Jason Hartman hosts James B. Steele, a famous economic investigative journalist and author of America, What Went Wrong, the Crisis Deepens. They discuss his book as he explains why the middle class is getting destroyed, illustrated with median incomes not keeping up pace with inflation and costs of living. He looks at the American Dream and the US health care system. He ends with a couple of ideas on how to solve this problem.
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Jason Hartman 1:00
It’s my pleasure to welcome James B. Steele. He is one of the most famous economic investigative journalists of all time. He’s a two time Pulitzer Prize winner, two national magazine awards and five George Polk awards. While at the Philadelphia Inquirer time and Vanity Fair, multiple number one New York Times bestsellers, including the betrayal of the American dream, Howard Hughes, his life and madness and his newest book, America, what went wrong? The crisis deepens James, welcome. How are you? Great to be with you. I’m fine. It’s good to have you on you know, off here a little bit. Before we started, we were talking about how the middle class has just been decimated over the past couple of decades. Until 2017. Americans typical middle class Americans hadn’t had a real dollar pay increase for four decades. What is going on? Is this by design, if so, whose design? How can it be that it
James B. Steele 1:59
A range of things that have brought this about. But the principal things are Washington and practically Wall Street. It has been in the interest of both to put various programs in place which had been very detrimental than the middle class. Part of it has been thought of as deregulation, various industries, airline trucking, certain financial industries, created all kinds of problems with homeownership, as well as debt and so forth. That’s one, the tech system in our mind is the single greatest driver of income inequality in this country. Most of the tax benefits that have flowed in the last few years have gone to really upper income people or corporations or corporations would love not to pay any taxes at all. But the numbers are staggering. You go back just a few decades, companies paid roughly 40% of the total income tax bill today, this year it’s going to be less than 10%. Now that’s all pre COVID Talking about, I mean over this course changed everything in this whole equation. But that shrinkage is it shifted everything onto the backs of individuals, those middle class and certainly upper income individuals who pay a sizable part of the overall income taxes is a
James B. Steele 3:17
lot of that way the corporation’s are getting away with paying a lot less Is it because they’re doing all these offshore schemes like the double Irish twist, and they’ve got all this money offshore. It’s like, it used to be that a corporation of a certain country or a baseball team of certain city was like the hometown team. Now these multinationals just go from one jurisdiction to another figuring out how to screw every government and not pay anything. It’s unbelievable and at the same time, the people who run those corporations are you know, are spouting these leftist ideas that you know, we need more taxes, but I it’s just incoherent I don’t get it.
James B. Steele 3:59
Well, I think You’re right about the hometown image is a perfect hole because of the a lot of corporations were attached to wherever whatever town they were in, even though they might have been national in scope. And all that’s been out the window and half the corporations, some of them are not even domestically owned anymore, and which most people don’t even realize in that case. So that’s a lot a big part of it. A lot of it has been, certainly the global economy has been a huge factor in this and a lot of the earnings abroad. When you say the global economy, do you mean trade deals that have offshored American jobs, that’s part of it. And other parts of that are just the companies who are just basically selling abroad as well. So it’s really both sides of the equation. I mean, the latter 2017 tax bill, and the repatriation of the funds that were sitting in big offshore accounts that all kinds of multinational corporations like Apple, Google, others had offshore, and also manufacturing companies as well. For a very low tax rate they were allowed to bring these but this money a certain percentage of a bad To the US. But the Federal Reserve Bank of New York studied this among others. I don’t think the Federal Reserve Bank of New York is exactly left link tank, right. They study this. And they concluded that most of the money came back went into stock buybacks, dividends for those corporations. In other words, the money isn’t plowed back in to the real operation of the company. It’s for a very small number of people who benefited that money coming back. So they got a lower tax rate to bring it back. And they didn’t do anything to really help with it. Another one of the problems that we see because money isn’t being invested back into the country as a whole, only the various elite only the very wealthy, not always by design, but by the way it works out in practice, are getting the benefit. And that’s not going to I don’t see how that can continue over a period of time because the middle classes increasingly will get poor and poor. I mean Look at median family income. When we did a first edition of this book many years ago, median family income was around 34,000. If it kept pace, this was 1992. And if it kept pace with just the cost of living in that time, median family income today would be around 68 69,000.
James B. Steele 6:21
Yeah. And it’s only about 54 56,000. Right?
James B. Steele 6:24
It’s, well, it’s 61. But it’s basically 2017.
James B. Steele 6:28
But another way, another way that’s really much worse than it sounds, is that those inflation numbers are understated. I mean, we all know that the government is manipulating the index to make it look better than it is, right. If those were the real inflation numbers, I would just in my head math say that that median income would need to be about 90 $95,000 today to equal what it was in the early 90s. But also notice that in the early 90s, when he wrote the original book, the pay increases He says in real dollars stopped in 1977. That’s right. It’s dramatically worse. And then to add insult to injury, and you can comment on this, the pay of the C level executives, the boards of directors became just dramatically out of sync with regular workers. And I’m not talking minimum wage workers even I’m just talking middle management people. It’s like there’s this giant separation.
James B. Steele 7:26
You’re absolutely right. In fact, it’s one of the most shocking numbers. I think, in this new book of ours. Peter Drucker studied this whole issue of CEO many years ago, and he thought the optimum ratio would have been 20 to one for now. It’s like 301 401
James B. Steele 7:43
person on the factory floor or the middle a mansion with $1 20 to one. We did the first edition of this book back in the early 1990s. It was then up to 89 to one almost 40 some estimates now I have it over 300
James B. Steele 7:59
Oh yeah. No,
James B. Steele 8:00
no it’s like 308 it’s it’s just cycle way beyond what even we thought was going to happen. When we wrote this book people attacked us at the time so well you’re, you’re against success.
James B. Steele 8:11
You’re against capitalism.
James B. Steele 8:14
Surprise arguments. I’ve even made those arguments myself but I realized that I was wrong. Because we need a good middle class that’s what’s one of the things that has made this country great is a strong middle class otherwise we have guess flat civil unrest. We have a lot of unhappy people, and they’re gonna they’re gonna burn cars and take over downtown Seattle, sadly, but But how did it happen? Okay, so trade agreements, understating inflation, Wall Street monopolies, the financialization of the economy, I mean, take us into that in more
James B. Steele 8:48
depth. And it was a theme that began to develop really in the 70s by a lot of the very conservative think tanks that began to seep into the body politic. that had to do with deregulation, the idea that government is filled with red tape and it’s cumbersome, it’s not efficient for GM for business operate this way. So there are a whole range of things like that it’s sort of feeding its way into the tax system, the fewer taxes and means there’s more money to invest. But if when they started crafting these bills, most of the breaks went to people at the top, to therefore make those investments and so forth. So it’s a whole series of things slowly over a period of time, the same time things like social security are not really significantly increased the way they should be. I mean, half the retirees basically depend on Social Security, that is their only retirement benefit. And social security’s essentially been pretty much flat for a long time, though. Every time there’s an increase, it’s offset by increases in Medicare, which comes out of everybody’s Social Security check as well. So it’s a range of things like that, but it was a mindset Governments evil, governments have problems. Let’s let the free market determine everything. I think the free market has been wonderful for America has given us variety of wonderful things. But it cannot solve this problem. And I think what we’re in right now is perfect proof. It can solve this problem. The virus, I think, as much as anything else, expose just how vulnerable we are in this country. I mean, the vast bulk of people in the middle class working classes, remember, right after COVID struck, and businesses began to lay off workers. Do you remember those photos that you saw on TV on the lines of cars waiting to get boxes of these weren’t people who were rounded up under vytex as homeless people, middle class people, I mean, there people are just hanging on. And the other great study the New York Fed was the one that’s a couple of years ago that said 47 or 48% of people are faced with an emergency $400 they don’t have the cash. They don’t have money. I mean, what that told me about where we are.
James B. Steele 11:06
I don’t think too many people would deny that there was a problem. So maybe we don’t need to spend that much more time on it. But I totally agree there was a problem. Absolutely. So let’s just go back to a couple things you mentioned, he talked about how the benefits accrued to a very small number of people in companies. And then you know, the argument being that, well, they’ll invest that money. And that argument does have at least conceptual validity, because investment is wealth formation. And the old saying, you know, money doesn’t sleep, or maybe it does, I don’t know, I don’t think it does. Because if rich people have money, they can’t just do nothing with the money, they’re going to invest it. And that investment is going to and I hate to say this, but trickle down to somebody it’s going to it’s To build more houses, it’s going to build more factories create more jobs. I mean, isn’t that true?
James B. Steele 12:07
It is true that obviously if you invest it in that particular way, as opposed to just perhaps just more dividends or higher pay for your CEO or buying back your stock of the company, you’re absolutely right. I mean, I think that’s why the 2017 tax bill, which gave these big corporations that had all this money offshore, a break. I mean, I wish that had money coming back and been policed. But it did exactly what you’re talking about, really invested in the US. Instead, it was invested in stock buybacks, bigger dividends, things of that sort, rather than maybe building another plant, launching another division, something like that, not just buying an existing company. So I agree with you. And I think that’s one of the things that you see about American capitalism. It’s obviously been very aggressive and very successful in a whole range of reasons. I think all we’re saying in the book Is that it’s not enough, that alone is not enough. We need more, a more active government can do the things that can do. And that’s what the virus exposed. I mean, the free market was totally unable to handle this, and understandably so it’s a national problem across the state lines, global corporate lines, and globally as well, absolutely. But at least in case around since the US, we didn’t have something in place or anything close to being in place to think about a way to handle it. So there’s a there is a role for the government, not just for that, but think about the government dealing with the middle class on that same basis. That’s what I would like to see, like are those issues that are really harming the middle class? health care is a big one. I mean, that could be solved. That could take a lot of those expenses off and how would it be solved? That Well, I’ve done and I’ve advocated for years, a single payer system that’s probably not on the radar of you. If the democrats win Congress coming up, I was aware of all the criticisms of those systems in the in Canada, the UK, I mean, you know, you die waiting in line, you know, no innovation, the Canadian criticisms are way, way off base. And I The reason I know this is part of my sisters lived in Canada for 40 years. So I actually know what goes on up there. You have in Canada, you wait if you need a hip replacement, but if you’re seriously ill, you cannot wait, Canada, and actually most of the public opinion polls in Canada, so Canadians are more, that system has a higher approval rate than our own. So that alone intelligence, something that the UK has a problem. But look at the single payer systems in France and Germany, very high level in medicine, very high level of care, so it can be done. To be fair, though, France and Germany and Europe in general is a disaster. and Canada doesn’t have the type of immigration they have a much smaller population. You know, there’s so many differences. Are there differences in all of these places, but I don’t. And Germany is in certainly a downturn now. But don’t ever underestimate the Germans what they’re gonna do there and, and France I think is consistently, people underestimate in some ways the internal strength of much of that country and certainly the health care system. You have any doctor friends who know French doctors, they will tell you the French medical system is a very high level very, very high quality. Anyway, back to the main point, the single payer could be in many different ways. UK, they actually pay the doctor, you don’t have to do it, but it could be a whole range of other things. The Canadians were criticized, you can go to any doctor you want in Canada, you can’t do that in the US today, depending on what your planets, so those mixes and matches are all over the place
James B. Steele 15:47
on the health care thing. You know, they’re just two things we could do. That would just be simple. First Steps. Number one, and that’s what Trump has been working on is make the pricing transparent, like how in the world Did we get to this stupid system where the patient is detached from the cost of everything in no other area of life doesn’t work that way. When I take my dog to the vet, I evaluate treatment based on knowing the cost. And I can call another vet in shop, you know, you get the insurance in there, this other party, and it’s like, you know, I go to the doctor, it’s like, run every test you want, I don’t care. I’m not paying for it. It’s just a silly system, and then let the insurance companies sell across state lines to increase competition.
James B. Steele 16:30
I, I don’t have any problem with that at all. And then I looked at the gun I wrote about health care 15 years ago, talked about the oddity if you were standing in a line to buy groceries. If you had a box of cereal, it was $2. Why did the guy behind you that same box buys a $5 airline ticket. And so, you know, there’s no doubt there’s tons of things that can be done. But I think the most important things would be to figure out a way to get these costs down from middle class people who actually even have Haven’t tripped, let alone provided for the ones who don’t have, because we didn’t spend Laura’s, you know, so well, more than anybody else in the world. So healthcare is one, obviously jobs or another. I think student loans are an area that is just crying out. We’re never gonna forgive all the student loans.
James B. Steele 17:17
It’s a total scam. I mean, the way we have indebted, these young people and older people to, but especially young to $1.5 trillion in non dischargeable student debt, that’s a crime. It’s a criminal activity. All those companies that have done those student loans should be indicted. So it’s ridiculous. But you know, you have a fascinating table of contents. And, you know, there’s so much to talk about here and time is limited, but he talks about the casualties of the new economic order downward mobility. You talk about the paper jobs, and you know, $500 an hour bankruptcy lawyers, the global money men who are beyond the law who are the global money, men Right away.
James B. Steele 18:00
This was one of the earlier in the earlier edition. This was the late Mark rich, who did a lot of money on oil trickery and also in a steel plant in West Virginia where he basically it was a year and a half strike, they just about bankrupted the town and half the workers there who they mentioned, the one of the few labor victories at the time, were eventually rich through in the sponge and said, Okay, you guys win. And I’ll get out here. But But he was one but there there, of course many. And all you have to do is go to the Cayman Islands, or
James B. Steele 18:32
any of those places down there. And you’ll see plenty of them on the mailboxes as well. Absolutely. So it’s the offshore games, all the tax games and, and those types of things. Right. I mean, is the American Dream ended or is there some hope here?
James B. Steele 18:47
I think there’s always hope if we do the right thing, and I think it would, it would not be easy, and it cannot be done in a year or two. But it could be done. I mean, if we set a plan to figure out what Way, what are the kinds of social safety net we can provide for the middle class doesn’t have to be a huge thing. But something that makes sure when something like this happens, we don’t have people lined up for three miles getting boxes of food, there’s got another way to do that, particularly. I think the other thing, which is maybe at the top of the list, right alongside healthcare is retirement. Retirement is a huge, unbelievable freight train catastrophe coming down the tracks right now. I mean, the Motley Fool, just the last day or two did a piece on the gen x’s, what shape there and everybody sort of knew groups before after the net, we’re in trouble. The death of pensions, and the shifting over to the self directed 401, KS and four threes. All of this has been more convenient for companies. But it’s going to be a disaster for workers down the line because those funds and there’s nothing wrong with those funds, but they’re just not going to produce the earnings. They’re not going to produce the return that people need. In the middle of class, like pensions did have all the thing that hadn’t been we need to do just to increase social security for those people that need it. No 50% of Americans Social Security is their principal retirement and their only return. There’s many things that can be done can all be done in one year. But something other than just lip service to the fact that middle class needs help,
James B. Steele 20:24
Jim, all those things, it would be great, but they all cost money. And we’re running huge deficits, huge debt with with Coronavirus, it got much worse. Doesn’t money printing cause problems? I mean, can you just do that? And these things have consequences, right? Yeah.
James B. Steele 20:41
You can’t do it all at once. But I think we’re going to have to figure out one or two things to do. I think we need to invest in a way that creates jobs. I mean, a simple thing that Don I’ve been talking about for years is infrastructure. And a lot of people Democrats and Republicans both talk about that. That’s certainly one Not just roads and bridges, but other kinds of things, you know, high speed, telecommunications and a whole range of things, maybe parts of the green energy concept. But there’s, there’s ways to do things. But you know, you have to make some targets and stick with them. Can’t do it all in one year. But we need to at least start thinking about this other than just wringing our hands about.
James B. Steele 21:22
So if the government is going to give people money, I mean, I couldn’t agree with you, you know, that the New Deal concept was okay, you know, put people to work. You know, that just doesn’t seem to happen anymore. The government just gives out money and says, stay home and become a lazy loser. You know, that’s basically what the plan has been the last five decades.
James B. Steele 21:44
Well, I think that’s been true. We’ve seen this year after the virus in particular. But that’s the kind of thing where I think if we had national plans for something like this, and thought about it, we might be able to respond to that better rather than just printing these checks now and setting up And people are getting the money. And now it’s good, because they’re in bad shape. But that’s not the solution. The solution is trying to figure out what is the foundation that makes the middle class viable again? What are those jobs? And what are the benefits? You know,
James B. Steele 22:13
I mean, it’s sort of easy to answer that. It’s jobs on shore. It’s higher paying higher skilled jobs, and having a newfound respect for vocational type jobs. Absolutely. What’s wrong with being a plumber? You know, no, I don’t want to do the job. But there are people out there that want to do it, and you’ve just destroyed so many of these jobs. Right. And, you know, frankly, that’s the Trump agenda, love him or hate him, but that has been part of his plan to give those jobs a new level of respect. Why do people need to go to university get a degree in feminist studies that has no job market and be $70,000 in debt to a silly student loan? Absolutely. Could Agree, couldn’t agree with you more on that. No, he needs to go to college.
James B. Steele 23:04
No, no. And and a lot of people have been making that point for a long, long time. And I think that’s a very valid with. And I think his his focus on trade has been a positive thing in the sense. I mean, Don, I’ve been writing about trade for years. And by the way, you keep referring to Don, that’s your co author. And we were writing about free trade and some of the disasters that created years ago and like goodness, that we had hammered the Wall Street Journal’s editorial page attacked us. Free traders. I mean, there’s any restriction on free trade in their book is like heresy. You just can’t do that. Anyway. And our only point was, you can’t have this unrestricted. There’s one sided, and we’ve been women writing that for years and years. So that part of his agenda I think, has been positive. I think the way he’s got about a thought has been not positive.
James B. Steele 23:57
And what do you mean by that, like picking a fight? with China of his war Well,
James B. Steele 24:01
I think if you’re gonna pick a fight with China, the Europeans are upset with China’s we are. I mean, you all get together. But instead he’s been a total God alone and everything. And I think that’s when we’re if you were working together with others, you might really think it’s an insult. But trying to use your finger, we’ll just we’ll just Outlast this guy. And it
James B. Steele 24:21
sounds like you would be critical of Clinton’s free trade policies. I’m guessing right
James B. Steele 24:27
now. Well, no, the one thing people forget about Clinton, and you saw this in the Trump Hillary Clinton debates. I mean, what people forget is that NAFTA was a fait accompli when Bill Clinton took off. NAFTA was negotiated by George HW Bush, people forget that it wasn’t Bill Clinton. It was done deal. And I’m not unsympathetic to the problems of a president at that point. say, Well, I’m not going to sign this. Not just the Wall Street Journal, but every other damn editorial page on your neck while Trump did it. You know, he got The TPP Yeah. And he endured some criticism for that perfect because then anyway, all I’m saying is, I think Clinton in that sense, was a different era and didn’t really have much choice at that point. But look at the new NAFTA that Trump has. I mean, that’s USMC, it’s nap delight. So it’s better than the old one, but not that much better. I don’t think it’s much better than the old one. One of the breakthroughs in is that we can now sell wine and British Columbia State scores. That’s my favorite.
James B. Steele 25:32
There’s always some special interest in there.
James B. Steele 25:34
Some special right? So I’m not so sure that’s gonna be a big job generator in the US anyway. Yeah, never know, you never know. And most of Mexico is related the auto industry in the US and the auto workers. They don’t see any benefits really in this thing about anything. So anyway, it’s in most a draw a lot of sound and fury signifying I think, very little ultimately,
James B. Steele 25:57
but that’s neither here nor there. At this point, these things are definitely complicated. Hey, as you wrap up, just give us any prediction on the future. Inflation, deflation stagflation, I kind of think we’re moving into a stagflation airy period that reminds me of the misery index and Jimmy Carter era coming up. But what do you what do you think?
James B. Steele 26:17
I’m not an economist on issues of deflation and inflation and effect. I’m not so sure many economists are very attuned to this one anymore, because everybody has been worried about inflation for years, and it’s just never happened.
James B. Steele 26:29
I mean, I mean, it has happened a little bit to be loved, but it’s a tiny
James B. Steele 26:32
and but when you’re thinking, Well, why
James B. Steele 26:35
not like some say, you know, hyperinflation hasn’t, I think
James B. Steele 26:38
we’re gonna be obviously in a very, very weakened condition for a long time. There’s just no way you come out of this virus robustly, despite the silliness that’s going on in the stock market. I mean, this has no relationship to what is really happening in the economy just shows you how people grab on the slightest bit of good news and say, Wow, let’s go for that. But I think they underlying problems are still there. And it’s going to take us a long time to work our way through this. The other shifts are I’d like to mention, I think commercial real estate or maybe on the mentioned this, but I mean, what’s going to happen there? It’s a disaster.
James B. Steele 27:14
I mean, there are going to be so many commercial mortgage backed securities defaults. It’s going to be staggering. Exactly. And that’s, there’s no way I can see doing much about that, because it’s, this is what’s going to happen. It’s just a fundamental change. Look at we do have a housing shortage. There’s no question about that. No one would disagree with that. And, you know, you complained about deregulation, but maybe a little less regulation there would actually help people have some housing. And if we could rezone some of these office and retail properties that aren’t going to be used as office and retail properties anymore in turn them into housing at a reasonable price without a bunch of complex codes and city planning and you know, hiring a zillion lawyers and advice Mental impact people just let people live somewhere. I mean, my God, the homeless problem is insane. The cost of housing is absolutely crazy. That’s an area where maybe we need some deregulation.
James B. Steele 28:11
Well, and a lot of that is local regulation as much as natural. So and I’m not for one minute saying that the threats and things that can be deregulated here and there. I mean, I think we’ve all seen examples of that. I’m just saying, I think in the case of some of those industries, we went a little bit too far. And I just look at trucking. trucking continues to be a catastrophe. Now 40 years after its deregulated when the hundreds of thousands, basically the number of companies that went in and out of that industry was regulated. The ICC was the principal regulator. And once those were relaxed, everybody was a trucking company. So literally in the last four years and thousands of these companies going, it’s really in many cases, the case of access of competition. It’s like, if I read the biographies of the first john Rockefeller, his whole goal was to reduce competition. competition was constantly producing lower returns, or no returns for everybody in the business. So what tracking has been, I mean, look at all the big companies, most of them have gone out of business the last few years, and the ones that survive, maybe survive for a little longer, and then they go out of business, just chronic chaos, chronically trying to retrain drivers. What the drivers make now is a pittance compared to what they made, like 3040 years ago, adjusted for inflation. Well, people could argue the same thing about airlines. But the other side of that is that it’s a lot cheaper to fly. And and I’m being you know, we’ll go pre COVID on this. I mean, what’s happened now a little, but it’s come out of the hides of the people who work for those industries.
James B. Steele 29:51
Sure, but the consumer can go places just like deregulation and trade. You can buy cheap stuff on Amazon or at Walmart, but you’re not gonna have Job,
James B. Steele 30:00
that that’s always the trade off the way you figured out how much of this you can live with how much you can write. So,
James B. Steele 30:07
we’re getting back to that. Okay, fair enough, Jim, wrap it up for us and give out your website. If you when the website
James B. Steele 30:13
is Barletta and steel, br le TT and steel. Those people want to put a tee and Don’s name is calling Bartlett but it’s Bartlett that has this book. And personally the others, but this book is just out. And it’s really a clarion call in my book to saying we’ve got a tremendous crisis here that is worsening, intensifying, and we’re gonna have to figure out a way to get on the book was essentially written before the virus. But the virus in some ways is exposed the need to think about these things more than ever in my book. It has definitely accelerated that. Jim Steele, thank you so much for joining us. Great to be with you, Jason.
Jason Hartman 30:58
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