The Choices and Consequences of Our Age: The Disintegrating Economic, Political, and Societal Institutions of the United States

Contents

Acknowledgments

The First Word

Disillusioned Economic System

Disillusioned Political System

Disillusioned Societal System

Disillusioned Societal System

Solutions

Solutions

The Last Word

The Last Word

The Story of the Backpack

References

To my children, Gunner and Toria:

Who have given me a wonderful life.

Always look for the good along the road of life.

Acknowledgments

I would like to extend my gratitude and appreciation to the following people, without whose contributions I would not be the man I am today:

• The Man Upstairs, who has made this all possible.

• My parents (John and Mary), maternal grandmother (Vee McCoy), and paternal grandparents (Bocci and Rose), who pushed me to do something great with my life.

• Bill Munroe: If a better friend exists, I haven’t met them. I hope everyone has a Bill Munroe somewhere in their life.

• Keith Williams: the first real friend I ever had. Once or twice you make a friend that lasts a lifetime; Keith is that friend.

• John Ellis: my children couldn’t have a better Godfather.

• Carl Ivey: a truly decent and honorable guy.

• Sierra Brucia: a great guy trying to do good things.

• Jeff Thompson and his wife, Mel: thanks for including me in their lives.

There is something disconcerting about a society that castigates those who invest more than they spend, who succeed more than those who do not, and who acquire more than those who do not. Most troubling, it betrays the promise of this great country in which we now live.

Unlike most countries on earth, the United States offered you the opportunity to be anything you wanted to be, to achieve more than your parents, to live a better life.

It was called the American Dream.

Always more, always better, always greater.

Your station in life was not determined at birth but by effort thereafter. The uneducated could

become educated;

the tinker could become the inventor;

the convenience store owner could

become the supermarket magnate,

and the poor could become rich.

You were only limited by your dreams and by your effort.

The First Word

An uncompetitive economy, a broken political system, and social instability can describe many countries throughout the world, including the former Soviet Union, France, Egypt, and Italy. But the United States? Sadly, the dominant country of the twentieth century entered the twenty-first century hobbled with an economy unable to create solid jobs, a political system incapable of providing good services, and a society that has abdicated its sense of personal responsibility and accountability to its government, its employer, and its fellow man. A country created as a beacon of hope, graciousness, and civility has become one of despair, jealously, and hostility. A country created with great promise now faces a future of great peril.

One hundred years ago, the United States produced 32 percent of the world’s coal, 34 percent of its iron, and 37 percent of its steel.¹ Sixty years ago, the United States produced 40 percent of the world’s output of goods and services (with only 6 percent of the world’s population) and 27 percent of the world’s Gross Domestic Product (GDP). In the past thirty years, the United States’ share of world GDP has stagnated while Asia’s share has increased nearly 70 percent. This country’s share of North American auto production has decreased from 72 percent to 65 percent of the market while Mexico’s share has increased from 12 percent to 19 percent. Goods are being imported and jobs are being exported; no country can achieve or sustain a privileged standard of living under these circumstances, even one blessed with the bountiful natural resources afforded the United States.

Throughout the last century, and continuing through this century, the United States remains the technological marvel of the age. This country stands atop the list of those countries whose citizens have been awarded the Nobel Prize—almost three times as many Nobel Prize winners have been United States citizens than citizens of the second-place country (333 for the United States versus 120 for the United Kingdom). From agriculture to military, chemicals to automotive, pharmaceuticals to finance, computers to telecommunications, and energy to the environment, the United States is a dominating force in industry after industry, raising the standard of living of nearly every person on earth. This should have sustained its economic superiority throughout the world, but to the detriment of generations of Americans, it did not.

Fortunately, the United States continued to develop goods and services that revolutionized the world. During the past twenty years US companies have developed half of all new major medicines introduced worldwide; unfortunately, we just can’t produce them.² The seminal economic event of the last century—the event that has destabilized the middle class and led to a widening disparity between the fortunate and unfortunate—is this country’s inability to produce and manufacture goods and services that afford its citizens a good job at a good wage. The simple truth is that the cost to produce goods and services in the United States far exceeds those produced in India, China, and Eastern Europe. It is not, as so many would want to believe, the widening imbalance between rich and poor or the mistakes made by corporate managers. It is that we are a country no longer competitive on the world stage, and with our failure to compete goes our failure for this nation’s citizens to find a good job at a good wage.

By the latter half of the twentieth century, the United States business community and its employees became arrogant, complacent, and self-interested. Corporations became arrogant in their belief that the United States was the unmatched producer of goods and services and would remain so into the next century. Consequently, quality suffered, and customers were treated poorly. Employees became complacent, even lazy, after decades of dominance. They demanded more coworkers to ease the workload, higher salaries, broader benefits, and more promotions. They filed lawsuits to protest perceived injustices (as opposed to real injustices), used more sick leaves, failed to maintain and upgrade their knowledge and skills, and abdicated their responsibility to assist management in creating high-quality goods at a fair price. Consequently, employee costs skyrocketed while productivity stagnated, virtually forcing US corporations to move their operations overseas in an effort to lower their costs. Finally, employee unions—a dominating force during this time—became more interested in their own financial gains and importance than that of the members they represented or the corporations that employed their members. Consequently, union-management relations caused conflict and strife within corporate America, deflecting focus and attention from the coming onslaught of international competition, and encouraged corporations to again move their operations outside the United States in hopes of finding a more hospitable employer-employee business relationship.

It is regrettable some of these flaws within our economic system were not addressed in the 1970s and 1980s; if they were, the economic paralysis facing the United States would certainly be different. Corporations did focus on quality and customer service, yet failed to reduce their employee compensation costs. Instead, American corporations moved their operations overseas, and with that move, the hopes and dreams of millions of workers departed also. Employees failed to commit to their jobs, to lower their wage and benefit demands to be more consistent with wages and benefits throughout the world, and to raise their productivity. Unions, too, failed to promote the expansion of knowledge and skills within their membership, and also to help their members’ transition to other industries when it became apparent their previous industries were no longer a viable option. Rising employee costs—caused by employees and their unions—must be seen as a primary cause for the dire employment prospects faced by so many today. The United States had an opportunity to address that disparity forty years ago but neglected to do so.

Capitalism is the greatest economic system that has yet to be created. It has enabled billions to emerge from poverty, created a standard of living unbeknownst to mankind, and allowed countless millions to pursue their dreams of personal fulfillment and financial independence. It is a system that rewards those with the greatest idea, the greatest ambition, the greatest courage, the greatest resiliency, the greatest talent, the greatest effort, and the greatest work ethic. If you want to do great things, if you want to live a great life, if you want to become a great person, it would be difficult to find another economic system that facilitates one from realizing his or her dream of dreams other than capitalism.

There are winners and losers in a capitalistic society, but capitalism does not choose who is a winner and who is a loser. The winners are those who have the right idea, sacrifice their time and money, take risks, work hard, and have a little luck and help along the way. The losers are those who rarely dream of the impossible, waste their time, spend their money foolishly, lack the courage to take risks, and fail to dedicate themselves to achieving the rewards of their efforts. Winners should receive the greatest returns for their investments and the greatest of rewards for their endeavors. While wealth may be distributed unequally, it results more from an unequal dedication to acquire this wealth. That is not only right, but it is fair.

At the heart of capitalism is choice, one of success or failure, saving or spending, and work or recreation. Capitalism is a system that allows a person to choose whether he or she wants to be a winner or a loser. Today, too many have chosen the latter and display the unbecoming traits of greed, jealously, and envy toward those who have chosen the former. The founders of the United States chose capitalism as the framework of this country’s economic system because capitalism was the personification of freedom: it allowed nearly everyone to be anything they wanted to be and to do anything they wanted to do.

The self-reliant, hard-working, rugged individual representative of the United States through the first half of the twentieth century was perfectly suited for capitalism. There was a strong belief in freedom and personal responsibility and in hard work and sacrifice. Those values within a capitalistic society propelled the United States to the zenith of world prosperity. Sadly, those values seem to elude many in the United States today, one reason the capitalistic foundation of this country is seen as ineffective by some and unfair by many, neither of which is true.

Our nation’s political system is seen as ineffective by some and unfair by many as well. Unfortunately, in this case, both may be true. Government, for far too many of its citizens, just does not seem to work. Taxes are too high and levied unfairly, and the manner in which government spends those taxes is seen as wasteful and unproductive. Few landmark legislative acts have been enacted by the federal government over the past thirty years that have provided a greater opportunity for succeeding generations, and even fewer government programs and services have been created or managed that are cost-efficient and customer-focused. Elected, and appointed, government officials and employees seem more concerned with finding someone to blame for what ails this country than finding common ground on how to fix it. Moreover, the individuals representing the people of this country seem more concerned with meeting the needs of the narrow constituency responsible for their election than the wider citizenry, whose future depends on fair, judicious decisions made by the enlightened few chosen to create a better future for their people.

From the nation’s debt to the annual budget deficit, from infrastructure to education, from Medicare to Medicaid, and from Social Security to education, our government seems nearly incapable of sound, prudent stewardship over the nation’s resources. Today, our nation’s debt approaches nearly 100 percent of our nation’s GDP, up from nearly 70 percent just four years ago. Our annual budget deficit in 2010 was $1.5 trillion—nearly 10.6 percent of GDP—an increase from 3.1 percent in 2008. We borrow forty-two cents for each dollar spent by the federal government, and spend seven times more on interest on the federal debt than is spent running the Department of Education, and five times more than is spent for the Department of Transportation (at $73 billion).³ Without a national debt, the United States could spend an additional $350 billion on education, money sorely needed during a time when our nation’s educational system drastically lags behind the developed world.

The government’s incompetent management of our nation’s economic, environmental, and societal resources is contemptible and disgraceful. In the 1990s the government encouraged, even forced, banks and mortgage brokers to lower their lending requirements, which, a decade later, resulted in the implosion of the housing market. It was a mistake of biblical proportions. In 2006, 33 percent of homeowners chose a thirty-year mortgage loan versus 57 percent in 2001; interest-only loans accounted for 50 percent of all mortgages in that year, up from 10 percent in 2001. By 2008, Bank of America was reporting that loans authorized under the lower lending requirements as promoted by the government were four times more likely to result in a loss to the bank. It is shameful for the government to ascribe blame for the housing meltdown to many in the banking and mortgage industries when the government was responsible for instituting the lower lending standards that enabled thousands of unqualified applicants to obtain a home loan.

Social Security is another travesty. Passed in 1935, employees were required to contribute 1 percent of their salary to the Social Security trust fund, with an additional 1 percent contributed by their employer. Since that time, Social Security taxes have increased more than thirty times, now at 6.2 percent each for the employee and the employer. The program is six times more expensive than originally expected, and even then the program is projected to go broke, one reason benefits are being reduced for some that are eligible to participate in the program (this includes benefits for those at the upper middle and upper income Americans).

Similar to Social Security, the cost of Medicare has grown exponentially yet is woefully underfunded. When first enacted in 1965, Medicare was projected to cost $9 billion in 1990; Medicare spending in 1990 was actually $66 billion, or over seven times as high. Today, Medicare costs ten times more than originally projected, even after factoring in inflation. In 1965, entitlement costs (Social Security, Medicare, and Medicaid) were 2.7 percent of GDP; in 2010, they were nearly 10 percent. Our nation’s resources are being diverted to social programs that support one segment of the country at the expense of critical investments and attention in education and infrastructure that support succeeding generations. The repercussions will be catastrophic.

The government’s bungling of our nation’s educational system borders on criminal. Today, nearly 70 percent of eighth-graders scored below proficient in reading and mathematics; among 15-year-olds the United States ranked fourteen (out of sixty-five countries) in terms of reading literacy, seventeen in terms of science, and twenty-five in terms of mathematics. About the only international category in which this country ranks toward the top in terms of education is spending. The United States ranks fifth in kindergarten through twelfth-grade spending per student among other developed countries, spending 5.7 percent of its GDP on education; this is more than the average 4.9 percent spent among a study of 132 other countries.⁴

Real spending on education has tripled over the past forty years, but money is not necessarily a key indicator of educational success. New York has the second-highest per-pupil expenditure in the United States, yet ranks twenty-fifth in fourth-grade math and nineteenth in eighth-grade reading. By contrast, Colorado is ranked fortieth in terms of per-pupil spending, yet ranks ninth in fourth-grade math and twenty-sixth in eighth-grade reading proficiency. Teacher-student ratios have gone down in public education over the past forty years, and public school teachers are paid, on average, 11 percent more than architects, 9 percent more than psychologists, 5 percent more than chemists, 6 percent more than engineers, and about the same as economists. Public school teachers also make over 60 percent more than private school teachers. Contrary to the statements by the government and the teachers’ unions, the sorry state of our educational system is not necessarily a reflection of inadequate funding, but of an inadequate and antiquated system that is failing to produce intellectually bright and moral students. This is certainly one reason why nearly 40 percent of members of Congress sent one of their children to private schools (versus the national average of those attending private school at 12 percent).

Infrastructure, too, has suffered in the hands of government. More than 25 percent of our nation’s bridges are structurally deficient; the number of high hazard deficit dams have increased from 488 in 2001 to 1,826 in 2007; aging sewer systems spill nearly 1.3 trillion gallons of sewage each year; nine percent of our nation’s levees are expected to fail during flooding; the acreage of parks per resident continues to decrease in urban areas, and many navigable waterways are declining (which carry about one-sixth of the nation’s intercity freight). The pathway to the future is reached through the infrastructure of the present, a sad omen of our nation’s prospects.

The United States spent about 2 percent of its GDP on infrastructure, in stark contrast to Europe (at 5 percent) and China (between 9 and 12 percent). Even developing countries spend triple the amount of their GDP on infrastructure (at 6 percent) that the United States spends. Even more disconcerting, in 1969 the US federal government spent one-third of its total budget on payments to individuals and one-third of its total budget on investments in infrastructure, research, and education; in 2010, the government spent 60 percent on payments to individuals and 16 percent on infrastructure, research, and education.⁵ We are mortgaging our future to pay for our present.

In all, a well-managed government program or service seems to be an anomaly. NASA had substantial cost overruns on ten of its thirteen major projects; Medicare funding will be reduced by $500 billion over the next ten years without a decrease in services; the Department of Defense averaged cost overruns of 40 percent on seventy-two recent weapons programs, and Boston’s Big Dig tunnel project was projected to cost $2.6 billion yet was finally completed at a cost approaching $22 billion (eight times more expensive than originally projected). Medicare fraud is estimated to be as high as $60 billion per year. Though our armed forces are decreasing in numbers, the number of levels between the Secretary of Defense and a line officer has increased from seventeen to thirty, the number of deputy assistant secretaries of defense has increased from seventy-eight to 530, and the number of generals and admirals has risen 13 percent in fifteen years. In fact, it has been the employees of government themselves who have profited most from the growth in government in recent years.

Public employees have seen an astronomical increase in their pay and benefits while the private sector has seen a dramatic decrease in theirs. One statistic is particularly telling: more than 80 percent of state and local public employees have a defined benefit retirement program (where employees are promised a specific retirement benefit regardless of preretirement contributions) versus 22 percent for the private sector. It is estimated the federal government alone could save almost $50 billion annually by adjusting federal employee salaries and benefits to reflect those in the private sector. Any attempts to reduce these salaries and benefits are fought vigorously by public employees and their powerful unions, forcing public entities to shed workers to continue funneling money to the more senior public employees, and thereby reducing services to the public. That fact, more than nearly any other related to government, is a travesty, as public services are reduced so that salaries and benefits of public employees are not.

Over the past century, the growth of this nation’s government has been unprecedented. In 1900, the federal government consumed about 4 percent of the nation’s GDP. By 1942, that figure rose to 22 percent, mainly as a result of World War II, and rose again to 28 percent by 2009. That is only the federal government’s share of GDP; add in state and local government spending, and total government spending has risen from 10 percent of GNP in the early twentieth century to 33 percent in 2000, and by 2010 to about 40 percent. Has that money been spent prudently and judiciously? Does this country possess a world-class educational system, roads and bridges, cutting-edge infrastructure (high-speed rail, battery-powered engines, renewable energy, etc.), a knowledgeable and skillful workforce, and vibrant cities? Hardly. More and more of the government’s resources are being transferred from research, development, and infrastructure to Social Security and Medicare, hardly investments that create greater opportunities for succeeding generations. Appallingly, today’s generation is incurring obligations they expect their children and grandchildren to repay, though this generation is not creating the opportunities that will provide the funds to repay these debts.

Not only are government monies not spent prudently and judiciously, they are not collected fairly and rationally. When the Sixteenth Amendment to the Constitution was ratified in 1913—allowing the federal government to levy an income tax—the minimum income tax rate was 1 percent and the maximum rate was 7 percent for those with incomes above $500,000. This new tax affected less than 1 percent of the population. By 1936, the top tax rate was 79 percent, rising to 91 percent in 1981 before President Reagan slashed the top tax rate to 28 percent. Today, it stands at 35 percent. Again, these rates only include federal income tax rates. Add in state and local income taxes, along with Social Security taxes, and those in the highest tax bracket pay approximately 44 percent of their income in some form of tax.

Who pays the taxes that support this nation’s government may be the most misunderstood fact in all of the United States. The tax burden on the American public may be rising, but not equally for all. In 2009, the top 1 percent in terms of adjusted gross income collected about 22 percent of this nation’s income yet paid nearly 40 percent of the nation’s total federal income tax. Those in the top 10 percent collected 37 percent of this nation’s income yet paid over 70 percent of the nation’s total federal income tax. And those in the top 25 percent collected 75 of this nation’s income and paid 86 percent of the nation’s total federal income tax. Over 45 million households pay virtually no federal income taxes, nearly 60 percent of the population. The middle class, too, pays a disproportionately small share of federal income taxes: the middle 20 percent of the population in terms of adjusted gross income paid approximately 4.4 percent of all federal income taxes.⁶

Approximately 10 percent of the population pays 70 percent of all federal income taxes; 60 percent of the population pays hardly any federal income taxes.