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The Economy Goes Boom While America Goes Bust


The numbers don't lie. Our economy is cranking right now.

The trouble is it doesn't remotely feel like it to many Americans. And if we don't do something about that dichotomy very soon we're going to create an economic underclass that will expose the cruel lie in our "blessed" way of life.

The good news is a flurry of statistics released last week showed that the economy's in great shape.

The Commerce Department reported that new factory orders in March were stronger than expected. The closely watched ISM nonmanufacturing index, calculated by the Institute for Supply Management, rose in April when economists had expected it to fall. Major retailers like Wal-Mart and Target booked healthy gains in April sales. The Labor Department reported that productivity in the nonfarm business sector increased in the first quarter after falling in the fourth quarter of 2005. And although the Labor Department said job growth stalled in April, unemployment remained at a low 4.7 percent and the gains in hourly wages finally began to outpace inflation.

Wall Street has responded by pushing the Dow Jones Industrial Average to a six-year high of 11,640, near the all-time high of 11,723 established on Jan. 14, 2000, at the peak of the Internet bubble. Undoubtedly Champagne glasses are clinking in boardrooms across the country.

Unfortunately the wealth created isn't exactly being spread around. That's because in George W. Bush's America we've been giving money hand over fist to our richest citizens in the form of steep tax breaks, while making life increasingly difficult for our middle and working classes.

According to an analysis of the administration's tax policies published last month in the New York Times, if you earned more than $10 million in 2003 your annual tax bill was reduced by just shy of $1 million, but if you made less than $50,000 it was reduced by about $435. Particularly egregious has been the cut in taxes on capital gains, or income from investments, 70 percent of which in 2003 went to the wealthiest two percent of taxpayers.

So it's hardly surprising that Federal Reserve figures show that in 2004 the wealth of the richest one percent of American families had increased to 33.4 percent of the nation's net worth from 32.7 percent in 2001.

But my personal favorite statistic of financial inequity in the U.S. is the ratio between the compensation paid to CEOs and average workers. A report by Carola Frydman of Harvard University and Raven Saks of the Federal Reserve Board, which was published last November, is particularly illuminating on the subject. Between 1939 and 1979 CEO compensation fell from 82 times the pay of the average worker to 40 times. Then it started climbing. Between 1990 and 1999 the average CEO made 187 times what the average worker made, and between 2000 and 2003 the figure exploded to 367.

The long-and-short of all this is that the wealthiest Americans - senior corporate executives, Wall Street honchos, media moguls, financial engineers, and Hollywood celebrities - are getting richer with every breath. The rest of the country? To quote Jon Stewart: Not so much.

At the same time we've also allowed Washington to steadily erode the social safety net erected in the wake of the Great Depression that essentially established the basis for the great middle class boom of the late 20th century. As a result, we've perverted the typical American confidence of achieving success into a society ruled by the fear of losing what you already have.

Talk to enough people from around the world and you get a muddled image of America and Americans today. So many people who like this country, and even some of those who don't, envy our economic freedom and the convenience of living here. But at the same time they're baffled over why Americans as a group seem to be the most frightened people on the planet. And I have to say there's a valid point in that logic.

My wife was in the World Trade Center on September 11, 2001, just arriving to work on the 24th floor of the north tower, the first one hit by the terrorist suicide bombers. She was fortunate to escape unharmed. Tragically, we both know people who didn't.

Our most vivid memory of the day is the aftermath, standing on the Brooklyn Heights Promenade overlooking New York's financial district, bathed in the hot afternoon sunlight, watching the black smoke billow across the East River and choking from the stench of burning jet fuel. We live just on the other side of the Brooklyn Bridge from lower Manhattan, and the Twin Towers were a commanding presence looming over our neighborhood. Weeks after the attack we still were picking charred debris (a stock trading ticket from Morgan Stanley Dean Witter, an entry from an unknown personnel file) out of our backyard garden.

So we definitely know what it's like to be afraid of terrorist attacks coming at any time without warning - just like the residents of major international cities like London, Paris, Madrid and Tokyo. But that's not the fear that puzzles the rest of the world. Rather, they can't understand, for all our talk about "family values," the outright panic that strikes a middle class American family if, say, the head of the household loses his or her job.

Think about the typical family and the potential downward spiral triggered by the bread-winning parent getting laid off. Suddenly not only is your standard of living in jeopardy but so are your savings, which you're likely about to drain to pay for private health insurance on top of all the other household bills. If your savings won't cover your family's healthcare you're probably going to have to roll the dice on living without it, meaning you're basically gambling that you'll get another job before your kid gets the flu.

As this survey published by the Kaiser Family Foundation showed, "more Americans are personally worried about health care costs than about losing their job, paying their rent or mortgage, losing money in the stock market, or being a victim of a terrorist attack." Forget about soaring gas prices or rising mortgage rates and the other cost increases associated with a growing economy - this is the reason the middle class feels under siege. And it's hardly surprising considering the litany of tear-jerking stories, like these in Monday's New York Times, about Americans who lost their job and now are buried in bankrupting debt just to pay for necessary medical treatments.

So this is a "blessed" way of life? Seems it's a little more complicated than that. Although our lifestyle is tantalizingly convenient, the fact is many hardworking U.S. citizens go to bed each night petrified about a host of potential consequences that are beyond their control.

Climbing the ladder of success in this country is difficult - but slipping a rung or three can happen in the blink of an eye. It's been that way for a long time, and by and large we've still managed to make the system work for almost everyone. But now that we've shredded the safety net designed to catch people before they fall on their faces, the ride is much more frightening.

The sad truth is this country's wealthier citizens rarely have to bother with these concerns. But for everyone else they're a primal fear. If we don't bridge this gap soon we'll wind up with a stratified society where a growing underclass finds itself increasingly detached from the rest of America. It may be difficult to compare generations and civilizations, but history's pretty clear about what tends to happen in these situations: Off with their heads!