Tuesday, October 23, 2012


Frank Stashio's guest today was Pulitzer prize winner Hedrick Smith. Smith has a new book; "Who Stole The American Dream" in which he describes the middle class as the backbone of any economy.

Throughout history a vibrant middle class has been the economic engine. Our greatest periods of prosperity were when the middle class thrived. Further, the gaps between lesser, middle and upper class were narrow which made dreams acchievable.

In 1914 Henry Ford announced the $5 work day. He wanted his employees to be paid very well. He said that he wanted people to earn enough to be able to affor the Model T Ford that his employees produced. He knew that his own prosperity hinged on that of those below him. This attitude brought about the American Dream where people could work hard and be compensated in a manner that progressively improved their living standards.

The period from the mid 1940s through the mid 1970s were the heyday of the middle class. Productivity was very high as were wages and benefits. Smith describes this as "the virtuous circle" whereby companies pay high wages creating a highly productive workforce with money to spend. This in turn allow the company to invest in more plants and technology, hiring more people which fuels the "virtuous circle of growth" to another round of expansion and higher living standards.

This all worked very well until the mid 1970s. It was during that time that, in my opinion (not Smith's) the corporations become greedy. In spite of record profits they began to squeeze the very people that created the demand for their products.

In the period from the mid 1970s until now middle class productivity has risen a huge 85% while the middle class income has risen only 10%!!! That in itself is enough to evaporate the working class' enthusiasm but it goes much deeper. Income taxes for upper class dropped from 70% to 28% while capital gains taxes dropped from 28% to 20% and now 14%. All the while corporate taxes are at record lows.

These factors has spread the gap, creating huge distances between the classes making one's hopes of moving up less and less likely. Further, the middle class has carried the burden and is shrinking fast. The day is approaching fast where we will only have two classes. Whichever you are born into is where you will remain. Dreams become mere fantasy.

Today's corporate America has no regard for Henry Ford's desire to make the lives of it's employees better. Henry Ford knew that economic prosperity began at the bottom and worked its way up. Without a vibrant working class there will be no upper class. Henry Ford understood that. Today's corporate America doesn't get it. Through arogance and greed, they think that they actually create properity.

Our middle class is all but gone. We must turn it around quickly. When there is no middle class there will be no American Dream. Without such dreams we will meet our demise.

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