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Foster: Idea of 'two Americas' true

By John D. Foster
Nov. 29, 2013 at 11 p.m.


John Edwards' political career came crashing down in a sensational sex scandal in 2008 as he was mounting a campaign for the presidency. While his White House dreams died, Edwards' signature theme of "Two Americas" lives on and is more evident today than ever.

<em><strong>Editor's note:</strong> This is the first of a two-part commentary on America's New Economy.</em>

John Edwards' political career came crashing down in a sensational sex scandal in 2008 as he was mounting a campaign for the presidency. While his White House dreams died, Edwards' signature theme of "Two Americas" lives on and is more evident today than ever.

A perspective article was published recently in the Saturday Evening Post by Hedrick Smith that looks at the dichotomy in the current U.S. economy. While some Americans are enjoying the high life based on a record stock market and increasing home values, many more of their countrymen are still out of work, drowning in debt and struggling with underwater mortgages.

The article, based on Smith's book, "Who Stole The American Dream?", explains that a fortunate few carry on like before the Great Recession from 2008 to 2010, often blind to the millions who suffer with poor health coverage, weak job choices and chronic debt.

"Over the past three decades, we have become Two Americas. We are no longer one large family with shared prosperity and shared political and economic power as we were in the decades following Word War II. Today we are a sharply divided country - divided by power, money, and ideology," Smith wrote.

Citing data from polling by the Pew Research Center, a survey documents a class split in America. Among the losers, the picture is bleak: Two-thirds said their family's overall financial condition has worsened; 60 percent said they had to dig into their savings or retirement funds to take care of current expenses; 42 percent had to borrow money from family and friends to pay their bills; 48 percent had trouble finding medical care or paying for it.

"The psychological toll was heavy (for the losers). By contrast, the other half of relative winners admitted some problems such as stock market losses, but described their woes as modest and manageable," Smith added.

The numbers tell a similar story. In 2008, American households lost $11.1 trillion, close to one-fifth of their total accumulated private wealth. More trillions evaporated in the next four years with housing prices falling steadily for five straight years. These staggering figures also dealt a blow to Americans' psyche as their personal safety nets were shredded.

"As the Pew Center poll discovered, even middle-class families who avoided the most acute distress have experienced economic anxiety," Smith noted.

In America's New Economy, "not only have economic gains been distributed more unequally … but Corporate America has rewritten the social contract that once underpinned the security of most average Americans." he said.

The company-provided safety net many Americans enjoyed from the 1940s into the 1970s has been sharply cut back, and a huge share of the cost burden has been shifted from companies to their employees.

For example, in 1980 about 70 percent of Americans who worked at companies with 100 or more employees got health insurance coverage fully paid for by their employers. But since the 1980s onward, companies are requiring their employees to cover an increasing portion of health costs, Smith reported.

By the mid-2000s, only 18 percent of workers - about a quarter of the percentage in 1980 - were getting full health benefits paid for by their employers. Some companies dropped health-care plans entirely, saying they couldn't afford them. But in many cases, companies simply added the cost savings to their profits.

In terms of burden shifting, by far the largest change has come from retirement benefits. In 1980, 84 percent of workers at companies with 100 or more employees were in lifetime pension plans financed by their employers. By 2006, that number plummeted to 33 percent with company-financed pensions. The rest got either nothing or were switched into funding their own 401(k) plans with modest employer matching.

Smith quoted a pension expert who said on average a lifetime pension system would cost companies about 6 percent to 7 percent of their total payroll. But companies now spend only 2 percent or 3 percent on matching contributions to 401(k) plans with the savings going to the bottom line or bigger paychecks and bonuses for top executives.

Claims that businesses could no longer afford lifetime pensions are disputed by an article in the Wall Street Journal, Smith noted. During the bull market in the 1990s, companies built up huge surpluses in retirement funds and took advantage of loose accounting rules to siphon off surpluses to finance corporate restructuring, mergers and acquisitions, according to the article.

Next week: Credit problems in the new economy.

<em>- John D. Foster, a Carthage resident and former editor of the Panola Watchman, is a regular contributor to the Saturday Forum.</em>

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