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Why the Middle Class is in a Rut

Updated on January 3, 2013
After Smith's lecture, James Cheng, a graduate Journalism student at Georgetown told Smith to speak to university students, because they will be the ones to effectively use anger. “We are the future,” he said.
After Smith's lecture, James Cheng, a graduate Journalism student at Georgetown told Smith to speak to university students, because they will be the ones to effectively use anger. “We are the future,” he said. | Source

In 1971, 175 American businesses had registered lobbyists in Washington, but today there are 11,702 registered lobbyists in D.C, according to The Center for Responsive Politics, a nonprofit research group tracking money in U.S. politics.

Hedrick Smith, a veteran reporter and editor for the New York Times, said this increase in corporate political activity was a deliberate attack on the middle class.

In a lecture at the New America Foundation on Sept. 14, Smith spoke about his new book, “Who Stole the American Dream,” in which he argues that the middle class has become characterized as the 99 percent from two main events: the1971 Lewis Powell Memo and “wedge economics.”

The Super Pac Seed

Lewis Powell was the associate justice of the Supreme Court under President Nixon. But before accepting that position, Powell had submitted a confidential memorandum to the U.S. Chamber of Commerce called “The Lewis Powell Memo: Attack on American Free Enterprise System.”

Smith said very few journalists were aware of the memo at the time.

This memo encouraged American corporations to acquire more influence in national policy—the beginning of corporate funding in politics, Smith said.


“Yet, as every business executive knows, few elements of American society today have as little influence in government as the American businessman, the corporation, or even the millions of corporate stockholders. If one doubts this, let him undertake the role of ‘lobbyist’ for the business point of view before Congressional committees”


Powell wrote this memo because he was “distraught that the American free enterprise system was under assault,” Smith said.The 60’s and 70’s can be characterized as an era of social movements, and Powell did not like that the middle class was so heavily influencing policy in Washington, Smith said.

“Wedge Economics”

The other main event that majorly shaped the middle class today, Smith said, was a change in business mentality.Up until the mid-70’s, corporate leaders practiced stakeholder capitalism, Smith said. This is the idea that corporate leadership felt that taking care of employees would also benefit the economy because when people have money, they spend it.

Suddenly, though, corporate leadership decided to lessen employee benefits, and the middle class was “cut out of its share of the growth and profitability of American free enterprise,” he said.

Productivity and Median Compensation from 1948-2011
Productivity and Median Compensation from 1948-2011 | Source

“What is really striking to me and what hit me one day,” he said, “was this chart that showed this line that continued to go up, and this other line that went flat. The line that went flat was the wages and salaries of workers since 1973.”

Empowering the Middle Class

In order to even out those two lines, Smith said it all comes down to the middle class reclaiming their power.

“Middle class power and middle class prosperity go hand in hand,” he said. “If the middle class wants to regain its prosperity, it’s got to start to exercise its political power.”

The Occupy Movement had the right idea, acting on their outrage, but there wasn’t a clear end goal or cohesive organizing mechanism, he said.

“My experience talking to people is there’s a lot of anger in this country. Anger is a useful thing, politically.”

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