The economic crisis has wiped more than $5 trillion from pensions and savings.”
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.
SHORTING THE MIDDLE CLASS
In April 2010, the shot heard7 around the country—or at least around Wall Street and Capitol Hill—was the Securities and Exchange Commission suing Goldman Sachs for fraud. 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, Layoff-SupportNetwork.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 initial8 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. “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 paper9, 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.”
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 bud get cuts in education, health care, and social services in state after state after state, all across America.
At least forty-five states10 have imposed bud get cuts that hurt families and reduce vital services to their most vulnerable residents. 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 by11 the Center on Bud get 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.
America’s states faced12 a cumulative bud get gap of $166 billion for fiscal 2010. Total shortfalls through fiscal 2011 are estimated at $380 billion—and could be even higher depending on what happens to unemployment.
