to my wife that we are at a psychological inflection point: Our parents had (in absolute terms) less (fewer gadgets etc) but felt better because things were pointing up for the next generation. We feel anxiety because we fear that our next generation my live in the world you describe. In: gadgets; out: future. What a bad deal.

  9. Thanks for your observations and for the reference to the Frenemies article–very interesting to read it again in light of new experiences!

  10. Nice job but I have seen something slightly different. You wrote about peole who are “flashing the latest technology bling in the form of an iPhone, iPad or Android. They’re everywhere.”
    Then you wrote about others who “haven’t moved into a larger house. In fact, they have downsized.”
    Both observations are true and you are generally right about the economy but in my observation thsoe people who can’t afford their mortgage payments and those people who line up for the latest iPhone or Android are the same people! The poorest person has to have the latest gadgets! People line up for jobs while watching videos on their tablets. I’m not saying the economy isn’t bad, it certainly is, but a great many people are making the wrong decisions and putting themsleves in a deeper hole than they would be in otherwise. Go to a McDonald’s and see people ordering off the dollar menu while chatting on their bluetooth headsets for proof.

    • Valid point–keeping up with the Joneses is still alive and well and there’s no question people make bad/emotional decisions. Flat screen TVs are another thing to add to the list!

    • I’d like to suggest that some of these toys, at least, are connectivity devices that enable unemployed people with a certain skill set to stay in the running for an income. I can think of one person I’ve met right on the Net who has bought a laptop, camcorder and updated iPhone all while living on her credit cards due to illness and created an entire niche occupation for herself, absolutely built around the connectivity and capabilities of those gadgets. She would have been a fool not to make sure she could upload content to the Net from anywhere at any time, contact clients, and maintain several websites and social media feeds.

      I’m sure it doesn’t cover every instance by a long shot, but quick judgments are not always accurate. And a person queueing up for any job whose best occupation might belong on LinkedIn or the like had better have some device allowing him or her to stay connected.

  11. I have no personal stake in the tax game or “taxing the rich,” as I don’t see myself ever moving out of the lowest tax bracket there is. The more other people pay in taxes, the more I’ll get out of it by way of unemployment benefits, food stamps, or the maintenance of homeless shelters.

    That said, I do wonder if raising taxes necessarily leads to more tax revenue for the government. It seems the higher the taxes, the craftier people’s schemes to avoid paying them, including stashing their fortunes overseas. In theory, of course, it seems logical that if you raise taxes, more money will be coming in. In practice, however, I wonder if that’s how it really plays out.

    For instance, in order to avoid the 35% corporate tax rate, many corporations simply move overseas, e.g., to Switzerland. Then they pay 15% over there, and the U.S. gets zero. Therefore, I wonder if lowering the corporate tax rate may not actually lead to more tax dollars coming into the U.S. treasury. A similar mechanism may be at work when it comes to personal taxes.

    I just caught a news report where a guy won $2 million in the lottery, and the anchor casually mentioned that he’ll get about $1 million “after taxes.” So if someone makes a lot of money, half of it goes to the government already anyway. This means that we’ve reached a point in history where if you’re rich, the government already takes half your fortune. The Framers are rotating in their graves.

    This is not to say that the system isn’t fundamentally messed up, but I doubt it can be fixed by raising taxes, because (a) I’m not sure this would necessarily result in more money coming in, and (b) if it does indeed result in more actual dollars coming in, some version of Parkinson’s law may kick in, and the government will simply spend more, thus necessitating the need to hike taxes even further down the road.

  12. Who knows? The tax system and peoples’ behavior are so complex and unpredictable that it’s safest to rely on the law of unintended consequences when dealing with tax behavior. But the basic questions are fairness and the balance between self interest and sacrifice for the common good.

    • True, but my point is that not everyone who voices doubts regarding the raising of taxes is a fat cat driven by self-interest who doesn’t care about the common good. Some people—perhaps mistakenly, albeit sincerely—feel that hiking taxes is a bad idea, and that the common good may be better served by lowering them. My taxes won’t go up no matter what anyway. Certainly no skin off my back if the wealthy get squeezed. I’m just not sure that’s the way to go.

  13. Sounds like noone really knows what is going on.
    The amount of talent i have seen wasted away because of bad luck in my industry is unbelievable

  14. How good would it be, if the people that were elected to repesent the people that voted for them ,actually did enact legislation for the good of the people rather than for the super rich that contributed much to their campaigns. I don’t know how these people can come home to face
    their constituents.

  15. Hey…we’re both having the same nightmare about the American Dream. Loved it! I buy into the just plain lucky theory. I was born in early 1947, and, by luck, have benefited from being on the forefront of the whole Boomer thing. Lucky enough to by a house in 1976 for $40,000 (worth $400K now), and lucky enough to work for a county agency that provides me with an OK retirement (not lavish). For a lot of my peers, sadly things are reversed. My fishing Buddie and I have had the same conversation as in your post many a time. Hope the ‘Boomers” in New Zealand are doing well. Peace

  16. Oh Thomas – isn’t that the truth. And here in NZ we see the same thing to a lesser extent. I have friends whose sons have been job hunting forever. They are getting to their forties and now have little or no chance of finding a job even with their university and life, credentials.
    The plans that many of my friends made for retirement will not happen now. They are living comfortable lives but not in the luxury that they had planned and thought they had provided for.
    Thanks for sharing your thoughts.

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