and taking on a higher share of their health-care costs. “My company didn’t eliminate my job, they just eliminated my salary,” said marketing director Mike Cheaure. “I was back at work as a freelancer the next day working at one-fourth of the pay and no benefits.” The experience has made him very familiar with the new reality. “For us, the American Dream is gone,” he said. “Now it’s just getting by.”
Adding insult to injury, a growing number49 of working mothers are having to give up their jobs and rely on welfare because states are cutting back on child-care services that allowed them to keep working. And kids were left scrambling50 to find something to do this past summer when a number of states made deep cuts to summer school programs.
This spring saw a surge in consumer spending that spawned talk of “green shoots.” But it turned out the spending surge was economically imbalanced. As the Los Angeles Times’s Don Lee put it,51 the “little-noticed reality” behind the “encouraging numbers” was that “much of the new spending [had] come not from America’s broad middle class but from a small slice of affluent people at the top.” In fact, according to the Labor Department, the richest 20 percent of American house holds accounted for 40 percent of all spending.
The news in consumer lending has been similarly dismal—especially among the banks that got the most help from taxpayers. According to the Federal Reserve52, from June 2009 to June 2010, the largest banks cut business lending by over $148 billion—yet more evidence of the schism between the Wall Street economy and the real economy. Of course, the two economies aren’t entirely separate—the Wall Street economy is happy to accept massive transfusions of cash from the fading middle class.
This isn’t to say that there were no provisions considered that would help Main Street as part of the Restoring American Financial Stability Act. There were plenty—it’s just that almost all of them were either voted down or taken out and never even put up for a vote. Even something as simple and sensible as putting a cap on credit card interest rates. Senator Sheldon White house’s amendment53 to do just that was voted down 60 to 35. So much for “financial stability.” Though I suppose it depends on whose financial stability you care about—the banks’ or the taxpayers’.
Or how about payday lending54—the largely unregulated advances on a paycheck that can carry interest rates in the triple digits? In Missouri, for example, rates can top 600 percent. Yes, you read that right. Not exactly a recipe for “financial stability.” North Carolina’s Kay Hagan offered an amendment that would have clamped down on the $40 billion industry. It was killed without a vote55.
Then there is the Merkley-Levin amendment56 that would have prohibited banks from making risky proprietary trades—a version of the Volcker Rule. It also never even made it to a vote. This wasn’t because it wouldn’t have passed. On the contrary, anger from those mired in the real economy had reached enough lawmakers that the amendment had a real shot. Which is why, as Simon Johnson put it, “the big banks were forced into over-drive to stop it.”
We’ve been told time and time again over the last two years that right after Washington deals with what’s on its plate, “jobs is next.” Well, it’s been “next” for quite some time now, but it never seems to come to the floor. I often have a nightmare—a common sort—in which I’m stuck in a forest and I can’t find my way out. I have a friend whose version is that her feet are stuck to the ground and she can’t move. Not a bad description of our leaders’ approach to the massive suffering that’s going on across America.
A recent study by Duha Tore Altindag and Naci H. Mocan57 for the National Bureau of Economic Research found that the effects of unemployment can have troubling implications for a political system. The authors studied data from 130,000 people in 69 countries. Their conclusion: “We find that personal joblessness experience translates into negative opinions about the effectiveness of democracy.”
No shock there. But it should frighten anyone genuinely concerned about our stability, financial and otherwise—especially since one out of every six58 blue-collar workers has lost his or her job in the latest recession, a number commensurate with what happened during the Great Depression. Andrew Sum, director of the59 Center for Labor Market Studies at Northeastern University in Boston, says, “Our ability to maintain a healthy middle class is very dependent on being able to get a lot of these individuals back into the workplace and back into jobs to keep the rest of the economy going. . . . There are very high multiplier effects from many manufacturing activities. So the loss of jobs spills over into the rest of the economy.”
But isn’t wringing our hands over the loss of manufacturing jobs the twenty-first-century equivalent to nineteenth-century concerns about America turning from an agrarian society into an industrial one? Isn’t America’s future to be found in newer, better, more modern ser vice industry jobs?
Economist Jeff Madrick doesn’t think so60—for a number of reasons.
For starters, it turns out that manufacturing jobs aren’t just more productive and valuable than jobs in the Wall Street casino—they’re also more valuable than ser vice jobs: “Making goods is on balance—with exceptions—more productive than providing ser vices, and rising productivity is the fundamental source of prosperity,” says Madrick. “A major nation must be able to maintain a balanced current account (and trade balance) over time, and goods are far more tradable than ser vices. Without something to export, a nation will either become over-indebted or forced to reduce its standard of living.”
In other words, in the absence of manufacturing, the only way to compete with Third World nations is to become a Third World nation, which is exactly what will happen if we allow our middle class to disappear.
What’s more, it’s not just manufacturing and lower skilled ser vice jobs that are disappearing. According to the Hackett Group61, a business and technology consultancy, companies with revenues of $5 billion and over are expected to take an estimated 350,000 jobs offshore in the next two years alone—nearly half in information technology, and the rest in finance, procurement, and human resources.
Linda Levine of the Congressional Research Ser vice62 says that some see “perhaps a total of 3.4 million ser vice sector jobs moving overseas by 2015 in a range of fairly well paid white-collar occupations.” And in a 2006 study63, consulting firm Booz Allen Hamilton found that white-collar outsourcing is no longer just about call center and credit card transactions. Now “companies are offshoring high-end work that has traditionally been considered ‘core’ to the business, including chip design, financial and legal research, clinical trials management, and book editing.”
Do you hear that? It’s Ross Perot’s giant sucking sound being cranked up to a deafening roar—and it’s about a lot more than NAFTA. Accenture now employs64 more people in India than in America. IBM is headed in the same direction. And the horizon looks even darker. A June 2008 Harvard Business School study
