certainly the reality being experienced now, and, at least in part, the reality being shown on Undercover Boss. Now, I’m not suggesting that the show is going to foment a working-class rebellion or directly lead to a raft of social reforms. But it might lead to a conversation we, as a nation, desperately need to have—especially in Washington.
Maybe if our elected representatives went undercover for a little while and experienced the reality of millions of American families that are measurably worse off because of Washington’s actions and inactions, we might get some real change.
MIDDLE-CLASS JOBS AND “THAT GIANT SUCKING SOUND”
Since the recession began34 in late 2007, we’ve lost more than 8.4 million jobs. Over 2 million of those35 were manufacturing jobs, the kind of jobs that have traditionally delivered American families into the middle class—and kept them there. We lost 1.2 million36 manufacturing jobs in 2009 alone. And while job numbers go up and down, the loss of these blue-collar jobs has been going on for decades.
In 1950, manufacturing accounted37 for more than 30 percent of nonfarm employment. As of last year, it’s down to 10 percent. Indeed, one-third of all38 our manufacturing jobs have disappeared since 2000. This devastating downward trend has contributed greatly to the erosion of the middle class.
There have been a number of recessions over the past few decades, and our economy has rebounded after each one. But each time it has bounced back in a way that made it harder for those in the middle class to stay there—and even harder for those aspiring to become middle class to get there.
The way that the useful section of our economy is being replaced by the useless section of our economy is rarely talked about in Washington. But the numbers don’t lie: The share of our economy devoted to making things of value is shrinking, while the share devoted to valuing made-up things (credit-swap derivatives, anyone?) is expanding. It’s the financialization of our economy.
According to Thomas Philippon39, professor at New York University’s Stern School of Business, the financial industry made up 2.5 percent of America’s GDP in 1947. By 1970, it had grown to 4 percent. By 2006, just before the meltdown, it was 8.3 percent.
The trend is even starker when you look at the financial sector’s share of U.S. business profits. As MIT professor Simon Johnson recounted40 in the Atlantic, between 1973 and 1985, the financial industry’s share of domestic corporate profits topped out at 16 percent. In the 1990s, it spanned between 21 percent and 30 percent. Just before the financial crisis hit, it stood at 41 percent.
That’s right—over 4041 percent of the profits of the entire U.S. corporate sector went to the financial industry. James Kwak, coauthor of42 the Baseline Scenario, a leading blog on economics and public policy, explains why this is a problem: “Remember that financial services are an intermediate product—that is, we don’t eat them, or live in them, or put them on in the morning. They are supposed to enable a more efficient allocation of capital, so that the nonfinancial economy is more productive. But what we saw since the 1980s was the unmooring of the financial sector from the rest of the economy.”
In other words—it’s supposed to serve our economy, not become our economy.
The expansion of the financial industry has come at a significant cost to the rest of us. And those who have paid the highest price are the members—and former members—of America’s middle class. According to New York Times columnist Paul Krugman,43 “A growing body of analysis suggests that an oversized financial industry is hurting the broader economy. Shrinking that oversized industry won’t make Wall Street happy, but what’s bad for Wall Street would be good for America.”
It’s no wonder that Wall Street breathed a deep sigh of relief when the Senate passed the Restoring American Financial Stability Act in May 2010. It was considered mission accomplished for financial reform.
Unfortunately, it was more of a Bush 43 mission accomplished than an Apollo 13 mission accomplished. That’s because the bill passed by the Senate, like Bush’s ship-deck ceremony, was more notable for what it left undone.
First, it didn’t do enough to rein in Wall Street. It didn’t end too-big-to-fail banks, didn’t create a Glass-Steagall-style fire-wall between commercial and investment banking, kept taxpayers on the hook for future bailouts, and left open dangerous loopholes in the regulation of derivatives. In D.C., crafting a bill without loopholes would be like baking bread without yeast. Though you can’t see them, they’re what makes a Washington bill rise.
Despite its name, this bill will not be restoring financial stability to the tens of millions of Americans whose lives have been turned upside down by the economic crisis.
On nearly every front in the real economy—from jobs to consumer spending to foreclosures—we’ve made virtually no progress. While Washington and the media were consumed with the titanic debate over this reform bill, talk of the actual suffering by actual people in the actual economy was virtually a taboo subject, at least judging by how rarely it made the front pages or led the TV news.
But the data points44 are all around us. In a speech, Sandra Pianalto, president of the Cleveland Fed, surveyed the landscape and described an economy facing serious and long-term challenges, partly because of the huge loss of skills that is being suffered by the long-term unemployed. “Research . . . tells us that workers lose valuable skills during long spells of unemployment, and that some jobs simply don’t return,” she said. “Multiply this effect millions of times over, and it has the potential to dampen overall economic productivity for years.”
Her conclusion45: “Many people are now just aiming for ‘financial security’ as their American Dream.” In other words, the core idea of the American Dream—work hard and advance up the ladder—has been gutted. Now the American Dream is try to not fall, or do all you can to slow your rate of decline.
And forget about having enough in the bank to give your kids a leg up on doing better than you’ve done. It’s hard enough just to keep a job until you retire—if that’s even going to be an option. At a D.C. jobs fair46 for older workers in May 2010, more than 3,000 job seekers showed up for the event, entitled “Promoting Yourself at 50+.” Not surprising given that, at the time, the average jobless stint for those unemployed who are fiftyfive and over was around forty-three weeks. (Quick note to struggling politicians out there: want a huge crowd at your campaign rally? Call it a “jobs fair” and you’ll have people lined up around the corner.)
Their children and grandchildren who recently graduated from college aren’t faring any better. According to BusinessWeek,47 the 1.6 million new grads hitting the job market with their expensive degrees are confronting a youth unemployment rate of almost 20 percent—“the highest level since the Labor Department began tracking the data in 1948.”
And many workers
