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.