568: AMERICA, What Went Wrong? The Crisis Deepens, James B. Steele, Pulitzer Prize & George Polk Winner

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Welcome to the Holistic Survival show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary to survive and prosper? The Holistic Survival show is your family's insurance provider. Better Life. Jason will teach you to think independently, to understand threats and how to create the ultimate action plan. Sudden change or worst case scenario, you'll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host, Jason Hartman.

It's my pleasure to welcome James B. Steele. He is one of the most fam economic investigative journalist of all time. He's a two time Pulitzer Prize winner, two National Magazine Awards and five George Polk awards while at the Philadelphia Inquirer, Time and Vanity Fair. Multiple number one New York Times bestsellers including the Betrayal of the American Dream, Howard Hughes, His Life and Madness and his newest book, what Went Wrong. The crisis deepens. James, welcome. How are you?

Great to be with you. I'm fine.

It's good to have you on, you know, off air a little bit. Before we started, we were talking about how the middle class has just been decimated over the past couple of decades. Until 2017, Americans, typical middle class Americans, hadn't had a real dollar pay increase for four decades. What is going on? Is this by design? If so, whose design? How can it be?

There's a range of things that have brought this about, but the principal things are Washington and frankly, Wall Street. It has been in the interest of both to put various programs in place which have been very detrimental to the middle class. Part of it has been deregulation. A lot of it was deregulation. Various industries, airline trucking, certain financial industries, created all kinds of problems with homeownership as well as debt and so forth. That's one. The tax system in our mind is the single greatest driver of income inequality in this country. Most of the tax benefits that have flowed in the last few years have gone to really upper income people or corporations. Now, corporations would love not to pay any taxes at all, but the numbers are staggering. You go back just a few decades, companies paid roughly 40% of the total income tax bill today. This year it's going to be less than 10%. Now that's all pre Covid we're talking about. I mean, Covid has Of course, changed everything in this whole equation. But that shrinkage is shifted everything onto the backs of individuals, both middle class and certainly upper income individuals who pay a sizable part of the low income taxes.

Is a lot of that the way the corporations are getting away with paying a lot less? Is it because they're, they're doing all these offshore schemes like the double Irish twist, and they've got all this money offshore? It's like it used to be that a corporation of a certain country or a baseball team of a certain city was like the hometown team. Now these multinationals just go from one jurisdiction to another, figuring out how to screw every government and not pay anything. It's unbelievable. And at the same time, the people who run those corporations are spouting these leftist ideas that we need more taxes. But it's just incoherent. I don't get it.

Well, I think you're right about the hometown image is a perfect one because I think a lot of corporations were attached to whatever town they were in, even though they might have been national in scope and all that's been out the window. And half the corporations, some of them, are not even domestically owned anymore, and which most people don't even realize in that case. So that's a big part of it. A lot of it has been. Certainly the global economy has been a huge factor in this and a lot of the earnings abroad.

When you say the global economy, do you mean trade deals that have offshored American jobs?

That's part of it. And then other parts of it are just the companies who are just basically selling abroad as well. So it's really both sides of the equation. I mean, the 2017 tax bill had the repatriation of the funds that were sitting in big offshore accounts that all kinds of multinational corporations like Apple, Google, others had offshore and also manufacturing companies as well, for a very low tax rate. They were allowed to bring this money, a certain percentage of it, back to the U.S. but the federal Reserve bank of New York studied this, among others. I don't think of the Federal Reserve bank of New York as exactly a left think tank. Right. They studied this and they concluded that most of the money came back, went into stock buybacks, dividends for those corporations. In other words, the money isn't plowed back in to the real operation of the company. It's flowed through a very small number of people who benefited from that money coming back. So they got a lower tax rate to bring it back and they didn't do anything to really help with that. Another One of the problems that we see because money isn't being invested back into the country as a whole, only the various elite, only the very wealthy, not always by design, but by the way it works out in practice, they're getting the benefit from this and that's not going to. I don't see how that can continue over a period of time because the middle classes increasingly will get poorer and poorer. I mean, look at median family income. When we did the first edition of this book many years ago, median family income was around 34,000. If it had kept pace, this was 1992. And if it kept pace with just the cost of living in that time, median family income today would be around 68, 69,000.

Yeah. And it's only about 54, 56,000. Right?

Well it's 61, but it's based on the 2017 fig.

But another way that's really much worse than it sounds is that those inflation numbers are understated. I mean we all know that the government is manipulating the index to make it look better than it is.

Right.

If those were the real inflation numbers, I would just in my head math say that that median income would need to be about 90, $95,000 today to equal what it was in the early 90s. But also notice that in the early 90s when you wrote the original book.

The pay increases in real dollars stopped in 1977.

That's right.

It's dramatically worse. And then to add insult to injury, and you can comment on this, the pay of the C level executives, the boards of directors, became just dramatically out of sync with regular workers. And I'm not talking minimum wage workers even, I'm just talking middle management people. It's like there's this giant separation.

You're absolutely right. In fact, it's one of the most shocking numbers I think in this new book of ours. Peter Drucker studied this whole issue CEO many years ago and he thought the optimum ratio would have been 20 to 1 for.

And now it's like 300 to 1.

400 to 1 person on the, on the factory floor or the, or even mid level manager would get a dollar twenty to one. When we did the first edition of this book back in the early 1990s, it was then up to 89 to 1. So almost 4. Some estimates now have it over 300.

Oh yeah, I know, I know, it's like 300.

It's just cycled way beyond what even we thought was going to happen. When we wrote this book, people attacked us at the Time and said, well, you're. You're against success, you're against capitalism. Against capitalism, right.

I've heard those arguments. I've even made those arguments myself. But now I realized that I was wrong because we need a good middle class. That's what's one of the things that has made this country great, is a strong middle class. Otherwise, we have, guess what? Civil unrest. We have a lot of unhappy people, and they're going to burn cars and take over downtown Seattle, sadly. But how did it happen? Okay, so trade agreements, understating inflation, Wall street monopolies, the financialization of the economy. I mean, take us into that in more depth.

And it was a theme that began to develop really in the 70s by a lot of the very conservative think tanks that began to seep into the body politic. That had to do with deregulation, the idea that government is filled with red tape and it's cumbersome. It's not efficient for business to operate this way. So there are a whole range of things like that. And it's sort of feeding its way into the tax system. The fewer taxes, it means there's more money to invest. But yet when they started crafting these bills, most of the breaks went to people at the top to therefore make those investments and so forth. So it's a whole series of things slowly over a period of time. The same time, things like Social Security are not really significantly increased the way they should be. I mean, half the retirees basically depend on Social Security. That is their only retirement benefit. And Social Security has essentially been pretty much flat for a long time now. Every time there's an increase, it's offset by increases in Medicare, which comes out of everybody's Social Security check as well. So it's a range of things like that, but it was a mindset. Government's evil, government's a problem. Let's let the free market determine everything. I think the free market has been wonderful for America. It has given us a variety of wonderful things, but it cannot solve this problem. And I think what we're in right now is perfect proof it can't solve this problem. The virus, I think as much as anything else, exposed just how vulnerable we are in this country. I mean, the vast bulk of people in the middle class working classes. Do you remember right after Covid struck and businesses began to lay off workers? Do you remember those photos that you saw on TV of lines of cars waiting to get boxes of these weren't people who were rounded up under viaducts as homeless people? Middle Class people. I mean, people are just hanging on. I mean, the other great study of the New York Fed was the one that's a couple of years ago that said 47 or 48% of the people are faced with an emergency $400. They don't have the cash, they don't have money. I mean, what does that tell you about where we are?

I don't think too many people would deny that there's a problem. So maybe we don't need to spend that much more time on it. But I totally agree there's a problem. Absolutely. So let's just go back to a couple things you mentioned. You talked about how the benefits accrued to a very small number of people and companies, and then the argument being that, well, they'll invest that money. And that argument does have at least conceptual validity because investment is wealth formation. And the old saying, you know, money doesn't sleep. Or maybe it does, I don't know. I don't think it does. Because if rich people have money, they can't just do nothing with the money. They're going to invest it. And that investment is going to, and I hate to say this, but trickle down.

To somebody. It's going to. It's going to build more houses, it's going to build more factories, create more jobs. I mean, isn't that true?

It is true that obviously if you invest it in that particular way, as opposed to just perhaps just more dividends or higher pay for your CEO or buying back your stock at the company. You're absolutely right. I mean, I think that's why the 2017 tax bill, which gave these big corporations that had all this money offshore a break. I mean, I wish that money coming back had been policed, that it did exactly what you're talking about, really invested in the U.S. instead, it was invested in stock buybacks, bigger dividends, things of that sort, rather than maybe building another plant, launching another division, something like that, not just buying an existing company. So I agree with you, and I think that's one of the things that you do see about American capitalism. It's obviously been very aggressive and very successful in a whole range of reasons. I think all we're saying in the book is that it's not enough. That alone is not enough. We need a more active government to do the things it can do. And that's what the virus exposed. I mean, the free market was totally unable to handle this, and understandably so. It's a national problem that crosses state lines, global corporate lines, and globally as well. Absolutely. But at least in case of our own sense, the US we didn't have something in place or anything close to being in place to think about a way to handle it. So there is a role for the government, not just for that, but think about the government dealing with the middle class on that same basis. That's what I would like to see. Think of those issues that are really harming the middle class. Health care is a big one. I mean that could be solved. That could take a lot of those expenses off.

How would it be solved?

Well, Don and I have advocated for years a single payer system. That's probably not on the radar even if the Democrats win Congress coming up.

But I mean, you are aware of all the criticisms of those systems in Canada, the U.K. i mean, you know, you die waiting in line, you know, no innovation.

The Canadian criticisms are way, way off base. And the reason I know this in part, my sister's lived in Canada for 40 years, so I actually know what goes on up there. You have in Canada you wait if you need a hip replacement, but if you're seriously ill, you do not wait. Canada and actually most of the public opinion polls in Canada show Canadians are more. That system has a higher approval rate than our own. So that alone tells you something, that the UK is a problem. But look at the single payer systems in France and Germany. Very high level of medicine, very high level of care. So it can be done.

To be fair though, France and Germany and Europe in general is a disaster. And Canada doesn't have the type of immigration, they have a much smaller population. You know, there's so many differences.

No, there are differences in all of these places, but I don't. And Germany is in certainly a downturn now. But don't ever underestimate the Germans, what they're going to do there and France I think is consistently people underestimate in some ways the internal strength of the, of much of that country, certainly the healthcare system. If you have any doctor friends who know French doctors, they will tell you the French medical system is a very high level, very, very high quality. But anyway, back to the main point, the single payer could be in many different ways. The uk they actually pay the doctors. You don't have to do it that way. It could be a whole range of other things. The Canadians who are criticized, you can go to any doctor you want in Canada, you can't do that in the US today, depending on what your plan is. So there's mixes and matches. If you're all over the Place on.

The healthcare thing, there are just two things we could do that would just be simple first steps. Number one, and that's what Trump has been working on, is make the pricing transparent. Like, how in the world did we get to this stupid system where the patient is detached from the cost of everything. In no other area of life does it work that way. When I take my dog to the vet, I evaluate treatment based on knowing the cost and I can call another vet and chop, you know, you get the insurance in there this other party and it's like, you know, I go to the doctor and it's like, run every test you want. I don't care, I'm not paying for it. It's just a silly system. And then let the insurance companies sell across state lines to increase competition.

I don't have any problem with that at all. And in fact, book that Don and I wrote about health care 15 years ago, talked about the oddity if you were standing in a line to buy groceries, if you had a box of cereal that was $2, why did the guy behind you that same box, why is it $5?

It's like airline tickets.

And so, you know, there's no doubt there's tons of things that could be done, but I think one of the most important things would be to figure out a way to get these costs down for middle class people who actually even have insurance, let alone provide it for the ones who don't have insurance. Because we do spend more, as you know, so well, more than anybody else in the world. So healthcare is one, obviously, jobs are another. I think student loans are an area that is just crying out, we're never going to forgive all the student loans.

It's a total scam. I mean, the way we have indebted these young people, and older people too, but especially Young, to $1.5 trillion in non dischargeable student debt. That's a crime, that it's a criminal activity. All those companies that have done those student loans should be indicted. It's ridiculous. But, you know, you have a fascinating table of contents and you know, there's so much to talk about here and time is limited, but you talk about the casualties of the new economic order, downward mobility. You talk about the paper jobs and, you know, $500 an hour bankruptcy lawyers, the global money men who are beyond the law. Who are the global money men?

By the way, this was one in the earlier edition. This was the late Mark Rich, who made a lot of money on oil trading and also owned a steel plant in West Virginia where he basically it was a year and a half strike that just about bankrupted the town and half the workers there. One of the few labor victories at the time where eventually Rich threw in the sponge and said, okay, you guys win and I'll sell and get out here. But he was one. But there, there are of course many. And all you have to do is go to the Cayman Islands or any of those places down there and you'll see plenty of them on the mailboxes as well.

Absolutely. So it's the offshore games, all the tax games and those types of things. I mean, has the American dream ended or is there some hope here?

I think there's always hope if we do the right thing. And I think it would not be easy and it cannot be done in a year or two, but it could be done. I mean if we set a plan to figure out a way, what are the kinds of social safety net we can provide for the middle class. It doesn't have to be a huge thing. It's something that makes sure when something like this happens, we don't have people lined up for three miles getting boxes of food. There's got to be another way to do that particular kind of thing. I think the other thing which is maybe at the top of the list, right alongside health care, is retirement. Retirement is a huge, unbelievable freight train catastrophe coming down the tracks right now. I mean, the Motley fool just in the last day or two hit a piece on the Gen X's what shaped there. And everybody sort of knew the groups after them were in trouble. The death of pensions and the shifting over to the self directed 401ks and 403s, all of this has been more convenient for companies, but it's going to be a disaster for workers down the line because those funds, and there's nothing wrong with those funds, but they're just not going to produce the earnings. They're not going to produce the return that people need in the middle class like pensions did of old. The other thing that we need to do is to increase Social Security for those people that need it. 50% of Americans, Social Security is their principal retirement and their only retirement. There's many things that could be done, can't all be done in one year. But something other than just lip service to the fact that the middle class needs help.

Jim, all those things, it would be great, but they all cost money and we are running huge deficits, huge debt with, with coronavirus, it got much worse. Doesn't money printing cause problems? I Mean, can you just do that? And these things have consequences, right?

You can't do it all at once. But I think we're going to have to figure out one or two things to do. I think we need to invest in a way that creates jobs. I mean, the simple thing that Don I've been talking about for years is infrastructure. And a lot of people, Democrats and Republicans both talk about that. That's certainly one. Not just roads and bridges, but other kinds of things. You know, high speed telecommunications and a whole range of things. Maybe parts of the green energy concept. But there's ways to do things. But you have to make some targets and stick with them. Can't do it all in one year. But we need to at least start thinking about this other than just wringing our hands about it.

So if the government is going to give people money, I mean, I couldn't agree with you that the New Deal concept was okay, put people to work. That just doesn't seem to happen anymore. The government just gives out money and says, stay home and become a lazy loser. That's basically what the plan has been the last five decades.

Well, I think that's been true. We've seen this year after the virus in particular. But that's the kind of thing where I think if we had national plans for something like this and thought about it, we might be able to respond to that better, rather than just printing these checks now. And I mean, people are getting the money now. It's good because they're in bad shape. But that's not the solution. The solution is trying to figure out what is the foundation that makes the middle class viable again. What are those jobs and what are those benefits?

You know, I mean, it's sort of easy to answer that. It's jobs, onshore jobs. It's higher paying, higher skilled jobs and having a newfound respect for vocational type jobs.

Absolutely.

What's wrong with being a plumber? You know, I don't want to do the job, but there are people out there that want to do it. And we have just destroyed so many of these jobs.

You're right.

And you know, frankly, that's the Trump agenda. Love them or hate them, but that has been part of his plan to give those jobs a new level of respect. Why do people need to go to a university, get a degree in feminist studies that has no job market, and be $70,000 in debt to a silly student loan?

Absolutely. Couldn't agree with you more on that.

Not everybody needs to go to college.

No, no. And a lot of People have been making that point for a long, long time. And I think, and that's a very valid one. And I think his, his focus on trade has been a positive thing in the sense, I mean, Don, I've been writing about trade for years and by.

The way, you keep referring to Don, that's your co author.

And we were writing about free trade and some of the disasters it created years ago. And my goodness, did we get hammered. The Wall Street Journal's editorial page attacked us. They're crazy free traders. I mean there's any restriction on free trade and their book is like heresy, you just can't do that anyway. And our only point was you can't have this unrestricted as one sided. And we've been writing that for years and years. So that part of his agenda I think has been positive. I think the way he's gone about it though has been not positive.

And what do you mean by that? Like picking fights with China, These war of words?

I think if you're going to pick a fight with China, the Europeans are as upset with China as we are. I mean you all get together but instead he's been a total go it alone on everything. And I think that's one where if you were working together with others, you might really get some results. But Chinese are figuring we'll just outlast this guy.

And it sounds like you would be critical of Clinton's free trade policies, I'm guessing, right?

Well, one thing people forget about Clinton, and you saw this in the Trump, Hillary Clinton debates. I mean, what people forget is that NAFTA was, was a fait accompli when Bill Clinton took office. NAFTA was negotiated by George H.W. bush. People get that. It wasn't Bill Clinton, it was done deal. And I'm not unsympathetic to the problems of a president at that point saying, well, I'm not going to sign this. You'd have had not just the Wall Street Journal but every other damn editorial page on your neck.

Well, Trump did it. You know, he got out of the.

TPP and he endured some criticism for that, partly because. But anyway, all I'm saying is I think Clinton in that sense was a different era and didn't really have much choice at that point. But look at the new NAFTA that Trump has. I mean, that's usmc, it's NAFTA Lite.

So it's better than the old one, but not that much better.

I don't think it's much better than the old one. One of the breakthroughs in it is that we can now sell wine in British Columbia state stores. That's my favorite.

There's always some special interest in there.

So I'm not so sure that's going to be a big job generator in the US Anyway.

You never know. You never know.

And most of Mexico is related to the auto industry and the auto workers, they don't see any benefits really in this thing to amount to anything. So anyway, it's at most a draw. A lot of sound and fury signifying, I think very little ultimately. But that's neither here nor there at this point.

These things are definitely complicated. Hey, as you wrap up, just give us any prediction on the future inflation, deflation, stagflation. I kind of think we're moving into a stagflationary period. Reminds me of the misery index and Jimmy Carter era coming up. But what do you think?

I'm not an economist on issues of deflation and inflation and in fact I'm not so sure many economists are very attuned to this one anymore because everybody has been worrying about inflation for years and it's just never happened.

I mean it has happened a little bit to be a little bit.

It's a tiny. But when you think of what is.

Not like some say, you know, hyperinflation hasn't happened.

I think we're going to be obviously in a very, very weakened condition for a long time. There's just no way you come out of this virus robustly, despite the silliness that's going on in the stock market right now. I mean this has no relationship to what is really happening in the economy. It just shows you how people grab on the slightest bit of good news and say, wow, let's go for that. But I think the underlying problems are still there and it's going to take us a long time to work our way through this. The other shifts are like you mentioned, I think commercial real estate or maybe I'm imagining this, but I mean what's going to happen there?

It's a disaster. I mean there are going to be so many commercial mortgage backed securities defaults. It's going to be staggering.

Exactly. And that there's no way I can see doing much about that because it's, this is what's going to happen.

It's just a fundamental change. Look at, we do have a housing shortage, there's no question about that. No one would disagree with that. And you know, you complained about deregulation, but maybe a little less regulation there would actually help People have some housing. And if we could rezone some of these office and retail properties that aren't going to be used as office and retail properties anymore and turn them into housing at a reasonable price without a bunch of complex codes and city planning and hiring a zillion lawyers and environmental impact, people just let people live somewhere. I mean, my God, the homeless problem is insane. The cost of housing is absolutely crazy. That's an area where maybe we need some deregulation.

Well, and a lot of that is local regulation as much as national. And I'm not for one minute saying that there are some things that can be deregulated here and there. I mean, I think we've all seen examples of that. I'm just saying, I think in the case of some of those industries, we went a little bit too far. And you just look at trucking. Trucking continues to be a catastrophe now, 40 years after it's deregulated. I mean, the hundreds of thousands, basically the number of companies that went in and out of that industry was regulated. The ICC was the principal regulator. And once those were relaxed, everybody was a trucking company. So literally in the last four years, there have been thousands of these companies going. It's really in many cases the case of excessive competition. It's like, if you've ever read any of the biographies of the first John Rockefeller, his whole goal was to reduce competition. Competition was constantly producing lower returns or no returns for everybody in the business. So what trucking has been, I mean, look at all the big companies. Most of them have gone out of business the last few years. And the ones that survive maybe survive for a little longer and then they go out of business. Just chronic chaos, chronically trying to retrain drivers. What the drivers make now is a pittance compared to what they made like 30, 40 years ago, adjusted for inflation.

Well, people could argue the same thing about airlines, but the other side of that is that it's a lot cheaper to FL fly. And I'm, you know, we'll go pre Covid on this. I mean, what's happened now, but it's.

Come out of the hides of the people who work for those industries.

Sure, but the consumer can go places just like deregulation and trade. You can buy cheap stuff on Amazon and at Walmart, but that's. You're not gonna have a job.

And that's always the trade off. The way you figure out how much of this you can live with, how much you can't. Right, so we get back to that.

Okay, fair enough. Jim, wrap it up for us and give out your website if you would.

The website is Barlett and Steel. B A R L E T T and Steel. Most people want to put a T in Don's name, call him Bartlett. But it's Barlett that has this book and of course any of the others. But this book is just out and it's really a clarion call in my book to saying we've got a tremendous crisis here that is worsening, intensifying, and we're going to have to figure out a way to get on it. The book was essentially written before the virus, but the virus in some ways has exposed the need to think about these things more than ever in my book.

It has definitely accelerated that. Jim Steele, thank you so much for joining us.

Great to be with you, Jason.

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