MR. KOJO NNAMDIThe appeal of the American Dream, the idea that a strong work ethic and a little bit of gumption and perseverance will pay dividends in the form of economic stability for anyone, regardless of his or her background has proven immeasurably appealing to those born in and to those new to this country alike since the nation's founding. But many think that dream and the middle class lifestyle many use as a yardstick to measure it is in decline.

MR. KOJO NNAMDIHere to walk us through the steps of how we got here and what it will take to change course is Hedrick Smith. He's the Pulitzer Prize-winning reporter, Emmy Award-winning producer and a bestselling author. His latest book is "Who Stole the American Dream?" Rick Smith, good to see you.

MR. HEDRICK SMITHKojo, it's always a great pleasure to be with you.

NNAMDIOne of the things we should probably clarify straight off the bat is what it means to be middle class. How do you define it?

SMITHWell, I just took the -- what the congressional budget office does. I just took the people in the middle quintiles, the middle 60 percent of Americans, adjusted to slightly upward because some of those in the bottom quintile, fourth quintile are almost at the poverty level. So basically these are people who make -- households that make 30,000 to about $110,000 a year. It's the middle 180 million Americans. So there's still 90 million Americans below them and another 30 million Americans above them. But ...

NNAMDILet me ask our listeners, do you consider yourself a member of the middle class? How do you define the term? Give us a call, 800-433-8850. The decades from the '40s through the '70s served as a sort of heyday for middle class Americans. What brought about that boom, if you will?

SMITHWell, you know, it's interesting and I discovered a lot doing the research for this book "Who Stole the American Dream?" because I was so fascinated with the problems that we were having. And I knew from my own life experience it wasn't always that way. We had shared prosperity back in the period you were talking about.

SMITHRichard Nixon, when he was debating Nikita Khrushchev in the famous kitchen debate in Moscow said, we have a classless society. Now that was overdoing it but what he meant was what economists call we had a great convergence. The incomes at the top were not that far from the middle and from the middle not that far from the bottom. Now we did have poverty and we did have business cycles. We didn't have nirvana, okay, but we had widely shared prosperity. It came from two or three things.

SMITHOne thing it came from was a belief by business leaders -- Charlie Wilson head of General Motors, Reg Jones head of General Electric, Frank Abrams head of Standard Oil in New Jersey, people like that, Peter Drucker the great management guru from California. They believed it was a responsibility. In fact they used the term the sacred stewardship of the CEOs of that era to share the wealth, to protect the interests of the stakeholders in the American economy and in their companies.

SMITHBy stakeholders they meant groups that had a stake in the success of the company. Ominously the owners, the shareholders, stockholders but the managers, the employees, the suppliers, the creditors, the banks that loaned them money, the customers who bought their goods and wanted the guarantees to work and wanted the products to work, the communities in which they operated.

SMITHSo there was a notion that you all thrived better and business did better if everyone did better. Paid your workers well and they went out and spent a lot of money and that generated consumer demand. And that generated the engine for growth. They call it the virtuous circle of growth. Henry Ford had the idea. Pay your workers a $5 day, maybe they can afford to buy the Model T, okay? So that was a basic philosophy that we don't have today. We had that philosophy then.

SMITHThe second thing was, we had middle class power. We had the civil rights movement that expanded democracy. We had a consumer movement that fought for honest labeling of packages, actually for safer cars, for safer medicines. We had a women's movement that fought for higher pay for women. We had an environmental movement that fought for protections for the environment. We had a strong labor movement that bargained with business and said we want safe jobs, steady jobs, rising pay, health benefits, retirement benefits. So there were all those elements that supported this good middle class standard of living that made us the envy of the world.

NNAMDIWe often looked to big events as our turning points in history but the seemingly small can have, well, big consequences. To that end, 1971, the Powell Memo. What's that?

SMITHYou know, it's interesting. When you said that I was listening to you. History often has hidden beginnings. We think -- and particularly we in the media think there's supposed to be a mushroom cloud, right. There's supposed to be some explosion in the universe that says, wow we're in the new era. We're in the atomic age or we're in the digital age, whatever. We often slip from one era to the next without even knowing it. We actually may be doing that right now.

SMITHBut Powell -- Lewis Powell was a corporate attorney who advocated strongly for big business. He believed strongly in the free enterprise system. He was strongly antiunion and he was concerned that the movements that I just described, consumers, women, labor, environment, all those things were hedging in the power of business and they were hurting the free enterprise system. And he told some of his buddies at the U.S. Chamber of Commerce that's how he felt. They said, why don't you write that down?

SMITHSo Powell went out and he...

NNAMDIBut wait a minute. This was happening in 1971.

SMITH'71.

NNAMDIThe President of the United States was Richard Nixon...

SMITHRight.

NNAMDI...who would later appoint Powell to the Supreme Court.

SMITHWell, you enjoy the ironies of history as much as I do.

NNAMDIOkay. Yes, but despite that...

SMITHWell, he was also very concerned about the regulations that Richard Nixon was imposing. Remember, Nixon set up the Environmental Protection Agency, OSHA, Occupational Safety and Health Administration...

NNAMDISure did.

SMITH...Mine Safety Board, Traffic -- that's partly the result of the pressure from the consumer movement and the labor movement. So Nixon was being a practical politician. He was responding to the people. People were demanding action by the government and so he took action. And that upset Powell. It upset a lot of business leaders. Powell put it down on paper. He said, business you are getting taken to the cleaners in Washington.

SMITHGet into the arena, organize, stop fighting among yourselves, pool your money, make a long term plan, get yourself going, take the high ground, identify your enemies, go after them aggressively the same way organized labor does. And believe it or not that's what they did. It's unbelievable.

NNAMDIWhen he wrote that memo, how many business lobbyists were there in Washington?

SMITHWell, what's fascinating is how few. There were only 175 companies that actually had offices in Washington, not just a lobby congress but even to talk to the administration about the regulations and laws that affected their businesses. Less than a decade later there were 2,425. There were 50,000 people working for corporate -- for trade associations. This is before Ronald Reagan took office.

SMITHNow we all tend to think everything happened after Reagan. This all happened before Reagan, okay? Nine-thousand registered corporate lobbyists, 8,000 corporate PR people, 130 corporate lobbyists in the late '70s for every single member of congress. Now I was running the New York Times Washington Bureau at that time. I could see some impact on some of the legislation that was passed, but I had no idea the movement that -- I had no idea that Powell's army had taken the field. And that's literally what had happened.

NNAMDIWhat has that army led us to?

SMITHIt changed the direction of policy. It led to deregulation. It led to the 401K plan. It led to changes in the corporate bankruptcy laws, which worked terribly against the interest of employees and trade unions. They blew the lid off interest rates, which set the stage for the housing subprime mortgage boom and bust. They did all kinds of things. They lowered taxes, they lowered the capital gains tax. This all happened while the Democrats were in charge in the late 1970s. The congress of '78 turns out to be the pivotal congress in our history in the last 50 years. And most of us don't even know that.

NNAMDIWhat did it do to the perspective of the CEO that you were so laudably talking about at the beginning of this broadcast, the CEOs who felt that everybody who had a stake in this ought to benefit?

SMITHWell, that happened kind of parallel, but it wasn't dependent on the political development. What was going on was there were economists saying, you know really the CEOs ought to focus on the shareholders. They really ought to be delivering the maximum return to shareholders. I mean, that -- you know, that was Milton Freedman the Chicago economist, free market economist and lots of others like it.

SMITHOne of his disciples, Mike Jensen, who was an associate professor at Harvard Business School said, well let's pay CEOs for their performance. Let's make them think like stockholders, so we'll pay them heavily in stock, which led to this incredible skyrocketing of CEO salaries. I mean, you've got people like Michael Eisner making $500 million a year. Charlie Wilson, who used to run General Motors, was the highest paid corporate executive in America in the '50s and '60s. He made $600,000 a year. If you translate that for inflation, that'd be $5 million today. He's a piker.

SMITHI mean, no self respecting CEO today would even accept a $5 million salary. I mean, he'd be running Home Depot or CVS or never mind IBM or General Electric or General Motors or something like that. So the pay has just gone crazy. But what's really happened is the middle class has gone nowhere. We saw it -- believe it or not, Kojo, we saw it in the New York Times yesterday.

NNAMDIYesterday morning, front page headline.

SMITHFront page headline. What did it say? Wall Street's going crazy. Today, believe it or not, I just heard it before I came on the air with you, the stock market has hit a record, highest it's ever been, right. Wall Street is going crazy, investors are going crazy. Meanwhile more than 24 million Americans are either unemployed or underemployed.

NNAMDIThe New York headline indicating that this recovery was not doing, it would appear, as much for the working man, so to speak, in America as it is doing for the Wall Street moguls.

SMITHWell, and corporate profits. Listen to this. And this is the story of the last 30 years captured in the last four years. The New York Times story said yesterday, corporate profits since 2008, the bottom of the recession, have risen 20 percent a year every year on average. At the same time the median household income has risen 1.4 percent a year. So corporate profits are going through the roof and the middle class is not sharing in it.

NNAMDIBut you have pointed out that we have weathered periods of great wealth held by a small few before. What's different this time?

SMITHWell, I don't think it's different. You know, we're headed for a collapse. If you go back to the 1880s when we had the Robert Burns and the railroad moguls and people like that, or John D. Rockefeller first made all his money, we had what was called the long depression. People have forgotten it, a couple of financial panics in 1893 and 1903. We had the roaring twenties, enormous wealth. We had the stock market crash, Black Friday of 1929. We had the long depression. We've had the great recession now. There are a lot of people out there who say we're going to have another rock.

SMITHI mean, part of the problem is economists will tell you, when you get the high end equality that we now have -- and Citi Group, by the way, Citi Group compared it to 16th century Spain, the inequalities we have in America today. When we have those high end equalities it's bad for growth. It's not just bad for the middle class. It's not just unfair. It's not smart economics. It's causing the slow recovery. You just heard it, 20 percent growth in profits, 1 percent growth in average income of ordinary middle class families.

NNAMDIHedrick Smith is a Pulitzer Prize-winning reporter, Emmy Award-winning producer and a bestselling author. We're discussing his latest book. It's called "Who Stole the American Dream?" I’d like to go to Nancy in Reston, Va. Nancy, you're on the air. Go ahead, please.

NANCYYes, thank you. And thank you so much for putting out this book. It sounds wonderful. And my comment is that it seems to me, certainly for some time, that we no longer live in a capitalist society, country, you know, based on free enterprise. When we have overrepresentation of a special interest to politicians, you know, for the funding then they're going to dictate the policy that's not going to be fair and equitable and in the best interest. It's no longer survival of the fittest. It's now subsidy to the highest contributors.

SMITHWell, if you think of it, think of Powell's army and the numbers that I rattled off to you, and you look at the policies over the last 30 or 40 years, tax rates on the top have come down until just this last January 1st, from 92 percent under Dwight Eisenhower, when we had a lot of growth, 70 percent under John F. Kennedy when he had a lot of growth, down to 35 percent under George W. Bush when he had terrible growth, and same thing with Barack Obama.

SMITHWhat's happened is -- and the minimum wage has gone up very slowly. The payroll tax which all ordinary workers have to pay has doubled, while the top tax rates were coming down. Policy has been tilted very much in favor of the rich, and of corporate America. You could say they've captured -- they've captured the government. So I think Nancy's right. That's what's happened. There's one thing politically, Kojo, we ought to take a look at, and that's gerrymandering.

SMITHIf you look at the last elections, the Democrats won the White House, they gained seats in the Senate, there were more people who voted for the democratic candidates for the House of Representatives, but the House wound up with the Republicans with a 33 vote majority. Now, that happened by and large because of the gerrymandering of congressional districts. The lines were drawn by the governors and legislatures that were elected in the 2010 elections right after the census. That's when we redraw the lines.

NNAMDIShould we have elected officials drawing political lines at all?

SMITHShould not have party people drawing the lines at all. It should be put in the hands of retired federal judges. By the way, that has happened in states like California, and when it's happened, you get much more contested elections. You get much more moderates voting. Gerrymandered districts mean you get extreme right wingers on one side and extreme left wingers on the other side, and they get to Washington, and you get all those deadlocks and the gridlocks we got. So politics is playing into this in lots of ways, Kojo.

NNAMDIGot to take a short break. Nancy, thank you very much your call. When we come back, we'll continue our conversation with Hedrick Smith. His latest book is called "Who Stole the American Dream?" If you'd like to join the conversation with Rick Smith, call us at 800-433-8850. What or who embodies the American dream for you? 800-433-8850. Do you think the American dream is still alive and well, or, well, has it had its day? You can also send us email to kojo@wamu.org. I'm Kojo Nnamdi.

NNAMDIWelcome back. Our guest is Hedrick Smith. He's a Pulitzer Prize-winning reporter, Emmy Award-winning producer, and best-selling author. His latest book is called "Who Stole the American Dream?" There's so much to talk about in this book. I want to you talk about the timeline that we see here in the appendix of this book. What were you trying to do with that, starting in 1950?

SMITHWell, it's interesting, Kojo. When I finished writing the book, my editor said, you know, people are going to need kind of a guide, a short abbreviated (word?) of this book. Why don't you do a timeline? And I said, well, I'm really talking about trends. I'm not talking about events. Normally timelines are this happened on December 6, 1966, and this happened on February 4, 1971. There are some events like that, but what I decided to do was to put it together so you could see the trends. What's happened to the minimum wage, what's happened to job offshoring?

SMITHBy the way, job offshoring, in the knowledge economy, is equally as bad as it is in the blue collar. People have been told go get yourself a computer degree. Go get yourself a master's degree. Go study STEM, science, technology, engineering, and mathematics. Those jobs are going overseas too. What happened was, I began to pull together, in this timeline, a lot of the information that's in the book. It all comes from the book, but it's compressed.

SMITHAnd in 10 pages, I read this thing. I put it together, and I read it -- went back and read it myself. I said this is dynamite. I had gone through an experience of discovery. I mean, I'm reporter who's been around...

NNAMDIAnd for those of us who read it, it is an experience in discovery.

SMITHI mean, I couldn't believe what I was learning. Six trillion dollars were lost by homeowners while the housing bubble was going up. The money was going from homeowners to the banks. The 401 (k) system was never set up as a retirement system for the country. It was set up as a profit-sharing things for a few companies. I mean, the taxes were much higher under Eisenhower and Kennedy, but growth was hire then and taxes are lower now, and growth has been worse now. There's just a whole lot of stuff you hear in the current debate that's way off the mark, but until you back and look in history, you don't realize it?

NNAMDIYou talk about how the 401 (k) idea emerged from the Powell Memorandum. But there is seemingly now, Rick, agreement on both sides of the aisle that the floundering of the middle class is a problem. Why doesn't there seem to be any momentum behind doing something about it, and what do you think it will take to spark action?

SMITHYou know, it's hard to tell. My friend Ernie Cortez, and maybe you know him as well as an organizer in Southwest Texas, New Mexico, Arizona, California, he says, you know, not only does power corrupt, but powerlessness also corrupts.

NNAMDII saw that in the book.

SMITHYou know, I mean, it's a great comment. It corrupts democracy at its core. If we don't believe we have power. If we believe Washington is run by special interests, which it is, if we believe lobbyists have too much power, which they do, then we have to do something about it. And what's really interesting to me, was when I went back and I looked at what the middle class movements did. Civil rights movement, women's movement, consumer movement, environmental movement, Washington responded.

SMITHRichard Nixon, who was no tree-hugging environmentalist, he set up the EPA, the Environmental Protection Agency. When I asked Bill Ruckelshaus, the first guy who ran it for Nixon, what did Nixon think about the environment, Ruckelshaus said to me, he never asked me -- in four years he never asked me one question about the environment. I said, so why did he do it? He said he was a practical politician. The people demanded action. That's the way government and democracy is supposed to work. So we have to get back to that frame of mind that Government is supposed to listen to us, and we have to get active in the middle between campaigns.

SMITHInteresting. This morning, I got a call from the American French Service Committee, and they said there's a disequilibrium, it's unfair, corporations are making too many profits, ordinary workers are not sharing in it, we are going to organize demonstrations all around the country about this. Will you join us? I said, I'm a journalist. I'm not supposed to be a protester. I've written about this. I agree with you. But -- so people are starting to do. There's an organization called Fair Elections, because we've got to do something about making elections fair. There's a Campaign for America's Future, there's Take Back the American Dream.

NNAMDIHey, and there's a 10-point program in this book.

SMITHActually, there is Hedrick's Most Handy Dandy 10-Point Program.

NNAMDI"Who Stole the American Dream?" Here is Mike in Severn, Md. Mike, you're on the air. Go ahead, please.

MIKEHi, good afternoon. You think that most people vote their self-interest or their pocketbook, but it doesn't seem that that's the case for a lot of middle class and working class people that listen to Fox News or the right wing, you know, perspective. It's almost like they bought into this notion that we have to have a race to the bottom. That, you know, they -- then they'll knock down unions, where a lot of middle class jobs get support. And then next they'll knock down government workers. And I'd just like to get your perspective on why that's the case.

SMITHIt's a real puzzle. It is a real puzzle. Part of it is, there -- some people value social issues and their religious issues more than they do their economic self interest. They're more concerned about gay marriage or school prayer or abortion and that kind of stuff, and I think whether or not you agree with it, you have to respect that if that's their values. But I think a lot of people are misled. It has repeated so many times that low taxes will lead to growth.

SMITHIt has been repeated so many times that government doesn't create jobs, which is wrong. Government does create jobs. The Defense Department creates jobs. Nobody argues about that. No difference...

NNAMDINo complaining about it right now.

SMITHNo. No -- that's right. And so there's no question that government creates jobs. Well, they can do it, but you could also do it on infrastructure. You could build highways, you can invest in research and development. Government does a lot -- does a lot of positive things. But people have bought into kind of the chivalrous sort of way America's supposed to work. And one of the things I'm trying to do in this book is to crack through and not necessarily argue one side or the other, but just simply lay out the facts, lay out what the track record is and let people see it, because I think people are misled very easily, and that's, I think, a lot of the reason why they vote against their own economic self interest. They're not thinking about it.

NNAMDIMike, thank you very much for your call. Right now we are in the middle of a heated debate over the phenomenon known as sequestration. You point out that our focus on the short term, on things like the sequester often means we're missing the long term big picture. As we debate this issue, what are we missing?

SMITHJobs and growth. Jobs and growth. Do you remember that historic election that seems to have occurred a century ago, back in 2012? Do you remember that election?

NNAMDIMm-hmm.

SMITHDo you remember what the main issue was?

NNAMDIJobs.

SMITHJobs and growth. If you watch the way Washington operates today, you would have no idea that there was an election that had been fought just four months ago about jobs -- five months ago on jobs and growth. It's insane. And we're contributing to that. We in the media, because we're so focused on what they're doing in Congress at this moment, and I have to say, part of that's the president's fault. The president won on jobs and growth. The president should be saying -- should have been saying since the day he got elected, I'm about jobs and growth, and I want to know what's the sequester going to do for jobs and growth?

SMITHWhat's immigration going to do for jobs and growth? What is every single one of these things going to do for jobs and growth, and keep our eye on the ball? But it's also partly our fault in the media. I mean, it's crazy. Jobs and growth long run is going to matter enormously in America. Do you know we have fewer and fewer kids who can afford to go to college. Not only is that a tragedy for those kids and their families, we are wasting millions of people's human talent. That's an investment in this country. We're not helping them. We're cutting the programs that would help those kids and their families be able to afford to go to college.

SMITHThat 's skills that our companies need. They say, hey, we don't have enough kids who are educated in science, math, engineering, and technology. Well, we're not giving a lot of kids the chance to get their because they're families can't afford it because tuition's going up and wages are staying flat.

NNAMDIThe name of the book is "Who Stole the American Dream?" We're talking with the author, Hedrick Smith. Onto Jamie in Fort Washington, Md. Jamie, you're on the air. Go ahead, please.

JAMIEHi. I'm a teacher, so I'm on my break, and I just wanted to call in and talk about the fact that I do see myself as a part of the middle class. Because of, you know, some of the help that I did received from the government, I was able to, you know, after two years of teaching, I was able to purchase a house and, you know, prior to that I was, you know, working in the mortgage industry and I was pretty much really poor. And so I made a transition, and through a lot of the government programs I was able to kind of move out of the poverty and, you know, being a graduate of Syracuse and not making any money to, you know, using the government programs that were available to me through, you know, being a teacher and, you know, coming to work for the public school system, you know.

SMITHAnd what does bother me is the fact that now with all the cuts, you know, how many other kids, well, you know, graduates such as myself, you know, what they're going to have to deal with.

NNAMDIWell, you raise two points that -- well, Hedrick Smith will address them himself.

SMITHYeah. I'm sorry, Kojo.

NNAMDINo. Just go ahead.

SMITHWell, no, she's talking about government programs. It's very interesting. In the book, I site a poll...

NNAMDIThat was my first question, yes.

SMITHThat's great. You got it. You're right on the ball, Kojo, always. Cornell University did a poll some years ago, in about 2007, 2008. I can't remember the exact time. But they asked people whether or not they benefitted from any government programs. Fifty-six percent said absolutely not, never. Okay? Then they began to question these people more closely, and asked them about their lives.

NNAMDITurns out ...

SMITHIt turned out 92 percent of the people had used at least one program, and the majority had benefitted from four or more programs on average. So part of -- I mean, this teacher is aware, you are aware of how you….

NNAMDIA graduate of Syracuse University.

SMITHRight. Just think about it. We built the middle class. One of the things that built the middle class back in the '40, '50s, and '60s was the GI bill. What did the GI bill do? It gave college education. It gave college tuition to millions of average American -- mostly guys, but people. And it boomed the growth of this country. Now we're going exactly the opposite direction. We're taking that opportunity away from people, and it's going to hurt the country. Not just them, it's going to hurt the country.

SMITHSo we need to invest in ourselves. Everybody invests. You invest in your education, you invest in your training, you invest in your house. You invest in all kinds of things. You invest in your kids' future if you can. That's smart. That's smart economics.

NNAMDIHere is Dianne in Laurel, Md. Dianne, we're running out of time. Please make your question or comment brief.

DIANNEThank you. My question is this. It's obviously still a class war. Donald Trump has said over and over that the rich make the rules. When is going to be to where the rich will share their secrets to everybody can get the hand up that they need to be where they are?

SMITHIt isn't a secret, it's power. It's power that starts with you. It starts with me. It starts with all of us. We've got to demand it. We've got -- the last six words in my book are "We the people must take action." And I was struck -- I wrote this book -- I wrote those words over a year ago, and President Obama, in his inaugural address said virtually the same thing. Now, I don't know what's happening now, but it really is up to us. We really have got to get engaged.

SMITHWe've got a tax system that's unfair. It encourages company to move jobs abroad because they pay lower taxes. They don't pay any taxes on the money they make abroad until they bring it back, and then they lobby Congress and they get a tax break. We don't have -- I just mentioned the college education for kids in middle class families that can't afford it. We've got transportation system that the U.S. Chamber of Commerce says costs us a trillion dollars in growth. We ought to be investing and building.

SMITHThe private sector's not going to build new ports or airports or highways or railroads. They didn't do it in the past. President Lincoln, President Teddy Roosevelt, President Dwight Eisenhower, all Republicans, got the Congress to help fund the Transcontinental Railroad, the inland waterways, the interstate highway system. That is a very American way to go, and at the moment we can't get there. We gotta demand that.

NNAMDIDespite the questionable future of the American dream, the country continues to attract waves of immigrants. Why do you think that is?

SMITHWell, you gotta think about where they are. You gotta think about, you know, where they're living, why are people coming from Mexico. Although, by the way, interestingly enough, it's begun to...

NNAMDIThat's declining.

SMITHIt's declining, and why? Because the Mexican economy is doing better and the American economy is in trouble. So people, if they're knowledgeable, they follow their knowledge. But a lot of these people are coming from places that are really terribly off, and they also don't know. They've got the image of America that may be 20 or 30 years out of date. What we need to do is to get America back up to date, and make it competitive and make it work for everybody.

NNAMDIHow we found ourselves where we are and what we need to do can all be found in Hedrick Smith's book. The book is called "Who Stole the American Dream?" Hedrick Smith is Pulitzer Prize-winning reporter, Emmy Award-winning producer, and best-selling author. Rick Smith, always a pleasure.

SMITHGreat to be with you, Kojo.

NNAMDIAnd thank you all for listening. I'm Kojo Nnamdi.